Ladies and gentlemen, welcome to the Drax Full Year Results 2020 Call. My name is Sherry, and I will be the operator for your call this morning. I will now hand you over to Mr. Will Gardiner, Chief Executive Officer.

Good morning, everybody, and welcome to the call. I will -- I'm going to walk you through the slides. I'm going to kick off with the operational review, turn it over to Andy for a financial review, and then I will come back and talk a little bit about our strategy.

So I'm now on Page 4. So our purpose and our strategy and our ambitions are unchanged. We found that they've served us well in 2020 as we work through the ongoing COVID pandemic, and we continue to make very strong progress with our strategy. In particular, the proposed acquisition of Pinnacle, we believe we'll create the world's largest biomass supply in Generation business and, importantly, advances all 3 of the complementary business models, which we're developing for a long-term future for sustainable biomass. And just a reminder, those are the sale of biomass to third parties, the development of negative emissions using BECCS and merchant biomass generation at the Drax Power Station. So in short, I think we're doing very well.

Turning now to Page 6 for the performance highlights. So after we got into the pandemic, we developed 2 key objectives for 2020. One was to keep our employees safe and as well as we could. And the second was to help keep the lights on in the U.K. I think we did those both quite well. In addition, we supported our stakeholders, our customers, our communities and the environment, and delivered a strong financial performance with an increase in EBITDA, inclusive of the impact of COVID, principally on our Customer business. We delivered strong dividend growth this year, 7.5%. And over the last 4 years, we've grown our dividend at an annual rate of about 11% per year, while at the same time, maintaining a strong balance sheet, investing in the biomass growth story and supporting all of our stakeholders.

Operationally, we produced more renewable biomass at a lower cost. We generated more renewable power, and we did more to support the system. And strategically, we progressed the decarbonization of the group, announcing an end to coal generation and the sale of our existing gas plants, alongside developing our world-leading plants for negative emissions using BECCS. And as we announced today, we are no longer planning to develop gas at the Drax Power Station.

Moving on to Page 7. As I mentioned, in January, we completed the sale of our existing CCGTs. And today, we're announcing the decision not to progress plans for a new CCGT at the Drax Power Station. In March, commercial coal generation ends where the unit is cold, but they will remain preconnected in order to fulfill their capacity market obligations, which end in September of 2022. This means that by April of this year, we will have a portfolio of renewable biomass and hydro, making it one of, if not the lowest carbon intensity generator of scale in Europe.

In the course of 10 years, we have moved from reporting emissions of more than 23 million tonnes of CO2 per year to close to 0. And in the future, we expect to be below 0 by the critical role we can play in delivering cost-effective negative emissions to the U.K. through BECCS, which we're increasingly excited about, as I will discuss later.

Moving on to Page 8. 2021 is a landmark year in the path for its negative emissions. We believe that ending coal generation is the right decision financially, environmentally and strategically. And during 2020, reflecting the end of coal, generation was modestly higher as we work through our coal stock. The closure will deliver ongoing annual OpEx savings of between $30 million and $35 million per year once completed next year. And we're using the proceeds from the sale of our gas generation to help fund the proposed acquisition of Pinnacle, swapping short-dated thermal generation for long-dated renewables.

As I mentioned, we've taken the decision not to develop new gas at the Drax Power Station, but we do retain options for system support gas assets at 4 sites in England and Wales. These assets are not about power generation, but providing increasingly important system support services. They enable more wind and solar. And because of this, we see them as valuable to the system, to us, or should we choose to sell them indeed other developers, subject to the right price and the T-4 capacity market auction, which takes place next month.

Moving on to Page 9. While we have kept our people largely safe from COVID, working from home where possible, socially distancing at power stations, where we completed 2 major planned outages, we have had more recordable injuries than we would like. And we remain focused on this, especially in the difficult environment our employees are now working in.

We're doing more on sustainability reporting, and I am delighted that we're now a TCFD supporter and intend to include the TCFD framework in our reporting going forward. Our reported sustainability credentials are improving, as evidenced by the award of an A- rating by CPD for climate disclosure. We take this seriously and form part of our corporate scorecard, and we hope to do more in this regard in the future.

Turning now to Page 10. In generation, our financial and operating metrics are strong. Biomass generation was up significantly, reflecting our very high levels of commercial availability. Mike Mosley, who has U.K. Portfolio Generation Director, leads our generation assets and has joined my Executive Committee, has the team properly focused on this.

We continue to be very pleased with the performance of our hydro assets, especially as they have helped support the system over the last few months. And in this regard, I would note that while our biomass units are an important source of system support, we saw more value in renewable generation during 2020. And so focused on biomass and providing renewable electricity rather than specific system support services. And at 11% of the U.K.'s renewable power generation, we are the U.K.'s largest single source of renewable power.

Turning to Page 11. We have a strong hedge in place over the next 3 years, providing revenue visibility. And I would note that these numbers largely exclude the CfD unit, which because of the way that mechanism works is typically only represented in the first year. But we think of it as firm baseload generation, so the actual position is stronger than it appears there.

