Ladies and gentlemen, welcome to the Drax Group announcement of half-year results. My name is Ziko. I will be the operator for your call this morning. If you'd 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 the call to Will Gardiner, Chief Executive Officer. Over to you.
Thank you. Good morning, everyone. I'm going to start on page five. Our purpose, as I think you're all familiar with, is to enable a zero carbon, lower cost energy future. To do that, we're building a business that's fully aligned with fighting climate change. We have a business model that aligns shareholder returns with positive outcomes for nature, the climate, and people. We have a strategic asset base aligned with climate solutions and net zero, which includes dispatchable renewable power in the U.K that is critical to the system in the Drax Power Station in Selby, and 5 million tons of pellet capacity with increasing value as markets for BECCS, SAF, and other uses for sustainable pellets begin to accelerate, and a plan to deliver low-cost differentiated carbon removals, which we think could be a trillion-dollar market.
We have delivered proven financial performance over time, and we generate significant amounts of cash, which we have great opportunities to invest. As always, Andy will, I think, make clear that we would be quite disciplined in how we do that. We turn to the highlights. First is, just a word on safety, where our TRIR for the half year was 0.47 versus 0.41 in the prior first half year, which is not good enough, frankly, and we need to improve that. We're very focused on it. Part of that is due to the way we report, so we've widened the scope to include contractors in parts of North America, which were not there before, as well as a function of improved recording of incidents in our pellet production business.
We've implemented a health and safety and environmental improvement plan across North American and are investing in training people and capital to deliver improved performance, as well as driving increased levels of leadership site engagement. Again, to be very clear, we're committed to a strong safety culture across the group, and we're very focused on improving our performance. If I turn to the financials, our EBITDA before EGL was GBP 453 million, which is an increase of over 100% on the first half of last year, and after EGL, it was GBP 417 million. In our power business, we are 9% of the U.K's renewable power, and our system support business is doing very well. Utilizing our flexible, vertically integrated biomass supply chain and other dispatchable generation assets, we're supporting U.K security and supply.
I'm particularly pleased with our performance in pumped storage and hydro, as well as in customers. I would highlight also that we've had a good performance in our pellet business in what has been a difficult environment, which I'll get into in a minute. Overall, the strong financial performance is generating cash flows, which we expect to reinvest in our strategy in the U.K. and globally with attractive returns. We've outlined a GBP 7 billion program of investment opportunities across the decade in BECCS, pumped storage, and biomass supply. You will have seen earlier this week that we have received our Section 36 approval in Scotland for expansion of our pumped storage assets at Cruachan, and we're very excited about that.
As evidence of the board's confidence in our business and the opportunities in front of us, we expect to increase the dividend per share for the full year to 23.1p, an increase of about 10%. In addition, our GBP 150 million buyback program is about 80% complete. Returning to page eight and the performance of our pellet production business. The business is performing well in a challenging environment. EBITDA of GBP 48 million is up 7%, which, while it reflects production volumes that are marginally lower than the prior year and also an increase of about in our cost base, that's all been offset by higher revenue. Notwithstanding the good incrementally positive financial performance, I want to highlight some of the challenges that we face. We've had outages at three sites.
We've had temporary suspension of production at plants due to wildfires. We've had wind damage to loading systems at our port in Baton Rouge, where the repairs are currently underway. All of that has also been offset by higher production at Demopolis. Demopolis is our newest site and was commissioned recently, I'm very pleased with how well the team there is bringing production up to speed. We continue to see cost pressures in transport and utilities, in addition to increase in labor cost maintenance and a small increase in fiber costs. As I mentioned, the impact of these costs has been balanced by an increase in our revenue. We continue to progress our new developments at Aliceville and Longview, and as I said at the top, are very bullish on the long-term value of biomass and the role of our integrated supply chain.
