Ladies and gentlemen, welcome to the Drax half-y ear results 2024. My name is Sagar, and I'll be the operator for your call this morning. If you would like to ask a question during the question and answer session on today's call, you can do so by pressing star, followed by one on your telephone keypad. I will now hand over, hand you over to Will Gardiner, CEO. Thank you. And over to you, sir.
Thank you, and good morning, everyone. Welcome to our first half 2024 results call. I'm starting on page 3. I'll start with our purpose, which is to enable a zero- carbon, lower cost energy future. I always like to do that because it guides fundamentally everything that we do. We have a business model that aligns shareholder returns with positive outcomes for nature, the climate and people. Critically, our people are at the heart of Drax. We want everyone to feel a valued member on a winning team with a worthwhile mission. Turning to page 4. We had a strong first half of the year, and again, as I always like to do, I'll start with safety, which is again, at the heart of everything that we do. We pay a lot of attention to safety all the time.
It's not really about the statistics, it's about the culture that we are trying to build. But the statistics do tell a story, and compared to last year, we've had significantly fewer incidents, and our TRIR has reduced from 0.47 last year to 0.24 this year. But as we all know, keeping people safe is something we need to do every day, and it's a never-ending battle. Financially, we've seen a 24% increase in our adjusted EBITDA, a 43% increase in earnings per share. So strong financial performance. We continue to deliver returns for our shareholders, and we're expecting a 12.6% increase in dividends per share. And we're announcing today a GBP 300 million, two-year share buyback program, which we expect to start in the third quarter of this year.
To enable that, during the first half of the year, we significantly strengthened our balance sheet. We've raised greater than GBP 680 million in new facilities that mature in 2027 and beyond, at attractive rates that reflect the market's increasing confidence in our long-term business. With those proceeds as well as with cash, we repaid about GBP 950 million of shorter-dated facilities. I'm very excited about our Flexgen and Pellet businesses, which we began to talk significantly more about at the year-end. Both of those are targeting more than GBP 250 million of EBITDA in the long term, and both of them had strong first halves. We've also had great engagement with the new government. I'm excited about the potential for the Bridge, about BECCS in the UK, and also about expanding Cruachan.
All of which we believe are critical for enabling the government's ambition of delivering a net zero power system by 2030. And finally, the global market for BECCS and for CDR continues to develop well, as does our own team and plans for delivering that in the U.S. Can I move on to page 5, please? So in February, as I mentioned, we began to talk about our business a little bit differently, and I want to share or reiterate that story again. So we have two businesses that we are highly confident will generate attractive returns long term, come what may, right? One of them is the flexible generation and energy solutions business, and the other one is the pellet production and sales business. And for both of them, we're targeting more than GBP 250 million of EBITDA in the long term.
Our biomass power generation business, as we all know, is somewhat different. We expect it to generate greater than GBP 1 billion of operational cash flow between 2024 and 2027. Importantly, it has a very important or key role long term in the U.K. power system. I'm again very encouraged with early engagement we've had with the new U.K. government, who recognize that importance. It was reiterated by National Grid in the future energy scenarios that they published recently, in which all three scenarios have a significant role for biomass power generation as well as BECCS. We look forward and are working closely with the government to make sure we get the right decisions from them and the right public signals by the end of the year to enable us to make the investments that we want to make.
Beyond that, we have other attractive investment opportunities in Cruachan 2, which again, as the government ramps up its ambitions for more wind power, offshore, onshore in Scotland, we believe that pumped storage is going to be ever increasingly important to enable that wind to play its proper role in the system. We have exciting opportunities to expand our pellet business as we get more long-term committed contracts, and we're again excited about delivering BECCS in both the U.S. and the U.K., you know, once we have the right long-term certainty to support both of those activities. Turning to page five. Each of our businesses performed well in the first half of the year, as we grew EBITDA by 24% over the first half of 2023.
Each of our businesses is on track to deliver its long-term targets, and I'm going to let Andy take you through that when he gets to the section on our financials. I'm going to go straight through to page seven now. We expect to generate GBP 250 million of EBITDA in the long term through the cycle from our Flexgen and Energy Solutions business. As you know, it consists of pumped storage, hydro, our open cycles, and Drax Energy Solutions. We increasingly think of Cruachan as part of this portfolio. It's an exciting opportunity to grow our flexible generation business, and we'll talk more about that in a minute. We also believe there's opportunities to expand further in this market.
