Ladies and gentlemen, welcome to the Drax Full Year Results 2021 Call. My name is Maria, and I will be the operator for your call this morning. I will now hand you over to Will Gardiner, CEO.

Thank you, and thanks, everyone, for joining the call. I'm going to just dive right in. I'm on Page 5. So our purpose, which is enabling a zero-carbon, lower-cost energy future is very much always at the core of what we do. And during 2021, that was really about sort of transforming Drax. We started the year by selling our gas assets. Then we moved to ending commercial coal generation at the end of March. Moved from there acquiring Pinnacle. And now I would say we're largely the largest U.K. pure-play renewable power company, producing more renewable power than the next 2 biggest producers combined. We're also the world's leading biomass generation and supply company and are making good progress towards our ambition of becoming carbon negative by 2030.

I would say equally important, during 2021, the global momentum for decarbonization continues to increase. And specifically, the importance of carbon removals and the role that BECCS can play to deliver that is increasingly being recognized. So in short, I very much feel that Drax is now very well positioned to take advantage of growth opportunities in flexible renewable generation in the U.K. and in biomass and in BECCS globally.

If I turn to Page 6 and talk about some of the highlights of the year. Again, a very strong delivery from our business during 2021, and I want to thank all of our colleagues throughout the business for the hard work that they've done to deliver that. We were very focused on keeping our employees safe and well and helping to keep the lights on in the U.K. as we went through the second year of the pandemic, and I think we were successful in doing that.

On a financial basis, we delivered EBITDA of GBP 398 million, which included GBP 20 million from our discontinued or now discontinued gas generation. Excluding that, underlying EBITDA rose by 3%. On the pellet side, we more than doubled our production when you include Pinnacle and we continue to reduce our costs by 7% in the year.

On the generation side, I'd say that sort of amplified by the very, very difficult events of today, the importance of our secure U.K. generation, the sustainable nature of it, the dispatchable nature of it has never been more clear.

And in our customer business, we've bounced back well from the challenges of COVID and are now profitable again at the EBITDA level. So as evidence of our confidence in the business and the opportunities in front of us, our Board is recommending a 10% increase in our dividend to GBP 0.188 per share for 2021.

Move to Page 8. Our aim is to be a future positive company. We're fully committed to building a long-term sustainable business with strong operational and financial performance, investing in delivering low carbon growth. At the same time, we aim to deliver people positive, nature-positive and climate positive outcomes. With the well-being of our employees at the core of who we are. As well as doing our best for the communities where we operate and for the environment.

On the people positive front, safety remains our top priority, and we had an improved total reportable injury rate in '21, down from 0.29 the year before to 0.22. We also added 2 very capable nonexecutive directors, Erica Peterman and Kim Keating, who have extensive experience across North America, which will give us great additional thinking on that front. So very pleased with that.

On the climate positive front, I'd emphasize that over 90% of our power generation is now from renewables and that accounts for over 80% of our earnings. And we expect that percentage to rise now that we've sold gas and we've ended commercial coal generation.

And finally, on the nature-positive front, all of the biomass we produce and use is audited against international biomass and forestry standards to ensure a strong chain of custody, and it's all fully in line with the best available science from the IPCC and underpinned by international law.

Turning to Page 9. Over the past decade, Drax has invested over GBP 2 billion in renewable energy. And we have reduced our generation carbon intensity more than any other European utility by more than -- sorry, by more than 95%. And -- and that journey will continue as we ended coal and gas-fired power generation last year. We're also continuing to reduce emissions in our biomass supply chain to the Drax Power Station, which over the last 5 years have declined by over 20%.

In December last year at our Capital Markets Day, we announced plans to invest a further GBP 3 billion this decade in our biomass supply chain, in dispatchable generation and in negative emissions in the U.K., which all underpin our ambition to become a carbon-negative company by 2030. And in addition, we also have an opportunity to invest further in negative emissions globally.

We recognize that it is important not only for us to deliver negative emissions but also to reduce our own residual emissions and the emissions in our supply chain. And to that end, we have set challenging targets to reduce our residual Scope 1, 2 and 3 emissions by 42% as part of our plan to become carbon negative by 2030.

So moving on to Page 11. I want to talk a little bit about our pellet business. So [ Dysedal ] the second largest producer and supplier of biomass globally. We have 17 plants pellet plants in developments across 3 major fiber baskets and 4 deep water ports, and those ports have a throughput capacity of 8 million tonnes, which gives us excellent operational resilience as well as a platform for growth.

Having plants, both on the East and the West Coast of North America ideally suits us to serve markets both in Asia and Europe, minimizing ocean transport carbon emissions, time and cost. We plan to increase our existing production capacity from 5 million tonnes, which we are approaching as we speak to 8 million tonnes by the end of the decade. As well as increasing our sales to third parties to 4 million tonnes, with a focus on markets in Asia and Europe.

This year, we're building the infrastructure to support that growth with a new office and team in Tokyo and a team in London, the former handling Asia and the latter Europe. We also are building a strong technical sales team to leverage our engineering generation heritage and to provide support on biomass conversions and on BECCS, where we believe our differentiated expertise can really make a difference.

And I would say it's been interesting that since COP where ending coal was a major theme and where corporate engagement was higher than I've seen it before, having been there myself. We're seeing a lot of interest in additional coal to biomass conversions.

If I turn to Page 12. In the year, we had a good operational performance from our pellet business. As I mentioned with Pinnacle, we've more than doubled our production. We have a 7% reduction in our cost per tonne, and we had a 65% increase in EBITDA. In terms of our sources of fiber, one of the benefits of the Pinnacle acquisition is that we are now up to 57% sawmill residues in our fiber mix, which has both cost and sustainability benefits.

As we said at the time of the acquisition, we have and we will make incremental investments in the clinical facilities to ensure that they meet our standards for sustainability and safety.

And finally, I really want to emphasize that I've been very impressed with our Pinnacle colleagues. They understand how to make a good pellet. They understand the markets and the opportunities that we have in front of us, and they're very excited to deliver on those things as part of Drax.

Turning to Page 13. During 2021 and into the beginning of this year, we continue to build and commission new capacity up to about 600,000 tonnes. We expanded our facilities at Morehouse and LaSalle. We've built a new plant at Demopolis. And we've got 2 satellite plants that we're building at Leola and Russellville in Arkansas. All of those, we expect to enter full service early this year. So all in all, alongside our existing plants has given us just under 5 million tonnes of production capacity across Canada and the U.S.