Turning to our generation operations on page 9. Our generation continues to perform very well, and against the backdrop of energy security, increasing electrification, and renewable intermittency, the role of dispatchable renewable generation has never been more important. Overall, our output was lower this year, due primarily to a major plant outage on a biomass unit, and there's a 2nd one of those plants in the 2nd half of the year. We continue to be the largest source of renewable power in the U.K. by output, and across the year provided around 9% of the U.K.'s renewable power, and on some days, we were well over 50%. Our system support performance was very strong, particularly at Cruachan, which I'll talk more about on the next page.
As we've said repeatedly, we expect the value of system support to increase over time as the energy system becomes more dependent upon intermittent and inflexible generation. The final note, our coal units formally closed in March, with no generation in 2023, and decommissioning is now well underway. Turning to page 10, our hydro and pump storage operations have performed very well, and through the actions we have taken, we've positioned the units to provide more of the services the system needs when it needs them. This includes flexible power generation, but also a wide range of non-generation services, which not all generating assets can provide.
We believe that the U.K. needs more renewable electricity and more flexibility in its energy system, both to turn up and to turn down when there's too much or too little wind on the system, and also to store that energy when it's not needed. Through electrification, the retirement of dispatchable thermal plant, and the increase in wind on the system, the need for these assets will increase, and we believe so will their value. Which again, highlights why we're extremely excited about getting our Section 36 approval earlier this week. All of those pieces inform the investment case for more pump storage, and we're very excited about our plans to expand Cruachan by 600 megawatts.
Subject to the right investment framework, which we, I think, are expecting next year, we continue to target an FID on that expansion in 2025 to be in operations in 2030, with an investment of around GBP 500 million. Finally, turning to our customer business, page 11. It's performed well. It's increasingly focused on the high-quality I&C customer base, which is more aligned with our corporate purpose of enabling a zero-carbon, lower-cost energy future. We're using our I&C business to deliver flexibility to the power system through demand-side response, creating value for our customers, the system, and ourselves. We were the second-largest provider in the Demand Flexibility Service. All of those customers are consumers of renewable power, increasingly in demand in the U.K, and there is a significant premium, as you know, for renewable power, which positions us well.
The final theme that's emerging is that there's increasing demand from our clients for electric vehicle services, which is one of our suite of decarbonization services, and we see this as an interesting opportunity for growth. Now I'll turn it over to Andy to provide the financial review.
Thanks, Will Gardiner. Good morning, everyone. Starting on slide 13, the financial summary. The strong half-year results we're announcing today reflect the benefits of the Group's flexible, vertically integrated biomass supply chain and dispatchable generation assets. Earlier this week, we published a company-collected consensus for adjusted EBITDA and for EGL. We're reporting EGL as a levy within gross profit, and accordingly, we've presented adjusted EBITDA, including and excluding EGL. Our expectations for 2023 are unchanged and are based on continued good operational performance in the remainder of the year. Adjusted EBITDA, excluding EGL, of GBP 453 million for the first half, has broadly doubled compared to the prior year, with improved contribution from all areas of the group. Our cash generated from operations of GBP 404 million, compares with GBP 185 million.
We have strong liquidity with cash and committed undrawn facilities at the end of the period of GBP 586 million, and our leverage remains significantly below our stated objective of 2 times. Our strong financial performance is generating cash flows, which are supportive of our capital allocation policy, positioning us well to invest in our core business, progress our 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 9.2 pence per share, and we expect this to be 40% of a full-year dividend of 23.1 pence per share, an increase of 10%, subject to continued good operational performance in the remainder of the year. Moving on to slide 14, the adjusted EBITDA bridge.
In pellet production, EBITDA of GBP 48 million is up 7%. It's a strong performance against a challenging operational backdrop, with lower production volumes and increased production costs. Volumes of 1.9 million tonnes were 5% lower than the first half of last year, as we experienced a higher forced outage rate on a number of plants and curtailments due to wildfires at our Entwistle plant in Canada. These factors were partially offset by higher production at our new Demopolis plant. In July, operations at Burns Lake, Smithers, and Houston in British Columbia were also curtailed due to wildfires and industrial action by longshoremen at the ports of Vancouver and Prince Rupert in British Columbia.
