Drax Group plc (DRX) Earnings Call Transcript & Summary

So welcome, everyone to the Drax Group Capital Markets Day 2023 version. Nice to see you all in person. I'm Will Gardiner, I'm the CEO of Drax and I will be kicking off today to talk about our strategy. I'll be followed by Jason Shipstone, our Chief Innovation Officer, who's going to give you more details on what we're doing on global BECCS followed by Dr. Alan Knight, who is our Chief Sustainability Officer, who will talk about the importance of sustainability and how we practice it. And then Andy Skelton, our Chief Financial Officer, will finish off to run you through some of the numbers, which is probably what you're all here for. So I'll kick off with our purpose, which I think you're all probably familiar with, which is to enable a zero carbon, lower-cost energy future. You're also, I'm sure, familiar with our ambition, which is to become a carbon-negative company by 2030. But I've added into this slide, a bit of a mention of our people who are obviously critical to the success of this. And we've started to sort of develop a theme in our company where we want our people to be valued members of a worthwhile -- sorry, on a winning team with a worthwhile mission. And that's absolutely central to who we are because at the end of the day, our purpose is not only what we intend to do externally, but extends very much to the way we interact with ourselves within the company and how we treat each other. And so that's a key theme for us, right? Underpinning our purpose then is our strategy. And again, you're familiar with the 3 pillars of it: to become a global leader in carbon removals, to be a global leader in sustainable wood pellets, and to be a U.K. leader in dispatchable renewable power. So the one extra point I wanted to make on this slide is we spend a lot of time talking about sort of how we do sustainability and how we are confident that the way we operate the business is done sustainably. But I think it's also important, I think, to point out that what we are doing is fundamentally about sustainability. And one way to put it would be that over the last 20 years, the challenge for Drax has been to reduce emissions while continuing to grow the company. And we've done that. We've reduced our Scope 1 emissions by -- generation emissions from over 20 million tons to essentially nothing. So we're the largest decarbonization project in Western Europe. But we're now building a business model that goes one step further by creating carbon removals, using BECCS, we will be actually growing our contribution to fighting climate change as we grow our company. And the faster we grow our company, the more carbon we will remove from the atmosphere, the more value we will create and the more positive the impact we will have on people, nature and the climate. For us to deliver for you, our shareholders and for all our stakeholders, I believe that 4 things have to be true. And I believe that those 4 things are true, right? First of all, that we have a business model that aligns shareholder returns with positive outcomes for people, nature and the climate, as I've just described; secondly, that we have an asset base that is strategic, but it's also aligned with climate solutions and Net Zero. So our dispatchable renewable power in the U.K. at the Drax Power Station and Cruachan is absolutely critical to the system and to security of supply in the U.K. Our 5 million tonnes of pellet capacity growing to 8 million tonnes has, I believe, increasing strategic value as biomass becomes recognized as an important and increasingly important commodity and enabling, again, the journey to net zero as markets for BECCS and for sustainable aviation fuels and other uses for that biomass continue to grow. And thirdly, we have a plan to deliver low-cost differentiated carbon removals, which I believe will be -- has the potential to be a $1 trillion-plus market. So that's the second thing, a strategic asset base. The third thing is we need to deliver financial performance, right? And I think we've proven we can do that. We generate significant amounts of cash and have been growing that contribution over the last 7 years. And the fourth point, which is, again, I think -- most of the focus of the discussion today is we have great opportunities to reinvest that capital. And we'll talk through a lot of those. I'll start off on that in a minute. But importantly, we will be disciplined in how we do that. And Andy will spend some time covering that point. So just quickly to talk a little bit about our asset base in the U.K. Our assets are critical to the U.K. system now. And I believe, well into the future. Today, we're the largest single source of renewable power in the U.K. and a major source of flexibility. And the transition to net zero will require more electricity and a lot more renewables. So the top chart there shows that electrification of heating and transport will mean a significant increase in demand for electricity. The second chart shows that much of that will come from wind. But of course, this will drive volatility and require even more flexibility at a time when traditional sources of flexibility are declining. This is driving up the costs required to balance the system, so-called BSUoS, which you can see in the third chart, which is fundamentally a driver of value for flexible generators like Drax. And there's been a 500% increase in the cost of balancing the system over the last 5 years, a trend which we expect to continue. If I turn to our pellet business, we have an attractive and strategic set of pellet assets, right? As I mentioned, biomass, I believe, is going to be an increasingly important commodity down the road to net zero. We expect the demand for biomass to double over the rest of this decade, again, as markets for BECCS and sustainable aviation fuels or SAF come online. And that's absolutely starting to happen. You all would have seen, and I'll talk a bit more about it in a minute, the Ørsted deal that was announced last week with Microsoft in Denmark for kicking off the BECCS project there. So the demand for these commodities is going to be increasingly attractive, right? And we have what I would call a differentiated model. We start with 17 pellet plants, operating across 4 deepwater ports. And then going across the value chain through logistics, through power generation and power sales and trading as well as pellet sales. We've been doing this for more than 20 years now, which means we have a -- I'd say, a unique combination of knowledge about how to make sustainable pellets, how to do that sustainably, how to manage the logistics, which is quite a complicated effort and then how to optimize across the multiple markets through which we can monetize those assets. And because of our -- again, that integrated model, we're protected from swings in value across those markets. And we, I think, do a pretty good job of optimizing your cost now. We've invested and grown our earnings base from one power station and 2 pellet plants in 2017 to 4 power stations and 17 pellet plants today. Our earnings have increased significantly since 2017 when they were about GBP 200 million of EBITDA to greater than GBP 700 million last year, and the consensus for this year is now in excess of GBP 1.1 billion. And that earnings growth has been a strong underpin for dividend growth of 11% per year. So those are the first 3 points. And the fourth point, which again, we'll spend much of our time on today is what are the opportunities that we have to invest. So I believe we have an attractive set of opportunities with attractive returns above our cost of capital in some cases, significantly so, but again, are aligned with positive people, nature and climate outcomes. So in the world of carbon removals, we have an ambition to do more than 20 million tons of carbon removals via BECCS, and we're targeting 14 million tons by 2030. And Jason will take you through a lot more detail on that in a moment. In terms of pellets, we've had a target to increase our capacity to 8 million tonnes by 2030. I will reconfirm that target today. We're already making good progress and have a couple of significant projects currently underway, right? And again, we see attractive opportunities to sell those pellets in multiple markets by 2030. And finally, in the world of dispatchable renewable power, our hydro assets are performing extremely well and have done since we acquired them in 2018. We are -- sorry, we owned about GBP 170 million of EBITDA last year and expect to do something similar this year, which demonstrates the investment case for those assets. We have a very interesting project to effectively double the size of Cruachan, adding about 600 megawatts, which is a GBP 500 million project, and we're targeting operations beginning in 2030. Finally, while those assets I've just described are all part of our core business, we also have the 3 open cycle gas turbine projects, which we are currently developing, which are noncore, right? We have about -- we're developing about 900 megawatts of capacity, and they will start to come online next year. And actually, what we've done, we've actually backcast what those assets would have earned during 2021 and 2022. And they would have earned in excess of GBP 150 million across those 2 years. So again, we think they're quite an attractive opportunity. And finally, again, I want to reiterate that we will be disciplined in how we allocate our capital. And we'll do that on the back of our capital allocation policy, which I think you all again know well, which is to: first, maintain our strong credit rating; secondly, to invest in our core business; third, to pay a sustainable and growing dividend. And since 2017, we've paid more than GBP 400 million in ordinary dividends with a growth rate of, on average, more than 11% a year. We've returned an additional GBP 50 million through a buyback in 2017, '18. And there's another GBP 150 million buyback currently underway. So with that by way of introduction, I really want to sort of emphasize what I think we have is both a strong current operating business and significant opportunities. I'm going to spend the rest of my time primarily talking about the BECCS opportunity. I'll start -- just to provide a little bit of the backdrop, and I won't -- you have these slides available, and I think they're useful to go through, but I will just sort of rattle through them relatively quickly. But there's -- more than 190 countries have confirmed their commitment to trying to achieve a 1.5 degrees pathway to avoid the significant additional or disproportionate impacts of a 2 degrees world, right? 