I will now hand over to Will Gardiner, CEO. Please go ahead, sir.
Thank you, and good morning, everyone. Thank you all for joining the call. I'm going to provide a short introduction and overview, and then I'll hand over to Andy, who will take you through the numbers and some of the operating points, and then I'll come back to talk about some of our investment opportunities and more about capital allocation, and we'll finish up with questions. Now on page three, you're all familiar with our purpose, which is to enable a zero-carbon, lower-cost energy future. I'll start with that, as I always do, as it guides fundamentally everything that we do. Our strategy and business model are designed to deliver attractive returns for shareholders while realizing that purpose. We have a strong core cash-generative business that has a track record of achieving those joint objectives.
Looking to the future, we have opportunities to invest in that core business to enhance shareholder returns as well as deliver positive outcomes for climate, nature, and people. Critically, our people are at the heart of Drax, where I want everyone to feel a valued member on a winning team for their worthwhile mission. Returning to page four, we have had a strong year. Good safety performance is critical in its own right and also underpins good operating and financial performance. I was pleased that our total recordable injury rate reduced in 2024 from 0.38 in 2023 to 0.24. We've produced 25% more power than we did in 2023, which, combined with a strong improvement in pellet production, has driven a 5% increase in adjusted EBITDA.
We significantly strengthened our balance sheet, adding GBP 700 million of new debt that matures in 2027 and beyond at attractive rates, which reflects the market's confidence in our long-term business. We use those proceeds to repay about GBP 900 million of shorter-dated facilities. We're committed to shareholder return, and we're delivering those through the disciplined application of our capital allocation policy. We're announcing today a 12.6% increase in our dividends per share, and we continue with a GBP 3 00 million share buyback, which reflects our belief in the value we see in the business. The recent CFD agreement for the Drax Power Station is a good deal for the U.K. and I also think it's a good deal for us. Importantly, it reflects a significant inflection point for our company.
Taken together with FlexGen and pellet production, we're today announcing an upgraded target for recurring adjusted EBITDA of GBP 600 million- GBP 700 million from these three businesses post 2027, which reflects our increased confidence in earnings visibility after 2027. We also remain excited about the opportunities for long-term growth, which are aligned with the energy transition and security of supply. We will continue to commit appropriate development expenditure to those opportunities. That expenditure is additional or outside that post 2027 target for FlexGen, pellet production, and biomass generation, which I just mentioned. The bottom line, though, is I want to emphasize our capital allocation policy. We're committed to attractive returns to shareholders, and we will continue to deliver those. Turning to page five, last year, we began to talk about our business differently, and I want to reiterate that story.
Flexible Generation and Energy Solutions is doing well and is already at the target level of GBP 250 million of EBITDA on a pro forma basis. In Energy Solutions, earlier this month, we agreed the sale of all of the residual SME meters, which will mean that that business will be based on including renewable and EV solutions. This has greatly simplified that business. The business is doing very well with good performance including, and we have learned important lessons from that simplification process. Our pellet production business has had a great year, and we have confidence in the future, but recognize we have work to do to deliver that target. The CFD Bridge Agreement for Drax Power Station gives us confidence that we can deliver between £100 and GBP 200 million of EBITDA during the bridge period, and I'll provide more details on that in a second.
So again, across those three businesses, we're now targeting GBP 600 million- GBP 700 million of adjusted EBITDA after 2027. And again, I want to reemphasize that that target is stated before accounting for development expenditure for growth, which is the fourth column on that page, where we have attractive options, which we continue to believe offer significant opportunity for long-term value creation. In our FlexGen business at the Drax Power Station, which could accommodate both a data center and BECCS, it's unique in the U.K. in having four gigawatts of grid access. And in the context of electrification and the rising demand for power, as well as its importance for energy security, affordability, and decarbonization, the so-called Energy Trilemma, we're continuing to assess options to create long-term value from the site.
Of course, we continue to be very excited about the opportunities in global carbon removals, which we will be executing through Elimini, our new carbon removals business. On to page six. The agreement of heads of terms for a CFD supporting post-2027 operations is a very positive step and an endorsement of the contribution that Drax Power Station and biomass make towards energy security and decarbonization, as well as being a value-for-money solution, saving billpayers billions over the term of the agreement. Under the agreement, we will sell the equivalent of about six terawatt-hours rateably across the year to achieve the base load reference price and receive or pay the difference between the base load reference price and the CFD strike price, the so-called top-up.
In periods of high demand, we will actually use all four units to produce and sell as much power as possible at higher peak prices. And in periods of lower demand, we will add value by buying back power at lower off-peak prices. By operating in this way, we will help support energy security, provide flexibility to the power system, and earn a higher average price for power than the CFD strike price. We expect the system to become more volatile in the future as electricity demand increases and more intermittent capacity comes online, creating more opportunities for us to do more and to earn more. And we're planning to run some sessions for investors and analysts with our commercial team to help explain the mechanics of the agreement. The agreement also includes the continued evolution of sustainability standards, and we're very supportive of that.
There has been some suggestion that to meet supply chain emissions targets, we would be required to buy more European versus U.S. biomass. I want to be quite clear that that's not the case, and wherever we source from, we expect our supply chain to meet those emissions targets, and we are confident that it will. Finally, just to describe a bit the process from here, we expect government to lay secondary legislation, a statutory instrument, before Parliament in the coming months, which will give them the power to award CFDs to biomass generators, and subsequently, the agreement will be subject to a subsidy control mechanism process. Turning to page seven, I'm sure you all have seen this, but I just wanted to emphasize and highlight the recent launch of our new sustainability framework.
This is a very important and large-scale piece of work, which supports our commitment to develop and enhance our approach to sustainability across the three pillars of climate, nature, and people. Please have a look at it. It includes substantial targets across those three areas and something that we're very committed to. And again, we plan to arrange sessions to run through this with analysts and investors. Now over to Andy.