Secondly, system support was ahead of our expectations. We started the year expecting around GBP 100 million of system support and optimization revenue, which would have been lower than 2019, because 2019 included the benefit of specific coal positions, which were optimized in the short-term markets and certain nonrecurring contracts in our Hydro business.

The impact of COVID in the first half of last year created depressed power demand, which, combined with high wind speeds than our units were required to provide flexibility to the system, which became dominated by wind and nuclear, making it more difficult to manage. This is a situation we had expected to see developing over the next 2 to 3 years as more wind comes on to the system.

And then in the second half of the year, so through December and January of this year, which are the opposite issue, with higher demand and insufficient supply, often due to not enough wind in certain periods driving higher short-term crisis. And as such, we feel that the GBP 118 million of system support and optimization is a very strong performance.

Turning to Page 12. I am very pleased with our Pellet business. Our quality is excellent, as good as any of our suppliers. Our costs are coming down, in line with our plans. And volume is also excellent and growing with the addition of the Morehouse expansion having around 100,000 tonnes of additional capacity for 2021. The team there led by Matt White is doing an outstanding job. COVID has been challenging, but they've been managing that well. And this year, we shipped our 100th cargo of sustainable biomass from our port at Baton Rouge.

We have kicked off in next lay of our cost-out strategy, having approved a $40 million investment in 3 satellite plants of 40,000 tonnes each. They will have a lower cost of production than our current plants.

On to Page 13. COVID has created a significant challenge for our Customer business as demand has reduced significantly, and we have seen a rise in bad debt. Our portfolio of SME customers was particularly hard hit by the continued lockdowns. Overall, this has led to a poor financial results with an EBITDA loss of GBP 39 million for the full year. That is in line with where we thought it would be back in April.

We've been very focused on taking the opportunity to reposition the portfolio, strengthening our credit criteria and focusing on those customers who can add the most value and are most aligned with our purpose. Looking beyond the impact of COVID-19, we continue to evaluate options for the SME portfolio. We continue to develop our Drax customers' I&C business, which is in good shape. And our energy services and renewable markets propositions remain highly complementary to our flexible and renewable power proposition.

And with that, I will turn it over to Andy to take you through the financial review.

Thank you, Will. Starting on Slide 15 with the financial summary. Our financial performance has been strong throughout 2020 with adjusted EBITDA of GBP 412 million, increasing from GBP 410 million in 2019. And this is despite an impact of COVID of approximately GBP 60 million in the period. The adjusted EBITDA includes GBP 46 million in respect to the CCGT portfolio, the disposal of which was completed on the 31st of January this year.

In our income statement, the performance of these assets is shown in a single line as net result from discontinued operations. Adjusted EBITDA from the continuing operations was, therefore, GBP 366 million. Following our announcement in February of 2020 that commercial coal generation will cease at Drax Power Station in March of this year, we have fully written down the associated assets. In total, obsolescence charges of GBP 239 million have been recognized as an exceptional item. GBP 226 million of this relates to the coal closure and GBP 13 million relates to the decision not to develop a new CCGT at Drax Power Station.

We've also recorded an exceptional provision of GBP 34 million in respect of other coal closure costs, primarily in respect to redundancy, pensions and site engineering works. Cash outflows will occur through 2022, and we anticipate OpEx reductions of more than GBP 30 million per annum once it's complete.

The U.K. government's reversal of previously announced corporation tax rate reductions led to a revaluation of deferred tax assets and increased the tax charge in the period by GBP 14 million. This is the equivalent of 3.5p of adjusted basic earnings per share. Despite this, the adjusted basic earnings per share of 29.6p is in line with the prior period.

Our cash generation continues to be strong. With GBP 413 million of cash from operations in the period, we closed the year with GBP 290 million of cash and net debt of GBP 776 million. This represents a 1.9x net debt-to-EBITDA ratio.

On a pro forma basis, if you take account of the initial proceeds on sale of the CCGT portfolio received in January and you remove the associated EBITDA contribution of GBP 46 million, the net debt-to-adjusted-EBITDA at the end of the year was 1.6x.

The Board has proposed to pay a final dividend of 10.3p per share. This brings the full year dividend to 17.1p per share and represents a 7.5% year-on-year increase.

Moving on to Slide 16, development of biomass self-supply. We'll continue to develop our biomass self-supply to expand capacity and reduce cost. Performance in our Pellet Production business has been very strong, and adjusted EBITDA of GBP 52 million grew GBP 20 million or over 60% in the year. The volume of pellets we produce grew 7% to 1.5 million tonnes and the achieved cost reduced 5% to $153 per tonne.

On our November 2019 Capital Markets Day, we announced a target to expand biomass self-supply capacity to 5 million tonnes by 2027, while reducing the portfolio cost of biomass to GBP 50 per megawatt hour. In support of that ambition, we outlined specific plans to deliver $35 a ton cost savings on our self-supply capacity by the end of 2022. This equates to $64 million of run rate cost savings, and we're making good progress. At the end of this year, we've already delivered $28 million of this total. We expect that the expansion projects will contribute approximately half of the remaining required savings to reach our '22 target. The expansions are progressing well, and the first of these at Morehouse commissioned at the end of 2020.