0.5% clearly looks increasingly challenging given the news from last week that the odds are now better than 50-50 that we might hit 1.5 degrees in the next 5 years. But for me, that means 2 things. That means we need to continue to do more. And that means we need to redouble your efforts, not the reverse. And it also means that the risk of overshoot is increasingly growing, right? And that overshoot is something again that carbon removal can play a significant role in helping to tackle. The scientific consensus behind the need for carbon removals is also growing. You can see a series of different organizations there who've got carbon removal as part of their pathways. And again, while the challenge is increasing, the clear need for carbon removals to enable us to hit net zero is clear. Governments are lining up behind that scientific consensus to provide support, right? So the -- whether it's the IRA or the IRA in the U.S., whether it's the U.K.'s CCS commitments that they continue to firm up and took the next step at the Green Day, there's more stuff happening in Canada. There's more happening across the EU, as I mentioned about in Denmark. There's a lot of things happening across the globe in support of both BECCS, but also more broadly in terms of carbon removal. So the -- again, turning more specifically to sort of some of the numbers here in terms of carbon removals, the IPCC, again, very much committed to carbon removals. And they've given some numbers for what they think might be needed. And you can see 3 different types of technologies that are on this page. First one, direct air capture; middle one sort of climates, natural climate solutions; and the third one, BECCS. And you can see that they're talking about between GBP 0.5 billion and GBP 9 billion depending on the various different IPCC scenarios of BECCS that they believe will be needed in order to hit net zero. And if I zoom in on a little bit more specifically where we are today, first point I wanted to make -- again, I'll spend a little time on this here is that BECCS is happening now, right? So again, that Ørsted deal announced last week, effectively, they were awarded a contract by the Danish government to support 300 tons of BECCS per year, long-term deal. They've also sold the CDRs or they may have a commitment to sell the carbon dioxide removal certificate or CDRs to Microsoft, 250,000 tons per year of those for 11 years, right? And that sort of type of structure, we're effectively presell some of the CDRs, get some government support. In our case, we'll sell some power is exactly how we expect to do things, right? So I think that's a very significant deal. It's effectively the first sort of scale, I would say, CDR deal done, although some are quite a bit smaller than what we're planning to do, but a very significant event in the development of the CDR and the BECCS market globally, right? But there are other deals happening, Stockholm actually trying to do this, Fortum's trying to do it, RWE's trying to do it. There's lots of other people now working on live BECCS projects. So the second point is what you see more specifically on this slide is what we need to do by 2030. And I really want to highlight the mismatch between the supply and the demand for BECCS, right? So the demand as sort of defined -- or what I'm using for demand here, what the IPCC says is needed by 2030 in terms of millions of tons of carbon removed using BECCS by 2030. And that bar on the left is 80 million tonnes, right? Now so far, the world has announced projects to do about 20 million tons, right, by 2030, which obviously is a long way short, right? Now a little bit worrying because we're -- in terms of the life cycle of these projects, we're getting close to the time when these projects will need to start. But I would say, we're excited about the 14 million tons that we're talking about doing today. And we could also do more. I mean -- and the more sort of government support, the more support we get from the voluntary carbon markets, the more we can do. So I guess a simple point, I think there's a huge opportunity and a huge need for the BECCS projects upon which we're now embarking. So part of this sort of solution for the whole BECCS challenge, part of what's going to support the development of the CDR market is the voluntary market. And I want to talk a little bit about how we think sort of long-term pricing is going to go in the carbon markets, right? So the first point I would make is that most carbon credits today, the vast, vast majority are based on natural climate solutions. So reforestation, a forestation, deferred harvesting, those types of things, right? And those prices tend to be sort of plus or minus sort of $10 range very broadly, right? And I mentioned that because what we're trying to do with BECCS is fundamentally different. It's a permanent engineered removal solution, right? So fundamentally, we're storing CO2 permanently underground for 1,000-plus years, right? So it's permanent. It's going to have -- it has to be additional. So you have to prove the way you're doing would not have happened, for example, without the voluntary carbon markets or without the CDRs that we will be selling. They need to be sort of certified, they need to be sustainable. So the whole process upon which we will sort of validate the value of the CDRs will have significant sort of checks and balances and certification around it, right? So that's the first key point I wanted to make, right? There are not many of these deals in the market today. Unfortunately, I can't give you a number for that Microsoft-Orsted deal that might come out some people, someone might know, but it might be out there at some point soon. But the numbers are on this page are numbers that actually are visible publicly, right? So direct air capture, which has got lots of momentum in the U.S., for example, lots of support from the IRA. And the prices that are visible there, averaging $1,000 a ton, right? You can see a couple of other different forms of sort of engineered solutions there, permanent weathering, et cetera, those types of things, again, sort of around the $300 million mark, I would say. So we've announced several MOUs to this point. Larger scale won 2 million tons without a price, a couple of smaller ones at around $300 million right? So I guess what I would say, 2 things: one is that it's very early days in this market, right? We have not delivered a single CDR yet, so I would sort of take those numbers with a significant pinch of salt. But I do think that the long-term pricing dynamics here for BECCS are quite positive, right, and quite robust. I mean it starts from that mismatch between supply and demand, which I mentioned before, continues on to the multiple commitments that corporates have made to achieving net zero targets. So there's a robust corporate demand, in my view, for CDRs. And also look at the technologies that we're competing with, right? Those DAC price points are based on the cost of that technology today. Now there's expectations that it will come down, but our cost point is well below that already, right? So I see significant opportunity in this market and potential for quite robust pricing. So what's our current ambition, which is to do 20 million tonnes, right? And it's laying out a couple of the elements of that here. So we're starting to talk a bit more today about a project -- one of the options we're looking at is to do CCS on a pellet plant, right? Smaller project. Jason will talk a little bit more about it, but one that we expect has the potential to come to market more quickly than the large-scale BECCS power stations that we're talking about both in the U.K. and the U.S., right? And then you see here by 2030, we are looking at 2 different power stations in the U.S., 3 million tons of capture each one. And the 2 units in the U.K. And this timeline is very much an indicative one, but Jason will run you through where we are. And I would say we're making -- we're doing a lot of work. And hopefully, you'll see a lot of that detail later in the day, but it is absolutely becoming reality. So the final point I wanted to make in my section is to talk a little bit about where we are in the U.K. because I know there's quite a lot of sort of interest in this topic. As you all know, on the Green Day, we were not chosen as a track 1 project. And I'll tell you the reasons from my perspective, and I think what's been said publicly why that was the case, right? So the first one is that the government chose to do projects -- it was the East Coast cluster, which had formerly been involved in the process, but they chose projects only in the T side part of the cluster, not Humberside part of that project, clustering. Now it's fundamentally about their perspective as to when the pipeline infrastructure would be available. So that's the first thing I would say, right? Second thing I would say is that this is fundamentally not about biomass, right? The bioenergy strategy is due to come out before the summer. So we think sort of July. And the government has been quite clear that they are -- they want to enable power BECCS to happen. They said this publicly, both in general, but also at Drax, right. Final point I would make is that they were also very clear on the day, as I'm sure most of you have seen, is saying that they would work with us to enable that to happen. And that means sort of 3 things that are already happening: one is discussion of a transition mechanism, how might they ensure that we have certainty over revenues between 2027 and whenever the BECCS projects would begin; second thing was working with us to ensure we had the proper T&S infrastructure that will be needed; and the third thing is working with us on the BECCS business model. So that work is happening now. And again, we are quite eager to make sure we have some clarity from the government, I would say, in the next 12 months at the latest. So with that, I'm going to turn it over to Jason, who will start to talk to you in more detail about where we are on global BECCS. Thank you.