Thank you, Will, and good morning, everyone. So starting with the financial summary on slide nine, once again, we've delivered strong financial and operational performance. Adjusted EBITDA grew 5% to GBP 1.064 billion, reflecting a high level of renewable power generation and system support activity and an improvement in pellet production. Our balance sheet is strong. We ended the year with net debt to adjusted EBITDA of 0.9 times. The business is generating significant cash from operations, which provides a strong foundation for investing in our core business and delivering attractive returns to shareholders. Cash generated from operations in the year was over GBP 1.1 billion. The board proposed a final dividend of GBP 15.60 per share, bringing the full year dividend for 2024 to GBP 0.26 per share, which is a year-on-year increase of over 12%. Last week, we published a company-collected consensus for 2025.
We are comfortable within the consensus range, subject to continued good operational performance. We're moving on to look at performance by business. In February of last year, we set out a target to deliver more than £500 million of post-2027 recurring adjusted EBITDA from our FlexGen and Energy Solutions and pellet production businesses. As Will's already noted, earlier this month, we agreed a non-binding heads of terms for a CFD for Drax Power Station to operate between April 27th and March 31st. Reflecting our expectations for that agreement, we're now targeting recurring post-2027 adjusted EBITDA in the range of GBP 600 million- GBP 700 million. This excludes investment opportunities, which includes development expenditure in Elimini, innovation, and capital projects. Performance in pumped storage and hydro was underpinned by robust system support earnings. Our Drax Energy Solutions business continues to perform strongly.
As Will noted, the majority of the meter points in the SME business were sold in September 2024, and last week, we reached agreement for the sale of the remaining meter points. These will take effect from May of 2025, subject to regulatory approval. In pellet production, we increased volumes and margin, and we delivered record levels of Adjusted EBITDA. Strong performance in biomass generation reflects a 27% increase in renewable generation and the continuing role that Drax Power Station plays in supporting the UK power system. On to slide 11. We're continuing to target greater than GBP 250 million of post 2027 recurring Adjusted EBITDA from FlexGen and Energy Solutions. And strong performance in 2024 is supportive of delivering that target. Our pumped storage and run-of-river hydro assets perform strongly, with increased generation output compared to the prior period.
Our assets are well placed to support the system and capture value when there's pronounced changes in system need and commodity prices, like in the period between 2022 and 2023. Adjusted EBITDA in Energy Solutions of GBP 51 million included GBP 81 million of earnings from our I&C business. Alongside supplying renewable energy, our I&C business provides EV and other value-added services such as asset optimization. These earnings reflect a consistent margin on contracted energy supply prices, and we expect earnings from EV and other services to grow over time. In total, FlexGen and Energy Solutions delivered adjusted EBITDA of GBP 188 million. So taken together with our target post 2027 earnings from our three new OCGTs of GBP 50 million and capacity market income from the Cruachan units three and four refurbishment of GBP 15 million, the illustrative earnings increased to greater than GBP 250 million.
The GBP 80 million investment to refurbish and upgrade units three and four at Cruachan is on track. The project's underpinned by a 15-year capacity market agreement worth over GBP 220 million, and they'll add 40 megawatts of additional capacity by 2027 and improve unit operations. Our three new build OCGTs are expected to commission in 2025, while later than originally planned, primarily due to delays in grid connection by the relevant authorities. These OCGTs will provide combined capacity of 900 megawatts and be remunerated under 15-year capacity market agreements worth over GBP 250 million, and in addition, we'll earn revenues from peak power generation and system support services.
We believe that retirement of older thermal generation assets and increased reliance on intermittent renewables, together with an increase in power demand, will drive a growing need for dispatchable power and system support services, and that this creates long-term earnings opportunity and value from the group's flexible generation assets. Onwards to slide 12. We've already secured capacity market agreements in the period to 2042 with a value of GBP 600 million. This could grow to over £1 billion if on renewal, we secure new capacity market agreements at an equivalent price to the 2024 T-4 auction of £65 a kilowatt. These values are in 2024 money, so they're subject to indexation with U.K. CPI. Now looking at pellet production on slide 13. Our pellet production business made strong progress in 2024 with improved operational performance and profitability.
Production volumes increased to four million tons, of which 2.4 million tons were sold to Drax Power Station. The margin achieved on own use supply better reflects the current market value of long-term large-scale supply. The margin achieved on our legacy third-party contracts is lower. Combined with a reduced cost of production, the achieved EBITDA margin per ton of production increased to GBP 36. Reflecting the above, adjusted EBITDA grew to GBP 143 million. As Will noted earlier, we expect that own use volumes will average around two million tons a year for the period of the CFD agreement for post 2027 operations.
This provides a strong underpin to delivery of our target earnings. Delivering that GBP 250 million target assumes that we will continue efforts to maximize production from our existing capacity and will drive operational efficiencies through our supply chain, and that will include increased use of technology.
Secondly, that we'll renew lower margin legacy third-party contracts at improved pricing and/or we'll secure sales to new markets, which includes SAF. And lastly, we'll add incremental capacity as the demand profile becomes clear. Hawkins Wright forecasts show a greater than 30% increase in demand for biomass from 50 million tons in 2024 to 65 million tons by 2030. And this reflects markets such as SAF and BECCS beginning to accelerate. We remain positive on the long-term outlook. A lower requirement for third-party supply of biomass for Drax post-2027 could lead to a supply-demand imbalance in the medium term. But as a producer, a user, and a seller of biomass, we believe that we're well placed to create value. We are developing a pipeline of sales opportunities for SAF, which we believe could be a major market opportunity for biomass pellets.
During the year, we agreed Heads of Terms with Pathway Energy on a multi-year agreement that could see Drax supply 1 million tons of biomass pellets each year for production of SAF at their proposed plant in Port Arthur, Texas. In the future, we could potentially supply two additional projects, delivering a further 2 million tons of pellets per year to Pathway sites through the 2030s. Now looking at slide 14. In 2024, Drax Power Station generated over 5% of the U.K.'s electricity, around 10% of its renewable power, and on certain days, over 50% at times of peak demand. Adjusted EBITDA of GBP 814 million was an increase of 16% compared to the prior period, and it reflects a higher level of renewable power generation and system support services in response to a greater system need.