Together with the development of 3 new satellite plants, our self-supply capacity will reach 2 million tonnes in 2022. As Will has mentioned, the acquisition of Pinnacle adds a further 2.9 million tonnes of capacity, 2.5 million of this is existing capacity and 400,000 will be commissioned in the first half of '21.

Of the combined 4.9 million tonnes total, 3.4 million of this is available to meet our 5 million tonne self-supply target in 2027. The balance is contracted long term to high-quality Asian and European counterparties.

The 2019 U.S. dollar FOB cost for Pinnacle of $124 a tonne is around 20% cheaper than the Drax equivalent and below our 2022 target of $131 a tonne. In large part, this reflects a greater use of lower cost, so on the residues.

Our innovation team continue to assess options for widening the fuel envelope to include other lower cost sustainable biomass materials. This includes sugarcane residue, nutshells and sunflower husks. We're running more trials at Drax Power Station to test combustion chemistry and handling during the first half of this year. These materials can represent a significant amount of the sustainable biomass we require and a means by which we can further reduce costs.

Turning to Slide 17, the financial impact of COVID. The full year impact of COVID of around GBP 60 million is in line with our previous estimates and has been most pronounced in our Customer business with 3 primary drivers: firstly, reduced demand and an increase in third-party costs; next, a mark-to-market loss to exit previously hedged power contracts; and thirdly, an increased expectation of business failure and bad debt charges.

In relation to demand reduction, we adjusted our customer forecast following the first lockdown and exited previously hedged positions in line with our revised demand expectations. Demand reduction across our portfolio peaked to 27% in April and was 11% for the full year on a weather corrected basis. We expect the equivalent reduction for 2021 will be around 5%.

Overall, our bad debt charges in the period of GBP 43 million or 2% of revenue in our Customers business have more than doubled compared to GBP 18 million and 1% of revenue in 2019. In our SME customer base, where the impact of lockdown and social distancing measures have hit hardest, bad debt charges have increased to 5% of revenue from 2% in 2019.

In our I&C customer base, contracts have greater protections that allow us to pass additional costs through to customers. And we're able to better mitigate credit risk with insurance cover and by reducing receivables through our securitization facility. The impact of COVID continued to evolve and currently, we expect the impact will be much reduced in 2021 and predominantly in the first half of the year as restrictions ease.

Moving on to Slide 18, adjusted EBITDA bridge. I've already noted the strong performance in our Pellet Production business and the impact of COVID on our Customer business. In generation, adjusted EBITDA increased over 9% to GBP 446 million, and included GBP 46 million in respect to the gas assets, which have now been disposed of. Our biomass operations performed well with strong portfolio availability of 91% and a 7% increase in total output compared to 2019.

We have a major planned outage for our CfD unit, which will take place in 2021. Our hydro and pump storage portfolio continues to perform well, contributing adjusted EBITDA of GBP 73 million, an increase from GBP 71 million [Audio Gap]. Cruachan has performed strongly during the period of increased demand for system support services as the operator seeks to manage the challenges, which Will has already touched on. In July, a 6-year stability services contract at Cruachan commenced with a value of up to GBP 5 million of EBITDA per annum.

Our coal generation resulted in an EBITDA loss of GBP 6 million in the year. In 2019, it contributed EBITDA of GBP 27 million, and this was in large part attributable to buybacks in the money contracts. During 2020, income from buybacks reduced as we ran more often to consume the remaining coal inventory ahead of ceasing commercial generation in March of this year.

I've anticipated our central and other costs are consistent year-on-year, but with an increase in innovation spend, offset by a corresponding reduction in corporate and other costs. The increased investment in innovation includes activities to expand our biomass view envelope and supporting our efforts on BECCS.

Turning to Slide 19, capital investment. Reflecting the delay of some nonessential enhancement projects due to COVID and a short delay of some investments in our biomass supply chain, our CapEx outturn for the year was GBP 183 million. Excluding the disposal of CCGT assets, CapEx for continuing operations was GBP 155 million. With increased spend on strategic projects, primarily in respect of the 3 new satellite plants, we expect CapEx to be in the range of GBP 190 million to GBP 210 million for '21. Maintenance CapEx of GBP 80 million to GBP 90 million includes both recurring and one-off maintenance at Drax Power Station, at our Hydro sites and then our Pellet plants.

Moving to Slide 20, on the balance sheet. We continue to have a strong focus on cash flow discipline and maintenance of a robust balance sheet, and this provides protection in times of economic uncertainty and a strong platform for which we can execute our strategy. Our available cash and committed undrawn facilities provide substantial headroom over our short-term liquidity requirements. And at the end of the year, we had cash and committed facilities of GBP 682 million. This is up from GBP 615 million at the end of 2019. Net debt of GBP 776 million, as I noted, represents a 1.9% net debt-to-EBITDA ratio and this is 1.6x on a pro forma basis for the disposal of the CCGT portfolio.

In the second half of the year, we refinanced our revolving credit facility. The new GBP 300 million facility matures in '25, and with an option to extend by 1 year. It can be used to manage low points in the cash cycle and now can be drawn in full as cash. It has an embedded ESG component, which adjust the margin based on Drax' carbon intensity, and this is measured against an annual benchmark.

