Drax Group H1 2026 Earnings Report

Drax Group EPS Results

• Actual EPS: GBX 29.80
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Drax Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Drax Group Announcement Details

• Quarter: H1 2026
• Date: 7/30/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, July 30, 2026
• Conference Call Time: 4:00AM ET

Drax Group (LON:DRX), together with its subsidiaries, engages in renewable power generation in the United Kingdom. It operates through three segments: Pellet Production, Generation, and Customers. The Pellet Production segment produces and sells biomass pellets. The Generation segment provides renewable, dispatchable power, and system support services to the electricity grid. The Customers segment supplies electricity and gas to non-domestic customers. The company owns and operates Drax Power Station located in Selby, North Yorkshire; Cruachan Power Station, a pumped storage hydro station, with an installed capacity of 440 megawatts (MW) located in Argyll and Bute; and Lanark and Galloway hydro-electric power stations with an installed capacity of 126 MW located in southwest Scotland. It also owns and operates Daldowie fuel plant that processes sludge, a plant that converts it into dry low-odour fuel pellets. In addition, the company manufactures and sells compressed wood pellets; and supplies renewable electricity. Drax Group plc was incorporated in 2005 and is based in Selby, the United Kingdom.

Drax Group H1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: H1 adjusted EBITDA was £279 million, while net debt remained modest at £1.025 billion, or 1.3x last-twelve-month EBITDA. Management proposed an 11% increase in the full-year dividend to 32.2 pence per share and has returned £47 million through share buybacks year to date.
• Positive Sentiment: Drax raised its 2029 EBITDA target to £650 million–£800 million, with the £50 million–£100 million increase attributed to its battery energy storage investments. More than 700 MW of owned and tolled BESS capacity has been committed, although the upper end of the range depends on market volatility and operating conditions.
• Positive Sentiment: The proposed acquisition of Bluefield Solar Income Fund is expected to complete after a court hearing on July 31, following 99% shareholder approval. The deal would add roughly 900 MW of operational wind and solar assets, £130 million of 2025 EBITDA, and a 2.9 GW development pipeline, diversifying Drax’s earnings with contracted renewable cash flows.
• Neutral Sentiment: Hirwaun’s 300 MW gas peaking plant began operations in May and operated for about 440 hours in grid-stabilization mode during June, demonstrating demand for flexible generation. However, sister plants Millbrook and Progress have been delayed by grid-connection issues and are now expected to commission from late 2026 through 2027.
• Neutral Sentiment: Drax is progressing plans for a data center at its power-station site, initially targeting a 100 MW planning application in the second half of 2026, followed by larger behind-the-meter phases. Management said discussions remain ongoing and did not indicate that an offtake agreement is imminent; the project also requires consideration of the station’s continuing security-of-supply role.

Presentation

[Will Gardiner, CEO at Drax Group]

Good morning, everybody, thank you for joining the call. It's Will here, and I'm joined by Frank, our CFO. I'll provide an overview of the H1 before handing it back to Frank to take you through the numbers.

[Operator]

Ladies and gentlemen, welcome to the Drax Group plc Half Year Results 2026 conference call. I'm Vicky, the Conference Call Operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star then zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Will Gardiner, Group CEO. Thank you.

[Will Gardiner, CEO at Drax Group]

Thank you. Good morning, everybody. Appreciate you all joining the call. I am joined on the call by Frank Lemmink, our CFO. I will provide an overview of the H1 before giving it back to Frank to take you through the numbers. Then I will take it back to take you through the progress we are making on our growth strategy. We are then happy to take your questions. We have delivered a good H1 performance, underpinned by a continued focus on safe and efficient operations. We provided around 6% of U.K. power and 10% of U.K. renewables. In May, we commenced operations of Hirwaun Power Station, adding another 300 MW to our portfolio. We continue to upgrade two units at Cruachan, which will add a further 40 MW.