Drax Power Station produced 14.6 terawatt hours of electricity, an increase of 27% from the prior period. Our RO units are fully hedged for 2025 and over 80% hedged in 2026. So in total, we have 20 terawatt hours locked in at an average price of over GBP 93 through Q1 2027. In addition, we expect the CFD unit to run at a high load factor for the coming years. These strong forward power hedges, together with a GBP 500 million working capital benefit from the end-of-year RO scheme at Drax Power Station in 2027, underpin greater than £1 billion of post-tax operating cash flows in the period from 2025 to 2027. And that's prior to the commencement of the new low-carbon dispatchable CFD agreement.
So looking at the balance sheet on slide 15, we maintain a strong focus on cash flow discipline and maintenance of a robust balance sheet.
Available cash and committed undrawn facilities at the end of the year of GBP 806 million provide substantial headroom over our short-term liquidity requirements. During the year, we put in place over GBP 700 million of new debt maturing in 2027 to 2029, and we repaid over GBP 900 million of shorter dated maturities, significantly extending the group's average maturity profile beyond 2027. We have no significant near-term maturities. Strong financial performance and cash generation is supportive of maintaining our credit ratings. And during the second quarter, the group's issuer credit ratings were reaffirmed as BB+ by Fitch and S&P and as BBB low by DBRS. And that's with a stable outlook in each case.
So moving on to slide 16 and capital investment. Our capital expenditure of GBP 330 million included GBP 212 of growth expenditure and £83 million on maintenance.
The growth expenditure includes GBP 90 million for the OCGTs, over GBP 60 million for pellet production capacity, mainly at the Longview site, and GBP 30+ million for Cruachan units three and four expansion. As part of the continued investment to ensure good operational performance of our generation assets, a major planned outage on one unit at Drax Power Station was completed in August of 2024, and the unit returned to service ahead of schedule. There are no major planned outages in 2025. We're expecting CapEx to be in the range of GBP 180 million- GBP 220 million in 2025. So lastly, looking at capital allocation on slide 17. We will remain disciplined on our capital allocation as we seek to maximize value. Our policy was launched in 2017, and it remains unchanged. It has four pillars. Firstly, balance sheet strength.
We define this as maintaining our current credit ratings, which we believe are consistent with our long-term target of two times net debt to EBITDA ratio. Secondly, to invest in our core business. We continue to assess opportunities for the development of our portfolio. And in addition to the group's options for increasing long-duration storage at Cruachan, this could also include opportunities in other storage solutions like batteries, which could complement the range of services the FlexGen business can provide. Thirdly, a sustainable and growing dividend. The expected full-year dividend is a 12.6% growth in dividend per share. And over the last seven years since the policy commenced, dividend growth has averaged around 11%. Finally, we'll return surplus capital to shareholders. In August, we commenced a share buyback program for the purchase of up to GBP 300 million of Drax shares over a two-year period.
We are almost halfway through and have bought back over 23 million shares, and the third tranche will commence shortly. With that, we'll hand back to Will.
Thank you, Andy. And now I'm on page 19. And I wanted to provide a bit more of a framework to describe how we're assessing our investment opportunities. First, it's important to realize that the energy transition is creating a wealth of short, medium, and long-term opportunities for investment that have the potential to deliver attractive returns and are also aligned with our capabilities, our purpose, and our strategic objectives. We're also aware of the need to be focused, the need to manage risk, the need to prioritize the highest return and most immediate payback investments, especially given the increasing uncertainty we see not only in the U.K., but globally. So first, we're excited about our short-term opportunities.
As you know, or as we've said several times already, we're in the middle of our GBP 300 million share buyback, and we continue to see a lot of value in our shares. In addition, we're making incremental investments in our pellet business to drive down costs and in our trading capabilities to drive efficiency and more rapid decision-making. We're commissioning the open cycles, the OCGTs, which we believe are now more important than ever as the value of flexibility increases. So I think about the medium term. A key investment thesis during my time at Drax is the growing value of flexibility, complementing intermittent renewables and inflexible nuclear. With the retirement of dispatchable fossil fuel plants and the deployment of more renewables and a structural increase in the demand for power, we're now seeing this play out.
And we're leaning into this with a 40 megawatt expansion of Cruachan, a GBP 80 million program that we expect will deliver an expected return in excess of 20%. And we also see more opportunity to develop and grow our portfolio of dispatchable assets in what we believe is an increasingly attractive market. We see grid-connected batteries with two hours and more duration as a potentially attractive addition to our portfolio. And we'll look at both development and acquisition opportunities in that space. In pellets, we're continuing to develop the Longview project, but we're also assessing the medium-term supply-demand dynamic associated with that project. I think longer term, our first long-term priority is to create a definitive independent future for the Drax Power Station beyond the CFD bridge. One option for that is a data center, and I'll talk more about that in a minute.
And beyond that, we're continuing to develop further growth options for FlexGen and carbon removals. We remain positive on the opportunities from FlexGen, including the Cruachan 2 or the extension of Cruachan, on BECCS in the UK and globally, all of which we believe will be required to address the competing challenges of the Energy Trilemma. That being said, we expect to be quite judicious in the investments that we will make to maintain those options. And as we have always said, any investment in those longer-term opportunities will be subject to the right long-term framework and greater certainty. I'd like to add that the government's recent announcements of a review of greenhouse gas removal technologies, as well as the direction of travel on the long-duration storage Cap-and-Floor mechanism, as well as the initial policy moves of the Trump administration, all have increased the level of uncertainty.
Just to reiterate that, of which we are very aware. That being said, we want to maintain these options, and we will allocate capital to them when we're content with the risk-return profile relative to the other opportunities which I've already discussed. I would also say that to the extent we find other ways of advancing our strategy, carbon removals, FlexGen, and pellets that have more certainty, less risk, and more immediate cash flow generation, we are very much attracted to those. Fundamentally, all of this is underpinned by our capital allocation policy, which I believe we've executed with quite some discipline for quite some time. Moving on to page 20. I'm taking the next couple of pages to talk about sort of how our portfolio aligns with some of the things that are happening in the marketplace. So the decarbonization of the system by renewables is a success story.