In the second half, we also entered into new infrastructure loan facilities, totaling GBP 213 million, and a new GBP 250 million euro-denominated bond, saving over 1% on the early settlement of more expensive debt, providing access to new sources of capital and extending our maturity date out to 2030.

Our overall cost of debt is now below 4% per annum. We anticipate funding the proposed acquisition of Pinnacle from cash and existing arrangements, and expect our leverage to return to around 2x net debt-to-EBITDA by the end of 2022. Both Fitch and S&P have affirmed our credit rating after the announcement of the proposed acquisition of Pinnacle. As a reminder, we have a BB+ stable corporate rating from S&P and a BB+ strong corporate rating from Fitch. We also have a BBB flat investment-grade corporate rating from DBRS.

And finally, on to Slide 21, our capital allocation policy. We continue to think about our approach to capital allocation in 4 stages. Firstly, maintenance of a strong balance sheet with a target net debt-to-adjusted-EBITDA of around 2x. Next, the continued investment in the core business. Thirdly, a sustainable and growing dividend and the 7.5% expected increase in the full year dividend for 2020, and the average annualized increase of 11% over the last 4 years is consistent with this objective, whilst the precise level of growth will vary year-to-year depending on the operating environment and investment needs of the business.

Finally, we'll return surplus capital beyond investment requirements. We have outlined a range of development projects across the group, which offer attractive returns, but could require significant investment. These are principally in respect to the objective of reducing pellet costs and expanding capacity. Throughout, we'll maintain financial discipline and we'll ensure a prudent capital structure and maintenance of our credit ratings.

With that, I'll hand back to Will.

Thank you, Andy. And I'm turning now to Page 23. I want to talk a little bit about our biomass strategy. We remain very focused on our target of 5 million tonnes of self-supply at a cost of GBP 50 per megawatt hour by 2027. And as a reminder, we believe that these -- this process supports 3 options that gives -- that support our strategic objective of creating a long-term future for sustainable IMS.

The first, producing and selling biomass to third parties, which we expect to be attractive given our expectations for pricing and pellet market growth globally; the second, using negative emissions using BECCS; and third, power generation at Drax Power Station, which could deliver as much as GBP 100 million of EBITDA, as we outlined at our 2019 Capital Markets Day. And we believe that having these 3 strategies, which are highly complementary and not mutually exclusive, provide significant option value for the long-term use of our biomass supply chain.

Turning now to Page 24. We expect to publish a circular for the proposed acquisition of Pinnacle shortly. So I just take this opportunity to remind you of why we believe that acquisition is so well aligned with our strategy. We believe it's a compelling opportunity, which positions Drax as the world's leading biomass supply in Generation business. Pinnacle has been a major supplier of good quality, low cost, sustainable biomass to Drax for many years. So we know them well. And given our clear focus on expansion and cost reduction, we believe the deal makes good sense strategically, operationally and financially.

In addition to providing capacity expansions and cost reduction, Pinnacle is a major supplier of wood pellets to ourselves and counterparties in Asia and Europe. Pinnacle is an excellent operator and gives us presence in additional wood baskets and 2 additional ports. We will be working with them to ensure that we have leading operating and sustainability practices across our pellet operations and making any necessary investments that are required to ensure that is the case.

The deal will immediately give us an established third-party supply business of scale, one of our long-term options for biomass beyond 2027, with a global reach and a wider platform to develop growth opportunities for sustainable biomass. The numbers are compelling, and we expect to fund the acquisition, as Andy already mentioned, from cash and existing arrangements.

Turning now to Page 25. Our target is 5 million tonnes of self-supply by 2027. Through the development of our existing operations in the U.S., gulf, we expect to deliver 1.9 million tonnes of that by 2022. 1.6 million tonnes of that is already operational. Additional expansions at Amite and LaSalle as well as the 3 satellite plants will allow us to process greater volumes of low-cost fiber, thereby contributing to an overall reduction in our biomass production costs.

When combined with Pinnacle, that would give us access to 4.9 million tonnes of capacity across 17 pellet plants by 2022. And of this, 2.9 million tonnes is available for self-supply in 2022, rising to 3.4 million tonnes in 2027, leaving a gap of around 1.6 million tonnes to fill by 2027 in order to deliver our 5 million tonne target.

We have a range of options available to us to develop this additional volume, including the development of potential associated with the enlarged Pinnacle's and Drax' supply chain. We have previously said, we expect to invest around GBP 600 million in CapEx and OpEx to deliver our plans for 5 million tonnes of capacity, which equates to about GBP 200 per tonne. And we expect the actual cost of the investments we've already disclosed in expansion, satellites and in Pinnacle to be in the range of GBP 150 to GBP 160 per tonne. So we are well on track to deliver capacity below our target capital investment cost.