Thank you, Will. Good afternoon, all. I'm Jason Shipstone, Chief Innovation Officer and Global BECCS Program Director. For those of you who don't know me, I've been at Drax for 36 years now in a wide variety of roles. I've been privileged enough to be involved in our biomass journey from the very beginning, including leading much of the conversion work at Drax Power Station and have also been involved in BECCS since day 1. So in my section, I'll recap a little on what carbon oxide removal technologies are and how BECCS works. Then talk about the progress we have made on our global ambitions linked to carbon removals. The anticipated global reduction in CO2 emissions has not happened, meaning that the amount of CO2 in the atmosphere is still rising too quickly. This, unfortunately, is science fact. That means that at the current emission rates, the time horizon to hold to a 1.5-degree temperature rise is no longer out to 2050, but something more like 10 years. The need for carbon reductions remains as imperative as it was, but the need for early deployment of carbon removals is therefore, paramount if we are to hit net zero at 2050. So let's go right back to basics for this first section, starting with carbon reductions. So processes using fossil fuel are effectively extracting CO2 from underground in the form of hydrocarbons and converting this into energy or other products. This releases CO2 into the atmosphere. If you added CCS to all these fossil fuel processes, then you would reduce maybe 90% to 95% of this, but with global fossil fuels emitting over 37 billion tonnes of CO2 every year, then even if you fitted CCS to everything, that's still over 3 billion tonnes emitted annually. That's a lot of CO2. To put that into context, it's the equivalent of every single car on the road today. Where fossil fuel is used for energy, much of it can be replaced with alternatives such as wind and solar. And we should do as much of this as possible. But you can't run an energy system on non-dispatchable sources alone. And that won't change the fact that there is already too much CO2 in the atmosphere, and that's getting worse every day. This is where carbon removals play an increasingly vital row. Trees have always had a huge role to play in balancing the planet's natural CO2 levels. They remove CO2 from the atmosphere and convert it to oxygen and other products. These sentries have always been harvested to make products like furniture and building material, trapping cabin in the medium term. And the residuals left over from these processes can serve other markets such as biomass. If we combine these 2 things, we create a better economic climate for forestry, which is a positive and protects forest from being cleared for farmland. We also replace fossil fuels with a renewable source, biomass, which we can use to simultaneously remove CO2 from the atmosphere and produce dispatchable renewable power. The net result is we get the green energy the world needs, whilst putting CO2 back underground where it came from. I've recently heard BECCS referred to as biotech. This is because it's a combination of nature and technology working together to permanently remove carbon from the atmosphere. Whatever you choose to call it, the fact remains. It is reversing the process of climate change whilst also generating dispatchable renewable energy. This graphic helps to explain the carbon cycle. So let's start with the [indiscernible] index, something Drax has been doing at scale for over 10 years. Productive managed forests absorb more carbon per hectare per year than older senescent forest. Keeping managed forests in a productive mode increases the amount of CO2 captured per hectare versus an untouched forest. To keep this production sustainable, then it's imperative that the size of the forest stays the same or grows over time, a key principle we have worked to since the beginning of our biomass journey. Unmanaged, often called natural forests, will reach a maturity where growth only matches death and decay, acting as a static CO2 stock rather than an active CO2 remover. And of course, there's a place for all sorts of forests, and we should enter maintain and grow them all. But the managed forest, acting as an active carbon absorber, is the perfect complement to a BECCS project. A concern of BECCS is often voiced as how can chopping down trees be sustainable. Most importantly, 3 harvests are very rarely done with biomass as the main crop. Harvesting is driven by more valuable products like sawlogs to feed sawmills to ultimately produce construction timber. Sustainable forestry done well, supports investment in productivity and good husbandry, producing crop after crop of renewable raw material for timber, paper, cardboard and for energy. Hence, BECCS done well will lead to increasing amounts of forests being grown over time. It has to, and Alan will cover this in more detail later. So on the left-hand side of the chart, a managed forest capturing more CO2 is a good thing. Using the fiber from these as an input into BECCS enables the carbon they absorb to be permanently stored underground. All this is done hand-in-hand with technology that has been used for decades, combining to complete the reversal of the current carbon cycle, putting CO2 back where it came from underground. Producing dispatchable renewable power, which is becoming more sought after and is something we have pioneered improved output scale is now becoming a massive benefit to a modern energy system. The combined end-to-end benefits of this process is the core principle behind why BECCS is a vital ingredient in a future energy mix and should be deployed now. There are 3 main types of carbon removal technologies, BECCS, direct air capture or DAC and natural climate solutions. BECCS and DAC are often referred to as engineered removals. This is because they use chemical and mechanical processes to remove CO2 and utilize permanent injected geological CO2 storage. Natural Climate Solutions covers things like a forestation, soil conditioning, et cetera. And generally involves a degree of science being applied to improve existing natural methods of storing CO2. But these are less permanent, often sub 100 years and the process can be quite slow. All carbon removal technologies will have a role to play. And as we noted, the IPCC believes that the need for BECCS could be up to 9.5 billion tonnes of CO2 removals every year. Using our very conservative perspective on available sustainable fiber, we believe that BECCS could contribute in the region of 2 billion to 3 billion tonnes of CO2 removal per year over the next few decades. And we are aiming to be a global leader in this space. Another way to think about BECCS is that it combines many of the benefits of natural solutions such as promoting the growth of healthy forests and the biodiversity benefits that, that brings with the permanent long-term engineered removal function it shares with DAC. This will deliver more scale than either technology could achieve alone at a lower cost than DAC whilst also contributing to our growing energy needs. BECCS really is the best of both worlds. So this is another few slides. Just a few key points maybe to bring out. So BECCS utilizes permanent storage, which is generally defined as 1,000 years plus versus sub 100 years for most unmanaged land or natural solutions. Productive forests being put to work is a much better carbon story. Forest management has also improved, reducing wildfires and the resulting human and nature consequences of these events. It's one of the most scalable carbon removal technologies and is very landing sufficient. It's the cheapest of the engineered removals by a significant factor, and it's a net producer of renewable energy, not a net consumer like DAC. The 2 parts of the technology, bioenergy and CCS have been proven at scale, and our extensive piloting program has shown that combining them together is relatively straightforward. So a quick reminder of how BECCS works. So instead of the flu gas leaving through a stack as it would in a traditional power station, it is diverted into a preabsorber. This is where most of the non-CO2 elements from the flu gas are removed. It then passes through to an absorb vessel, which is number three. The flu gas moves up through this vessel where it meets a continuous deluge of solvent coming in the opposite direction. The solvent reacts with the flu gas and removes 95% of the CO2 as the 2 pass over one another. The cleaned up flu gas is then released back out of the stack. The solvent now loaded with CO2 is then pumped to a vessel called a stripper, which is #4 on the diagram. Here, it's [indiscernible] to release the captured CO2, which is then conditioned before being compressed ready for transport. And the pipe for Transport is #6 on this image. The hot solvent is then cooled down, now minus any CO2 and pumped back to the absorber to capture more CO2. So think of it really in 2 parts. The flu gas goes through the system once it's treated on the way and then released, minus 95% of the CO2 contained. And the solvent goes around in a loop continuously capturing and releasing CO2. This slide illustrates why the power generation side of BECCS is a perfect complement to any energy grid. There are many more electrical aspects to an energy system than just producing megawatts, and BECCS can deliver them all. These services are becoming more and more important and more valuable as the amount of non-dispatchable renewables and behind-the-meter schemes increases. Managing our energy systems is becoming a global challenge and not just specific to the U.K. or U.S., and BECCS is one of the only technologies that can tick all the boxes required in our changing energy world. So why are we so confident that it will work? Bioenergy has been reliably deployed at Drax Power Station since 2004 and at scale since 2011. And this is probably the most complex biomass supply chain will ever be, but it works. Moving the plant to the fiber will be our preference going forward, which massively simplifies the supply chain, removing the need for pelletizing, which reduces both costs and emissions. There are lots of at-scale reference plants for industrial and energy carbon capture, and aiming based CO2 removal techniques have been used in refining and natural gas processing for as long as we have all been using fossil fuels. Storage of CO2 is most proven at scale for enhanced oil recovery. That's absolutely not something we will ever link to BECCS, but the geological process of storing that CO2 is almost exactly the same. Exxon alone has captured and started more than 100 million tonnes of CO2. What we are really doing is building all of these things into an end-to-end process, which we have spent 6 years and millions of pounds working on, underpinned by our extensive piloting program at Drax. This gives us a very high level of confidence that this technology is now fully shovel-ready. Okay. So let's do some myth busting. Some of these questions, I think, are questions that have come through the investor community and various of the sources to Max. So we thought we'd try and answer some during this session. So is BECCS an efficient capture process? Well, that's actually quite a complex question. So let's answer the easy bit first. The capture rate of the current advanced amine technology is around 95%. And beyond that is possible, but not really economic. Major OEMs or original equipment manufacturers have signed up to deliver this number. So yes, the process itself is very efficient. So if we think about this from a net carbon perspective, we've actually been recording emissions for our biomass supply chain and reporting these since 2004. They currently make up about 15% of the overall cabin cycle of unabated biomass energy production at our Drax Power Station site. Global BECCS will tend to move the plant to the fiber and use unprocessed wood, not pellets. This will reduce this number significantly. So the amount you have to offset before a plant's CO2 emission start to go negative, will reduce accordingly. What is important is how much CO2 we removed from the atmosphere and store versus that which we caused to be emitted during the process. And that number for a wood chip-powered BECCS plant is greater than 90% net. Retrofitting BECCS means a loss of 25% efficiency. No. CO2 is a deeply unrated molecule, which is why it stays in the atmosphere for so long. So capturing it using engineered processes does require a lot of energy. In a traditional power station, efficiency is measured as fuel input versus power output. In the BECCS plant, some of the fuel input is used to create the energy used to capture the CO2 and some is used to make power. So the fuel input splits to different ways. So measuring efficiency like a traditional power station doesn't really work. The efficiency of the power generation path of BECCS will remain broadly the same, and the additional fuel used will power the capture process. If you compare the energy used by direct air capture to capture 1 ton of CO2 from air and compare that with the energy by BECCS to capture 1 ton of CO2 from flue gas then BECCS is a