I mean, just think about the market opportunity, think about the skills and capabilities that we have, and we look forward to looking for further opportunities to grow in this space. Turning to page 8. So you all in the market in general have been asking for a bit more granularity about what's driving our strong performance in the flex generation and specifically in pumped storage and hydro. And we want to try to give you that over the course of the next few pages, right? So on this page, you see two graphs. The one on the left shows the growing cost of managing the system in the UK. And effectively, what we see over the last sort of six or seven years is an 18% growth in the costs of growing that system.
On the other side of this chart, you'll see that the growth in our earnings from pumped storage, and what we've done is we've split out the earnings that come from forward power sales, or they're effectively dependent upon higher power prices, as they were in the first half of 2023 and 2024. And again, you can see about 18% growth there, as well during that period. So our earnings are fundamentally driven, or the growth in our earnings is fundamentally driven by the increasing cost of managing the system. If I give you a bit more details on that on the next page, page 9, you can see a little bit of what's been driving that. So on the upper left, you can see the growth in the terawatt hours from offshore wind. Again, strong growth.
And again, we expect that to continue as the system adds more wind power to it. On the right is sort of one signal or one example of how this volatility is increasing: the hours of negative pricing. And you can see those are growing very significantly as well, right? And those create the need for Cruachan to run, and they create opportunities to create value from pumped storage. So on the bottom of that page, you see, you know, again, we sort of show what actually then has happened at Cruachan. And so we've generated more, we've pumped more, and we've operated significantly further amount of the time. Now, there are other pieces of this story that, again, you're all familiar with, the decline in other forms of large-scale, dispatchable thermal generation, the increasing amount of volatility that that all drives.
So there's lots of positive elements in all of that, or all of the drivers that we've seen for the last four, five, six years, we expect to continue and, you know, accelerate over the next decades as the system becomes more dependent on sort of intermittent renewable power. And for those of you who want more detail, we've gotten additional information from the National Grid's future energy scenarios included in the appendix. Finally, on page 10, we're excited to be continuing to invest in the Flexgen business, right? As we announced last year, we are refurbishing and expanding two of the units that we already have at Cruachan. It's a GBP 80 million project. It will add 2 times 20 MW of power or power generating capacity.
That is all underpinned by more than GBP 220 million of capacity market revenue over 15 years, in addition to the GBP 60 million of existing one-year agreements that we have for Cruachan. We also, as you know, have the option to expand Cruachan 2. It's a 600 megawatt expansion, as you know. Just as a reminder, we have received our planning permission. We're in the midst of doing detailed design works. We expect clarity from the government on the cap and floor mechanism that support long-duration storage next year, enabling us to make a final investment decision in 2026 and be online again in 2030 to help enable the UK government's ambition of delivering a net zero power system by 2030.
The project that we are actually delivering now in the UK, on page 11, is the open-cycle gas turbines. We expect to be commissioning the first of those later this year. They're also underpinned by GBP 270 million of capacity payments. We have had challenges, with the timing of these projects and getting our grid connections online with National Grid, so there is still some time, some risk to the timetable on a couple of those units. But fundamentally, you know, we're very excited about these assets. They're completely consistent with the market drivers I've just been discussing. And as you know, we're continuing to evaluate options for them, you know, whether we keep them or whether we sell them.
Let me make it clear that whatever we do with them, it needs to be consistent with our ambitions, our own decarbonization ambitions, which you all know to be carbon negative by 2030. And the final piece of the energy solutions business is our customer business, which is performing very, very well, right? There's two pieces to this. There's the SME piece of it, which I'll just quickly remind you, we've announced earlier this year the sale of 90,000 customer meters in that space. We're exiting that business following a strategic review, and we're in the midst of an employee consultation process that will reflect the reduced size of that part of the business. But we're very excited about what remains, right? That business is a, it's a low-risk business with large, high-quality credit customers. It's a business where we don't take-...
power price risk in any significant way. Part of it is supply of power, but part of it is also, it comes from Opus as well, which is the part of it is bringing to market smaller scale renewable generators. We have an attractive PPA business in that space, and we're making very good progress in growing new parts of that company. So we, as you know, we bought PMM, an EV installation business last year, and they continue to win new customers. For example, we've just begun a new long-term partnership that will see Drax delivering EV charging infrastructure for Kia. So again, very excited about that part of the business. Moving on to page 13. So as I've said, we're also targeting greater than GBP 250 million in the long term for our pellet production business.
We made good progress in the first half of the year. We increased our output from 1.9 to 2 million tons, and we improved our margins. We're also increasing capacity with the expansion of our Aliceville site, as well as the new project in Longview in Washington State. We're currently working through our air permit process there to make sure we have the right permit that will allow us to have a simple but robust regulatory framework. We're increasingly encouraged by the development of third-party sales opportunities, both renewing legacy contracts at attractive prices, as well as entering new markets, including SAF. In the biomass generation space, Drax Power Station, for which, for a long time, has been at the core of the company, will generate greater than GBP 1 billion of operational cash flow for 2024 and 2027.