[Will Gardiner, CEO at Drax Group]

Over the last eight months, we have made tremendous progress on our plans to invest in flexible and renewable generation, adding Flexitricity and over 700 MW of owned and tolled batteries. Reflecting these developments, we are now targeting an increased group EBITDA from GBP 650 million-GBP 800 million in 2029 once those BESS developments are fully operational. These numbers are before the proposed acquisition of Bluefield Solar Income Fund, BSIF, or developing any of the further BESS solar or wind options that we have. At Drax Power Station, we are continuing to develop options to utilize 4 GW of capacity, including a data center. As we progress these opportunities, we remain committed to our capital allocation policy and delivering attractive returns for shareholders. On page four, I want to spend a little bit of time on this slide as it demonstrates how we have repositioned our business.

[Will Gardiner, CEO at Drax Group]

We increasingly manage, by which I mean generate, trade, optimize, or provide route to market or tolling services, many different types of generation and storage. Each one of these activities will create value in different ways for the group and for the U.K. system, leveraging our capabilities and experience. Our thesis is that the U.K. energy transition will continue to move at pace. We are positioning our company to grow with that transition. We expect power demand to grow significantly. We expect this demand primarily be met by renewables, which will require more flexibility on the system. Since 2018, we have grown the business and transformed from a single-site operation with 2.6 GW of biomass to a 4 GW portfolio of pumped storage, hydro, biomass, and route to market capacity at the end of last year.

[Will Gardiner, CEO at Drax Group]

I want to highlight the route to market services we provide to small-scale solar and wind plants, over 2,000 sites and 800 MW, which generate on the order of GBP 10 million of earnings per year. For reference, that is also what we will be doing for the Bluefield portfolio, which is of a similar size. Over the course of this year, our portfolio will increase to 6.1 GW with the addition of our first OCGT site, Hirwaun, which I will talk more about in a minute, further route to market capacity via Flexitricity, which we have already got, the acquisition of Bluefield, which is expected to close tomorrow. Beyond that, we have development projects already post FID that will grow our megawatts under management to 7.4 GW in 2029, giving us multiple generation technologies across renewables and flexible generation.

[Will Gardiner, CEO at Drax Group]

Not to mention the significant development options we have beyond that. Interestingly, our strong position in Flexgen means we are able to develop options for solar and wind from a position of strength and the ability to manage those assets within the portfolio. In June, we announced the proposed acquisition of BSIF, a U.K.-listed investment fund, which operates a U.K. portfolio of about 900 MW of operational solar and wind assets, in addition to a development pipeline of 2.9 GW, which we will assess in line with our capital allocation policy. For the financial year ended June 30th, 2025, EBITDA was about GBP 130 million with a high level of contracted cash flows. To be clear, the earnings of BSIF are not included in the GBP 650 million-GBP 800 million EBITDA target that I outlined before.

[Will Gardiner, CEO at Drax Group]

To update you, a BSIF shareholder vote took place on 24th of July, and 99% of shareholders voted in favor of the acquisition. A court hearing to approve the scheme is due to take place tomorrow, 31st July. After which, meaning later that day, the acquisition is expected to complete. The acquisition supports U.K. energy objectives and strategically moves us to having three substantial generation businesses: biomass, Flexgen, and solar and wind. The acquisition is highly complementary to our existing operations, offering or adding structured and stable cash flows underpinned by longer-term renewable incentive schemes and PPAs, which complement the higher but potentially more volatile cash flows associated with Flexgen. Beyond that, we see an additional opportunity to unlock significant further trading and optimization margins in operational and energy services synergies. We expect to provide more detail on BSIF in September.

[Will Gardiner, CEO at Drax Group]

At the end of May, Hirwaun Power, a new 300 MW OCGT, commenced operations, and you can see it on the slide there. The power station represents an investment of over GBP 100 million in South Wales, supporting energy security, electrification, and economic growth for the whole of the U.K. Frank will provide some additional and quite interesting detail on how it's performed in a few minutes. Hirwaun's sister sites, Millbrook and Progress, are expected to commission from late this year through 2027. This is later than was expected and reflects delays by the relevant authorities in connecting the sites. Nevertheless, once fully operational, the three stations will provide a combined capacity of around 900 MW and be remunerated under 15-year Capacity Market agreements worth around GBP 260 million.