We're also building an attractive portfolio of new development options. This could include additional satellite plants as well as new larger-scale plants, and we expect to take final investment decisions on up to 1 million tonnes of new capacity during the year, which would represent a significant step towards our target of 8 million tonnes of capacity by 2030.

On Page 14, we have a very high-quality order book with over 36 million tonnes of long-term contracts, of which 22 million tonnes are to high-quality counterparties across Japan, Asia and Europe, and those have revenues of GBP 4.5 billion. We also have -- or within that, are 14 million tonnes of additional own use capacity, i.e. the pellets will go to the Drax Power Station through 2026. And that capacity can also be used longer term to support our opportunities in BECCS, additional pellet sales as well as merchant generation in the U.K.

Turning to Page 15 and our Generation business. Generation business continues to perform well, providing 12% of the U.K.'s renewable power. Our availability was up slightly year-on-year, driven primarily by the CfD unit. Overall, earnings in biomass were lower on the year, and that reflected the opportunity cost of the planned CfD outage, as you all know, as well as the weaker pound that we hedged 5 years ago, which resulted in a higher sterling cost of biomass. All those things, I think, were well expected.

There's an additional element here, which is the grid charges were significantly higher during the year than had been expected, which has been driven by the very volatile market conditions we've seen in the latter part of the year. The first side of that is our own system support revenue was very strong, given the volatility, again, the same volatility that we've seen in the U.K. in our system.

Turning to Page 16. Our power sales strategy, which as you know, is to sell power forward to the extent that we can or to the extent that there is liquidity in solar power markets. But we also still sell gas forward to the extent we can, which gives us additional liquidity. But that means that in 2021, because we'd sold that power forward in prior years, we did not see a significant change in the average achieved price of the power we sell even as prices in the current market have risen. All that being said, between '22 and '24, we now have a strong contracted position on our biomass units, where we expect to sell around 15 terawatt hours per year across the ROC and CfD units.

We're now fully hedged for 2022, while we do have an open position in '23 and '24, again, as I mentioned, due to the lower liquidity in those periods.

As I mentioned, gross profit from system support services has increased. Those reflect actions we've taken across the portfolio, including coal, which were on a limited basis in the second half of the year, in line with the plans that we previously announced to only run when called by the system operator. And again, as I noted grid charges at [indiscernible] significantly increased, which means that our profits from coal in the second half of the year were not material in the overall picture.

Over time, we do expect that the value of system support services will increase as the system becomes more dependent on intermittent and inflexible generation and the [ roads patchable ] technology becomes more pronounced.

Moving on to Page 17, I wanted to give you a reminder of where we are on U.K. BECCS. So as you know, during the course of 2021, we had 4 different streams of work going. So the first one was a transport. Transport and storage, we were part of the East Coast cluster that was named as a priority cluster by the U.K. government, meaning that the pipeline that we will need to transport CO2 should be arriving at Drax in 2027. So that stream of work went very well.

The second stream was our planning process, which also has gone well. We're now in public consultation. The third piece was our own technology work where we appointed MHI as our technology partner, and we have appointed Worley as our feed partner. And finally, through working with the government to make sure that their strategy and their sort of commitment to BECCS was clear, and that have become very clear, they are committed to significant greenhouse gas removals as well as BECCS is part of their strategy. And as a result, as you know, we made the decision in December to invest GBP 40 million in 2022 in both feed work and site preparation.

So that will be a major activity for us during this year. At the same time, we expect some other key milestones. The government process will continue. We expect the government to announce priority projects in gas, hydrogen industrial CCS in May. We would expect the BECCS process to effectively run parallel alongside that, such that we will be in a position, again, to take a final investment decision by 2024.

Bioenergy strategy will be launched in the second half of the year, defining the BECCS business model. So everything is very much on track for what we need to get UK BECCS operating in 2027.

On Page 18, this is a short update on where we are on the new build BECCS internationally. We've made great progress on this work in 2021. We narrowed our plans internationally down to the U.S. being our first focus. We landed on later technology and plant design, and we began building the business case. We've continued that in 2022, working with governments to sort of -- local governments. To understand their priorities, we've been working on ongoing site selection and technology development as well as we've now begun discussions with potential buyers of the power and the negative emissions.

So final piece of the operational review is on Page 19 about our customer business. As you know, we are repositioning our business to focus on the higher-quality I&C customer base, which are lower risk than the SME customers and more aligned with our corporate purpose of enabling a 0-carbon, lower cost energy future. They're all now committed to consuming renewable power, which is in increasing demand in the U.K., and there is actually an interesting premium developing for that renewable power, and we're in a very strong position to deliver that.

As we said before, we're in option -- we're looking at options for our SME portfolio, and we will update you on that in due course as that evolves. But really, most importantly, I would say that the SME or the customer business did very well, the overall customer business did very well in bouncing back from COVID in 2021, and Andy will give some detail, but we gave -- we earned about GBP 6 million at the EBITDA level for the year.

And with that, I will hand it over to Andy for a financial review.

Thanks, Will, and good morning, everyone. So starting on Slide 21. Our financial performance was strong for the year. Adjusted EBITDA of GBP 398 million includes the results of our gas operations until their sale at the end of January and also includes the post-acquisition results of Pinnacle from April. But excluding the discontinued gas operations, our adjusted EBITDA for continuing operations grew 3% during the year.

We have strong liquidity with available cash and committed undrawn facilities at the end of the year of GBP 549 million. This reflects strong operating cash flows, which we'll use to invest in growth and support the payment of a sustainable and growing dividend in line with our long-standing capital allocation policy.

We closed the year with a net debt to adjusted EBITDA ratio of 2.6x, and we now expect that the group's net debt to adjusted EBITDA ratio will be below 2x by the end of 2022. As Will has noted, the Board proposed a final dividend of GBP 0.113 per share, bringing the full year dividend to GBP 0.188 per share. It's a 10% year-on-year increase and takes a cumulative increase over the last 4 years to just over 50%.

Moving on to Slide 22 and looking at the bridge of adjusted EBITDA. During 2021, we saw significant growth in our pellet production business with adjusted EBITDA of GBP 86 million, it grew 65%. And most notably, that's due to the acquisition of Pinnacle in April, but it also reflects higher levels of production and profitability from our existing operations. Our total pellet production more than doubled and the production cost per tonne reduced 7%.