Much of that, as you know, is underpinned by strong forward power hedges, the CFDs and the rocks. But it also depends on strong operational performance from trading and optimization, generation, logistics and pellet productions. Our capabilities in that area underpin the crucial role that DPS plays in U.K. security of supply. Turning to page 15. The U.K. needs the Drax Power Station for security of supply. As I mentioned, National Grid's future energy scenarios have made that very clear. All of its pathways rely on BECCS as well as biomass power generation. We've had very good engagement with the new government on making sure that we're working together to deliver the signals that we need by the end of the year to deliver the investment that will enable us to be a key part of that 2030 net zero power systems.
So frankly, given the delays that have happened in this, in the government thinking to date, we can't really wait much longer. We are looking at other options, but we're most excited about investing in the UK. Finally, on page 16, we have attractive options for growth, and our ambitions remain the same as ever to do BECCS in the UK, to do BECCS in the US, and to have our first sites online by 2030. We're actively building our team in the UK, sorry, in the US, looking at our first sites there, and I've already talked about the UK. So with that, I'll turn it over to Andy to give you a bit on the financials.
Thanks, Will, and good morning, everyone. We start with a financial summary on slide 18. We've delivered strong financial performance, strengthened our balance sheet, and we're announcing additional returns to our shareholders. The Adjusted EBITDA of GBP 515 million grew 24% over the prior period. This reflects a strong renewable power generation and system support performance across the portfolio, as well as an improvement in the pellet business, with an increase in production volumes and the achieved EBITDA per ton produced. We've made considerable progress with refinancing activities, extending the group's debt maturity profile beyond 2027, and we expect to increase the size of our RCF and extend its maturity beyond 2026 during the third quarter.
Last week, we published a company-collected consensus for the full year, and reflecting strong first half performance and expectations for the second half, we're comfortable around the top end of the consensus range, subject to continued good operational performance. Our closing net debt of just over GBP 1 billion gives leverage of sub 1x on a last 12 months basis. This strong financial performance is generating cash flows, which are supportive of our capital allocation policy. They position us well to invest in our core business, progress strategic growth plans, and support sustainable and growing returns to our shareholders. Consistent with our policy to pay a dividend which is sustainable and expected to grow, the board has resolved to pay an interim dividend of 10.4 pence per share and expect this to be 40% of a full-year dividend of 26 pence per share.
This represents an increase of 12.6%. We are also announcing a GBP 300 million two-year buyback program to commence in the third quarter. So moving on to slide 19 to look at the strong financial and operational performance in the first half. Starting with Flexgen and Energy Solutions, where we delivered adjusted EBITDA of GBP 98 million in the period. As Will noted, system support earnings and pumped storage with hydro have grown at a five-year compound growth rate of 18%, broadly in line with the increased cost of managing the system. In the first half, Flexgen EBITDA from system support totaled GBP 60 million, with the remaining GBP 16 million related to forward power sales-... In the prior period, earnings from forward power sales of GBP 75 million reflected higher captured prices and a higher volume of hedges.
In energy solutions, we recently announced the sale of the majority of the customer meters in our non-core SME business. The SME loss of GBP 14 million reflects a high fixed cost base, serving a reduced customer base following the decision to exit gas supply in the first half of 2023. Our I&C business continues to perform well, with earnings of GBP 36 million, up over 30% from GBP 27 million in the prior period. In pellet production, the Adjusted EBITDA grew 50% to GBP 65 million, with increased production volumes and an improved EBITDA per ton produced. Our earnings from biomass generation grew over 70% to GBP 393 million, reflecting a 32% increase in generation volume to 7 terawatt hours in the period, and an increase in captured power prices at Drax Power Station. So moving on to slide 20.
I'd like to walk through in more detail how performance in the period is supportive of delivering our target future earnings. So firstly, in Flexgen and Energy Solutions, Adjusted EBITDA for pumped storage and hydro of GBP 76 million includes GBP 7 million of EGL payments, which will cease in 2028. That suggests a simple annual run rate of GBP 160-170 million. The 40 MW Cruachan upgrade, which will complete in 2027, is underpinned by capacity market payments totaling GBP 220 million, or GBP 15 million per year from 2027. We also expect incremental earnings from the additional 40 MW of capacity. Taken together, this is supportive of greater than GBP 150 million of recurring post-2027 earnings from hydro and pumped storage. Our I&C Energy Solutions business continues to perform well.