On to Page 26. Our operating cost target is GBP 50 per megawatt hour fully delivered to the Drax Power Station. And that equates to around $100 a tonne production cost on the vote at our port facility at Baton Rouge, Louisiana. Our base year was 2018, when our costs were about $166 per tonne on 1.4 million tonnes. And by 2020, this cost has come down to $153 a tonne on 1.5 million tonnes of capacity. Further savings will be delivered through the expansion of our existing facilities, supply chain optimization and the utilization of low-cost fiber, typically sawmill residues, giving us a clear route to a target run rate cost of around $130 a tonne by the end of 2022.

And by comparison, Pinnacle's 2019 cost was $124 a tonne. So in order to push beyond these levels towards our 2027 target, we need to include an expanded range of biomass materials, which typically have a more challenging chemistry, but a more attractive cost profile. As Andy mentioned earlier on the call, we're looking at sugarcane residues, various types of nutshells and sunflower husks, and we expect to progress this work during 2021 with trials at the Drax Power Station.

On Page 27, let me talk a little bit about BECCS. So first, we're making good progress on our technology development. Trials of the proven Mitsubishi solvents are progressing well, as is the more innovative but less developed C-Capture solution, in which we have an equity stake and recently made a follow-on investments.

We expect to start a planning application process for BECCS in the Drax Power Station in March. But it doesn't mean we'll necessarily go ahead. But by starting now, we do eliminate a potential timing bottleneck as we progress with the project. We also expect to be in a position to commence a detailed engineering study, a FEED study later this year, which will require an investment on the order of GBP 10 million to GBP 15 million. Now before we do that, we will need clear visibility from the government on how they expect to support BECCS and negative emissions.

On that note, on Page 28. The development of policy around carbon clusters and BECCS moved down significantly in late 2020, as the U.K. expects or is planning to host COP26 at the end of 2021. So we expect this to be an important year. The energy-wide paper published in December recognized the unique role biomass can play in reaching net zero and also included a commitment to establish the role of biomass in the future energy system by 2022. Building on this, we expect the government to publish a preliminary positioning paper on the role of biomass in BECCS as it can contribute in net zero by the summer.

As you will recall, the government had allocated GBP 1 billion for CCS. And importantly, earlier this month, the government announced a consultation for how it will support the development of CCS industrial clusters, reflecting their commitment to develop 2 clusters by 2025 and the second 2 by 2030. That consultation indicates that 2 clusters will be announced later this year as being a priority for the government, along with their priority capture projects. We then expect the government to focus on negotiating agreements with those clusters and projects leading up to 2025.

Now it's very good news that we have a clear road map from the government for how they expect to develop CCS. It's also clear that the process will be competitive. I think that there will be certain clusters given priority and that we will have to make sure we are one of those.

We are part of the Humber cluster, which is one of the largest and one of the most developed options available to government. There's a lot to do in this area, but the process is moving forward in an encouraging way.

Finally, on Page 2020 -- sorry, Page 29, I'd like to talk a bit about the outlook for 2021. Financially and operationally, we're focused on safe, efficient and sustainable operations across the group as well as having a commitment to a sustainable and growing dividend. We hope to complete the acquisition of Pinnacle later this year, and everything is very much on track to do so. We believe Pinnacle has built a great business and will help us deliver our biomass strategy and become the world's leading biomass supply in Generation business. As part of that, we will work to ensure that Pinnacle delivers operational, health, safety, environmental and sustainability outcomes that are in line with our standard.

Through the end of coal and the sale of gas, we expect to become one of the lowest carbon intensity generators in Europe. And with greater clarity on BECCS, we hope to progress our option for this world-leading and exportable technology, which the U.K. and others will need to deliver net zero. We are ready to go subject to the right regulatory framework. I am really pleased with how the business is doing, and I feel we've had a very strong year in 2020.

Thank you for your attention, and I'm now happy to take questions.

[Operator Instructions] The first question comes from Dominic Nash of Barclays.

I have 3 questions, please. Firstly, on pelleting costs. You obviously have an ambition to drive it down to GBP 50 a megawatt hour or the $153 is the current price. What's the value of pellets? Are you not the cost -- what's the actual market value of them? And where do you think the market value of them will go in the future as demand rises and your costs come down? So that's question number one.

Question number two, on the -- again, on pellets. It looks like you're going to have about 15% market share once the Pinnacle deal comes over. Is that a fair assumption of where you would like your market share to be going forward as the market grows? I think, I guess, about 8 million tonnes of market share by 2029 on your numbers. And just something that you peaked my interest here on your -- I think your pelleting paragraph, where you said, world-leading and exportable BECCS technology. Could you -- do you have the ability to find new Drax' elsewhere?

And then the final question I've got is commodity prices obviously gone up massively, I think, up 20% in the last quarter or so. At your outlook statement, you don't seem to have too much on EBITDA. What impact will this have do you think on EBITDA profiles going forward? Are you comfortable with market consensus next year?

Okay. I will -- thanks, Dominic, and I'll do my best to respond to those. So the first one on pelleting costs, I would say, the spot market for pellets as sort of evidence through August, sort of up and down all the time. So I'm not sure we think that, that's necessarily a good sort of guide. I would say, the sort of the GBP 75 number that we use as sort of our benchmark is, broadly speaking, a good place to sort of think about where that is, in terms of market value. And I guess we think that market value will increase over time on a sort of relatively indexed basis. But again, it's very much a contracted market. And so it really depends on where individual contracts would be, which is sort of the same way I would describe the answer to the second question.