The UK has led the way. But of course, it comes with its challenges and costs. More wind on the system drives intermittency and requires more active management, curtailing wind in certain periods and incentivizing thermal generation in others. This is increasing the cost of managing the system, as well as the opportunity for us to play our part by delivering the services that the system needs. This has been central to our strategy for a long time. As you can see on this page, the data absolutely supports it. Over the last six years, we've seen a 50% increase in terawatt hours of wind generation, a 600% increase in the hours of negative pricing, a doubling of system costs, as well as a doubling of pumped storage activity. We're increasingly confident in the value we can create from these opportunities.
You can see that coming through in our reported numbers. Since 2019, our FlexGen and energy solutions business has delivered greater than GBP 850 million of EBITDA against capital investment of less than GBP 200 million over the same period. We're doing more across our portfolio of pumped storage, hydro, gas, and biomass, which provide exposure to the drivers of value across the power system. On to page 21. We have exciting opportunities to grow this portfolio through incremental investment in the short and medium term. We have the 40 megawatt expansion of Cruachan, which I've talked about. We have the opportunity to invest in Cruachan 2, which I've also talked about. And batteries is a third area, which we've probably talked less about.
But I want to talk a bit about it now, which we're also evaluating the opportunity to expand the range of services we can provide, including batteries, which could be added relatively quickly, complementing the existing portfolio and allowing us to provide a full range of services to the grid across a wider technology base. And for us, batteries fits nicely into our portfolio. It gives us a short-duration storage opportunity. It takes advantage of our strong trading and optimization characteristics, and we think has nice synergies with the rest of our portfolio. On to page 22. We've been looking at the opportunity to develop a data center for about a year now. And we think that our proposition of a large-scale 24/7 renewable power, secure infrastructure, as well as proximity to the national fiber optic network, is attractive.
We have a short list of developers we're talking to about the opportunity. We see this as beginning probably before 2030 with a 100-megawatt development, which ultimately could scale to 1.2 gigawatts as we go through the 2030s. We can provide a long-term behind-the-meter power source with an offtake agreement at the Drax Power Station. It could also be complemented by BECCS. The two things are not mutually exclusive. Similarly, it also works with the post-2027 CFD agreements without the need for additional generation capacity to back up a 100 megawatt data center. Even without the generation capacity from our biomass units, we want to emphasize the value that we have at the site. The grid access has value.
And I know that Harworth, another site, recently agreed to sale of 48 acres of land with grid access to a data center developer for more than GBP 100 million, which on a comparable pro forma basis would be more than £500 million for 250 acres of powered land at Drax. So we're working with developers now, and we're targeting MOU and due diligence at some point later this year, and we will update you as we have more news. Turning to page 23. We're continuing to target more than GBP 250 million in the long term for our pellet production business, and we made good progress in 2024. We improved our output from 3.8 to 4 million tons, and we improved our margins.
And the CFD agreement for the Drax Power Station is an important underpin, and we're expecting to use about two million tons from our US plants post-2027, again, at a price consistent with our target margin. But as we've said already, we have work to do to deliver the rest of that target. We need to increase production from our existing capacity. We need to add incremental capacity as the demand profile becomes clear. And our Longview project is an interesting option for that. We need to renew the existing legacy contracts with aging customers at improved rates and/or identify a pipeline for sales into new markets, including sustainable aviation fuel or SAF. On top of these things, we expect to supplement them with efforts to drive operational improvements and efficiencies across our supply chain using AI and also other types of technology.
For example, we're researching biomass chemistry and looking for ways to allow us to improve pellet quality while extracting sugars, which could provide a secondary revenue stream from sales into a range of new markets, including animal feeds and ethanol. So we remain positive on the long-term outlook for pellet sales. But we do recognize the changes in demand from Drax Power Station post 2027 could lead to some supply-demand imbalance in the medium term. But again, as Andy mentioned, as a producer, user, and seller of biomass, we believe we're well-positioned to create value that might come from any disruptions in the supply chain. On page 24, let me talk a bit more about sustainable aviation fuels. So again, we're excited about the potential for this market, as we are about BECCS. We think there's multiple new market opportunities for pellets, specifically in the SAF world.
By 2030, forecasters expect this could be about a 5 billion-gallon market. That forecast is underpinned by mandates from the UK and the EU, plus targets in North America and Japan. To give you a bit of context, that's less than 5% of the total markets for aviation fuels. If you think about that, what does that mean in terms of pellets? Well, 5 billion gallons would be equivalent to more than 100 million tons. It would take more than 100 million tons of pellets to make 5 billion gallons of SAF. But let's be clear, we don't expect that all of that SAF will be made from pellets. In fact, maybe 5% or so, or 4-5 million tons of pellets would be used to make, again, roughly 5% of that SAF, with the rest of the feedstock coming from waste, fats, and cooking oil.
That's a sort of macro view. On a micro view, or from our perspective, again, we have this heads-of-terms with Pathway for a million-ton-per-year pellet contract that starts in 2019 for a plant in Texas. It's attractive to us because it's domestic to the U.S. It's close to our Drax assets, meaning a surer supply chain. And our deal with Pathway has the potential to add a couple of additional sites, meaning there could be about as many as 3 million tons per annum in the 2030s with that one customer. So as a reminder, our long-term target for pellets production is 5 million tons. So if you have 2 million at Drax and 3 million through SAF, it could be there even before you include additional European and Asian demand from other uses. On to page 25, and I'll a little bit on Elimini.
So Elimini, our carbon removals company, has had a good year in 2024. It was launched formally, a very exciting launch process in New York at Climate Week, and we also established our headquarters in Texas. And we remain positive on the long-term opportunity from carbon removals. But I'd like to emphasize that we think they are long-term opportunities. The market for CDRs, as you can see on the page, is growing. It's predominantly based on BECCS, but it is still small relative to our large-scale greenfield projects. And again, as I said before, we need to have the right regulation, commercial agreements, and macro political environment in place before we commit capital. So our future development expenditure is likely to be slower than it has been.