We see further opportunity for growth in energy services with the recent acquisition of BMM Energy Solutions, an installer of electric vehicle charge points, which strengthens our end-to-end EV charging proposition. With the agreement for the sale of the majority of our SME customer base, meters, earnings from the I&C business alone are supportive of greater than GBP 50 million of post-2027 earnings from Energy Solutions. The first OCGT asset will start commissioning in the fourth quarter. Grid connection timelines have pushed commissioning dates for the second and third assets into 2025. Earnings from the OCGTs that have combined capacity of 900 megawatts are underpinned by 15-year capacity market contracts totaling GBP 275 million or GBP 18 million per year. The remaining earnings from these assets will come from system support services and peak power generation.
An exercise to backcast the value of these assets over the 3 years from 2021 to 2023 showed that on average, they would have contributed earnings of greater than GBP 70 million per year. The increasing need for flexible, dispatchable assets, the increasing cost of balancing the system, and the strong underpin from capacity market payments are supportive of GBP 50 million of post-2027 recurring earnings from the OCGTs. As well noted, we do continue to assess options for these assets, including their potential sale. Slide 28 in the appendices provides details of the already secured capacity market contracts for this portfolio. In the period to 2042, they total almost GBP 600 million.
It also shows the annual value of capacity market agreements growing significantly with the addition of the additional agreements for Cruachan expansion and the OCGTs, but also an increase in the clearing price from the GBP 18 in the 2024 numbers. The total value of capacity market payments would grow to around GBP 850 million if you use an illustrative GBP 35 clearing price for future auctions, and these values are in 2023 terms, and they're subject to indexation with UK CPI. Overall, we consider current performance, together with these future developments, is supportive of delivering greater than GBP 250 million of recurring post-2027 earnings from Flexgen and Energy Solutions. We're moving to pellet production. We're targeting GBP 250 million of recurring post-2027 earnings.
These targets are based on reaching 5 million tons of production and require increased output from our existing plants and the addition of new capacity. During the period, our production volumes increased to 2 million tons, including a small benefit of the Aliceville expansion, which commissioned during the period. The full rate, run rate of this expansion, together with the development of our Longview pellet plant, will add around 600,000 tons of production. So with improved output across our existing plants, we're continuing to target this future production of 5 million tons. Our current third-party sales book includes a portion of legacy contracts that were signed when market prices were lower, and while price escalations apply, cost inflation has reduced margins over recent years.
Around 1 million tons of these contracts expire over the next 5 years, and we expect to expand our margin on renewal into, or on the sale of, these volumes into existing markets or sale into new markets, which, as well noted, include sustainable aviation fuels. Market forecasts show growth in demand as markets such as BECCS and SAF develop, and we believe our pellets have increasing value, and we have a healthy pipeline of opportunities. In biomass generation, our RO units are fully hedged for 2024 and 2025, with over 20 terawatt hours locked in at attractive prices. We expect the CFD unit to run at a high load factor for the coming years, subject to securing the biomass. We also anticipate additional longer-term value at Drax Power Station from the bridging mechanism, BECCS and other opportunities. So turning to slide 21, and the balance sheet.
We maintain a strong focus on cash flow discipline and maintenance of a robust balance sheet. Year to date, we've signed over GBP 680 million of new facilities, with 3- to 5-year maturities, and repaid over GBP 820 million of 2024-2026 maturities. As a result, our weighted average maturity date is now in the fourth quarter of 2027. Our available cash and committed undrawn facilities of GBP 515 million provide substantial headroom over our short-term liquidity requirements. Our GBP 300 million ESG-linked revolving credit facility provides further committed liquidity out to 2026. No cash has been drawn on this since inception, and as I noted earlier, we expect to refinance it in Q3, increasing the size and extending the tenure. Net debt to adjusted EBITDA is significantly below the group's long-term target of around 2x.
On a last 12 months basis, our leverage ratio at the end of the period is around 0.9. During the second quarter, our credit ratings were affirmed as BB+ by Fitch and S&P and as BBB low by DBRS, with a stable outlook in each case. And finally, cash generated from operations of GBP 400 million in the period is broadly in line with the prior period, despite a working capital outflow of GBP 93 million. So slide 22, and looking at capital investment. With CapEx spend of GBP 147 million in the first half, we now expect CapEx to be in the range of GBP 360-400 million for the full year. Growth CapEx of around GBP 270 million includes the OCGTs, Longview, and the Cruachan 3 and 4 refurbishment projects.