much lower energy number. So it was a more efficient process as a carbon remover. Doesn't BECCS increase emissions of SOx and NOx? No. Biomass is already a very low sulfur content fuel, but any SOX in the flu gas is treated and removed in the quench column before the flu gas is passed through the CO2 absorber. NOx emissions are controlled to comply with local air permits. And most of the control of this is done in the power generation island, although the overall number is reduced further as part of the carbon capture cycle. This allows the sale to absorber to do its job at maximum efficiency. Is BECCS improving? Well, as we join together end-to-end at scale process, then yes, there are a few reference plants. But from an engineering and chemistry perspective, underpinned by FEED work, large-scale CCUS deployments and piloting programs, there are no unanswered questions about will this work. Our own piloting work at Drax Power Station exceeds 6,000 hours of real-world data, which we have now fed directly into our FEED work. Will BECCS lead to unsustainable fiber consumption? No, or we wouldn't do it. It's as simple as that. I've already explained why BECCS can be a great solution for global forestry. And Alan will cover this in more detail in his section. So just to pick up on a few details around the BECCS project at Selby. So work continues to get the project ready for final investment decision. All of the work streams are currently being reviewed in terms of carry on, slow down or pause while we firm up our plans with the U.K. government. The government's commitment to 5 million tonnes of greenhouse gas removals by 2030 is really only answerable by a project like Drax, and we are now in formal discussions with government to make this happen. So CCS on a pellet plant isn't something we have shared much detail on before now. So I've got a couple of slides on where, how and why we think pellet plant CCS is a good idea. The main driver for the project is to fulfill the increasing demand for CDRs in the mid-2020s. The volumes from this project will make it one of the biggest producers of CDRs during that period. And therefore, help to build out the voluntary carbon market and provide longer-term price signals. We are looking to use small scale modular capture solutions to enable rapid deployment, and work on the pre-FEED is about to start. This is the next commercial step-up from a pilot, which is also very complementary to the FEED work we are doing on larger scale plants. One of our Louisiana pellet mills is the likely host. You can see a few of the key numbers at the bottom of the slide. So more than 100,000 tonnes a year of carbon captured, installed and removed from the atmosphere. CapEx of around about GBP 150 million on a start debt in 2026. So you'll be pleased to know I'm not going to attempt to describe the whole process. But the sort of -- so really, it's a very similar principle to a power BECCS project, capture the flu gas. In this case, it comes from a dryer island, not from a steam boiler, remove the CO2 from it and store that CO2 permanently underground. We are targeting commercial operation in 2026, which is a couple of years ahead of a new build Power BECCS project. So that's quite useful timing for the bigger projects as well. So let's move on to cover some of the other work we are doing on Global BECCS. So what are the key differences between what we have been working on in the U.K. and what we are doing internationally? Shortening the fuel supply chain is a key principle. We'll do this wherever we can, move the project to the fiber. This means we can transport and use and process towards essentially the same material that forms the feedstock to a current pellet plant, but with no need to pelletize our further process. This saves significantly on the cost and energy penalty of making pellets and the shipping associated with moving these pallets around. That being said, if there is CO2 storage in a region of interest where we may want to do a project, but less on no fiber, then we may still consider a pellet best fuel supply, but this is not plan A. We can design a plant to use either or both wood chips and wood pellets. This will have lower overall emissions than a converted coal plant due to the [indiscernible] modern boiler design. Wood chips would normally be the lowest cost and lowest greenhouse gas deal, which is why it's our preferred option. The economics in the U.S. are different to a U.K. project, power revenue plus 45Q plus voluntary carbon market income equals a decent return. Risk is different versus a government-backed CFD, but there is potential for much higher returns as a result. This is a growing market and exploring it has brought other options onto our radar, possible conversions of existing coal or biomass plants and also the opportunity for direct connection to large energy users. So what are the key aspects of a global BECCS project? It needs to be close to CO2 storage. This is an essential element of BECCS. The short of the transport pipe distance than the lower the cost per tonne of CO2 start. It's more expensive than retrofit because we have to build the power station and the capture plant. That also makes it less compromised than starting from a coal plant due to the clean sheet bespoke design. Designing the plant for the fuel is also very helpful. It allows us to use chips and residuals directly, so in most cases, avoiding pelletizing. This leads to a sizable reduction in fuel cost, which significantly offsets the increased CapEx compared with a retrofit. Most big economies now feature net 0 2050 targets and have or are developing economic incentives to support the development of solutions to help get there, including carbon removals. Our ambition is now moving beyond the 4 million tonnes of CDR outside of the U.K. that we spoke about back in December '21. We are looking globally, but the U.S. is a key short-term focus. North America is starting to value the 2 things BECCS provides, reliable renewable power and CDRs. We have had, I would think, thousands of engagements now with businesses, suppliers, politicians, key stakeholders over in the U.S. to validate this view. I'll share more detail on the next few slides, but we now have a pipeline of 9 locations with 2 sites in more advanced stages of development soon to be into pre-FEED. High-level agreements are now in place with multiple fiber and T&S providers covering price and volume. We have also agreed terms for some of the biggest CDR sales deals ever done with strong interest in [indiscernible] at a price point, which supports the project economics. We are keen to maintain a first mover advantage. We believe now is the right time to build a valuable business that has a direct and essential climate benefit. We commissioned firm for the future led by Jonathan Porritt, to prepare we intend to do BECCS. To that end, we have built a team of more than 80 people across the U.K. and U.S. to progress the opportunities which we have identified. As part of this, we are establishing a headquarters for Global BECCS in Houston, Texas. We are also lobbying hard to get DAC equivalents in the 45Q regime. But even without this, the prices we are seeing for CDR sales will still deliver strong returns. Andy will cover the broader economics later in the deck. This slide shows where fiber and CO2 storage overlap. Through our U.S. work, we also understand where there is favorable policy support. This helps prioritize development but also helps us to understand where we should deploy either pellet capacity or BECCS. If there is fiber available in an area, but no CO2 storage, then it makes sense to use this to make pellets. If there is both, then we should prioritize these areas for BECCS. The tan and light blue overlap areas, which are the hashed areas on the chart, are prime BECCS regions. And our focus at the moment is predominantly in the U.S. South. So how do we manage this? This slide gives you a sense of our internal formalized governance process, which is milestone best. This focuses our development and controls the release of work packages and spend and showing delivery against our forward plans. We start at a global scale and then refine down through countries and regions to get down ultimately to potential sites. The wide end of this funnel is led by the U.K. team, but once we narrow down to site definition, then this is picked up by our new U.S. development team. In the early stages of development, we use in team reviews to manage this process, but once more significant spend starts in the site definition phase then we use a mix of key internal stakeholder and Excom reviews to sign off next steps. Ultimately, our Plc Board would sign off a decision to move to FID. This process allows us to make timely decisions around which sites receive further funding and resolved to continue development and which sites get paused or shut down. This slide shows what that delivers in practice. So if we take our U.S. work as an example, we started at the wide end of the funnel at a global scale, went down through countries, then to the U.S., then through states and finally down to individual sites. The states were chosen on the basis of fiber and TNS availability and the support of political and regulatory environment. Once we get to a selected site, we move to get this under option, which then releases a raft of the work around permitting, site layout, pre-FEED, FEED, financing strategy, logistics planning, et cetera, et cetera. Conversations around fiber and TNS are continuous at a higher level, but the rail nuts and bolts of the delivered solution rarely starts once we have an option site. So what could a new build BECCS project look like? So this is a computer-generated image. There's a few numbers at the bottom, which I'll run through first. Capture around 3 million tonnes of CO2 per annum and permanently we store that underground. The CapEx number of circa GBP 2 billion is our current working figure, but this will be developed further during the FEED process. We use circa 3 million tonnes of low-grade fiber, and this is green fiber. So it's 50% water as a green fiber, so not directly comparable to a pellet number. We try and use a cookie culture approach for key components where we can, which helps reduce development costs and reduces risks, but there will be bespoke elements to every project. An interesting point, if you notice on the layout, the amount of fuel storage in proportion to the overall plot size, this long-duration on-site fuel storage is actually becoming really highly valued in areas where rolling brownouts have been a thing such as Texas, not being dependent on existing fuel supply infrastructure and things like gas pipes, which froze in the recent adverse weather over there is really attractive to system operators and to politicians. So just to briefly update on some of the key commercial enablers. CDR sales, great progress. We have MOUs agreed for significant volumes of prices, which support the target project returns. We are in discussion with major fiber providers about long-term offtakes and now have 3 MOUs in place with forestry companies. We are heading towards formal agreement on significant fiber volumes. It's a similar story on T&S. We are now engaged with all of the major suppliers of CO2 storage in the U.S. and understand the market and the geology in the regions we are looking at very well. Again, heading for more formal agreement on significant volumes for storage. We are able to flex our model in terms of fuel diet, T&S logistics, plant output and configuration, and also how we can co-locate with other industries [locations] we are working on in the U.S., which is one of the key areas with extensive CO2 storage potential globally. Beyond that, there are 2 other large areas of readily developed CO2 storage represented by the circles on the map. This really drives where you could deploy BECCS without having to utilize some form of CO2 shipping. If sustainable fiber exists in these locations, then we'll use it. If not, then we would revert to the pelletized supply chain model to support project development. Political and regulatory appetite is a big decider on when and where or how we would consider deploying projects within these constraints. We are now actively involved in projects in several of these regions, hence the internal title of Global BECCS. So just to summarize, in North America, we have 2 sites selected and moving to option in the U.S. South, targeting FID in 2026 and operation by 2030, which is circa 6 million tonnes per annum of carbon removals. We have a pipeline of options for potential future development, screening 9 additional sites, including green and brownfield. CCS on a pellet plant is an early demonstrator of BECCS technology, and we're targeting FID in 2024 on operation in 2026. In the U.K., we continue to develop plans for 8 million tonnes of carbon removals at Drax Power Station by 2030. And globally, we are currently screening development leads in Europe and Australasia. That's the end of my section. Happy to take questions at the end of the session, but I'll hand over to Alan now for the next section.