This higher forced outage rate led to increased maintenance costs in the period, but we expect these costs will reduce in the second half of the year as planned outages address some of the underlying operational challenges. In addition to fuel surcharges and utility costs that remain at elevated levels, inflation of labor costs and some increase in fiber prices have contributed to the higher production costs. Our development is underway on two pellet plants, which will add almost 600,000 tons of capacity by 2025. The first, a 450,000 ton new build plant at Longview in Washington State, provides the group with access to a new fiber basket in the Pacific Northwest and a new port, with the opportunity to consolidate additional capacity in the future. The second is an expansion of our Aliceville site in Alabama.
Our existing operations, combined with these developments, give Drax a network of 18 pellet plants, around 5.4 million tons of capacity and access to 5 deep water ports on the East Coast and West Coast of North America. Together, taken with our focus on cost reduction, we continue to expect that profitability in our pellets business will grow over time. In generation, adjusted EBITDA of GBP 457 million, excluding EGL, has grown from GBP 205 million. It reflects strong system support and renewable power generation performance across the portfolio, providing high levels of dispatchable, renewable and low carbon electricity and system support services, which offset incrementally higher biomass costs.
While energy prices have reduced recently, they remain substantially higher than historic long-term averages, and achieved power prices reflect the reliable and consistent hedging strategy for the rock units, which would otherwise be more exposed to forward price movements. The current operating environment increases the importance of appropriate investment to ensure good operational performance and availability. In May, we had a five-week forced outage due to a transformer on one biomass unit, which has now returned to service. In July, we've completed a major planned outage program on one of the units, with a second to commence shortly. The program represents a significant undertaking, with each outage taking around three months to complete. Reflecting these factors, our biomass units produced around 50% more power in the winter months compared to the summer months.
By prioritizing biomass supplies to generate more in the winter, allows us to support the U.K power system when demand is greater and capture higher prices. The global biomass market remains under pressure. While a large proportion of the biomass we use is under long-term contracts, we have incurred some additional costs to underpin our supply chain. In pumped storage and hydro, our operations performed strongly in the first half. Adjusted EBITDA, excluding EGL of GBP 154 million, grew significantly compared to GBP 53 million. The primary driver of this increase was a high level of activity at Cruachan, where delivered system support services and power generation. As power prices and peak off-peak spreads have reduced, we expect a lower level of adjusted EBITDA in the second half of the year.
The location, flexibility, and range of services that Cruachan can provide makes it strategically important to the U.K power system, and it underpins our plans for a potential investment in the expansion of the site, increasing total capacity to around one gigawatt. As Will mentioned, we've recently received planning approval and continue to target operations from 2030. The construction of our 3 new build open-cycle gas turbine projects continues. The plants will combine capacity of around 900 megawatts and will earn income from 15-year Capacity Market agreements that commence in 2024, and income from peak power generation and system support services. Development CapEx is in the region of GBP 100 million per plant, and we continue to assess options for these assets, including their potential sale.
In customers, our adjusted EBITDA of GBP 37 million has increased 54% in the first half of the year. It represents an EBITDA margin of around 1.4% of revenue, which is in line with that achieved in the first half of last year, ahead of the full year EBITDA margin of 0.6%. In the first half of this year, the business has benefited from the resale of excess forward hedge power and lower balancing costs. In the first half of 2022, we also benefited from the resale of excess forward hedge power. As in the prior year, we don't expect that this benefit will recur in the second half of the year. Careful management of our debt book remains a priority. Bad debt expense in the first half of GBP 19 million, reduced from GBP 26 million.
Bad debt risk is typically higher within the SME sector of this business. We remain vigilant to stresses across a wider portfolio. Turning on to slide 15 and capital investment. We expect CapEx to be in the range of GBP 520 million-GBP 580 million in the full year, reflecting that we've paused investment on U.K BECCS, subject to further clarity on support for BECCS at Drax Power Station. Our maintenance CapEx of GBP 120 million-GBP 140 million includes recurring and one-off maintenance across the group. The first of two major planned biomass outages, as I mentioned, is already completed. Our strategic and growth CapEx of GBP 340 million-GBP 380 million includes GBP 220 million in respect of the three OCGT projects. We expect the development cost of each will be in the region of GBP 100 million.