And in addition to looking at greenfield new build options, we're looking at ways of entering the market with lower risk, lower capital commitments, and more immediate positive cash flow. So for example, we're looking at developing a carbon credit trading desk, which would allow us to access a wider range of products and revenues before 2030. We're also looking at other ways of developing CDRs, not just using BECCS. And I would say we're looking at these would be lower cost and, again, smaller capital investments. So we're not really looking at direct air capture, if that's what you're thinking. But again, we remain very positive on the long-term need for carbon removals and BECCS in the UK, as well as globally.
And as such, we continue a well-progressed option for BECCS at Drax Power Station, which we believe can be and should be an important component of the government's plans for net zero in the 2030s and beyond. But again, we require significantly more certainty before committing capital. And as such, we look to the U.K. government to provide more clarity on the process from here to create the right investment framework to take these important infrastructure projects forward. So finally, on page 26, we're delivering attractive returns for shareholders with strong operational performance, substantial dividend growth, disciplined capital allocation, and a significant share buyback. We're also delivering for all stakeholders with opportunities aligned to energy security, affordability, and decarbonization.
We had a good year in 2024, providing good evidence of our attractive business model, providing support to the UK power system through FlexGen, Drax Power Station, and the associated pellet supply chain. The heads-of-terms for a CFD at the Drax Power Station is a very important inflection point. But again, a reminder, we still have work to do to convert that heads-of-terms into a firm contract. The post 2027 adjusted EBITDA target from FlexGen pellets in the Drax Power Station of GBP 600 million- GBP 700 million reflects growing confidence in our medium to long-term outlook, and strong cash flow generation and attractive growth opportunities, we will approach those in a disciplined manner to maximize returns and minimize risk, so thank you for listening to that more lengthy than usual, I think, discussion, and we look forward to taking 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 your question, please ensure that your phone is unmuted locally. You can also ask a question in written format via the webcast platform. To confirm, that's star followed by one to ask a question. The first question is from Dominic Nash, Barclays. Please go ahead.
Good morning, everyone, and thank you for your presentation and opportunity to ask a question. Can I say, first of all, you have got a lot of moving parts going on here, like at every single level, and clearly, I think there's going to be a lot of questions.
So I'll limit it to hopefully two, but the first one's a bit of a stream of consciousness one, I guess, which is, can we just start, first of all, with your biomass bridging mechanism? You're clearly going down to six terawatt hours. First of all, what's your expectation? What's your expectation of extra terawatt hours above that six terawatt hours that you can operate on a merchant basis? And the next sort of link to that is clearly six terawatt hours is, what, three million tons of biomass? And you're currently, I think, burning about seven. So I'm going to get a feel for what your delta is in biomass production. And I know that you've said that two, three times on this call, that there will be a short-run sort of overhang of pellet oversupply as you maintain your two million tons of self-supply.
Therefore, third parties get squeezed, which then leads on to the question. Second question then is, when and how are you contracting for your pellets? And as we move into that short-run overhang, are you going to be contracting with yourself at this sort of arm's-length sort of market price that could be quite dampened if you end up with that overhang? And or have you actually put the contracts in place, or do we have a risk that you're striking CFD sort of naked? And then sort of finally on that one, have I missed this, but I think you had an eight million-ton pellet ambition by 2030. I presume that that is now, that that is now in light of this bridging mechanism and the time is likely to be an ambition rather than a target, maybe. So apologies, that's my first question.
The second one hopefully will be a bit quicker, which is the BECCS. It looks to me BECCS is being dialed down. Clearly, you've got uncertainty, as you have pointed out, with what's going on in the States with Trump. The UK government policy looks a little probably less supportive of carbon capture, but you're dialing up flexibility in data centers instead. One area of uncertainty that we're getting here is obviously REMA and the zonal power pricing. Could you give us a flavor of what opportunities and/or what impact that will have on your flexible generation capability, OCGTs, Cruachan, and your potential expansion in FlexGen? And do you have to wait until we get clarity on that before we get a sort of a view on what you're going to do? Thank you.
Okay, I would say there's lots of moving parts in that question, Dominic. So thank you for that. So just maybe I'll start with the bridge. So I guess the first thing I'd say is that the bridge has a cap and a floor of how much we will generate. So that's the first thing, six terawatt hours being the cap, which I think is probably the important question. In terms of some of the numbers we've been saying, I think when we get to 2027, the actual sort of number at that point in time, I think, is going to be about 170, right, for the actual level of the CFD. And I think we're talking about biomass cost as being about 130, if you wanted to sort of take a number, right?
So I guess the question really becomes, how often do you or we think the market will be the power price will be above that GBP 130, right, so that we could generate without a CFD to support the generation, right? We're not thinking of it as being a very big number, given where power prices are today. We think there is some possibility there, but I would say it's not a big number, marginal at best, I would suggest. I think it's probably a baseline number, right? I mean, as we've seen in the last few years, there's lots of things that can happen. So that's sort of based on the world as we see it from today. So to do those six terawatt hours, again, it's about 3 million tons of pellets. We're expecting to use about 2 million of our own.
The rest of the pellets that we have, we have effectively the contracts we have into Asia effectively use pretty much the rest of the ones that we've got today in terms of that sort of 4.5 million tons. So I think our book is well sort of our production is well sold, shall we say, right? In terms of the price at which we sell those pellets, that has to be an arm's-length price for reasons of transparency relative to the bridge, for reasons of tax reasons, etc. But again, that price should also reflect the value of a long-term contracted position. And that's true today, and that will always be true. So your final question is, where are we on the other 100 million tons? I mean, we've been planning for this as well.
We've been planning to make sure we have the ability to have knowable and firm prices beyond 2027 for some time. We do have some option agreements in place with some third-party pellet providers, so I would say we are comfortable that we have known costs, and if there's market opportunity to do better, we will take advantage of that. In terms of BECCS, I think what I would say is that if you take it maybe U.S. and then the U.K., I think until this sort of current administration took office, I think our feeling had been that the IRA would likely stay in place, and given this, sorry, I should say that the subsidy support for carbon capture that's embedded within the IRA, i.e., the 45Q mechanism, would continue on the basis that it's very supportive of investment and job growth in many red states, right?