Hello. Good afternoon. My name is Alan Knight. I've been at Drax, leading its sustainability program now for over 2 years. Before that, I have devoted my entire career to helping businesses understand and embed sustainability into their products and business model. My first role was at the home improvement retailer, B&Q. That was in the 1990s, where I embedded sustainability across many of its products, most notably ensuring that the timber and furniture it sold came from well-managed forests. It was this piece of work, which led me with a small group of other people to create the Forest Stewardship Council or FSC, which is now being used worldwide as a standard to certify that timber companies and retailers are selling wood to the public that only comes from well managed forests. But a lot of my time was devoted to a 3-year project starting in 2007, looking then at the technologies and business opportunities associated with carbon removals. I was lucky enough to visit a small group of academics and entrepreneurs working on what we now know as direct air capture, enhanced weathering, biochar and of course, BECCS. Then it was too early for Virgin to embrace this as a business opportunity, but the potential of this new technology left a profound impression on me and now look where we are 15 years later. My last role prior to Drax was at ArcelorMittal, one of the world's largest steel companies where I worked with a small group of colleagues to help the company embrace first the need for and then the choices available to decarbonize steel production. This was very important because the steel sector, as we know, has a large carbon footprint. ArcelorMittal alone then had a carbon footprint of 200 million tonnes, and that was just Scope 1. Again, I helped establish an independent sustainability standard for steelmaking called Responsible Steel and the equivalent for mining. All these roles have shown that successful corporate sustainability depends on 3 factors: innovation, partnerships; and perhaps the unsung hero, standards. Jason has spoken to you about innovation, so I want to focus on standards. Drax is doing something remarkable. Let me explain. In my previous roles, the quest was to make current products and businesses more sustainable or to be more precise, less unsustainable. For example, by reducing the amount of packaging required for each product or the energy used in that production. But because the point purpose of business is growth, the savings made were often offset by the growth in that business. For example, an individual product may have less packaging, but if that company then sells more of those products, the total amount of packaging used may not be reduced. Likewise, using less energy is often offset by the company growth, resulting in more energy usage. Drax, however, is different. Our future business model is going to be based on selling high-quality carbon dioxide removal credits, the more we sell, the better the financial returns and the more CO2 that is removed from the atmosphere. Therefore, our business model will couple financial growth with positive outcomes for nature, people and the climate. As a business, we are led by the science. We now have a central science function led by a senior scientific officer. We will continue to use the science to shape the sustainable business model. We will continue to improve methodologies and increase the scope and frequency of the research we use to test and develop our underlying assumptions. As well as being led by the science, we will have a responsive attitude towards stakeholders, and we always have. We have always listened, and in this model for BECCS, we have worked with Jonathan Porritt and forward in the future on a more structured approach to stakeholder engagement. We ask farm for the future to ask experts the simple but profound question, what would it take for you to trust BECCS. Jonathan Porritt convened a panel or 3 other experts to help him, and they spoke to over 70 senior stakeholders across forestry, biomass energy, carbon capture and storage. As Jason said, they have full editorial control over the report, which was published in November last year. They concluded that there is a case for BECCS to help reverse climate change and that BECCS done well is possible. But in coming to this assumption, they set out 30 conditions. Since the reports publication, we have run numerous workshops across the business and with Excom all sponsored by Will. We concur with most of the conditions, and we will soon publish a formal response. Following that, our next step is to convert our response into formal commitments backed with metrics and assurance as and when appropriate. What I want to do now is talk about the Leola's stats in how we source our biomass. Our story starts with timber. As more architects and builders embed sustainability into the design of their buildings, many are choosing timber as their preferred building material. It goes without saying you cannot convert a log into planks of wood without creating sawdust and shavings. Likewise, you cannot harvest the forest without thinnings, branches, tree chops or diseased and unusable logs. In my days of B&Q, visiting furniture factories and forests around the world, I was disturbed how much sawdust and forest residues were just left unused, often left to decay, dumped or in many cases, burnt. It was one of the reasons why I was excited to work for Drax where there's use of this otherwise residual waste material is now reducing the world's dependency on fossil fuels and with BECCS remove CO2 from the sky. In 2022, as per annual report and accounts, 90% of the fiber we used came from such [indiscernible] not aim to use commercial sawlogs. And the economics alone do not support the use of commercial sawlogs since our ability to pay is typically much lower than the sawmills. Our biomass policy, therefore, starts by selecting forest regions with our strong and audible forest management regulations already in place and good standards in place. This means that there are rules and insurance in place so that the timber and the trees are replaced, nature and local people are protected. In addition, many forest management plans are now designed to restore forests that have been impacted by disease by removing those disease trees and now to reduce the intensity and frequency of forest fires by removing undergrowth. In both cases, we can use that material, which normally would not be able to be used by the timber industry. This picture illustrates what happened in the past and still happens in some remote regions of British Columbia. Resident material has no value and therefore is burned. We believe that a better use for this material is the production of renewable energy and, of course, carbon stature -- capture. The 2 main sources of fiber, therefore, we buy are from the United States and Canada. 20% of our material comes from Canada, primarily British Columbia, where the forest mainly counter states are managed to a wide range of sustainability objectives from sawdust and shavings from sawmills. We are also working with First Nations to help them develop new business models to manage their traditional lands for good economic output. At the beginning of my talk, I talked about the importance of science. One focus is the carbon dynamics within the forest we buy from. We have undertaken catchment area analysis to understand the carbon stocks of the forests we buy from and to see the extent to which we have an impact on those carbon stocks. A lot of this work is focused to date on Southeast U.S.A. where the carbon stocks are stable or growing. It covers both the source errors of our own pellet production and the fiber buckets used by our third-party suppliers. Our search approach will continue to develop both coverage, frequency and methodology for these studies. And we recognize that the concept of carbon stock and carbon debt is going to become increasingly more important as we develop our operating model and biomass proposition. In addition to the region's forest regulations, we have an industry standard called the Sustainable Biomass Program or SBP. Like the FSC and other standards bodies, this is a multi-stakeholder group where our peers and us agree the standards by which biomass must be harvested and how we will account for the carbon footprint up and down the supply chain. At Drax Power Station, 97% of the woody biomass used in 2022 was a criteria through our own program of checks and audits. Stakeholders will only be comfortable with bits and biomass when the entire biomass sector works to the same high standards. That is why we are working closely with the World BioEnergy Association and other sector peers to develop sustainability standards for biomass. The Glasgow Declaration agreed at COP26, 2 years ago, ensures we continue to work with the signature organizations to improve and enhance the sustainable credentials of biomass and those companies. Therefore, we typically buy material which the sawmill industry does not use. We saw some of those voice but forest regulations demand good forest management practices, and we have an umbrella independent certification scheme to complement that. Our own research and independent audits show that the standards are delivering the outcomes we expect, and this is checked by our own independent advisory board. In addition, we are working with the sector to align our standards with the wider sector. Finally, I want to talk about biomass and the future. One question we often get asked is, is there enough biomass on the planet to support our ambitions and the global case for BECCS. Our own modeling using satellite imaging and data has collated all the possible sources of biomass. We filtered out sources, which had a high conservation value. We filtered out areas where good forest management was simply not possible due to the nature of the land, steep slopes, et cetera, water set protection. And finally, access to infrastructure was considered. If it was clearly too difficult to transport that material from the forest to the pellet mill, it was discounted from the model. And also, we factored in potential sources of agricultural waste and even waste wood. Our model identifies that there's enough land available to produce 2 billion tons of CO2 captured from BECCS compared to Drax's 20 million tonne ambition and the IPC's 80 million tonne target for 2030. The modeling shows room for growth to the [indiscernible] business and BECCS propositions or conservative than the others available. This graph shows the other models created by other researchers. They use different assumptions but concluded that higher volumes of biomass were available than the assumptions we made. Essential to BECCS is minimizing the amount of carbon emissions in the value chain. Drax has already reduced its Scope 1 and Scope 2 generation emissions by over 90% through reducing and ending the use of coal. However, we have reset the clock as we move towards BECCS. We are now determined to reduce the carbon footprint of all our other operations. We have set ourselves a new set of targets to reduce this remaining carbon footprint. For example, a 42% reduction by 2030 of our Scope 2 and Scope 3 against the 2020 baseline. We also now have a dedicated team to ensure that these emission reductions actually happen. Like many other companies, we are acutely aware of the growing demands of global businesses to know their impact on nature, not only preventing harm to nature, but restoring nature, when and where necessary, i.e., being nature positive. We have discussed this concept, and we're now embedding what we believe will be required to meet this expectation. We are working closely with the World Business Council for Sustainable Development to establish with other companies what best practiced to prove you are nature positive will look like. We are working to identify what matrix we should use to measure our impact on nature, both to our operational sites and in our value chain, and establish what baselines we can use to track the improvements. In addition, we are working on a pilot with other companies to test and develop the nature-related financial disclosure or the TNFD which will work in parallel with existing climate-related financial disclosures or the TCFD. We believe BECCS can be both good for nature and good for climate. We also intend to be a people positive company for our employees, neighbors and the communities we operate in. A newly launched Drax Community Foundation is providing funding across our business operations for local communities to help them develop skills and local projects that will enhance nature and people benefits in those regions. In addition, we have a separate fund to provide support to communities in crisis. In addition, like many other companies, we continue to develop and embed good governance mechanisms in our business. We have a sustainability council, we have a new ESG reporting systems to provide asset-based reporting and insights across the business. And the exposure and level of discussion on sustainability rises at ExCom and Board level. To summarize, Drax is doing something very unusual. We are creating a business model where financial growth is directly coupled with positive outcomes for people, climate and nature. To do this, we have a clear vision, new and exciting technology, clear and consistent standards for biomass and one is being developed for CDRs. All of this will be underpinned by policies and governance to make sure that everything we do in our business and value chain is due to sustainability and underpinned by the science. With that, I will hand you over to Andy.