We're using deferred letters of credit to manage timing of payments, with the impact of deferring around GBP 100 million for two years. The balance of the strategic CapEx primarily, mainly relates to our new build pellet plant at Longview and the expansion at Aliceville that I mentioned earlier. There are some costs in the first half in respect of U.K BECCS, which were committed prior to announcing a pause in further investment, and the reduction in expectations for the year reflects the reduced BECCS spend, as we're not capitalizing costs for the U.S BECCS at this stage. Moving on to slide 16 and the balance sheet. We maintain a strong focus on cash flow discipline and maintenance of a robust balance sheet. Our available cash and committed undrawn facilities of GBP 586 million provide substantial headroom over our requirements.
We continue to carefully manage increased demands on counterparty trading lines and cash collateral requirements that are associated with higher commodity prices. At the end of the first half, cash collateral placed to support these exchange traded contracts totaled GBP 183 million, compared to GBP 234 million that was placed at the start of the year. As associated trades mature, there'll be a corresponding working capital inflow. However, market movements and new trades will determine future cash collateral requirements. As I noted earlier, we expect to be significantly below two times net debt to adjusted EBITDA after EGL at the end of this year. We have a committed GBP 300 million revolving credit facility and a GBP 200 million liquidity facility as backups to manage unforeseen events and support working capital movements. The GBP 300 million RCF expires in January 2025, with a one-year extension option.
No cash has been drawn under this RCF since its inception, and no amounts were drawn on the GBP 200 liquidity facility throughout the period. Our customers' business has access to a facility which enables it to accelerate cash flows associated with receivables from energy supply customers on a non-recourse basis. The facility of GBP 300 million extends to January 2027 and is increased to GBP 400 million until January of next year. It was fully utilized at the end of June and at the end of December 2022. During the period, 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. Finally, on to slide 17 and capital allocation. Our capital allocation policy was launched in 2017, and it remains unchanged.
Strong financial performance and cash generation is supportive of maintaining our credit ratings, paying a growing and sustainable dividend. It also positions us well to invest in our core business and progress our strategic growth plans in the U.K and globally. We've outlined a GBP 7 billion program of investment this decade across BECCS, pumped storage, and biomass supply, and we'll be disciplined when allocating capital, ensuring that we have high levels of confidence over project returns and cash flows and strong commercial contracts that appropriately manage project risks. The proposed dividend per share for the year of GBP 23.1 pence is reflective of that policy and an increase of just over 10%. Annual growth since inception of our policy is around 11%.
Our GBP 150 million buyback program is well progressed, with GBP 110 million cash settled in the first half and GBP 122 million cash settled to date. All in all, combined returns to shareholders announced in respect of 2023 are in the region of GBP 240 million. With that, I'll hand back to Will.
Thank you, Andy. Just as a reminder, you all know our strategy has three pillars, right? To be a global leader in carbon removals, to be a global leader in pellet production, and to be the U.K leader in dispatchable renewable power. As we outlined at our Capital Markets Day recently, we have lots of attractive opportunities to invest for long-term growth. We think the GBP 7 billion opportunity we've got have very attractive returns from significantly above our cost of capital, and they're all aligned with positive people, nature, and climate outcomes. I just wanted to recap here. I mean, we continue to make good progress. Frankly, not a whole lot of new news in the last couple of months, but fundamentally, we have opportunities to invest about GBP 6 billion in carbon removal.
As you know, our current ambition is to remove more than 20 million tonnes using BECCS, targeting 14 million tonnes per year by 2030. We selected two sites in the U.S. South, which could deliver six million tonnes by 2030. We're also evaluating additional sites for both green and brownfield BECCS in the U.S. We've agreed MOUs for the sale of more than two million tonnes of CDRs, with some of those in the $300 plus per tonne range. On the Drax Power Station, we continue to be excited about the opportunity to take out eight million tonnes of CO2 by 2030 there.