Our maintenance CapEx of around GBP 100 million for 2024 is lower than in 2023, primarily reflecting that there was 1 major planned biomass outage compared to 2 last year. The major planned outage is progressing well, and Unit 3 is expected to return to service in August. Other CapEx includes investment in systems, controls, and processes to support continuous improvement and compliance. The first of our 3 OCGT projects will commission in the fourth quarter, and as I noted, commissioning of the remaining projects is delayed into 2025 due to delays in the grid connections. The construction of Longview will continue throughout the year, and expected spend has reduced as progress is slower than anticipated as we proceed with air permitting processes. There's no change, however, to the expected medium-term volumes or profit targets for pellet production.
We expect around GBP 30 million of CapEx on Cruachan 3 and 4 this year, with total CapEx on the project around GBP 80 million. The investment's underpinned by GBP 220 million of Capacity Market payments through 2042, along with earnings from power generation and system support services. We continue to carefully manage our further investment in UK BECCS, pending additional clarity from the UK government. On to slide 23, and capital allocation. Our capital allocation policy launched in 2017 and remains unchanged. Strong financial performance and cash generation is supportive of maintaining our credit ratings, paying a growing and sustainable dividend, but it also positions us well to invest in our core business and progress strategic growth plans in the UK and globally.
Our policy is to pay a sustainable and growing dividend, and over the last 7 years since the policy commenced, dividend growth has averaged 11%. Timing of capital deployment is a key consideration when we think about the fourth leg of our policy, which is to return surplus capital to shareholders. We have attractive options for long-term growth in BECCS and pumped storage, but final investment decisions are targeted for 2026. We will continue to consider other investment opportunities which are complementary to our portfolio. But with high-quality operating cash flows underpinned by a strong hedge book and leverage already below our long-term target of 2x, we will return a further GBP 300 million over the next 2 years through a share buyback program that will commence in the third quarter. With that, I'll hand back to Will.
Thank you, Andy, and just to wrap up on page 24. So we had a very strong operational and financial performance in the first half of the year, which supports the improved outlook that Andy has described for the rest of the year. We're increasingly excited about our flex gen and energy solutions, as well as pellet production businesses, and are targeting greater than GBP 500 million of recurring adjusted EBITDA into the thirties. Our biomass generation business will deliver very strong cash flows, greater than GBP 1 billion of operating cash flow over the next three years, and has a very attractive and important long-term role in the UK power system, and we're, again, increasingly encouraged by our early engagement with the new government. As a business, we have long-term options for growth, whether that's in pumped storage, whether that's in BECCS, and whether that's in pellets.
All of which are aligned with our purpose of enabling a zero carbon, lower cost energy future, as well as the energy transition and enabling security of supply here in the UK. Finally, we take a disciplined approach to capital allocation. We've significantly strengthened our balance sheet. We continue to invest in our core business and our growth opportunities, while delivering a sustainable and growing dividend to shareholders. We've announced again today that we will be beginning shortly a GBP 300 million share buyback. With that, we're happy to take any questions.
Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad. If you change your mind and wish to remove your question, please press star followed by two. When preparing to ask a question, please ensure that your phone is unmuted locally. You can ask a question in written format via the webcast platform. Your first question comes from Pavan Mahbubani, from J.P. Morgan. Please go ahead.
Hi, team. Good morning. Thank you for the presentation and for taking my questions. I've got three, please. Firstly, I think the question on everyone's mind is on the GBP 300 million buyback and thinking around both the quantum and the timing of this. You know, why have you done it now? Is this related to, you know, your successful refinancings? Is it to do with delays of, you know, spend on BECCS or, or indeed, are you more confident around that? Is it to do with an OCGT sale? So any incremental color you can give around the thinking of why you've done the buyback and why you've done the amount you've done today would be very helpful, please.
My second question is linked to the first, but in terms of your discussions with the Labour government, how confident are you that we're going to get news on the bridging mechanism this year? And any insight you can give on conversations with the new Energy Minister would be helpful. And then finally, in terms of options for Drax Power Station, if, for example, the UK government veers away from a bridging mechanism or BECCS, I believe that's unlikely, but are you in conversations with hyperscalers, for example, data centers? Is that a potential source of offtake in the UK for Drax Power Station if you don't make an agreement with the government? Those are my questions. Thanks.
Thanks, Pavan, and I'll take those in turn. So on the buyback, it's very much the outcome of the board applying our capital allocation policy as we always do. As you know, we sort of completed our last buyback, I guess, middle of last summer. And at that point in time, we basically then turned our attention to making sure we had a balance sheet that was rock solid, come what may. And Andy and his team have done a fabulous job of putting that in place. You know, really, the amount of refinancing activity, the attractiveness of it, the confidence that the debt markets and the capital providers have in the business has been, I think, very gratifying to see.