[Will Gardiner, CEO at Drax Group]

Of course, those capacity payments are additional to revenues we expect to generate from both peak power generation and system support services. Sustainability, important as always, is an area where we continue to make progress against climate, nature, and people initiatives. Recognition of this progress came in January with a CDP AA rating, and in March, MSCI upgraded Drax from single A to double A, reflecting our environmental disclosures, climate transition planning, and continued implementation of our group-wide sustainability frameworks. I will pass it over to Frank, who will take you through some of the numbers.

[Frank Lemmink, CFO at Drax Group]

Thank you, Will, and morning, everyone. As Will said, we have made tremendous progress executing our strategy, increasing our Flexgen capacity with OCGTs, with Cruachan expansion in process, and our investments in BESS. We are expanding our trading and optimization capability by bringing Flexitricity platform into the portfolio, and we are adding a new branch with BSIF's solar and wind portfolio, as well as a significant pipeline of development options. On a personal level, I am really happy to be part of this in solving this strategic puzzle and implementing our strategy at Drax. We have a strong business today, and we will enhance our value through delivering our strategy. Our balance sheet is strong. We are generating cash flows, which can support value-accretive growth and returns to shareholders. We must operate well and safely and execute our plans diligently to realize this.

[Frank Lemmink, CFO at Drax Group]

This includes delivering the value from our acquisitions. In the H1 of 2026, we performed well. Good results, generating GBP 279 million of adjusted EBITDA. This is lower than in 2025. That was expected, and it reflects lower achieved forward power prices year-on-year. Adjusted earnings per share of GBP 0.298 was a decrease on the H1 of 2025, and this, of course, reflects the reduction in EBITDA and also non-cash foreign exchange movements, which were partially offset by a lower depreciation and amortization charge. Net debt of GBP 1.025 billion was 1.3x the last 12 months' EBITDA, and this remains significantly below our long-term target of around 2x. This does not include the impact of the proposed BSIF acquisition, of course. Total cash and committed facilities was around GBP 630 million, which is a strong position, and this supports our growth plans for the group.

[Frank Lemmink, CFO at Drax Group]

Our expected full-year dividend of GBP 0.322 per share is an 11% increase on 2025, in line with our long-term growth rate. This reflects the confidence we have in our business. As is our custom, we propose to pay 40% of this as an interim dividend, which equates to GBP 0.129 per share. The final leg of our capital allocation policy is returning excess investment capital to our shareholders, and we have returned GBP 47 million via share buybacks year to date. Moving on to the next slide, talking a little bit more on the performances by our businesses. Starting with our pellet production and biomass generation business, which we see increasingly as interlinked through the vertical integration between our operations in the U.S. South and the Drax Power Station.

[Frank Lemmink, CFO at Drax Group]

Pellet production's EBITDA reduced from GBP 74 million in the H1 of 2025 to GBP 64 million in the H1 of 2026. It was a function of reduced volumes because of plant closures and outages. We also showed continued progress on cost reductions, reducing the cost per ton of biomass produced. This reduces the headline size of our pellets business. Because these are internal sales to our Drax Power Station, this actually reduces the cost that are passed through to our generation business, resulting in the lower cost of biomass feedstock, as part of a well-established cost plus transfer pricing methodology. Talking about biomass generation, which has performed well and continues to produce large volumes of renewable electricity and system support services, inclusive of a major planned outage.

[Frank Lemmink, CFO at Drax Group]

As I mentioned, the business also benefits from the cost reductions in the U.S. South, and therefore lower prices of internal pellet supply. Our Flexgen business, EBITDA reduced from the previous year. This is because of an unplanned outage on the Cruachan units three and four, which is caused by a grid connection failure of assets owned by ScottishPower Energy Networks or SPEN. As we all noted, planned outage work on these units continues as part of a turbine upgrade, which will, in due course, add 40 MW of new capacity. Despite the headwinds from these outages, the units one and two performed very well and maintained a very high utilization rate.