In our pellet business, where we expect to invest about GBP 0.5 billion, we're targeting 8 million tonnes of production capacity by 2030. We have attractive opportunities in multiple different markets to sell four million tonnes to third parties also by 2030. Finally, in terms of dispatchable renewable power, our investment plans are again about GBP 0.5 billion. We think that the expansion of Cruachan, again, as I mentioned before, about 600 megawatts, is extremely attractive. We're targeting operations there in 2030. As all of you are aware, we also have our three open-cycle gas turbine projects, which should start to come online next year. We think those are quite attractive, although they are non-core for us, and if running in 2021 and 2022, they would have earned-...
about GBP 150 million of EBITDA across those two years. We think it's an attractive investment, and it should attract some significant interest. Turning to U.K BECCS, just a quick update on what has happened over the first half of the year. The Biomass Strategy review, we are expecting any day. To preempt a question, I don't have more information than you would have seen publicly as to why that has not yet happened, huh. Several things have happened, which I think are quite important. First, the greenhouse gas or GGR consultation, has confirmed the government policy support that's needed to enable investment in BECCS and has confirmed a carbon negative CFD as the preferred model, so that's an important step. Secondly, and probably more fundamental longer term, that there's been a consultation on the U.K Emissions Trading Scheme or the U.K ETS.
Again, the idea that greenhouse gas removal will be included there, provides an important long-term potentially compliance market for the negative emissions produced by GGRs. Directly in terms of what we're up to, as you know, we're working closely with the government now on sort of three different pieces. First of all, a bridging mechanism to make sure that Drax Power Station is economically viable between 2027 and 2030, when we expect the BECCS program to begin. We're also working with them on the BECCS business model, and I have some terms for that. The third stream of work is we're working on transport and storage. I expect more details to come on track one expansion and track two later this year.
I think as Andy has mentioned, we've paused our further investment in U.K BECCS until we have more clarity, which we would expect to have in the next 12 months. Although, crystal ball gazing in terms of the government and the political scenario is probably not something I would do too much of, but that's what we'd expect. Finally, turning to global BECCS, I guess I just wanted to reiterate that we are extremely excited about the opportunity here. We've got a full team now up to speed in the U.S. We are investing in people, we're investing in sites, we're investing in fiber, investing in land options, et cetera. We're making a lot of progress there. I would say the long-term demand, you know, continues to be very clear.
The IPCC, again, reiterating its view that we will need significant amount of BECCS, by 2050 in order to get to net zero, and by 2030 to actually get on the right path. There have been announcements of, you know, about 20 million tons of BECCS-type projects by 2030, and probably more importantly, again, as we've talked about before, some real substantive deals have been announced, the most interesting one being Microsoft and Ørsted in Denmark. Again, we're extremely excited, and we are making a lot of good progress in delivering that program. In summary, on page 22, over the last couple of decades, we have dramatically repositioned Drax in the marketplace. We now have a business model that's completely aligned with delivering U.K energy security, as well as combating climate change.
This is enabling us to deliver significant volumes of renewable electricity and system support services, using our vertically integrated supply chain and dispatchable generating assets. The strong cash flow we are generating from these activities supports growing returns to shareholders, as we've demonstrated with a significant increase in our dividend and the ongoing share buyback program, as well as the development of a pipeline of projects that I've talked about, the GBP 7 billion investment program that's aligned with climate solutions, net zero and energy security. The final point I will make again, is I'm sure you all have questions about the buyback. We will continue to implement our capital allocation policy. We haven't announced something new because we're continuing on with what we're doing now. You know, as and when it becomes appropriate, we will look at that and make the decisions as appropriate.
That finishes our prepared remarks, and over to questions.
Thank you very much. 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. To confirm, that's Star, followed by one to ask a question. The first question is from the line of Martin Young with Investec. Please go ahead with your question.