I think we would still believe that to be true. However, I think the other volatility that's been sort of that we have seen as a result of what the Trump administration is doing, I think creates a lot more uncertainty than I probably was expecting, which is a bit of a surprise to me, given I was expecting quite a bit. So I think we are quite a lot more cautious, as I think many market participants are, on longer-term large-scale investments in renewable technologies in the U.S. That's a very significant issue, right? In terms of the U.K., I guess I would say, to be fair, I was not expecting a review of greenhouse gas removal technologies from the U.K. government to be announced at the same time as the bridge was announced, right?
I have had some discussions with government about that, and I think my sense is that they would like to make sure they're comfortable with the direction of travel on the policy, which is obviously clearly in their gift, and something they need to be and need to do. But it does create, again, additional uncertainty. And so in addition to needing to wait for the Spending Review, which we see in the summer, the beginning of the track due process, which again, we're expecting in the summer, we need to see the results of that review. So all of that for me is actually meaning that we are as we have been, and we didn't spend capital on UK BECCS last year because we've been in this position for some time. So it's not in some ways a change of approach.
It's just, I guess, the uncertainty may be higher than we had thought it would be. On REMA, I think from my perspective, I guess there's two positions. The first one is that any new investment, if we were planning any new development activity, i.e., new build, greenfield asset build, I think is significantly challenged by the uncertainty that has been created by the potential move to zonal pricing. That's true for the but to be fair, we really only have one sort of unstarted greenfield build project, which would be the expansion of Cruachan, and there's lots of uncertainties around that as well. So that project is very much waiting for more certainty. And again, we'll probably update you and the market sometime soon on where that sits, because the Cap and Floor, again, we're analyzing it now, so we should have some more visibility on that.
But again, there's still plenty of uncertainty around that one, right? But anything we might do in batteries, for example, I would expect us, I'd be more interested in sort of owning something that has a grid connection, has some known cash flows, and actually building something new. And REMA is one of the factors around that, right? Now, how REMA might impact our existing portfolio, OCGTs, Cruachan Power Station, etc., it's hard to know because we don't know what the zones are. We don't know what the pricing will be. And so that's something we are watching. And in fact, we don't know even it's going to happen. So I guess the summary is that for existing assets, we'll have to see how it plays out. And for anything that we would be thinking about starting, we would have to have more certainty before doing so. Hope that answers your question, but lengthy.
Yeah. And apologies for the long questions, and I appreciate your response. Can you just clarify, though, will you be signing your pellet contracts for self-supply at a different rate that potentially your third-party suppliers may be offering you in light of the overhang?
We will be signing prices that are fundamentally consistent with where the market is.
Okay. Thank you very much.
The next question from Pavan Mahbubani, J.P. Morgan. Please go ahead.
Hi, team. Thank you for the presentation and for taking my questions. I've got two, please. So on the OCGTs, can we have an update on where we are in terms of the commissioning? And my follow-up there is, how are you thinking about the OCGTs as part of your portfolio? Because before, you've indicated that these could be assets that you would be willing to sell.
And in previous periods, you've said that it may not be consistent with the portfolio that you want to have toward the end of the decade or in the future. Sounds today like that's changed, but if you can give us an update on how you're thinking about that. And then my second question is thinking about capital allocation and leverage. You're still maintaining your two times net debt to EBITDA targets, but it looks like you're quite significantly below, although it's true that your EBITDA number is going to be declining in the coming years versus the 2024 basis. But how are you thinking about your headroom, capital allocation as you come to the end of this share buyback program in the coming months or toward the end of the year?
Are you thinking that you have the headroom to do more, or can you talk about how much you're willing to spend on batteries just so we can get an indication of how you're seeing balance sheet headroom if you do see it the same way I'm indicating and how you think about splitting that? Thank you.
Okay. I'm going to take the first one, and I'm going to ask Andy to take the second one. So on the open cycles in terms of commissioning, we've got three sites, as you know. I would say that they are very delayed, and they're very delayed, I think, fundamentally because of our ability to get National Grid and system operators to actually give us access to the grid and commission them.
So that's something that we're working hard to get them to hopefully get cooperatively with them to get them to perform on what they need to do. So that's a, I mean, and we're quite disappointed in how that's gone, right? I would say, I mean, for example, some of them are more than a year past when they were due to be commissioned, right? And that's again because of access to the grid. But again, we expect to commission this year. I would say hopefully one in the first half, probably the other two in the second half, realistically. In terms of being part of their portfolio, I think the way I'm going to think about it is that our purpose is to enable a zero-carbon, lower-cost energy future. And we think that peaking plants are part of that enabling, right?
They enable the system to stay in balance when the wind is not blowing and the sun is not shining. And so I think they fit into the portfolio. But there is an important proviso there, which you will have seen in our sustainability framework, that we have a commitment to being net zero ourselves by 2040. And so if we do keep them, and again, if there's an attractive offer to buy them that is consistent with our view of the expected returns, which again, as I've said before, we think the expectation has risen, not dropped, we would look at it, and we need to find a way to make sure that we are net zero by 2040 that's consistent with having them if they are still in our portfolio. Andy.
On the second question, Pavan, so we start with around GBP 1 billion of net debt at the end of this year. As you noted, to the extent that consensus exists for 27 now, it's around GBP 560 million. So on a two-times basis, that's supportive of the debt that we have today. Now, clearly, we're going to generate significant cash, as we've noted, in the period through 27, including the ROC and wind. But that will give us plenty of capacity to do anything as far as adding to expanding our portfolio. And then our capital allocation policy is very clear, and we'll continue to be disciplined in how we apply that. If there's surplus cash, then it's clear what we would consider and we'll continue to do it.
Thank you.
The next question from Harrison Williams. Morgan Stanley, please go ahead.
Hi, morning. Thanks for taking my questions too from me. First, just on the pellet guidance. So I think you achieved a margin this year of kind of 36 per ton, and you've reiterated the target to reach, I guess, GBP 50 per ton. Can you give us some insight into how that will, I guess, develop between now and 2027? Should it be a gradual improvement, or are you expecting it to be more back-end loaded? And I guess maybe another way of asking that question at the end of the period, well, in 2028, I guess, how much of the five megatons you're expecting to produce will still be on legacy contracts that are suboptimal? So that's the first question.