[Frank Lemmink, CFO at Drax Group]

Hirwaun has also performed well. We have received Capacity Market payments for the full six months this half year, and since commencing operations in late May, we have been providing power generation and system support services as well. I will talk more about that shortly. Flexitricity performed in line with our expectations and Energy Solutions or Industrial and Commercial, I&C business, performed well as well. It maintained a broadly consistent margin on a small revenue base against a background of lower contracted power prices. A really good result. Finally, development expenditure. Development spend has reduced as we have been very disciplined in allocating capital to large capital projects against a market backdrop that does not currently support significant investment in carbon removals. This is in line with some of the expected cost savings that we highlighted at our full-year results early this year, and we are now realizing this.

[Frank Lemmink, CFO at Drax Group]

A little bit more on Hirwaun, and I think this is a very interesting slide. In its first month of operations, Hirwaun performed very well. Our OCGTs are designed to operate at times of peak demand, which we normally expect to be focused on winter periods. However, reflecting high summer temperatures and lower wind speed, we saw a significantly higher demand for Hirwaun's services in power generation and balancing markets. In addition, Hirwaun is fitted with a clutch mechanism, which allows the turbine to synchronize with the grid in a non-generation mode, helping to stabilize the system without producing any electricity. In total, the station operated in this mode for around 440 hours in June, which is around 60% of the time, as you can see in the graph, as well as operating in the wholesale and balancing markets.

[Frank Lemmink, CFO at Drax Group]

We see this flexibility and breadth of the market opportunity as a source of value to us, but also an essential service to the system, providing stability to the grid, which is absolutely essential. As power demand grows and the system evolves to include more intermittent renewable and inflexible generation, we expect these themes will become more pronounced, and this informs our investment case for flexible generation, and is also why we believe that having three of these OCGTs over time in our portfolio will be value-generative. Moving on to the balance sheet. Maintaining a strong balance sheet remains a key priority. We have no significant maturities remaining in 2026. As you can see, the acquisition bridge facility will become available upon the completion of the BSIF deal, tomorrow, we expect, and would allow us to repay shareholders and all of BSIF's debt if required.

[Frank Lemmink, CFO at Drax Group]

There are some facilities that we will likely retain, subject to bank agreement. We have expanded maturities on some of our facilities in the H1 of this year as well. Because of that, we have significant headroom over our short-term liquidity requirements, as you can see. Credit ratings. Following the BSIF acquisition process, we have engaged all three of our rating agencies, and all three of them have reiterated our crossover credit rating after the announcement of the proposed BSIF acquisition. They note the diversification benefits and improved business risk, earnings quality, and debt capacity. These conclusions support our ability to grow our business whilst maintaining a strong balance sheet. Moving on to capital investment. We have continued to invest in growth and in our core business, including BESS, pumped storage, and the OCGTs.

[Frank Lemmink, CFO at Drax Group]

The ongoing planned outage at Drax Power Station is progressing well. We continue to target between GBP 210 million and GBP 250 million of capital expenditure for the year, and this excludes our acquisitions. Flexitricity has completed, as you know, and BSIF, as Will said, could be finalized tomorrow. A bit on cost management. Strong cost discipline is an integral part of our culture. Being disciplined on cost supports our upgraded to 2029 EBITDA target. We are making good progress, putting in place the structures and plans to allow us to succeed and deliver long-term value to stakeholders. This includes both staff cost reductions and reduction in third-party costs. Earlier this year, we set out a target to establish structural savings of over GBP 150 million per year by 2027 compared to a 2024 base year.