Okay. Thank you, Alan, and good afternoon, everyone. Before starting the final presentation this morning ahead of the session this afternoon, we issued an RNS that confirmed an unchanged outlook for our full year 2023 adjusted EBITDA with our expectations are in line with consensus estimates are we subject to good continued operational performance. And as Will noted, we have commenced our share buyback of GBP 150 million, and we expect that, that will complete by the end of 2023. I'll start by summarizing the Drax investment case with five observations, which we've already heard this afternoon. We have a high-quality strategic asset base that's aligned with Climate Solutions and Net Zero. Our pumped storage, hydro and biomass generation provide dispatchable renewable power in the U.K. that's critical to the system and supports security of supply. We have around 5 million tonnes of biomass pellet production capacity from 18 plants in developments sourced from 4 major fiber baskets and operating through five deepwater ports. Biomass is a key commodity for the energy transition, and we expect that our pellet capacity has increasing value as other markets such as BECCS and SAP begin to accelerate and create additional optionality. Next, we have a differentiated position with operations across the biomass supply chain. We believe that as an owner, operator, user and supplier of biomass, Drax is well positioned to protect and grow margins over time. Our geographically diversified supply chain and integrated business model supports multiple routes to market and provides valuable opportunities for trading and for optimization. Drax has around 20 years of experience in biomass, and our long-term relationships with forest products industry provide a firm operational foundation to deliver our strategic growth plans. Next, we have a track record of strong operational and financial performance. Our existing business, our strong visibility of earnings underpinned by indexed win cash flows that provide a firm foundation from which to address significant and attractive long-term growth opportunities. Our business is highly cash generative with 2.3 billion of cash from operating activities since 2017 and strong cash flow conversion. We maintain a strong balance sheet with a stated target of net debt-to-EBITDA of 2x. And at the end of '22, this ratio was significantly below 2x. We have significant global growth opportunities aligned with Climate Solutions and Net Zero. Our investments in biomass supply, pump storage and carbon removals are all positively correlated with the rise in value of carbon and they're aligned to sizable market opportunities as evidenced by industry forecasts. National Grid future energy scenario suggests a continued growth of intermittent and inflexible generation capacity, primarily wind, solar and nuclear, and a significant increase in peak demand through to 2050 as electrification accelerates. National Grid System support service data shows significant growth in the value of system support services over the past 6 years, a trend which we expect to continue. We believe that the need for dispatchable and renewable generation is clear, and that investments in biomass supply and increased pump storage capacity represent an opportunity for value creation. Taken together, the Hawkins Wright Future metrics and Argus research suggest that the global biomass market will almost double in this decade to around 100 million tonnes in 2030. We believe that Drax has a differentiated position with operations across the biomass supply chain, and is uniquely placed to protect and grow margins over time. The significant need for carbon removals is evidenced by the IPCC forecasts that show up to 9.5 billion tonnes of carbon removals from BECCS is required by 2050, and this is required to maintain a 1.5 degree pathway. These forecasts show an annual median BECCS requirement of 80 million tonnes by 2030 and rising to 2.75 billion tonnes in 2015. While there are a growing number of BECCS projects, there remains a significant gap between the median target of 80 million tonnes and in 2030 and the 20 million tonnes that we can see is currently being developed, including our own 14 million tonnes target. We believe that the need for high-quality permanent carbon removal is clear. and that this will support robust pricing and attractive returns on our projects. Finally, our investment plans are consistent with our long-standing capital allocation policy. Since its inception in 2017, we've paid almost 400 million in dividends with an average annual growth rate of 11% and inclusive of the recently commenced program will have returned a further 200 million in buybacks. So moving on to look at sources and uses of cash. At our last Capital Markets Day in December '21, we presented a plan to invest 3 billion pounds in 2 units of BECCS at Drax Power Station, delivering 8 million tonnes of carbon removals, expansion of our pellet production capacity to 8 million tonnes and expansion of our Cruachan pump storage. That plan did not include any U.S. BECCS investment, but it did deliver significant free cash flow in 2030 that would support 4 million tonnes of carbon removals from BECCS in the U.K. Today, we're presenting an updated plan. So walking through the sources and uses of cash, it starts with closing net debt in December '22 of around GBP 1 billion. This represents a leverage ratio significantly below our target of 2x. For the period then until the end of 2031, we've assumed around GBP 2 billion of free cash flow from existing assets. Free cash flow is defined as adjusted EBITDA less interest, tax, EGL and growing and sustainable dividend and maintenance CapEx. Next, we have in the region of GBP 7 billion of strategic investment, which includes 14 million tonnes of carbon removals, 3 million tonnes of pellet capacity expansion, CCS on a pellet plant and expansion of our pump storage capacity at Cruachan. The major change in this plan is the inclusion of the 6 million tonnes of carbon removals from U.S. BECCS. In December, we made a final investment decision on 600,000 tonnes of additional pellet production capacity by 2025. No other final investment decisions have been taken today, and we will require a high degree of certainty over project returns and cash flows prior to taking any further final investment decisions. And finally, over GBP 3 billion of post-tax cash flow from these strategic investments by the end of 2031. There's a phased contribution based on when the projects become operational. The first additional pellet capacity is in 2025, and then there's 4 million tonnes of U.K. BECCS by 2029, and by 2030, a further 4 million tonnes of U.K. BECCS, Cruachan expansion and 8 million tonnes of U.S. BECCS. The plan we're presenting today delivers EBITDA expansion, generates high-quality, long-term cash flows, returns are growing and sustainable dividend throughout and shows a full $7 billion of investment is fundable with a leverage ratio below 2x by 2031. We'll be disciplined when allocating capital. To ensure we have high levels of confidence over project returns and cash flows and strong commercial contracts that appropriately manage project risks and are supportive of leverage that extends beyond 2x during the period of peak investment, Drax has a strong track record of delevering quickly post periods of significant investment. So now looking closer at strategic capital investments. The investment to deliver 14 million tonnes of carbon removals via BECCS by 2030 supports our ambition to be a global leader in carbon removals and will require up to 6 billion of investment underpinned by long-term power and carbon payment schemes. We expect double-digit returns for BECCS projects, and as Jason referred to earlier, a decent return. And then returns will be higher for those projects in the U.S. compared to the U.K., and I'll talk more about the different models for U.K. and U.S. BECCS shortly. The investment of up to GBP 1 billion to add 3 million tonnes of pellet production capacity supports our ambition to be a global leader in sustainable biomass pellets, and is an enabler of our plans for U.K. BECCS and expansion of our third-party supply business. It delivers incremental capacity from 2025, and we believe these investments have the potential to deliver low double-digit returns or better. As I noted earlier, biomass is a key commodity for the energy transition, and we expect our pellet capacity has increase in value as these other markets such as BECCS and SAF begin to accelerate. We'll test all options for use of our biomass pellets against a market price for biomass. And then finally, the investment of around 500 million in Cruachan pump storage expansion, which supports our ambition to be a leader in U.K. dispatchable renewable power. With the system becoming increasingly dominated by nondispatchable power sources, National Grid's future energy scenario shows a need for up to 2.4 gigawatts of new pump storage in hydro. This project could meaningfully address the requirement by 2030. FID will be underpinned with long-term earnings stability, such as that provided by a cap and floor mechanism. And we're working towards FID in 2024 with construction starting in 2026 and operations by 2030. And we're targeting low double-digit returns. The plan we're presenting today is underpinned by strong cash generation from our existing assets, but also from the strategic investments that we make. It enables a range of attractive funding options at Drax Group and at a project level. The options will vary by investment and include funding a substantial portion of all from our own balance sheet. We have access to diverse funding options through existing relationships with many lenders. Our track record demonstrates ability to access required funds on appropriate terms with flexibility to implement our strategy and maintain headroom. Our existing financing arrangements have substantial covenant and capital headroom. Project finance, export credit agencies, tax equity funding are all examples of additional funding routes to the group, enhancing returns and enabling the group to scale faster. These options will be considered on a case-by-case basis. The long-term nature of our project cash flow is underpinned by power and carbon sales contracts together with robust commercial agreements that appropriately manage project risks, make these investments attractive for project financing. So next, I'd like to expand briefly on the different business models and risk and return characteristics of BECCS in the U.K. and in the U.S., starting with the U.K. BECCS. The capital investment is expected to be in the region of GBP 1 billion to retrofit each BECCS unit. CapEx is lower than for a new build plant in the U.S. However, operating costs are higher, reflecting that BECCS in the U.K. will use biomass pellets, which increases production cost and transportation costs. We expect investment in the U.K. BECCS project will be underpinned by a long-term CFD agreement with the U.K. government that includes payment for renewable power generated and carbon captured. We're targeting low double-digit returns underpinned by a commercial agreement that covers a market price of biomass, and enables appropriate management of FX risk to underpin the project returns. In comparison, in the U.S., the capital investment for a new build power station with carbon capture and storage is expected to be in the region of $2 billion. The CapEx is higher than for the retrofit BECCS plant in the U.K., but the operating costs are expected to be lower. That reflects the design of a new build U.S. BECCS plant enables a wider choice of biomass materials, including non-pelletized materials such as woodchip, and it be located close to sustainable fiber sources, thus reducing the fiber and transportation costs while removing the need and cost of pelletization. We anticipate that the operating cost for a U.S. BECCS project will be covered by income from long-term power purchase agreements for the 24/7 renewable baseload power and from the 45Q tax credit which is a direct pay $85 a tonne annual payment for 12 years. And that covers CO2 permanently removed and stored. The return on the capital investment will come from the sale of CDRs with around 3 million CDRs available per year. The forward sale of CDRs will be required to underpin the final investment decision. We expect that the supportive investment environment created by the Inflation Reduction Act, which is already stimulating action will lead to robust pricing of these CDRs. The commercial structure for U.S. BECCS supports higher and potentially very attractive returns. It reflects a higher investment costs, the need to forward sell a significant volume of CDRs to underpin FID and the element of merchant exposure on the remaining CDRs. And finally, our long-standing capital allocation policy is unchanged. It supports a strong balance sheet, investment for growth and attractive returns to shareholders. Our corporate credit rating with Fitch and S&P is BB+ stable, and we also have a BBB- stable investment-grade corporate rating from DBRS. Our secured debt has recently been affirmed at BBB- investment grade by Fitch and by DBRS. The quality of the group's assets, earnings and cash flows are supportive of maintaining our credit ratings and provide a strong platform from which to execute our strategy. The plan we've presented today includes a growing and sustainable dividend throughout. The growth in the dividend won't come in a straight line as we ensure that any growth is at a sustainable level. The final leg of our capital allocation policy is to return surplus capital to shareholders, and we consider several factors in this regard, including the quantum and timing of capital deployment, our current and target leverage profile, any dilutions of share capital, and any inflows from divestiture of noncore assets. We are committed to our capital allocation policy. So in summing up, the ambitious strategic investments and growth plans we have outlined today address sizable market opportunities, which are aligned to Climate Solutions and Net Zero. The total investment around 7 billion is significant, and we'll be disciplined in allocating our capital. We believe that our high-quality strategic assets and the portfolio of investment opportunities and deliver a business with significant EBITDA expansion generating high-quality cash flows and a leverage below 2x in 2031. With that, I'll hand back to Will.