I mean we don't really have that sort of target for market share as it were. And the growth in our business in terms of Pellet Production will be driven by 2 things: one by our ability to grow the Pinnacle contracted position, and we think there's good opportunities to continue doing that. So effectively, the idea would be, as we add contracts, we would build capacity to support that. And similarly, in the U.K., I mean, right now, the interesting thing about where we are in terms of self-supply is that we are increasingly excited about some of the opportunities to use, what we call, viable fuels.

And so in the relative -- the pre-2027 period, we think we can contract for significant amounts of those and fill some of the gap we have up to that period. And then as we get more confidence of what we expect to happen after 2027, I would expect to sort of fill in more of that 5 million tonnes or the 1.6 million tonne gap that we currently have, right?

In terms of exportable BECCS technologies, we are -- I mean, I guess the answer to that is we are looking at other markets. We think that there are opportunities, whether they are for what we call new build BECCS and/or for conversions. So it is something we're looking at. I wouldn't say that anything is going to happen at least for us anytime soon. But we are exploring markets across Europe, U.S. and, we think, ultimately, our position now in Asia will be one where we can also explore more of that as well.

And then finally, on -- sorry, commodity pricing, I think our position, relative to 2021, I think we're quite comfortable with where consensus is now. So I think a lot of the impact of that is either embedded in that number or, frankly, given the strength of our hedge position, sort of already quite managed. But again, as I'm looking forward, the market is more attractive than it has been for a while. But I guess the simple answer is it could go either way as we see how things moving. And one of the things that will be interesting, as I'm sure you're on top of is where the U.K. ETS comes out. So that's a bit of an unknown factor still.

The next telephone question is from Martin Young of Investec.

Just picking up on the biomass side of things. You've indicated that there is a contracted position from Pinnacle beyond 2027 on Slide 25. I just wonder how quickly that might fall away and, therefore, be available for self-supply at Drax? Or given the answer to Dominic's question, is that something you're not looking at? You want to keep that and potentially grow it and to build that 1.6 million, you do have to develop new capacity, not rely on Pinnacle longer term?

The second part around biomass is on the price. Obviously, at the moment, you've got Drax own business and pellet costs. You've got the Pinnacle pellet cost. Will you be treating those as one integrated number going forward and, therefore, only reporting one cost? Or could we expect a dual track?

And then my third question is around what we've seen in January and perhaps early February of this year with power prices, with the balancing market, et cetera, et cetera. You obviously had the gas asset for 1 month. Should we be thinking about a decent level of profitability from that plant in the balancing market in January? And have you been able to do any sort of optimization of the biomass and hydro facilities as well that could have a material impact on revenues that you get from system support and the like?

Okay. I think I have 4 different questions there. So first on the question of how much is contracted beyond 2027? I guess the way I want to answer that question is sort of how do we look at it? And I guess for me, I look at that as being, one, I think the contracted business in Asia and Europe is quite interesting. I think in Japan, for example, there is an opportunity for more growth. And we would like to take advantage of that.

So that's -- but again, I'm very much on a contracted basis. So the way I think about that is we will again build to the extent we have new contracts. We will build to support those. And those contracts do go on into the 2030s, but it does drop away. But again, I would think of probably the first order of business is to add more to that portfolio to the extent that we can, right? And then as I mentioned before, we will sort of add to our self-supply in the U.K. when -- as and when we get more confidence around sort of BECCS, et cetera, and around continued operations in the Asian market, right?

But one of the things I think is quite important from my perspective is that now that we have -- or when the Pinnacle deal closes, we have a -- not only do we have the contracted book, but we have a strong capability to add to it. It gives us very, I guess, good optionality in terms of where our pellets go after 2027. So having multiple options for that gives us, I think, a strong position relative to a bunch of things, including where we go, but also including how we discuss future prospects with various different stakeholders.

Price, in term of how we will report? I would expect that we will report sort of a single cost for our sort of Pellet Production capability. I'm sure we'll also give you updates on where our Pinnacle or where the various pieces sit over time. And to be honest, I think -- I'm not sure we worked out exactly how that will work. But we will aim to give you good transparency as we have done so far.

And then finally, in terms of the January and February. So yes, January has been a good month for system support. I would say it's only 1 month. So I wouldn't get too excited about the impact of the CCGTs on the numbers for the year. It's probably not going to have a material impact on the overall picture. But I would say that -- one of the other things I would say is important is that the lion's share of our system support has come over the last couple of years from hydro, pump, storage and biomass as opposed to being from, I guess, the CCGTs have contributed, but we still have -- a very significant chunk of that system support will continue. Hope that -- does that answer what you've asked?

Yes, that's great.

The next question is from the line of Adam Forsyth of Longspur Research.

Just a couple of questions from me. Firstly, on planning for CCS. Are there any specific planning issues that you envisage in the application? And particularly what assumed uptake will you have for the CO2 in the application?