[Frank Lemmink, CFO at Drax Group]

We are making really good progress, and we will continue to keep an iron discipline with regards to cost control. This is something which I've done successfully in my previous company and something I'm seeking to embed deeply within the Drax culture as well. Finally, our capital allocation policy. This policy remains unchanged and is at the heart of our financial decisions that we make to make sure that we can successfully deliver growth, value, and income to shareholders. Our balance sheet is strong, and we remain committed to a long-term target of around 2x net debt over EBITDA. We will continue to invest judiciously in the core business to deliver safe and efficient operations and deliver options for growth in flexible and renewable energy.

[Frank Lemmink, CFO at Drax Group]

Our return to shareholders remain a critical part of our investment proposition, and since 2017, we have returned over GBP 1.2 billion via dividends and share buybacks. Since 2017, the dividend per share has grown on average by 11% per annum, including an expected increase of 11% in 2026. Income returns to shareholders are an important part of our investment case, and we remain firmly committed to our policy to pay a sustainable and growing dividend.

[Frank Lemmink, CFO at Drax Group]

Lastly, to the extent there is a surplus of capital beyond our investment requirements, we will consider the best way to return this to shareholders. The buyback, as you know, is currently on pause, and we will evaluate this program along with the growth opportunities that are available to us. I'm excited to be here. I'm very pleased to share these results with you, and I look forward to discussing them with you further in due course. With that, Will, I hand back to you.

[Will Gardiner, CEO at Drax Group]

Thank you, Frank. Appreciate that. If I move on to page 18. NESO's future energy scenarios show power demand is likely to double over the next 25 years, driven by the electrification of heating, transport, and new industrial demand, like data centers. To help meet this demand, there will need to be up to a seven-fold increase in wind and solar. While at the same time, unabated gas is expected to retire from the system, meaning that while carbon emissions will reduce, the system also will become progressively more dependent on intermittent renewables, as well as over time on inflexible nuclear power. As a result, there's likely to be either too little or too much power on the system at any one point in time.

[Will Gardiner, CEO at Drax Group]

This system transition creates opportunities for significant investment in renewables, as well as in flexible generation, principally in BESS, which NESO believes could quadruple in capacity. Again, as you can see, we think there's a very strong tailwind driving our investment thesis. I would also note that we have a strong view that existing cash flows from incumbent assets are particularly valuable in a world in which it's difficult to connect additional capacity to the grid. We've structured our BESS investments to account for this risk, and the proposed BSIF acquisition is another example of how we're addressing it. As you know, we're developing a gigawatt-scale pipeline of BESS opportunities, which complement our existing flexible generation portfolio. Having the right assets in the right location at the right time will be critical to success, as will having the tools to manage the portfolio effectively.

[Will Gardiner, CEO at Drax Group]

We are making outstanding progress in this area and have committed about GBP 500 million for over 700 MW of capacity, as well as acquiring Flexitricity. As you know, we see two principal and slightly different routes to creating value from BESS. Firstly, the ownership of physical assets, where we believe the locations that we have chosen are optimal and where there are opportunities to invest in the sites further over the long term. We've acquired three development projects for 260 MW under a fixed price deal with structures in place that protect us in the event of cost or schedule overruns. That deal also gives us option rights over an additional 289 MW of capacity. The second route is through floors and tolls, which provide us with an additional opportunity to access the BESS market and use our deep expertise in trading and optimizing flexible assets.

[Will Gardiner, CEO at Drax Group]

In that space, we've entered into agreements for 450 MW of tolls with the developers Fidra and Zenobe. We will pay them a tolling fee in return for which they are responsible for building, maintaining, and making the assets available for us to optimize. We will keep all the revenues from operations other than capacity payments and certain other immaterial ancillary revenues. Importantly, both projects have now taken FID. Finally, the final piece of this puzzle is Flexitricity, which provides a scalable, best-in-class platform for optimizing those assets, both for ourselves and also for third-party owners. Turning to the next slide. We're growing a balanced portfolio in the U.K. Let me provide a little more color on how we're expecting to do that. First, we have an existing portfolio, an existing set of expertise that operates across the U.K. power system today.