Yeah. Good morning to everybody. A couple of questions, if I may. The first relates to slide 20 in the pack, and I appreciate there is an element of having to dust off the crystal ball here. If I look at all of the things that need to sort of fall into place to progress, you know, BECCS, the Biomass Strategy, the bridging, you know, mechanism, and ultimately the Power BECCS model, could you give us some kind of indication of the ideal timeline for these things to fall into place, with particular reference of the interaction of the bridge and where you go with pre-qual for the Capacity Market for 2027, 2028? The second one is one for Andy.
I didn't fully capture what you were saying around CapEx and the potential of deferring some of that CapEx into next year or beyond. If you could just repeat what you said there, Andy, I'd be very grateful. Thank you.
Mm-hmm. Thank you, Martin. In terms of the CapEx for where we want to get to on the sort of the bridging mechanism in terms of where we want to get to on BECCS business model, transport, storage, and all those pieces, right? There are a couple of milestones that are coming, and, you know, we can debate sort of, you know, when they may come, et cetera. I don't want to be too precise, given the vagaries of government policies, et cetera. The bioenergy strategy, you know, the next piece of the puzzle, and we're expecting that shortly. We expect it to be supportive of BECCS.
We expect it to have, you know, sustainability criteria, that there might be some revisions there, which we expect, again, to be supportive of what we want to do in terms of making sure that we have the world-leading sustainability set up here in the U.K. We're expecting it also to potentially also have a nod to the bridging mechanism. We'll see if that's part of that also. Specifically talking about how does the government see unabated biomass running over the course of the 2030 term. That's sort of the first piece. You know, where, you know, a funding envelope for how sort of for something that says, you know, there is a sort of government funding commitment to BECCS is something we're also looking for, and that could come, you know, could come this year, could come next year.
That's another key piece of this 'cause that's, that'll sort of indicate intent, right? Third piece of this is, again, is more substantive agreement on what the bridging mechanism looks like. We're actively working on that. Again, you know, could be end of the year, could be sort of first half of next year. But again, we think that those discussions are moving well. Then, you know, BECCS business model comes next, right? You know, fundamentally, the BECCS business model, I think we, you know, we pretty much know what it, you know, high level, we know what that's going to look like. Actually getting to a final contract on a BECCS deal, that's going to take some time. That's probably a, you know, several year event.
The first pieces that I've just mentioned, you know, end of this year, first half of next year, we think those are things that we should be getting increasing confidence in over time, right? To come back to the specific question and how we're approaching this, I mean, it is very important for us, and we've emphasized this in our discussions with government, that we get increasing levels of certainty, over the course of this year, you know, and over the course of the rest of this year, right? Why is that? Well, one of them is Capacity Market qualification and how that looks. We've got a bunch of different ways of dealing with that, so you'll see that when it comes through.
I think, again, the government is, you know, we've been very clear with the government that we need to sort of understand where we are when we have to make or commit our position to that, right? Same, I would say, is that there, you know, we are continuing to look at the best use of our pellets, and I probably should have called this out more explicitly, but one of the things we talk about in our announcement is that we've got a head of terms to sell an additional half a million tons over the next five years of pellets into Japan. Not only are we bullish about the long-term opportunities in that market, we're very actively looking to sell pellets now, right?
That's important, again, because, you know, as a group, our pellets are a very attractive asset, and they need to be, we place them in the most economically beneficial way for us as a group, right? Again, good ongoing discussions. I think it's important to us that we're able to make the long-term commitments we need to make to make sure we can deliver BECCS in the U.K, which again, we think is, you know, a top priority project, and we're having good discussions with the government on doing so.
On your second question, Martin, it was just to flag a difference between book and cash CapEx. The OCGTs started last year, and then we deferred the payments for what we spent last year to this year, and we're deferring some of the cash that we spend this year to next year. That's the use of these deferred letters of credits. If you look at book CapEx, and you look at working capital uses of funds, it's worth noting that.
Okay, thank you.
May we move to the next question?
Yeah.