Thank you, Andy, and Jason and Alan. And just to wrap up. In summary, I would say our purpose as a company is quite clear. I think we've been through that many times. And our strategy, I think, also, right is to be 100% aligned. Our business model is one that will deliver successful outcomes for both our shareholders, our other stakeholders, for people, nature and the climate. We have a demonstrated track record of financial attractive and successful financial performance, and we have an attractive strategic asset base, right? We've just been through some of the investment opportunities we have, and I think they also create quite a compelling opportunity for us going forward. So with that, I will take -- turn it over to Q&A. So if you address the question, I'll take the questions, and then I'll give them out to those people best positioned to answer. Alex?

It's Alex Wheeler, RBC. Two from me, please. Just firstly, on the CDRs. Can you give us an idea of how you expect prices in that market to evolve going forward? And also an indication of what you assume for CDRs in the broad range that you gave. And secondly, just on the nine U.S. projects and how we should be thinking about those, are those projects in any way dependent on the discussions with the U.K. government and how that progresses going forward?

So I guess on the price of CDRs, I guess it's -- the first point I would make is very early days in the market, right? I mean there's -- the Orsted deal is probably the largest deal out there with no price attached to it. We've done a sort of 2 million tonne sort of MOU. We've got a couple of MOUs around that 300 on dollar price point. So how is that going to evolve? And I think the long-term pricing dynamics do are robust in the sense that we think that the demand significantly outweighs the supply. We're also competing against direct air capture, which is a significantly higher price point. And over time, we also would expect that removals will also be sort of competing with different forms of production. And as we move out the sort of decarbonization curve, the cost of reductions also will increase, right? So hard to say exactly where the -- obviously, where that market would go, given how early days it is, but we see robust signs for pricing going forward. On the nine U.S. projects, I mean a couple of points I would say on that. One is that -- we've got two sites that we're moving to option. We've got nine other sites we're looking at. I wouldn't expect all of those to come to fruition. So some of them, for example, will be in similar fiber baskets, and so it will be a choice of one of several. And there, it's very much unrelated to what happens in the U.K. I mean, we're going to deliver what -- we are excited about delivering what we have in the U.K. I think what Andy described, I think, is important, which is the financial dynamics are quite different, and we're going to full sort of fully wrapped government project where effectively our biggest risk becomes operational as opposed to commercial or financial. Whereas in the U.S., it's a very different model, right? So I think both are going to be attractive. Martin?

It's Martin Young from Investec. A couple of questions, please. One is on the U.K. and the sort of the pathway to getting this bridge in place between 2027, and I guess, 2030. You have come the autumn to make a decision on prequalification for the capacity market. So how does that potential deadline fit with your comments earlier, perhaps taking a year to come to some kind of agreement with the U.K. government? And then secondly, and I guess this might be a question for Andy. On the slide where you have outlined some thoughts about OpEx in the U.S., could you give some ballpark indication of the numbers of OpEx ex the cost of the biomass? So just looking at the fixed and variable cost of operating a plant of that size. And also -- and I know there's no easy answer to this, the TNS cost as well.

Thanks, Martin. Why don't I take the first one and turn it over to Andy? So you -- so there are there will be a series of different decision points that we'll have to make as a company that will sort of depend on where we are with the government discussions, right? The key thing from my perspective relative to where we are with government is we will need -- it's not so much about sort of how much financial support we get. It's about certainty, right? There's many of the things that we will need to do between now and 2027 to make sure between now and 2030 to make sure we're ready for BECCS, will require investment, right? So whether that's investing in the plant, whether that's investing in future pellet capacity, whether it's taking on long-term contracts for logistics and/or pellets, there's a lot -- we will need significant certainty to do those things. And one of those decisions will be whether and how we approach the prequalification for the capacity market, right? One thing I think will be quite clear, the capacity market is not sufficient to give us the certainty that I've just described, right? So how we will -- we are approaching that decision, we will as and when we need to make that decision, and the government, I think, is also well aware and our discussions with that is a key decision point for us, right? But there are the other ones, Martin, on side that one as we go. Andy, do you want to take the OpEx question?

I think the way I look at rather than give the breakdowns of each of the pieces, if you look at the total operating cost for that plant, it would be covered by the sale of the 24/7 power. So you can take a view on your U.S. power price, and we gave the output of the plant there and covered by the 45Q. So the $85 a tonne for the carbon removals each year. So those two things together will cover the OpEx. So all our parent cost fiber and the TNS offtake agreement, then you recover your return through the sale of CDRs to recover the capital and return.