[Will Gardiner, CEO at Drax Group]

We operate and trade large-scale generation assets, Drax Power Station, [inaudible], our first OCGT, and hydropower. As you know, we're developing those attractive portfolio of BESS assets. The second thing that we do is we provide route to market services for BESS, wind, and solar assets, both through our existing business and also through Flexitricity, which we've just recently acquired. In combination, that gives us close to 2 GW for over 2,000 small renewable assets as well as grid-scale assets. Thirdly, we're already a major player in the I&C supply space, giving us significant insight into the demand side of the equation. It's logical for us to grow that portfolio by adding solar and wind, which we're starting to do by adding almost 1 GW through the Bluefield acquisition that again, we expect to close tomorrow.

[Will Gardiner, CEO at Drax Group]

Beyond that, we will look to grow the portfolio across the piece by developing the significant opportunities for growth that we already have. Just by way of example, BSIF brings a pipeline of options in BESS and solar with over 500 MW of projects, which already have 15-20-year CFDs. It's only a small part of their overall development pipeline of 2.9 GW. We will also look to further M&A as and when appropriate. You put that all together, and we already have strong visibility of growing our megawatts under management that underpins our upgraded expectation for EBITDA in 2029 of between GBP 650 million-GBP 800 million.

[Will Gardiner, CEO at Drax Group]

Again, please note, which I'm sure you guys have all done, that this does not include BSIF, which as we have said already, adds another, sorry, delivered EBITDA of GBP 130 million in 2025. If you put that all together and you say, "What is the portfolio that we have the opportunity to develop?" We have the potential to grow to 12 GW of operational assets, including what we've already got, what we're already building, and options on sites that we already have. All of that is before we start even talking about DPS, which we'll do now. If I go to page 22. The Drax Power Station site, as you know, located centrally in the U.K. and next to one of the country's largest substations, includes over 1,000 acres and has 4 GW of grid access.

[Will Gardiner, CEO at Drax Group]

It already has 2.6 GW of flexible renewable generation running and has cooling systems on a secure site very close to the U.K.'s fiber-optic network. As a first step, it's already the U.K.'s largest power station, as you know, and we expect biomass generation to continue to play a long-term role in meeting U.K. energy demand. On top of that, we're developing plans for a data center, which I'll talk about in a minute. On top of that, we're also evaluating options to utilize inactive legacy infrastructure to provide system support services. For example, we can use power from the grid to rotate and synchronize the legacy units to the grid to provide inertia and voltage management, thereby helping to stabilize the system in exactly the same way as Frank mentioned that the OCGTs operate in clutch mode.

[Will Gardiner, CEO at Drax Group]

Finally, in the long term, we are also exploring opportunities to utilize 1.4 GW of non-biomass grid access for new generation. Let's talk a little bit about the data center. The size, location, and infrastructure of the site make the Drax Power Station a good fit for a data center, and we're continuing to develop an option to do that. As soon as we have more details, we will share those with you. What I can say is the following: It'll be a three-phase project. The first phase for about 100 MW, using existing infrastructure and transformers to import power directly from the grid. We will be submitting a planning application for that 100 MW data center in the H2 of the year. Beyond that, we have two more phases that are both behind the meter.

[Will Gardiner, CEO at Drax Group]

The second phase aims to utilize about 500 MW of capacity before 2031. As you know, this is still during the period of the CFD, and so that will be subject to agreement with the U.K. government. While we haven't had substantial discussions with the government, we are clearly making them aware of our progress as we work on this, right? The third phase would follow from 2031 afterwards, adding further capacity up to 1 GW and beyond. Ultimately, this development will represent a multibillion-dollar investment in the U.K., creating thousands of jobs while continuing to support energy security through 2031 and beyond. Turning to on page 25. Just in short summary. We performed well again in the H1 of 2026.