Our next question is from the line of Hamish Moore from CS. Please go ahead.
Hi, thank you for taking my questions. Three questions from me, please. To start with, on the point of if you're able to get support to extend the unabated biomass burn, can you please provide some more color as to how you envisage that scenario? I.e., with reference to CFD levels, currently at GBP 100 per megawatt hour, and would that be on three units? Is there potential for biomass, for moving biomass back to the CFD unit later on in the financial year? My second question is, how are unit costs for your own biomass production looking in H1 2023 versus H2 2022? Finally, if you have confidence in your business plan, arguably the best investment option would be to buy back your own shares.
we're wondering under what under what criteria would you consider a share buyback to take you up to the full 10% you're allowed to buy back in the current period? Could we see one later on in the year if shares remain at the current level? thanks.
I'm, unfortunately, Hamish, I don't have any information I can share on where we think the sort of the discussions with the government will come out. It'll be some form of... I think it's likely to be modeled on something that's there now, sort of something, you know, probably some sort of CFD, I would guess. I'd rather it's probably not helpful to either speculate because we don't know yet, and secondly, we're in the middle of those discussions, so I apologize on that. On the third one, you know, we think our buying back our shares is attractive. That's why we're doing it at pace, and we will continue to look at opportunities to do more of that as and when it looks the right thing to do.
Maybe Andy can talk about biomass costs.
On biomass cost H1 versus H2, there's no material change in the underlying biomass costs. I think when we talked about production costs at our pellet plants, we do expect they'll be slightly lower in the second half, because some of these additional maintenance costs will reduce.
Great. Thank you.
Thank you. Our next question is from the line of Dominic Nash with Barclays. Please go ahead.
Good morning. Can you hear me all?
We can, Dom. Welcome.
Hi there. A couple of questions from me, actually, although I probably would like to ask for three, in light of the last one. Congratulations on getting the planning permission for Cruachan through two days ago. I think in your press release, alongside it, you said that you also now need government support for Cruachan to get to FID. I just wanted to know exactly what government support would you be looking for, because it seems to be pretty profitable with it as is? Secondly, when you start to build Cruachan, will you be likely to go down an EPC contract with a fixed-plus contract, or will you be taking capital construction risk? Finally, following up on the CFD question, I didn't hear anything in your presentation...
I didn't hear about the presentation about the CFD kilowatt hours that you'll be burning in the second half. Your overall burn rate for biomass seems lower through 2023 than the previous years, and I'm just wondering why you don't start burning CFD alongside your ROs, as I understand there's spare sort of pellets knocking about in the market at the moment. Thank you.
Those two, yeah? On Cruachan, fundamentally, Dom, Dominic, the plan has been from the very beginning that the government is doing a consultation on long-duration storage. We expect them to come out with that, I think, next year. I think the direction of travel, we believe, is toward some sort of cap and floor mechanism, which we think is prudent, given the both the quantum, but also the timing or the duration of that investment, i.e., its five-year build program, and obviously the returns, the payback period is quite long. That's what we're looking for, and we think it. I agree, it's very attractive. Then, yeah, I think we will continue to, you know, exercise our optimization strategy across the three RO units, across our pellet supply chain, and across the CFD.
I think it's difficult for me to predict now exactly how that will play out in terms of CFD versus RO running in the second half of the year.
It's not so much optimization, though. I'm talking about total numbers, i.e., what stops you?
Right. The total number, I guess, in the first half of the year, total numbers were down in the first half of the year, fundamentally because of the outages, right? I mean, the outages that Andy mentioned, one, planned outages. Sort of maintenance, we didn't have any of those in 2022, we also had the four-week outage due to the transformer challenge we had on unit four. That's the reason it's lower than the first half of the year.
Okay. Thank you.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by the one on your telephone. Thank you. Our next question is from the line of Pavan Mahbubani from JPMorgan. Please go ahead.