In Generation, the decline to GBP 372 million of adjusted EBITDA, principally reflects the major planned outage on the CfD unit, which was successfully completed in the second half of the year and the sale of our gas assets at the end of January. Our forward power hedging strategy means that average achieved prices in the year did not see significant benefit from the higher power prices, but we do have a strong contracted position for '22 and '23, which reflects a higher forward market price of power, and this provides a high level of base earnings and a high degree of visibility over those earnings.

A higher cost of biomass reflects overall weakening in sterling with the timing linked to our risk management actions to secure foreign exchange rates 5 years in advance. This protects the GBP cost of biomass at the time of delivery. The hedge rate for 2021 reflects a period of significant uncertainty in advance of and immediately after the Brexit vote in June of 2016, and it was around 10% lower than the rate we achieved for 2020.

Our hydro operations continued to perform well, providing system support services and peak power generation. And these assets alongside biomass continue to represent most of our earnings in this growing market. Overall margin from system support and optimization grew to GBP 160 million from GBP 118 million in the prior year. While our commercial coal operations ended in March, the system operator did call our coal units into the market on limited occasions after March in response to the challenges the U.K. energy system was facing. These units remain available should the system operator require them to support the network until they formally close in September of this year.

As Will noted, the performance of our customers' business improved significantly during the year, returning to profitability with adjusted EBITDA of GBP 6 million. And this compares to a GBP 39 million loss in the prior year. And the result still includes an estimated GBP 16 million impact from the pandemic. Last year, the impact of the pandemic was around GBP 44 million.

Our volumes of power sold in the year grew 7% as the U.K. economy rebounded from the height of the pandemic. In addition to the challenges of COVID, a large number of supply businesses exiting the market during the second half of the year resulted in increased mutualization costs, which totaled around GBP 10 million.

During the year, we implemented restructuring measures, which included the closure of offices in Oxford and Cardiff as we continued to explore operational and strategic options for our SME business.

In the last 12 months, we've increased the future volume of the I&C committed book by 27%, signing high-quality customers in our target segments. This includes 3 major customer wins since the start of the year, with a combined annual supply volume of 3 terawatt hours or just over 15% from 2022. We also rebranded our Haven Power I&C business to Drax Energy Solutions.

Innovation, BECCS and other costs increased GBP 19 million in the year, and this includes an increase in strategic spend, primarily in the first half of the year on BECCS that was not deemed to be capital in nature.

So moving on to Slide 23. During the year, the volume of pellets, we produced, more than doubled to 3.1 million tonnes, and the achieved cost reduced 7% to $143 per tonne, reflecting lower cost of production in the acquired Pinnacle business, but also increased production volumes and reduced costs in the existing business. These improvements were delivered against a backdrop of extreme weather events in North America, particularly during the second half of the year. And whilst these events did result in some restrictions in pellet production and distribution, our diversified supply chain enabled us to limit the impact.

From a starting point of $166 per tonne in 2018, our target is to achieve $100 per tonne in 2027. To date, we've delivered 35% of the required cost savings in 3 years, and we expect this will increase to 55% with an exit run rate for 2022 of around $130 a tonne. In '22, we'll benefit from a full year's volume from Pinnacle also from the Morehouse and LaSalle expansions as well as new capacity from commissioning of Demopolis, Leola and Russellville plants. When complete, these plants will bring our production capacity across North America to almost 5 million tonnes, allowing greater utilization of lower-cost sawmill residues and leveraging our existing infrastructure.

Our innovation team continued to look at options for widening the fuel envelope to include other lower cost sustainable biomass materials. During the year at Drax Power Station, we completed trials of 4 different low-cost biomass materials to test combustion chemistry and handling. One of those materials represented 35% of the fuel mix in one of the units during testing runs. It's a significant increase on previous blending levels. And although there remains much work to do in time, we believe these materials could represent 1 million tonnes of sustainable biomass and make a meaningful contribution to our cost reduction targets.

Further future cost savings can be delivered through continued operational efficiencies across production and logistics and development of new technologies and innovation.

So moving on to Slide 24 and capital investment. We expect CapEx to be in the range of GBP 230 million to GBP 250 million for the current year, with maintenance CapEx of GBP 70 million to GBP 80 million across Drax Power Station, our hydro sites and our pellet plants. As we announced at our Capital Markets Day in December, we expect to take final investment decision on up to 1 million tonnes of new pellet capacity during the year, and this would represent a significant step towards our target of 8 million tonnes of capacity by 2030. And the increased strategic spend includes GBP 40 million of initial CapEx on these new pellet plants.

We're continuing to evaluate options for our open cycle gas turbine project, including the potential sale, and our estimate for '22 does not include material CapEx in this regard. The assets can play an important system support role. And whilst it's likely we won't hold these assets in the longer term, we'll continue to invest as appropriate in the short term to fulfill our obligations under the capacity market contract and to maximize value from our investment. In the event of a disposal, we would expect recovery of any CapEx we might incur during the year, and this could total up to GBP 100 million.

So moving on to Slide 25 and the balance sheet. We maintain a strong focus on cash flow discipline and maintenance of a robust balance sheet. It's provided protection in times of economic uncertainty, and it's a strong platform from which to execute our strategy. Our available cash and committed undrawn facilities provide substantial headroom over our short-term liquidity requirements.

As expected, reflecting the Pinnacle acquisition, our closing net debt ratio of 2.6x increased above our longer-term target of around 2x, but we now expect the group's net debt to adjusted EBITDA ratio will be below 2x by the end of 2022.

In July, we completed the refinancing of the Canadian dollar facilities acquired as part of the Pinnacle acquisition, and this provided an immediate synergy benefit, reducing the cost by just over 200 basis points. The new CAD 300 million term loan facility includes an embedded ESG component, which adjusts the margin that we pay based on the group's carbon intensity measured against an annual benchmark. The facilities mature in 2024 and further diversify the group's sources of funds, whilst reducing the all-in cost of debt to below 3.5%.

Both Fitch and S&P affirmed our corporate credit rating after the acquisition as BB+ stable. We also have a BBB flat investment-grade corporate rating from DBRS. The quality of our group's assets, earnings and cash flows provide further opportunities to reduce the margin on our debt in the future.