And in terms of clustering, have you given any thought to the creation of the T-side Humber supercluster in terms of approaching track 1? Is that an option? Or is that something that just couldn't possibly happen?

And then in terms of your OCGT auction, do you see any signs of grid policy changing around system support? I've noticed that dynamic containment has been allowed alongside the balancing mechanism for dynamic containment unit. I wonder if we're getting a bit of a decompartmentalization if you want of grid policy, which might benefit your asset portfolio overall?

Okay. Thanks, Adam. So the first one, I mean really, I think -- the way we think about it is we will be looking to get planning permission for what we do sort of within the envelope as it were, so on our site for the additional infrastructure required for the carbon capture. And so that's the sort of -- the clear sort of, call it, self-contained sort of question, and that's what our DCO will be looking for.

At the same time, we -- the National Grid is our partner for the transport and storage, will be conducting their own process, their own planning process for getting a DCO for the plan to the capture and storage infrastructure across -- sorry, transport and storage infrastructure from the Drax Power Station to the coast and then to the offshore storage, right? So the specific answer is that we will -- absolutely, we're looking to have a -- the offtake for the CO2 will be into a transport pipeline and then into storage under the North Sea or under the bottom of the seabed.

Final question in terms of the supercluster -- second question in terms of the supercluster, it's absolutely something that we're thinking about. As you probably know, the management of the offshore storage is now being done by something called Northern Insurance partnership, which includes BP, Equinor and National Grid. And that sort of for the offshore storage is planned to be available for both T-side and Humberside. And so if they were to join forces -- or if we were to join forces with T-side, that wouldn't be a -- that would be potentially a logical outcome there.

Finally, in terms of the open cycles. You are aware of the sort of the stability pathfinder process. So we do think grid is starting to look at unbundling potentially different types of system support and contracting for those on a longer-term basis.

The next question is from the line of Chris Laybutt of Morgan Stanley.

You sound like you're struggling a bit. So I'll keep it brief. Just a question on the Humber cluster and, I guess, it's a very simple one. What gives you confidence that your projects will go ahead in this sort of first track? And where do you see the competitive advantages?

And then I guess the second question is on the alternative materials that you've mentioned today, which I think we're very excited about. When do you think we might get more details on the economics of those? So is that something that we might see some more news on this year? Or is it more of a medium-term sort of thematic?

Chris, could you clarify the second part of the question, the economics of that of...

Yes, the nutshell and the sugarcane and those sort of the processes that you're investigating now. I think you mentioned that they look cheap, but complicated.

Exactly. That's probably exactly the way the guys at the power station would describe them. In terms of the cluster, I mean, the interesting thing about that is the consultation does lay out some very specific criteria for how the government will assess the clusters and the capital projects. And those include deliverability, those include emissions reduction, they include sort of value for money, they include economic and social benefits to the regions. And actually, we think that the Humber cluster is very attractive on multiple fronts, right?

So I think our project, for example, being now, well, by the end of the summer or, frankly, by the beginning of the summer, we will be completed through pre-FEED, which I think puts us well advanced relative to many of the programs. I think -- so there's -- we would score -- we expect that we have attractive potential to score well on a bunch of the criteria that the government has laid out, right? CO2 being obviously one, at 8 million tonnes of negative emissions for 2 units. That's a very big contribution to the overall decarbonization targets in the U.K., right? All that being said, I mean, it is now clearly a competitive process, and we need to make sure that we win. So we are super focused on making sure that, that happens, right?

In terms of the -- Chris, to talk a little bit more about the alternative fuels, I mean, the cost is attractive. The sustainability criteria are attractive. I mean you're using something that is absolutely 100% waste product of another sort of agricultural or production process. So sunflower husks, for example, being a good one. I mean those are already pelletized and used by some people. And we -- so the cost characteristics are interesting and attractive. So we look forward -- that's something -- I guess, probably the best way to say that is probably by either half year or maybe the end of the year, at some point this year, we will probably update you on those.

And the challenge is with the chemistry because the -- those materials tend to have sort of, to be more sticky, stick to the size of the border more than coal would have or more than like wood pellets do. And so we need to come up with ways to mitigate that. So that's a combination of limits and how much of it we can use and how much we mix it in. So each one of these trials, each one of these viable fuels will effectively result in us having a specific target for how much we can use.

But also one of the things that's really interesting is our guys have been very innovative and looking at ways to mitigate those problems by mixing other materials. And as you know, we already mix in coal dust into our biomass to actually mitigate some of the challenges that biomass has. So not only -- so part of this is actually understanding how much we can use with raw, for example, but also looking at other ways that we can mitigate some of the impacts to increase the percentages. So again, we think it's exciting, I think it's attractive and we should update over the course of this year.

I will now hand over to Mr. Will Gardiner to answer any webcast questions.

Okay. I'm going to read these off, and Andy doesn't know this, but I might give them some of these. A couple of questions from Mark Freshney. First one. Can you please provide what the lost EBITDA on the CfD outage will be year-over-year?

Second one from Mark. Can you please talk us through the U.S. dollar-British pound exchange rate movements? And how and over what period that will help lower biomass costs?

I'll give that to you, Andy.