Dominic Nash, Barclays. A couple of questions from me, please. So kind of following on -- the first one following on from Martin's question, which is the delay in the U.K. BECCS is clearly -- I think on Page 19, you're saying they're coming on now at the earliest in 2029. And you're saying that one of the reasons for the delay is the pipeline -- is the pipeline isn't in place yet. Could you give us some color on what's actually needed to be done to get that pipeline over the line? Is it onshore, offshore? Is it the grid one that they're walking away from? And secondly, sort of leading on from that, the hole in the pellets required, clearly, if you've got BECCS coming on in 2029 and your subsidies in 2027 or 2030, you've got a 2, 3-year hold. I know we've talked about this kind of before. And you say that you're kind of in discussions with the government on this and that and everything. But what is there to secure that supply chain? And when you look at I think Page 8 in your presentation, when we look at the growth in the biomass market, what's the growth in the pellets of that? And is there a -- how do we know that your pellets will be there in 2029 and 2030? And what are you negotiating with the government to make sure that supply chain doesn't wither?

So let me sort of take those. So why has it been delayed to 2029? And what are the sort of the dynamics behind that? And maybe attached to that, what are we talking to the government about? So probably I didn't mean to say that the reason that they chose the sort of Teesside, perhaps there was a delay in the pipeline. It was just that the risk associated with completion they felt was less well developed, right? So that project is still being developed. There's still - I mean one of the things people keep asking is the fact that grid is not part of that. Is that a problem? So effectively, the Northern Endurance partnership, which is the group that's managing the offshore piece is now also managing the onshore piece of the number. So that's resolved, right? And so effectively, they need to need to keep going through the process of developing the pipeline. So we've put 2029 sort of it's a ballpark number, right? So we don't know exactly when that's going to be. But effectively, the pipeline is still sort of -- it is sort of track 1. It's a pipeline Phase 1, I can remember that was a pipeline. And so that will be part of the whatever track 1 extension. So that's all still happening. So basically, we just need to keep that process moving and all the people are in place. We're having discussions with TNS providers, with the government, with ourselves and part of the objective of the government, they realize that's critical, and so they were working with us so. I would describe it more specifically in terms of what we're talking to the government about. So that's one thing, to making sure that the pipeline is there. The second thing we're talking to them about is exactly the second point that you raised, which is what -- how do we ensure that all of the operating pieces that need to be in place in -- let's say, 2029 for the BECCS project are there in 2027, '28 and '29, as sort of going through this sort of empty period, and that's where I mentioned the question of certainty, right? So we need to have certainty from the government of how the station will run, what the economics will be so that we can make the investments and the long-term commitments in pellet supply, et cetera, to make sure we can do those things. So that's -- that's not sort of here or there and everywhere. That's a very specific discussion with the government about that point, right? The third thing we're in discussion with the government is what is the actual sort of business model for BECCS. What will the actual specific shape Yes, I think we are -- we sort of have a good sense of the general shape. It will be a CFD for power and for carbon. But the specifics of that will be quite -- there's quite a lot of complexity in that right? So there's very specific discussions about that point. So those are the three traction discussion that we're having now with the government. As I mentioned in terms of timetable, I think it should be very clear that we need to get some certainty, otherwise, certain decisions like the capacity market sort of prequalification like what's our CapEx plan for next year -- so like how do we contract with ABP ports beyond 2027. We need to start making those decisions, right?

Just a follow-up with the point to again sort of reiterating the normal operations pre-BECCS of the pellets. Are you asking for a CFD extension or an RO extension beyond 2027? And is that compatible with the EU RED III directives which I think is coming out end of this month on biomass subsidies on non-BECCS projects.

So I won't say that we are -- I want to talk through exactly what formed, a sort of, I'll call it, a certainty mechanism we'll take with the government. It could be any of the ones you described. And regardless of what it is, it will be compatible whatever needs to be done relative to the U.K. regulations and to RED III, right? So the other thing I would say on Page 8, this is -- those are pellets, right, that's the demand for pellets in various different markets as opposed to something more general, if that was one of your points, right? I think that's all pellets, yes. In the back, Mark. I've never seen you in the back of a room, Mark.

Thank you very much. If I could ask on the cash flow bridge or the sources and use of cash. And the two things that struck me is, firstly, there's a lot of projects that you have that come on in 2029, and we've already seen projects seem to slip 18 months to the right. So on that sources and uses of cash, the GBP 3 billion from new projects, I mean, clearly, that number can move around a lot, right? And just secondly, with regard to the GBP 2 billion from existing operations, I imagine the clean bark spread is a large part of that GBP 2 billion. And the moving part there these days is biomass pellet costs. And I was just wondering where we were on the biomass pellet cost in terms of absolute and directional now. And I accept that you're not going to get to the GBP 50 a megawatt hour that you spoke about 4 years ago almost. But I was just wondering where about you are on those. Fundamentally,[ GBP 7 billion ] is a big number. It's achievable. There's a very wide confidence interval around that.

Yes. So why don't I -- will just take the first more general question and then Andy can talk about the biomass cost. I mean I think your general point to the first one is that 2029 is a long way away, 2030 is a long way away, and so how accurate can one be? And I guess I would say I don't think we're claiming to be super accurate because we recognize it's a long way away. All of these projects are pre final investment decisions. So there's a lot of water that needs to going under the bridge. The U.S. projects are pre-FEED study, so there's a lot of water. So we think we are very excited about, and we think we have a very credible plan. But to sort of -- fair to say that it's precise as you were sort of asking for or questioning, that's not what we're suggesting. So could those dates move around? It certainly could, yes. Andy, do you want...

Yes. So there's a couple of points, I think, on the 2 billion cash flow from the existing business. I mean the first thing is that we have a very strong hedge book position as we published in the last trading update when we did the AGM, so just around a month ago. And the liquid period there is around 2 years out. So we're well-hedged and those cash flows are visible. And we haven't assumed anything heroic in the period since. I don't know if you follow the market curves that you all see. On the cost of biomass pellets, we've talked about the cost pressures currently. And last year, we had an $8 headwind from fuel surcharges and from utilities. But the fundamental opportunities to reduce cost of pellets going forward still remain using a wider fiber basket, so viable fuels we've talked about can help reduce cost innovation, and we talk to our prelims around the sugars project. Incremental capacity in existing plants. It's the cheapest extra pellet you can get. So all those things remain there. And despite some short-term pressures, we still think there's opportunity to reduce cost of pellets. But I think we should think about it as the margin we can achieve and the pellets we produce, because if you look at the different routes to market we have for our pellets and we'll always assess the market value of biomass when we're deploying it, then we should expect to recover a good margin on those pellets. So a U.K. BECCS project needs to cover a market cost to pellets contracts and other markets need to do likewise. So I would focus on the margin, but the cost, it's no regret, right? Every dollar we can take out of the cost of our biomass pellets is recurring and something we're very focused on.

Pavan Mahbubani from JPMorgan. I have two questions, please. Firstly, I know it's early days, but how are you thinking about construction risk, particularly in the U.S. projects? Would you be looking to sign turnkey contracts with EPCs? Or would you be looking to take on more construction risk? And how we should think about that versus the returns you're targeting? And then secondly, on pellets, noting that you're clearly increasing your capacity targets and how much you're investing in BECCS plants but you're not increasing your cell supply of pellets, do you think you'll be able to source enough pellets or enough feedstock if it's not specifically pellets to power your plants? Or is that a bottleneck we should be concerned about?

Yes. Maybe I'll take the second one. And maybe, Jason, I don't know if you want to comment on the first one around EPC.

Yes. I think for a plant of that size and complexity in the U.S., I think we would definitely go down a fully wrapped route. So I think a traditional EPC turnkey type project is probably where we would end up looking for that.

In terms of the pellet supply, I mean, the first point I think is hopefully, sort of Jason and Andy sort of made clear. At the end of the day, we will be using -- we -- most, if not all of the new builds will be woodchips or residuals, sort of straight from sawmills, et cetera. So we will not be pelletizing. The need to sort of access that fiber and have both volume and costs, lockdown is too strong, but sort of confidence and assurance that you have those is absolutely a critical part of the program, right? So if we think about the way we've organized the program, we have a fiber team that's working across the U.S., both on a local basis, right? So once you find a specific site, basically a radius around that site, talking to both local land owners but also about major timber players, but also on the national, even continental level, talking to the major TMOs, et cetera, fiber companies, lumber companies instead of trying to do more sort of framework and our strategic type of deals. That's one of the #1 pieces of it. It's going to expand a bit on that transport and store is very much the same. And again, there's local pieces, but there are I think, increasingly clear major players in the transport and storage space that we're talking to, to make sure, again, that we have access to the storage that we need. So no questions for sourcing feedstock is key, but it will be less in pellet form and more in woodchip or straight residuals.

Harrison Williams, Morgan Stanley. The first was on CapEx in the U.K. BECCS units. I think you've been talking about that 1 billion cost per unit for a little while now. And we've seen quite a lot of CapEx inflation across the street, I mean across a number of subsectors. Just wondering, are any levers were unaware of there or you can shed light on why that hasn't been affected or how much conviction you still have in those CapEx guidance? And the second one, I think at the beginning of the presentation, you talked about a 500% increase in the balancing market payments over the last 5 years. Just wondering your expectation for that over the next few years, obviously a key part of your cash from existing assets.