To support our growth ambitions for BECCS and other large-scale projects, we sought as much flexibility as possible within the capital structure. And this year, all will be redeemable at little to no cost. Looking forward, we have a GBP 35 million index loan note that matures in spring. But beyond that, the next maturity is '24 to '25. The USD 500 million bond is now our most expensive cost of debt with a swap back rate in sterling of just under 5%. There is a step down in prepaid costs in the spring, making it more economical to refinance.

Turning to Slide 26, sources and uses of cash. Earlier, Will mentioned our plans to invest a further GBP 3 billion this decade in our biomass supply chain, dispatchable generation and negative emissions in the U.K. and all of these underpin our ambition to become a carbon-negative company by 2030. As a reminder, at our recent CMD, we laid out how we think about self-funding these investments through returns generated from the existing business and generated by those investments.

Our existing business is highly cash generative with strong visibility over a high proportion of long-term index-linked cash flows. We expect that our investment for growth will also be underpinned by long-term index-linked earnings and cash flows, whether this is power and carbon payment schemes for U.K. BECCS or a cap and floor type mechanism for Cruachan 2 or long-term contracts with high-quality counterparties as we expand our third-party supply business.

So starting with the end of '22 net debt leverage, which we now expect to be below 2x, we've assumed GBP 2 billion of free cash flow from the existing business. Next, you see the GBP 3 billion of strategic capital investment for the pellet capacity, the U.K. BECCS and Cruachan 2. And finally, GBP 1 billion of post-tax cash flow from these strategic investments by the end of 2030.

There's a phased contribution based on when the projects become operational with the first additional pellet plants in '24, the first BECCS unit in '27 and the second BECCS unit in Cruachan 2 in 2030. These investments as I noted are underpinned by high-quality, stable earnings and they deliver strong index-linked cash flows well beyond 2030.

So overall, this base plan delivers a business in 2030 with significant EBITDA expansion. It generates significant high-quality free cash flow and it returns a growing and sustainable dividend with a net debt-to-EBITDA leverage significantly less than 2x.

We think that our high-quality strategic portfolio provides a range of options for financing, but our base plan is to self-fund these investments without the need for issuing equity.

And finally, on to Slide 27 and capital allocation. Our capital allocation policy, which we launched in 2017, has served us well, and it remains unchanged. We believe our ambitious growth plan is supportive of maintaining our credit ratings, paying a growing and sustainable dividend throughout the period of strategic investment.

And with that, I'll hand back to Will.

Thank you, Andy, and I will give a brief update on our strategy. Frankly, given the Capital Markets Day in December, there's not a whole lot of new news, but I thought I would just remind you all of the highlights.

So Drax is undergoing a remarkable transformation, which now puts us in front of some very significant growth trends. And reflecting this at our CMD, we updated on the 3 strategic pillars of the group. So the first is to be a global leader in sustainable biomass pellets, pellets that we sell to third parties, and pellets that we also use for ourselves. Our second strategic goal is to be a global leader in negative emissions through our position in BECCS. And our third is to be a leader in the U.K. in dispatchable renewable power. And all these strategic objectives are underpinned by safety. Operating safely is absolutely critical. It is also understood by sustainability, which is the right thing for us to do. And finally, by the continued goal of reducing the cost of our fuel to GBP 100 per tonne FOB.

Turning now to Page 30. In sustainable biomass pellets, we see a very significant market opportunity. And as I mentioned that if anything, that's accelerating with more people looking at coal to biomass conversions. You also would have seen that using the wood pellets and liquid fuel markets is now becoming an interesting part of this opportunity. So we see increasing demand for sustainable biomass pellets as governments develop and implement policies that recognize the important role that biomass can play both in phasing out coal, providing flexible generation to support intermittent renewables in negative emissions as well as in other types of fuels.

And as both a producer and a user of biomass, we have a differentiated position. And we see an opportunity for us both to sell to third parties, but also to use our supply chain for BECCS, for ourselves as well as for merchant generation.

Turning to Page 31. Again, our strategy positions us as both a key producer and user of pellets. So we need to be sure that we have a clear approach and view on both our demand and our supply for those pellets. And just to outline again, our current plan for what we think the world in 2030 might look. First of all, on demand side, we plan to double our third-party sales from 2 million to 4 million tonnes. Secondly, we expect to have 2 units of BECCS running in the U.K. using 5 million tonnes. And thirdly, we expect to be running 2 or more -- sorry, to be running 2 more biomass units at the Drax Power Station as a peaking plant using as much as 2 million more tonnes. So all told, our demand for pellets we expect to be between 10 million and 11 million tonnes.

On the supply side, we expect to double our own production from what now is about 5 million tonnes to 8. So I'm not quite doubling, but up to 8 million tonnes, as well as sourcing between 2 million to 3 million tonnes from third parties, and that includes a significant chunk, as much as half of that from viable fuels.

So on both fronts, we're making good progress. We will make our new investments prudently, only building on the back of clear long-term demand.

Turning to Page 32. The need for negative emissions is increasingly clear. And as you know, we're targeting 8 million tonnes of negative emissions in the U.K. by 2030. That will be the first international or global BECCS project at scale, which gives us a good advantage globally, which we then intend to take outside the U.K., and we're also targeting 4 million tonnes of negative emissions outside the U.K. by 2030.

And just to recap, on Page 33, and we think that negative emissions is increasingly becoming a clear market opportunity, which we think could be as big as $1 trillion globally. The chart on the left shows the IPCC's estimate for how much carbon removal they think would be needed by 2030 -- sorry, by 2050 to get to net 0, and that's as much as 10 billion tonnes per year. The bar on the right is also the one done by Coalition for Negative Emissions, which again has a similar set of numbers.

So let's take that 10 billion tonne number if you also add a price to that, $100 is a benchmark price, frankly, that's where European and U.K. ETS are conducting their trading in that neighborhood, as we speak. But even in the voluntary carbon markets, participants like Microsoft have said that for long-term, high-quality engineered removals $100 a tonne is a reasonable price. So that's how we get to that $1 billion -- sorry, $1 trillion market opportunity.

The only thing, I would say, is sort of some new news in that front which is in the EU, there has been legislation introduced still going through the approval process, but there has been legislation introduced that would allow effectively negative emissions and BECCS to qualify for receiving ETS's emission trading certificates on the basis that they are carbon removal, which is absolutely the type of setup that we've been looking for that will enable this market to scale attractively and quickly.