Okay. So on the first question on the CfD outage, we expect the outage will be around 100 days. So I guess the simple way is to take the CfD strike price of around GBP 115 less our cost of biomass. And you'll get around 40 of margin. And if you take that on 100 days in the output of the CfD unit, around 5 terawatt hours, I think you'll get to around GBP 50 million is broadly the cost of that.

Secondly, on the U.S. dollar exchange rates. I think as we've said, we hedge 5 years out by quarter. And we are structured to lock in a worst-case rate. But we leave room in the structure to allow participation as rates move. So our current book is around $140. And at current rates, we can lock in 5-year spot in excess of that. And with the room to participate as rates move, we think we can be in line in the future with our $145 target, so both moving the short-term book, where we've already locked in the worst-case rate and locking in the future rates. So we're making good progress there against that $145 target we set for 2027.

Great. Thank you, Andy. And then the next question from James Hewitt. What percentage of British Columbia's sawmill residues was used by Pinnacle in 2020? The province's exports of sawn wood declined by 1/3 during the last 3 years. This implies that the availability of mill residues for the pulp panel and pellet industry has declined by 1/3. These pellets have leased priority in a circular bioeconomy.

So thanks, James. I think that you've got a very good question. And actually, if you look at Pinnacle's results, they announced those last week -- sorry, not last week, yesterday. There's a press release out there that you can all look at. And they've actually specifically -- I think they answered your question here, which they say that sawmill residues dropped from 84% of the company's feedstock in Q3 to 77% in Q4. As a result, as you mentioned in your question of reduced sawmill operating rates towards the end of the quarter, right?

So yes, I think 80% roughly is, I think, the number that they've been using plus or minus for rest of the while. I think that the -- probably what I would say is that the impact on them has been a little bit less than it has overall in the industry, and they would -- might attribute that to the fact that they have good relationships with high-quality, low-cost sawmills, which insulates them to some extent from that issue.

All that being said, this is a -- we are -- this is an issue we are well aware of, and we'll have to manage this as the annual allowable cut potentially comes down over time. We'll have to make sure we have ways of managing that, which Pinnacle has been doing and that we will also make sure that we do in ways that are very much consistent with our higher standards for sustainability.

Excuse me, sir, we have another additional question from the conference call. The next question is from the line of [ José Lopez ] of MBAM.

I just had a question on commercial biomass after 2027. It seems to me that you might have to 2 shifts instead of 1 baseload, right, given where forward prices are, especially in the summer? What should I model or assume in terms of future outages on the 2 shifting regime for the commercial biomass units over maintenance costs?

And then the second part of the question would be, in the winter, we're getting negative price periods on a random basis when you get strong wind. So the regime peak-of-peak is not as driven by the time of the day as by when the wind is blowing in terms of when we might get periods in which commercial generation might not be viable. How flexible would the plan be to respond to commercial biomass to this kind of commercial pricing environment?

Thanks, [ José ]. So I guess, to answer the first one, I would say, specifically for working out the maintenance regime for how it might look post 2027, and we'll have -- as we get closer, we'll end up with a more detailed and specific answer to your question. But I wouldn't see it as necessarily so different from where the situation is now. And we have been sort of 2 shifting the biomass units for some time, especially the rock units. So I would say probably not dissimilar, but again we'll have to look at that as and when we get there.

In terms of the flexibility of the biomass units, I mean they are not, obviously, so flexible from cold, right? So they do take time to warm up, so that -- they will not be as flexible as gas, for example, on that basis. But they are flexible sort of within sort of their operating regime, i.e., moving from, say, 200 megawatts of output to 600, quite a lot of sort of flexibility relatively quickly. So they will be, I think, useful assets to have in the balancing mechanism for the next few years and also as we move beyond into the new -- beyond 2027 as well. That's have -- being a 2 shifting and sort of peaking sort of type gene is absolutely the way we can do that.

The next question is a follow-up question from the line of Dominic Nash of Barclays.

A quick one here. You're saying that you are retaining your option to build your OCGTs. Yes, the narrative that we've clearly got with the sale of CCGTs and the closing of coal next month is that potentially are a non-fossil fuel company. Have you looked at what the impact of keeping these options open on OCGTs have on your ESG credentials and the ability for investors to invest in you? Or is this something that you could potentially look at selling on a later day, please?

So the way I think about it, Dominic, is this is something we're sort of balancing. The various different stakeholder obligations we have is really an important sort of judgment that we, as a Board, will make. I mean clearly, we've invested in those open cycles, and we want to make sure we realize good value on some of those investments.

But clearly, we also believe that being a sort of renewable generator is also critical to our future. So balancing those obligations to make sure we get the right contract, making sure that we monetize that value in the most effective way across those different obligations and selling those once we have a contract. Either before or after development is absolutely one of the things we will look at as an option.

Gentlemen, at this time, there are no questions registered. This concludes our question-and-answer session. I'd like to turn the conference over to Will Gardiner for any closing remarks.

No, thank you all for joining. And again, you know where to get us if you have further questions. Thanks very much. Have a good day.

Ladies and gentlemen, this concludes today's conference. Thank you for joining, and you may disconnect.