The second question, as we think about your discussions with data centers, is it reasonable to use the CFD bridge as a reasonable pricing point, or are there differences we should be considering in those negotiations? Thanks. Just maybe to understand the second question, so you're saying is the CFD strike price the right price to think of for the data center? Yeah. I mean, is that sort of pricing point you would be expecting to achieve, or would you be expecting maybe something lower but much higher volume? Well, I guess you've given us the volumes. I guess any further color in respect to that price point?
First one, I'll ask Andy to come back on the first one in a sec, but I'll take the second one.
I think the way that we need to think about the data center position is it needs to be so the behind-the-meter effectively opportunity means that you're not paying the third-party charges and other grid charges that effectively one pays if it's a consumer of power through the grid, right? Now, that to a significant extent probably doubles more or less the cost of wholesale power. So effectively, what we need to do is we need to basically price, we need to reach an agreement with the data center provider, which is competitive with what they might be able to get through the grid, right? So I would think of it much more as a sort of commercial negotiation where we need to make sure we're providing an attractive option that's consistent with the other forms of power that a data center provider could access, right?
I think that's the way I think about it. Hopefully, that answers that one. Andy, I'll tell it.
Yeah. So today, we have around four million tons. And if you look at that, it's split reasonably evenly between the south of the U.S. and Canada. To get to five million, we'll increase output from our existing plants to 4.5 million tons. And most of that expansion will come out of the southern plants. And we're making good progress there. We increased production this year, and we commissioned Aliceville expansion during the year. So we're on track to do more pellets out of the south this year than last. So the important thing is that those southern pellets will supply the period post 2027 now through 2031. So that's a good underpin for those earnings.
So the balance then of around 2 million tons of our existing is what sits out in these long-term Asian legacy contracts. Around a million tons of those will come up for renewal over the next five years. So over that time, there'll be a chance to improve the margins there, potentially. The last 500,000 is a Longview pellet plant expansion. And we will only sort of finalize and do that once we're clear on the offtake for those pellets. So I think it's fair to say that the improvement there is going to be back-end loaded because it's going to depend on, one, the timing of finishing Longview and the repricing of those legacy contracts that come over the next five years.
Very helpful. Thanks.
The next question from Alex Wheeler, RBC. Please go ahead.
Morning. Two from me, please. Well, two and a small follow up. First one is, is the view very much that you look to focus on the FlexGen business over the coming years? You've highlighted that you're already broadly there on the GBP 250 million EBITDA target for post 2027. But given that supply-demand imbalance in the pellets that you talk about, which might create a little more uncertainty, is it in FlexGen where you may focus for potential additional investments in the shorter term? And then I guess my question there is, is it only batteries that is a potential new opportunity there, or are there other areas you might be looking at? Second point is just to follow up on Pavan's question, as I don't know if I missed it. Do you have a rough guide to what the sort of battery investment numbers might be?
And then finally, just on the data center point, I know that we're at a very early stage here, but beyond the MoU, if we think about the initial 100 megawatts by 2030, could you just give a sense of what the, I guess, the timings and the moving parts might look like beyond signing an MoU to the extent that you can? Thank you.
Okay. So on the investment focus, I mean, I think if you go, I think the key thing from the investment focus is there are a couple of different points. One is that it is we're attracted to investments where there is sort of known cash flow in our core markets, right?
If there are those in the pellet space, for example, we'd be interested, but that would require something that has a known offtake, and I don't think there's lots of opportunities in that space, right? So in the FlexGen space, we are seeing opportunities in that space. I mean, I think if you think about our portfolio, pumped storage, hydro, open cycles, customers, I mean, I think customers less likely we would invest more in sort of acquisitions of customers. But in the other spaces, if there's opportunities that line up with where we are in our portfolio, including batteries, we would do that.
In terms of quantums, I guess the only thing I would say is that I think given the nature of uncertainty in the world at large at the moment, we will sort of be prudent in the sort of the bite sizes or the size of bites we might take. I think that's quite important. So one of the things, again, earlier cash flows, shorter paybacks, attractive returns, less risk embedded in any one specific transaction, right? In terms of, what was the other one? The data center in terms of the timing. I mean, I think maybe the 100 megawatt point is important because we could actually, we believe we can actually deliver power to a 100 megawatt data center in a way that's consistent with the way the bridge is structured.
If you go bigger than that, that becomes more challenging, and we'd have to sort of figure out how to do that, right? In terms of the timing of when we think a data center could get up and running, 100 megawatts is probably the way we think about what we might do in the '20s, broadly speaking, right? So again, I think it's very likely, again, given the time that these things take, that all of that will work out in a way that makes sense to have that 100 megawatts long side bridge, right? In terms of the rest of the timing on it, I think it's too early to say, Alex. I mean, exactly where we are. It's still early stage in these discussions.
And so we would hope to have something more we can tell you this year, but beyond that, I would say something in the 2020s, but sort of back-ended probably. And then, as I said before, growth in the 2030s. Did I answer all your questions there?
Yeah, that's great. Thank you.
Next question from Adam Forsyth, Longspur Capital. Please go ahead.
Adam, we're not hearing you if you're speaking.
Sorry, can you hear me now? Yes. Yep. Hi. Sorry about that. Yeah, two questions. Just essentially both really on the new running of the biomass units after 2027. First is any impact on the energy solutions business? Guidance appears to be broadly unchanged for that business as it is wrapped in with FlexGen .
But I just wonder any material change in how you do purchasing and how you sort of manage risk in that business given the change in the biomass units operating? And then secondly, your comment on batteries and the four gigawatts of grid connection at the Drax Power Station site. I mean, effectively, about 1.2, almost 1.3 of that is actually available right now on the two old coal units that are not running. But I wonder if that's what we should be focused on, or can you go beyond that and actually run batteries alongside the grid connection for those biomass units?