On Page 34, our third leg of the strategy, and to be a U.K. leader in dispatchable renewable power. And we think that, that will become increasingly necessary as the U.K. power network depends more on intermittent renewables wind, primarily offshore wind, but also solar and some onshore wind. The need for long-term dispatchable -- sorry, the need for some storage to support that is increasingly clear. The government is working on options for supporting that. And we're continuing to create good progress on Cruachan 2, which as we said, is a potentially GBP 500 million project to effectively double the size of what we're doing at Cruachan by 2030.

So won't go into the milestones again on Page 35, but you will have seen those very much making good progress on those and look forward to updating you more on those as we go through the year.

And finally, on Page 36. I mean, in terms of the outlook, the -- we're very excited about the long-term prospects for Drax. We have 3 very clear opportunities in front of us, and we are putting significant resources to work against all 3 of those. And the more medium-term outlook, again, clearly, the power prices are high and that will help us in our cash generation capability, although we also need to manage that carefully. It obviously increases the risk and cost of operational challenges. So that's a challenge for us that we will be continually managing.

But again, the opportunity for us is clear. And we also believe we are in a good position to deliver cash flow to enable us to make those investments.

So with that, I will turn it over to Q&A.

So I guess, Mark, we'll take questions from -- verbal questions first, and then we'll take the written ones after that.

[Operator Instructions] Your first question is from John Musk of Royal Bank of Canada.

Maybe I'll just start with the big picture question on current tensions in U.K. and Russia. And just put it out to you, Mark, as to so well, as to how this is going to play into energy security, maybe in the short term in the U.K. and anything you think we need to be doing longer term given the ongoing situation. Then secondly, on your pellet growth plans, looking to double production to 8 million tonnes, your closest player to Enviva also looking to double production from a higher base. So in total 10 million tonnes or so of additional volumes that you're both targeting. I mean are you confident, one, that there is enough demand for all these additional pellets? And 2, that there is the fiber supply available at the right price to produce those pellets.

Thanks, John. First, let me talk about the situation in Russia, which obviously is a terrible situation. And I would say, I would hope for a rapid conclusion in a positive way, but I can't say that I am very hopeful of that. The -- so first -- I guess, first thing, let me start with some of the sort of specific impacts on us right now. And we've obviously done a lot of work assessing what the risk might be to our business in terms of, sort of, how it might impact our operations, and we think that those are quite limited. And we don't source anything material from Russia or the Ukraine. So -- and again, Renewal is one of our suppliers from the Baltics. So that's one we're watching, but we don't expect -- we don't have any reason to believe things will move in that direction at this point. But again, we're very comfortable with our set up, given, obviously, a very challenging and risky situation, right?

And actually, I think that's our point to the second point, which is that relative to other sources of fuel, biomass comes from parts of the world that are stable, that are safe and that are long-term partners of the U.K., and we think that's an important part of the energy mix, and we increasingly recognize that the government as being an important part of the energy mix that we need to have sources of supply in the U.K. that are not dependent upon forces that are less reliable and more volatile. So I think there's a positive element of biomass power production in that I think is increasingly being recognized, right?

So anything I would say in terms of your pellet question. The demand picture as I sort of mentioned, we actually see, if anything, is accelerating. I mean the countries that have already been using sort of biomass continue to be users and putting in place regulatory structures to support that, whether that's Europe, Japan, et cetera. We also see, on the corporate side, more interest in coal to biomass conversions than ours that we saw before COPs. So I think we are optimistic of the opportunities that will create both broadly but also for us specifically.

And then on the supply side, I mean, there's sort of 2 pieces of this. I mean right now, there are plenty of biomass supply and we are -- it's a very much a local question, we look locally for where we can source from and we have lots of opportunities to do that. And as we do that, we are quite comfortable with our plans to go up to 8 million tonnes, right?

Now longer term, I think it is a strategic priority of ours to make sure that we have the right sourcing model to ensure that we actually are protected from potential competition from that fiber. And that includes long-term agreements with sawmills as well as other ways of ensuring that we are protected on the supply side. But very much -- right now very much in a good position.

The next question comes from the line of Dominic Nash with Barclays.

Sort of 2 questions from me, please. The first one, I'm intrigued about is that you're managing to increase output from your RO units, I believe, I think it's about 0.5 terawatt hour you're shifting from CfD to the ROs. And I just want to just quickly just run through the math on that. Is that basically changing like a marginal profit of, I don't know, GBP 40 a megawatt hour to GBP 140 a megawatt hour, which could give you sort of like a GBP 50 million EBITDA through this year. And that's kind of -- and so a follow-on question on that, is this something you can do in 2023, 2024 as well? Or is this just a pure one-off?

Following up from that then, you say consensus EBITDA for 2022 is GBP 565 million. But if we look at all the directions of your sort of moving parts, do you not think including this sort of RO move, including the higher power prices. I mean, I'm looking at the path forward to -- and they are going to be [indiscernible] at the moment, but you've also got higher biomass costs as well. Do you think that GBP 565 million is doable? Is it going to be considerably higher than that? Or do you see sort of cost pressures rising?

And then the final one from that, which is linked, is that we're obviously in a world where utility builds are doubling. I'm reading the odd article in the press saying that there should be a windfall tax on sort of like the oil and gas producers. What would you say to someone who was advocating maybe a windfall tax on, say, Drax's renewable production if you were to see profitability rise sharply from there?

So first on the -- just to give a sense of how we are thinking about the generation mix across the 4 units. I mean, effectively, the -- we have hedged more than sort of the ROC cap on the RE that's clear on what we've done there. It doesn't mean that we would expect to generate for more across the whole piece. I mean we will basically be optimizing across all the units, and that's something optimization, which is driven, I would say, primarily by ensuring we have a low-risk running regime, shifting obviously does create higher operational risk.

So that's a big part of the management of that situation, as well as obviously, sort of, making sure we get the optimal sort of pricing. But I would not, sort of, just bang in another GBP 50 million in terms of your numbers. That's not where I'll get the math, primarily because of the -- we're not actually going to be able to increase the overall output of the station. And that's primarily a function of pellet supply, right? Now pellet supply, we are very comfortable. We have enough pellets to deliver the generation we have this year, but there's not a whole lot more available in the marketplace.