And we now have a position where we're comfortable, frankly, with or without a bridge, that we are in a very strong balance sheet position, come what may. Right? So having done that, we again, we've looked at our investment opportunities. As we know, the through FID on, frankly, Cruachan 2, BECCS UK, BECCS US, are sort of late 2026, 2027, and given the amount of capital that we expect to generate over the period before that, we felt like if we were gonna be consistent with our policy, and as we would like to always be, that returning capital to shareholders was the right approach to take, right? So I guess I, what I wouldn't say, it's not related to the open cycles, for example. We've still... We need to commission those.
Once we have those commissioned and good evidence of operating performance, we will then again look at what the best option is for those. But that's something that's yet to come. On the Labour government, you know, frankly, the key first key item there is that having a 2030 net zero power system is one of their five primary objectives is very important, right? And as National Grid published in its future energy scenarios, that's not possible, we don't believe, without the Drax Power Station and without BECCS at Drax, right? Now, you know, our team has been working with officials, frankly, you know, for some time.
They continued working through the election cycle with them to make sure that we actually, you know, have the sort of structural pieces, the information required, the understanding of how the both the bridge and BECCS will work, so that actually we can... You know, actually, there's the right amount of time available to get those done by the end of the year. So that's absolutely still happening. My early engagement with the Treasury with, sorry, the Energy Minister has been very... Not the Energy Minister, Ed Miliband, let's just be clear, has been very positive. And frankly, I mean, he, you know, he is passionate about a net zero 2030 path power system. I am also passionate about it, delivering a net zero 2030 power system.
There are lots of people who say that's difficult, and it will be difficult. So the urgency is frankly said to the government, 'cause if they want to get that done, we need to start moving, right? And so the simple point is they know what we need to do. They know that we need more clarity by the end of the year, and they know actually that we, you know, we're eager to be part of it. So I'm excited about the likelihood that that happens here. And the final point on data centers, I mean, the world is excited about AI, right? In good ways and other bad ways too, right? And there's lots of stuff happening in that space, right? But the demand for power is indisputable, right?
and the demand for 24/7 green power even more so, right? So if we think about BECCS as a technology, it is absolutely ideally suited for supporting that. It's 24/7 renewable power. It is not intermittent. It, you know, it, it doesn't require structuring to make it 24/7. It just is, right? So that's part of it, having the land available to deliver that, having cooling available to deliver that, being close to fiber optic cable networks. The Drax Power Station has all those things, right? That doesn't mean we don't need to work with the government to, for a bridge. We're a long way away from anything that might happen in terms of a data center, but it is something that we think we should be exploring, both here in the US, sorry, here in the UK, but also in the US. But frankly, that does...
It completely does not, in any way, take away the need for the bridge, and that's important for us to note.
That's very clear. Thank you.
Thank you. Our next question is from Dominic Nash from Barclays. Please go ahead.
Good morning, everyone, and thank you for your presentation. Very helpful. So three questions from me, please. The first one's kind of following on from Pavan's question over the amalgamating the buyback and the timing of the sort of bridging mechanism BECCS negotiations with the government. Do you think that the timing of the GBP 300 million buyback provides a signal, or could it be seen as being detrimental in any way to negotiations with the government that your capital is potentially not necessarily gonna be going into capital projects here in the U.K., that you have choice? The second question I've got, as well on here, is on the bridging mechanism itself.
When do you think you're gonna start to put numbers in as to what the level at which the new CFD is likely to be struck at? And if you don't have that number yet, how would, how would it be best for us to think about the number that you will be getting towards? I.e., what sort of, sort of, spread or return or, or, or, or sort of fuel costs that you, you'll be looking at to kinda come up with a, with a bridging mechanism number? And thirdly, I was interested in, in your, on your slides on the way that the balancing mechanisms are moving and that your flexible generations is increasing going forward. Do you have a feel for when you think we get to peak year for flexible generation?
You know, when do you think the point will be when the new technologies, when batteries, when demand-side management, et cetera, et cetera, start to come in, to a level to offset the increased volatility of the intermittent sort of renewables? When do you think we're gonna get to sort of peak here? Thank you very much.
Thanks, Dominic. Probably quite quick responses to that. So what... I'm not in the business of signaling to the government through analyst announcements or media. I have very open and honest discussions with them about what we're doing, and the key point is that we are, you know, central to the system. We want to make a net zero 20/30 power system work, and we're committed to doing that, as long as we have the right setup and signals from the government to do that. And it's, we have, you know, very straightforward discussions, and we're working well there, right?