So first, on the CFD and how does it impact the Drax Energy Solutions business. I think we don't expect it to have a significant impact on the way that business is run.
In terms of batteries, I would say we're looking at development options, but we're also looking at acquisition options. So I would say that's probably the way to have both of those in your mind. And I think that probably answers that question, right? So.
Okay. Thanks. Thanks.
The next question from Charles Swaby, HSBC. Please go ahead.
Hi. Good morning, everyone. And thank you for taking my questions. I have two. First one, just on the Cruachan expansion. I know you mentioned this a bit earlier, but I mean, when do you think we might get some additional clarity on that? I know we're going to get a few announcements from government this half of the year.
But if you could provide an indication, maybe when you're thinking a potential FID is possible and if you're more or less confident of getting that project over the line compared to 12 months ago? And then the second one is a follow-up on the data centers. All those conversations you're having with developers, are they involving using Drax Power Station as is, or are there any that are involving BECCS as well? Thank you.
Good questions. So in terms of the Cruachan expansion, I would say we are, I would say, in the middle of assessing the attractiveness of the Cap-and-Floor regime, I would say, as well as both in general and both how it applies specifically to the project that we've got. And I would expect we should have more clarity on that in the first half of this year, right?
I would say by results at the middle of the year, put it that way. If you ask me, am I more or less confident, I'd probably say I'm less confident than I would have been 12 months ago, right? To be honest, it's probably a function of our first initial blush look Cap and Floor, but it's also probably a function of the overall attractiveness of the macro environment for long-term investments of that scale. On the data centers, I think currently we are looking most of that is looking at the Drax Power Station pretty much as is and running it or using power from the Drax Power Station as it is. That being said, I think there would be we have had discussions with people sort of in a general sense about BECCS power and how that might be attractive for a data center.
I mean, this is my area of interest. It's something that's very much part of the Pathway Project, so for making SAF. So I think BECCS power is a way of increasing the carbon sort of or decreasing the carbon intensity of what people are doing by adding the carbon removals is absolutely something that people are interested in. So I think it's probably not part of the initial offering, but it could be part of that. It definitely is consistent with what we might do with a data center over time.
Great. Thank you.
There are no more questions from the phone at the moment.
Okay. So there's two questions I see on the webcast, so I'll read them off. So you said at the beginning of the call that under the new sustainability criteria, you won't be required to buy more pellets from Europe.
Is that on an absolute basis or as a percentage of your new pellet consumption under the new CFD? So I guess the first thing I would say is the way to think about this is when a pellet is produced and travels through the supply chain to the Drax Power Station, there is a limit to how much greenhouse gas can be emitted through that whole process. And all the pellets that we would expect to procure that come out of North America, we believe and we know that those can be procured at levels that are consistent with that greenhouse gas cap, right? So I guess in specific answer to your question, there's no requirement to buy more pellets from Europe, and there's no limit or sort of there's no effective limit on what we can get out of North America based on that greenhouse gas emissions cap.
Hope that answers that one. The second question from Martin Young. The first one was from Hugo Lafaye. Second one from Martin Young. The CP 2030 report points to considerable new generation being needed, and there is a need to move at pace. I couldn't agree more. Engineered removals are part of the Climate Change Committee's Seventh Carbon Budget, correct? The policy progress is somewhat glacial. That's your term, Martin. REMA being a case in point, not helped by the zonal fight. I appreciate that Drax is likely to be less likely impacted by zonal, but interested in your view on zonal's yes or no given your position. So I guess my view on zonal is that I think it's. I think that the sort of, what's the right way to put it?
The conceptual economic rationale or the idea that it makes sense to have prices be lower where there's more supply than demand and prices to be higher in the situation which is the reverse. I can understand that logic, right? The challenge, I think, with REMA is twofold. One is the timing of the whole thing, right? So one is the uncertainty created by not knowing if and when it's going to happen and what the impact will be. So for new investment, I think it's quite a dampening impact. And I mean, as I mentioned before, Martin, that's not something that is impacting us so much at the moment.
But as we think about things like the Cruachan expansion or we think about anything that we might do on a new build front, and as you know, our portfolio, there's nothing else significant in the new build front there at the moment. That's definitely a consideration, and I know from talks with my peers around the industry that people who are working on large-scale projects in all the different spaces, it's a very big issue for them, right? But the second point for me is that even if there is logic to that, the question for me then becomes, how can demand actually react to those signals, right, so things like a data center, placing them near an offshore wind farm because the prices are lower, there's lots of other issues associated with where you would put a data center.
So I think it's definitely a complex question, right? So I think there's a real substantial trade-off between the benefits of actually certainty and knowing where you're going relative to the potential and potentially real economic benefits of having zonal pricing. And I hope that's probably a bit of a fudged answer, but hopefully that gives you a bit of context. Are there any more questions from the teleconference? There are no more questions from the teleconference. All right. And there's no more questions from the webcast. So thank you all for listening. I guess the one comment that stuck with me was yours, Dominic, in the very beginning, that there are lots of moving parts. But I think if I were to sort of go back and sort of how would I sort of explain that?
I think if one thinks about the core business, I think the parts are moving less, maybe, if that's a fair point. I think the FlexGen business is what it is and has been for some time. The pellet business, I think, is on a trajectory that's consistent with what our targets are. And I think that hopefully that's becoming more clear. Granted, I understand the CFD absolutely needs to be understood as a complex instrument. So we will spend time with everybody to make sure we do our best to help explain that. And then if I were to just summarize briefly our sort of the I think it is a change in our investment approach.
It's very much more a function of, as a result of greater uncertainty, higher cost of capital, a bit less enthusiasm from governments and maybe from corporates in sort of committing their own capital to sort of green investment, we're adapting accordingly, right? And we're looking for things that we can invest what we expect to be GBP 2 billion of available cash over the next half a decade in things that give us immediate returns that are attractive and have the right risk-return profile. And we think there are lots of interesting ways of doing that. So hopefully that summarizes briefly where we are. And I thank you all for listening and look forward to catching up over the next days and weeks. I think we have breakfast with many of you tomorrow. Thank you.