I would say on that front, I mean, the -- one of the things we are looking at carefully is how can we increase the ability for us to get pellets through the station in future years. But we think that's probably reasonably marginal without making a very significant investment in additional infrastructure, which we're not, at least at this point, comfortable that, that would cost in between -- in the relatively short term that we can see is really on so far. So that's the way I would answer the first question.

Second one on the consensus. I would say we're comfortable with consensus. I mean there's -- it's anybody's guess where power prices will go, sort of, obviously, events of today being a good example. But I think we're comfortable at this point with where the consensus is at this point. And then in terms of the possibility for a windfall tax, I think it's really important to sort of think about 2 things. One is the investments that were made to enable our biomass transformation was on the basis of a capital raised from our shareholders right.

So -- and that's very much sort of part of the game. And so the same thing probably more importantly is that we're investing, frankly, more money than we're making, right. We're investing more than GBP 200 million in our sort of renewables. We're investing, this year, we're already investing GBP 3 billion over the course of the next decade. And I think that the U.K. has been a very good country for long-term investments, historically, on the basis that it's got a clear tax and regulatory regime, and that has enabled the U.K. to be a contributor to the U.K. leadership, for example, in offshore wind. People feel very comfortable investing in a place where we're a little bit clear.

And I think changing that with the windfall tax would damage our reputation. And would actually sort of detract from the potential reality of U.K. being a global leader in not only offshore wind, but in carbon capture, in BECCS, in carbon removals. And so I think that's the -- the key thing is how can you get -- attract more investment to make sure that we've got the right jobs and the right technology for the future Green Revolution -- that's what I'm saying.

The next question is from the line of Mark Freshney with Credit Suisse.

A couple of strands, if you like. Firstly, on the 2 coal-fired units, which are scheduled to close in October, have there been any discussions or requests from the government to keep those 2 coal-fired units open? And is that -- I mean, you've already put a lot of measures in place, but can you reverse those measures to keep them open? And further to that, have you had any requests from the U.K. government to flip those over to burning fuel oil on a very high blend? And is it possible for those to run on pet coke or light fuel oil? And the second strand of questions concerns the Section 36 for the BECCS facility and the planning, the planning has become very tricky in the U.K., particularly on the East Coast. And as you saw with the issues around the coal to gas planning consent, which was -- you ultimately did the right thing by backing away. But what is it that makes you think this can be done within the 2-year time frame and won't be delayed like many other big sensitive projects?

Two simple answer on the first one. I don't think it's technically feasible to run the coal units on fuel oil, and we have not had any requests from governments to continue running on coal past September '22.

And the second one, the -- we are going through the planning process as we work as you expect. I mean, I think we will manage that our part of that process carefully, we would expect the government to manage their part of that process carefully. And then if it were to be challenged, we would expect it to be having been done in the right way and being consistent with U.K. law, and we would expect it to be whatever -- we would expect to get our planning permission.

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

A couple of questions from me, please. Across the biomass value chain, where do you see the most value for the group at the moment? Do you think it's in the generation units? Or do you think it's rather actually found in the pellet businesses at the moment? I noticed in the presentation today, you did spend a lot of time discussing your growth ambitions in pellets. And I guess the second part of that question would be where do you see the most growth for the group over the next, say, 5 to 10 years? Do you think you'll grow earnings more in pellets or more on the generation side given you have ambitions in both? And then just picking up on a strand earlier, I apologize if I missed the detail. You mentioned that your Baltic pellet supply. Just wondering whether you can give us some more details on the possible risk there, which countries or country you're exposed to and which companies?

So first of all, in terms of where does the value sit in the value chain, and I think for me, the -- I'm probably going to -- you might not like the answer. I think actually, the fact that we're integrated up and down the value chain is quite a significant part of that in the sense that our ability to both optimize sort of costs across the value chain, i.e., we can do things like determine the right level of refines in the -- optimized refines in the pellet plants for how they might sort of impact combustion in the boiler. And it may be that, that means you spend more on the pellets to get lower cost at the power station, for example. So I think there's value across the value chain that we're taking advantage of, right. Now where that ends up sitting over time, I think it's still fluid, right? I would say that I think there is a lot of value in our pellet business that I think that we're trying to make sure people do recognize them, make that point, right.

Where do I see the most growth in the business? I think, frankly, probably in the third piece that you didn't mention, which is, I think, negative emissions is going to be a really interesting part of the business front. Now, I think the route to expansion of pellets, I think is clear in terms of growing the number of facilities, in terms of growing the sales and contracted book. I think the growth in our generation business is clear in terms of the types of investments we would like to make, so improving 2, for example. Open cycles, we have those assets. We're trying to maximize the value, again, preferably without holding them to completion given the gas nature of them. But again, we think there's value in the projects that we've got. But fundamentally, in the generation business, the growth ambition is around adding BECCS and also in the pumped storage.

For the third piece again, as I said, the negative emissions market is not -- is very nascent. It's not there yet. But over time, if we're going to hit net 0, there's no question, we will need to do carbon removals. And I think we have absolutely the lowest cost technology that is available. And I think it will be the lowest cost for some time to actually deliver permanently engineered removals, and I think that's really an exciting opportunity for us, both in the U.K. and also globally.

I mean so the -- our supplier in the Baltics, it is Renewal I thought you would know. I think roughly 10% of our supply comes from there. And I believe it's Latvia.

The next question comes from the line of Martin Young with Investec.

Just a couple of questions from me. Firstly, can you talk a little bit more about the OCGT, one, in respect of you not getting a capacity market contract on bagasse, GBP 30.59 was considerably higher than the GBP 18 last year on which you did take contracts on 3 plants. So why didn't you take contract on bagasse? And then where are you really on the build and then dispose or dispose now conundrum?

And then the second question, I guess, is a bit of a follow-on from Dom's question earlier. Another way of thinking about where we are in the wholesale market with certain plants with fixed costs benefiting and benefiting very nicely from elevated wholesale prices is to think about wholesale market reform. What are your thoughts on that? Or is it an issue for you, you will get to 2027 before it's feasible that we could see any changes in the wholesale market and therefore, it effectively drops out as a nonissue. So interested in your thoughts in that respect, please?