Second point is, you know, we are gonna be in discussions with the government about what the numbers on the bridge look like, and I think it wouldn't be a good idea to sort of speculate on those publicly. I mean, the one thing I would say is that as a, you know, as a multinational group, you know, our pellet business is, you know, fundamentally independent and a standalone business relative to the UK power generation. And so, you know, whatever fuel costs that we have included in a deal needs to reflect the market price of pellets, 'cause that's the alternative that we've got. And as we've said, we are, you know, have very interesting discussions going on about both extending existing contracts at market prices, and we are doing that, as well as entering new markets at attractive prices, right?
And then finally, I think, I think the key point for me about sort of intermittency is that the, you know, demand-side response, batteries, long-duration storage, those are all ways of, of, you know, supplying intermittency into a market where the demand for intermittency we see is growing, and we expect that to grow, you know, continuously for a long time as the market... as more offshore wind and more intermittent renewables go on the system, right? Key thing about long-duration storage is, is that... Sorry, the way we see the market for intermittency is it's segmented by time, right? And batteries are good at delivering very short-term stuff. Pumped storage is much more attractive at delivering, you know, long-term.
So, you know, maybe 1 or 2 hours, 3 hours, maybe up for batteries, you know, 4, 8-16 for long-duration storage, pumped storage. And so we see those as different markets, and, and frankly, the, the attractiveness of that market should continue to grow. And frankly, you know, the opportunities for us to be involved in multiple pieces of that market are also interesting, right? You know, as we build an EV charging business, as we sort of- we have a electric assets business where we help manage customers in demand-side response, that's equally an opportunity for us, and batteries is something we would also look at.
Thank you. The next question comes from Alex Wheeler from RBC. Please go ahead.
Hi, thanks. Three for me as well, please. Just on the dividend, how should we be thinking about the dividend growth going forward, given the 12.6% growth guidance that you've given this year? Secondly, the 2027 target is clearly looking well supported. Can you just remind us on the steps on the pellet production side, given there's a little more to do there than on the generation business? And then finally, just on the US BECCS, the CDR market is clearly very important there. So I'd just be interested in any more color that you can give us on, you know, how you're seeing that evolving at the moment. Thank you.
Thanks, Alex. Well, I'll take the first and the third, and I'll ask Andy to comment on the two, the two targets for GBP 250. In terms of dividend growth, I mean, we, we don't have a progressive dividend policy, as you know. We have a policy where the board will look at the, the performance of the business, expected future performance, and every year we'll decide what the dividend should be. So in years that have been not as strong, for example, in the middle of COVID, we had a lower growth rate. In years like this one, where we're performing well, we have a higher one, and, and that process will continue. So, I would, I would not be... It would not be consistent with our policy for me to tell you about a projected number in the future.
On the third one, the CDR market is, is evolving and growing in maturity. As you know, there was an interesting deal announced between Microsoft and Stockholm Exergy. Again, a long-term sort of PPA or analogous structure to PPA, long-term commitment to sort of, to pre-buy CDRs from that project, similar to the Ørsted deal that they did last year. That's exactly the type of thing that we're looking for. We think that the market is increasingly appreciating the value of permanent geological storage and the importance of high quality in this space.
And so the one other thing which people may be less sort of aware of is, the government here in the U.K. is eager for voluntary carbon markets to be included and embedded in some way in the carbon CfD that we're working on with them to support BECCS. And again, we're having very exciting conversations with significant British players looking to build a British market for British-based CDRs as well. Andy?
Yeah. So on the pellets, the, I guess the first thing, the target's based off 5 million tons of production. So we did 2.5 million this year, so, you know, that would give you a simple run rate of around 4 million for the year. So we do need to increase production from our existing plants, so across the 17 plants that we already have. But we also have the expansion project, so the Aliceville expansion's complete, or commissioned. Not much volume in the first half, but you'll start to see that run rate in the Longview project, and together, they add 600,000 tons.
So effectively, you need, you know, the remaining 400,000 from across the 4 million in production we already have in our existing portfolio, and there's opportunities there to invest in and improve performance to get that output. So I think we're confident in the ability to deliver the 5 million tons. The second part of it then is the EBITDA per ton that we produce. And in the first half, that was over GBP 30. I think we had said at prelims that 2023 was a not the year to sort of baseline off. It was better looking at 2022, and the performance first half is consistent with that.
That GBP 30 reflects a higher margin on contracts whereas that were signed more recently and on the intercompany sales to Drax Power Station, but a lower margin on these legacy contracts. 1 million tons of those legacy contracts renew over the next 5 years, and as they renew, we will either recontract them at a market price, or we have opportunities into these new markets that we've talked about to sell those and then get a market price. The price we need to get on those renewals or new markets is consistent with the market price we're already achieving elsewhere, and if we do that in 5 million tons, then we'll deliver GBP 250 million.