Hi, everyone. Morning. Thank you for your presentation and for taking my question. I just have one, please, on the bridging mechanism, and I appreciate the discussions are ongoing. Can you clarify if these discussions are only happening for the two units that you expect to convert to BECCS or is it for all four biomass units? Can you remind us by 2030, what you expect in terms of Drax Power Station to look like, so two BECCS units, and then is it two units running merchant or hopefully with a long-term contract? Any color around that, please? Thanks.
I would say that the... Maybe I'll sort of do it at a conceptual level. I mean, the discussions around the bridging mechanisms are designed to make sure that the Drax Power Station is viable between 2027 and 2030. The number of units, I think, will all be sort of embedded in how we manage that. It's not sort of yet clear whether that's one, two, three, or four, to be honest, Pavan. At the end of the day, the objective is to make sure the station is viable and also to make sure we get the lowest cost option for consumers, right?
In terms of the sort of 2030 running, I mean, I would not expect we would have a government contract post 2030 on merchant, on the non-BECCS units, but yes, two BECCS units. You know, what we decide to do with the other ones will be a function of where we are relative to power prices and color prices and economics when we get there.
Okay. Thank you. That's very clear. Thank you.
Thank you. Our next question is from the line of Harry Wyburd with Morgan Stanley. Please go ahead.
Hi there. Thanks for the presentation and for taking my question. Just one from me as well, and it's regarding this consultation regarding the U.K Emissions Trading Scheme and the possibility of including carbon removals into that. I mean, firstly, be interested to hear your thoughts around the likelihood of that. Obviously, we saw them removed from the European ETS only a few years ago. Secondly, you know, if this were to happen, does that significantly change, you know, the remuneration framework you're looking for from the U.K government, or was the sale of these CDRs kind of on top of that anyway? Thanks.
From my perspective, including GGRs or CDRs in the CFD, CCS is absolutely, you know, the right thing to be doing. That's also the direction of travel in Europe. I mean, they took offsets, which are fundamentally different, out of the system in Europe. At the end of the day, if you think about, you know, removing a ton of CO2, you know, it should be treated as the absolutely the inverse or the reverse of emitting one, right? That's the way we'll get the best outcome for consumers and the lowest cost. For me, the, it's a very important, and I think will be should be, and I think will be an important part of the puzzle, both in the U.K and in Europe.
It will have to then be considered in the design of the, of the CFD mechanism. Just in the same way, that sort of, you know, at the end of the day, you know, government is, in a power CFD, is providing a sort of a guaranteed price, you know, above and below, sort of we would either pay them or the reverse. The same thing would happen in a sort of negative or a CDR or GGR CFD.
That's clear. Thanks.
Thank you. Our next question is from the line of Martin Young with Investec. Please go ahead.
Yeah, hi again. Just a quick follow-up from me. Could you update us on where things are at with Ofgem's investigation into the classification of biomass? Thanks.
Again, I mean, as we've said, they are observing, and as they've published, they're doing the investigation. We are working closely with them on that, and we are, you know. Again, I think, there's really not much new to report on that, Martin Young.
Okay, thanks.
Thank you. This concludes the question and answer session. We do have a participant in the queue. Would you like to take the question?
Yeah.
Okay. Our next question is from the line of Dominic Nash with Barclays. Please go ahead.
Hi there. Yeah, sorry about that. Just a very quick one from me as well. What price did you put through your books for your biomass price for the EGL level in half one, please?
That's not a number we've disclosed on it. When you look at what we've incurred in the first half and when you think about the full year cost, I guess you need to think about sort of higher prices in the second half of the year. As I said, the biomass cost underlying is not materially different, and volumes play into that as well. Yeah.
Okay. Thank you.
Thank you. This concludes our question and answer session. I would like to turn the conference back over to Will Gardiner for closing remarks.
Well, thank you all, and I think, frankly, we think we delivered a good, strong set of results, in line with where people were expecting. We continue to be excited about our investment opportunities. We continue to, I would say, operate our capital allocation strategy in line with what it says. Look forward to, getting more questions and interacting with all you guys over the course of the next few weeks. Thanks very much for joining.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect. Goodbye.