On the open cycles, I go first on bagasse I think I guess the key point there would be sort of 2 things. One would be that the economics of each one of those sites are different depending on where they are, that changes the cost base. Where they are to also impact their ability to get other types of revenue, for example, on the stability markets. And so those were important factors in whether we thought it was attractive to take a contract for bagasse. I guess the other thing I would say is that the lifetime or the expected life of future gas plants, I think, continues to get shorter. So I think the bar continues to rise for the investment in future gas. And interesting that none of the new combined cycle plants there are a bunch of -- I think there are maybe 4 or 5 larger scale projects interested and none of those cleared in the auctions either, right?

So where we are in the build and dispose, I mean, we are -- there's definitely sort of 2 things going on there. And we are continuing to develop the projects on the basis that we may own them to build them. And at the end of the day, if we end up building them and we end up running them, that will be -- we are committed to doing that. We have the contracts, and we will do that if we need to. So we haven't gotten to an EPC yet, but we're close to that. And ultimately, as we -- as Andy mentioned, if we end up not disposing of then we might spend up as much as GBP 100 million developing them this year on the basis that they need to be ready for the capacity market in 2024. So -- and that's very much on track, right?

But as we've also said, I mean, disposing of them would be an option we absolutely look at, and we are actively exploring that. And if there are good options for that, we would actually take those either now before we build them or once they're built.

On wholesale market reform, I mean I think the -- there's obviously been a current high power prices, a lot of political issues around that, a lot of discussion around how to deal with how to support consumers. I think the way that the government has handled that so far has been relatively sort of measure, which I think is probably right. I think it's -- any sort of wholesale market reform to do something radical would be sort of quite a dramatic change and given all the other changes that are going on, I think that sort of is a long-term prospect. And I think -- and also, given sort of elements of this, for example, that the lots of long-term contracts out there already. As gas with CCS comes on, over the next couple of years, there will be long-term contracts for that. There'll be long-term contracts for BECCS. Personally, I don't see a sort of radical reform coming in, in spite of where we are on wholesale prices. But all that being said, Martin, I could absolutely be wrong.

We have a follow-up question from Mark Freshney with Credit Suisse.

Can I ask about cost management in general, particularly on the pellet side. I mean, you have a lot of robust FX hedges 5 years ahead. You've also spoken about having contracted capacity. But my understanding is you can never contract forward for absolutely everything. Is there any sort of like cost inflation that you could come through at the fringes or at the edges on the biomass, and I'm particularly thinking for the raw materials costs, which are about 1/3 of it, and which I understand are indexed.

It's a fair question, Mark. I think there's a couple of things on that. One is that the -- many of our sort of fiber costs are indexed or are sort of priced in when there is a sort of fixed element of price increase. The -- many of them are not. And actually, the dynamics of those tend to be often counterintuitive. So for example, when lumber prices are high, sawmills run more and the cost of fiber which actually stronger residuals might be lower. But yes, the answer is -- so yes, there is the potential for escalation in some of the fiber costs, but we're absolutely not seeing that. And actually, it's not a big part of the picture ultimately over time. Our freight position, for example, well covered. You said our FX position well covered, third-party pellet contracts, very well contracted. So will we see -- will our wage and labor costs increase -- and it takes out that there's inflation, yes. But again, we think that the overall, the situation is quite well contained.

That was the question, it was the levelized cost of CCUS. I ask you every time when you point to CCC and some numbers. But in terms of pounds per megawatt hour or dollars per tonne of carbon, what is your latest forecast of the cost? Or is it unchanged from the last 2 years?

It's really unchanged, Mark. I mean sort of, I mean the -- I think the next basically, as we get closer to a final design and the feed work continues, that will get sort of will narrow in. But fundamentally something in the order of GBP 100 a tonne, GBP 50 pounds for the megawatt hour, that's very much where we are. But again, as the -- as we get further along in the project, that will become also clearer.

The next question is from the line of David Green with Boldhaven.

Just a couple of questions from me. I think you said that the U.K. government was developing the financial model for BECCS in 2022. So it just would be helpful to find out if there's any update there. And in terms of the international opportunity for BECCS, it would just be interesting to get a bit more color there in terms of how far along you are with talking to potential international customers. And just the final question was really about how you're thinking about capital allocation. You've highlighted that the balance sheet will be less than 2x net debt EBITDA for 2022. And even if we take into account the step up investments for BECCS and Cruachan 2, you're still going to have a very strong balance sheet. So the question really is, at what point in time does the potential return of surplus cash to shareholders makes sense?

So why don't I take the first 2 and then give Andy a chance for some time in the spotlight. So the financial model for BECCS in 2022, I mean, there is a -- it fundamentally will be part of the bioenergy strategy, which we expect to sort of happen in the second half of the year. But that's the sort of the formal approach. I mean, they published a couple of sort of ideas last year. They have sort of work that they've done by consultants, which are effectively for either a -- sort of a negative emission for CfD, which captured both the carbon removal and the power or one which just capture the carbon removal. So those both of which positions we think would work for us. Although I think as we've said before, we think it makes -- the cost of capital will be lower if there is a clear price for both power and carbon removal. So again, we would expect that sort of the government to get to a minded to a position on the business model, we would expect in the second half of the year.

And I would say, at the same time, a lot of the other work around sort of choosing [indiscernible] give you more detail. The other piece of work that's been happening this year is the whole process for choosing greenhouse gas removal projects that the government will support. So they are in the middle of assessing different greenhouse gas removal projects that were submitted as part of an expression of interest process. We expect the answer to that to be probably in the next few months in the "end of spring." And then we expect them to move from there, again, in the second half of the year to choosing preferred projects to take forward from greenhouse gas removal projects, of which we will be one. And believe we are significantly further advanced than any of the others, right.

On the international models for BECCS, I would say it's significantly earlier days. I mean we're still -- and I would say we are sort of narrowing in on a technology model of cost base. I mean, frankly, I think the numbers will come out not dissimilar to the ones that we have in the U.K. We're narrowing in on locations. So we've sort of -- if you look around the U.S., I would say, the more likely and probably not surprise areas would be Southeast of the U.S. and/or through Northwest sort of Northern California, Oregon, Washington, those are probably the 2 areas we look at. And we are very much in the early days of talking to potential buyers of both power and negative emissions to sort of test the appetite for where they think -- where we think the pricing for those might be, right. And the final element of that is, as you know, the U.K. -- I am sorry -- the U.S. government has been thinking about increasing the support for carbon capture through 45Q. And our understanding is that, that's -- that wasn't part of the -- I forget which ones they were, the first infrastructure build. So it's supposed to be part of the Build Back Better bill. And that's sort of -- I guess one of the questions is, what will happen if that doesn't get approved and the -- our understanding is that there is a strong bipartisan support for an increase in that sort of support regime. And so we're hopeful that that will happen almost regardless of what happens with bigger legislation.