Okay, thank you.
Thank you. The next question is from the line of Harrison Williams, from Morgan Stanley. Please go ahead.
Hey, morning. Thanks for taking my questions, a couple from me. Firstly, on the OCGTs, can you give a bit more color on what's caused the delay? I think you mentioned grid connections. And then secondly, given these are on capacity markets regimes, is there any penalty to that delay? So that's the first question. But the second, coming back to the pellet margin and the improvements, can you give us any sort of phasing of those 1 million of contract expiries? And also, when you say a market margin, is that the 50 GBP per ton, or is it slightly higher than that to kind of rebalance the book? And then the third question and final question from me, on REGOs in the UK, what are you seeing on kind of latest prices?
What are you expecting for that going forward? Thanks.
Thanks, Harrison. So maybe why don't I take the first and third, and Andy will do the pellet one again. So on the open cycles and delays, I mean, frankly, you know, each one of those needs both a gas and a power connection, and we are really working through getting those lined up with grid. They're not necessarily straightforward, and I'm sure I know they're doing their best, and we're working closely with them to make those things happen. In terms of the CM regime, you know, there's no penalty, but you don't receive CM earnings if you're not able to demonstrate you're available. On the third question, REGOs, I mean, clearly, they were extremely high prices, those were over a year ago. Those have come back down, and we can expect them to continue to have attractive prices going forward.
On the pellets, the GBP 50 is consistent, we believe, with the market price. And if you look at the GBP 30 achieved in the first half or just over GBP 30, you know, some of those are at the market price and the legacy contracts below. So, you know, you can sort of do the math. I'm, I'm not gonna guide you to what we make on each, but, if GBP 30 is the average and some are at GBP 50, some are clearly lower, and then when they get back up to the GBP 50 price on renewal or selling to new markets, I think you'll see you can bridge that gap.
... That's great. Thanks.
Thank you. The next question is from the line of Adam Forsyth from Longspur Research. Please go ahead.
Thanks. Morning, everybody. Two questions from me, both really on Cruachan, well, and on the Flexgen business. Firstly, following the changes in the Balancing Mechanism rules, there's been a lot more battery participation in the Balancing Mechanism. And I'm just wondering if that's had any impact on your revenues, if it's cannibalizing any element of your revenue stack, and related to that, whether you've changed bidding behavior in that market as a result? And then, just looking forward, you comment, Will, just kicking off, I think you talked about looking for further opportunities in the space, in the Flexgen space, generally. There's a lot of pumped hydro projects out there under development, I think over 10 now. Is that the sort of thing you'd be looking at?
Would you be looking at partnering? Would you accept a partnership project in that area, or would you be looking for absolute ownership? Thanks.
Thanks, Adam. So, yes, clearly, the balancing market changes have resulted in more battery participation, especially as I mentioned before, in the short end of the market. You know, we will. You know, our bidding behavior will be based on the economics and the rules, as it always has been and always will be. And frankly, that, again, I think the point I made before about our position being more on the longer end of the market, I think that's, we're excited about the ongoing opportunities there. In terms of other projects, you know, pumped storage, we've got, I think, our hands full, to be honest. I mean, 600-MW expansion of Cruachan 2, that's a big piece of our portfolio.
So frankly, we're looking at other options that might round out the portfolio is probably more where we would be looking.
Great. Thanks.
Thank you. The next question comes from Ahmed Farman from Jefferies. Please go ahead.
Hi, thank you for taking my questions, and congrats on the strong set of results. Maybe I just wanted to ask a couple of quick questions. Could you give us a sense of some guidance on biomass load factors and production volumes for the second half? Obviously, you had a strong year-on-year improvement with 7 terawatt hours. Is that a run rate we could look towards for the second half? Secondly, anything on any sort of latest thoughts on the Ofgem investigation and the timing around that, and any perspective around how, you know, we should sort of potentially think around range of outcomes there? That would be very helpful. Thank you.
Thanks, Ahmed. So I think, I think the first one is I would expect, you know, at least from what we can see now, and the generation portfolio, sorry, profile for biomass generation in the UK should be broadly similar in the second half as it was in the first. And on Ofgem, we continue to work in strong collaboration with them to make sure we can resolve that investigation, and then that is ongoing.
Okay. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Will Gardiner for closing comments.
Thank you, all. I appreciate your time, and I wish you all a good summer. Thank you.
Thank you. Ladies and gentlemen, the conference-
This presentation has now ended.