I'll ask Andy to take the capital allocation on it.

Yes. I mean, as we've said, we have 2.6x leverage as we exited last year and we have GBP 3 billion investment plan as we look forward. And I think it's important when you consider these things that you look forward as well as at any particular point in time. But our capital allocation policy is clear, and the fourth leg of that is if there are surplus funds, we will return those to shareholders but surplus funds beyond our investment requirements.

We have a follow-up question from Dominic Nash with Barclays.

Just a couple of quick brief ones. Firstly, as you move into FID on these pelleting plants for 2022, and I think you said in your presentation that you were looking at the terms and negotiations. Could you just give us some color on what the actual -- what the value of biomass is? I think all the questions have been on the cost of it, but what's the value and the strike price of biomass in these contracts and whether the Enviva's guidance of 5x EBITDA for new projects is in the right ballpark for what you're working out? And the second question is on hydro, obviously, reversed in EBITDA in 2021 over 2020. Pumped hydro, which obviously make up most of it, I would have thought we've had quite a good year last year, and I think SSC was guiding to has been a fairly good year for hydro for pumped hydro. So is it -- why it's quite low and whether that's going to be repeated in 2022, please?

Sure, Dom. I guess a couple of things. So in terms of the value of the sort of biomass contract, I mean it is a one is quite sort of market-specific in terms of where you're moving into and what's sort of the ability to pay is, in those different markets, i.e., Japan has different regimes than Korea, et cetera. But again I would say the numbers that you would have heard from Enviva were very comfortable with those types of numbers.

On the hydro and pumped storage side, I would say the system support from the hydro assets are very attractive and very much what we would have seen in prior years, if not growing. I would say though that the actual generation from our hydro assets was lower, and this is the Run-River side because surprisingly didn't rain as much as in Scotland last year as it normally does, right? So there was definitely an impact there.

And at the risk of trying to forecast the weather, we would -- we may be more less coming to. When we actually look at the -- when you look at the history of rainfall in Scotland over the very long period, let's say, 100 years, a very clear trend of increasing rainfall over time line. So we would not expect that trend of lower rainfall and therefore, lower hydro generation to continue, although again, every [indiscernible] is a potential one-off.

The next question is from the line of Verity Mitchell with HSBC.

Just a question about your capital investment and just the maintenance. I mean, obviously, you spent money on your biomass unit to outage last year, but we're still seeing a similar amount on maintenance this year. Is that just a function of being a larger group now? So therefore, the numbers stay up? And just secondly, a really small question. What is the alternative fuel you're burning now just have interest?

Why don't I take the second one, and then I'll ask Andy the first one. On the alternative fuels, I mean, there's a whole range of things. We are all of pumice, all of pits, sunflower seeds, lignin. I'm not sure I remember the other ones are. So a whole range of things -- I mean we could find you a whole list of things of interest. But the -- I think we have buy 10 or more different things that are approved for use. And frankly, in the U.K., we're also looking again at whether we can use [ campus ] and other types of energy crops to increase our domestic sourcing as well.

And the CapEx is, this year, a lot of that maintenance CapEx is across the pellet plants. And now, of course, post Pinnacle acquisition, we have got 17 pellet plants across North America. So as you rightly point out, less on the generation side, but more on the pellet plants this year.

Okay. I think -- well, if there's more questions coming on the phone, maybe time to do that, but I'll take a couple of questions from the webcast. So from Adam Forsyth, I'll read the question. It says, why is the 42% emission reduction target not a 100%, given the carbon-negative target, which appears to be for the same date, are you implying a 42% reduction before CTS?

The answer to that is, I think it's simple as a yes. I mean -- and there's a couple of pieces of this that probably work. The first one is that the 42%, again, reduction is from a 2020 baseline. So important to note that, that's -- I think that's around 3 million tonnes at that point. So it's already well down from over GBP 20 million plus of where it started from. So as we continue reduction. And that's also both that's a Scope 1, 2 and 3 targets similar across all of those. I would also say that we are doing a lot of work now internally to understand further opportunities for reduction. So I wouldn't be surprised if that target grows over time, right?

Second thing I'd say is we very clearly are differentiating between what we do for reduction and what we do for renewable, right? So our aim is to reduce as much as we can. And then -- and frankly, on the basis that, the way we think about it is that if we can sell the negative emissions from BECCS from GBP 100 a tonne, it's a pretty high bar. So we sort of -- we would rather -- we rather monetize those in the market as opposed to use those for our own sort of carbon-negative ambitions, right? So 2 things. One is, yes, we are reducing on the one hand, and we are sort of removing -- on the other hand, the net sales rate. That's why the 42% is that number, right?

Can you give a view, also from Adam, on likely project size of new build BECCS? And I think a couple of metrics is likely to be as low as 300 megawatts type plant likely to be about 2 million tonnes of carbon removal and it's likely to cost plus or minus 1 billion, right -- dollars or might be pounds -- are there -- was there any efficiency gain following the biomass unit planned outage? The answer to that is yes, there was a slight increase in [indiscernible] efficiency as well as an expected lower required maintenance, given the new configuration of those turbines. And we've estimated that to be up to as much as GBP 1 per megawatt hour.

Can you give an indication of average cost per tonne of the wider range of biomass materials. Andy, I don't know if you've got a number for that.

Well, I think we have said that some of those materials are up and around our target cost, so around $100 a tonne target costs.

And the last one is, is the CI benchmark? Yes. So the carbon intensity benchmark on the Canadian debt, is it static or does it tighten? And the answer to that is, it does step down over time.

So that was the last question on the webcast so far. Move back to the operator, open to any other questions from the floor?

As there are no further audio questions. This concludes our question-and-answer session. I'm sorry. I'd like to turn the conference back over to Will Gardiner for any closing remarks.

So thank you all for joining. I'm very happy, and I think you guys know where you can reach us. I mean Mark will be available or Andy and I if you need more help, but thank you for joining. And I hope the day goes okay.

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