[Will Gardiner, CEO at Drax Group]

We're already a leading provider of flexible renewable generation in the U.K., and we're taking advantage of a great opportunity to grow that position and develop a full-fledged multi-technology generation portfolio, including solar and wind. We've absolutely begun at pace that investment program, as I've described, and look forward to growing our business through the rest of the decade and well beyond, creating value by investing in the U.K. energy transition. Of course, as we always have been, we will be disciplined in how we approach these opportunities in line with our existing capital allocation policy, and we will be laser-focused on value creation. Let me close by returning to what I said at the start. The U.K. needs to meet a growing demand for power while maintaining energy security in a cost-effective manner and continuing to decarbonize.

[Will Gardiner, CEO at Drax Group]

That is the essence of the energy trilemma. We believe we can play a significant role in meeting all three of those needs. Since 2018, we've grown our business from being a single site, 2.6 GW biomass generator, to being a multi-site portfolio with a range of generation technologies and route to market services. We already have more than visibility. We have, clearly, plans and capital in place to grow that portfolio through the end of the decade across multiple technologies to 7.4 GW under management, almost doubling the position that we had at the end of 2025. In doing so, we make Drax a business focused on a broad range of flexible as well as long-term contracted intermittent renewables.

[Will Gardiner, CEO at Drax Group]

Beyond that, we have a pipeline of further opportunities in both flexible generation and renewables, as well as the Drax Power Station, which together represent around 12 GW of operational assets that we can own or manage, as well as having opportunities for further growth. In taking these actions, we believe we can deliver value for our shareholders, all of our stakeholders, while at the same time supporting the U.K. energy objectives and promoting economic growth. Of course, we will update you in due course as we continue to roll out this investment plan. On that, we're happy to take questions.

[Operator]

We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star then two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question is from Pavan Mahbubani, JPMorgan. Please go ahead.

[Pavan Mahbubani, Analyst at JPMorgan]

Hi, team. Good morning. Thank you for taking my questions. I'll start with two, please. Firstly, Will, toward the end of your speech, you talked about the progress on data centers and looking to file a planning application in the H2 of this year. Can you shed a bit more light as to how the discussions are going with the relevant counterparties? Should we see the intention to file a planning application as significant progress in those conversations? Any color there would be helpful. Then secondly, maybe more a point of clarification. If I compare today's guidance of GBP 650 million-GBP 800 million post-2029 to what you had as GBP 600 million-GBP 700 million before, is the idea that it's GBP 50 million-GBP 100 million coming from BESS? Or are there any changes to the scope of the GBP 600 million-GBP 700 million versus where we are today? Thank you.

[Will Gardiner, CEO at Drax Group]

Thanks, Pavan. Why don't I take the first one, and then I'll ask Frank to take the second one. On the data center, I think we continue to be in the market talking to various parties. As you know, we've been working with a developer to help us work through the program. Effectively, the decision we've made is that for the 100 MW, we're basically putting into place a planning application that we think will make our offering more attractive and move us a step forward as we continue those discussions. I wouldn't take it as indicating that there's something more in those discussions than we've already disclosed. Frank?

[Frank Lemmink, CFO at Drax Group]

The second question, you're absolutely correct. The previous guidance was GBP 600 million to GBP 700 million. We've added our expectation for the BESS EBITDA range to that of GBP 50 million-GBP 100 million, which takes you to GBP 650 million to GBP 800 million. That is still before BSIF, of course. If you add, for example, the 2025, GBP 130 million, you can make the calculation yourself.

[Pavan Mahbubani, Analyst at JPMorgan]

Thank you.

[Operator]

The next question is from Alex Wheeler, RBC. Please go ahead.

[Alex Wheeler, Analyst at RBC]

Morning. Thanks a lot. Just a couple from me as well, sticking with somewhat similar themes. I just wanted to check on, just following up on Pavan's question on the data center point. Is this the only step in terms of the planning that you would take prior to announcing an agreement with an offtaker? Or are there other things that you may ultimately do prior to that announcement coming through? Then just on the GBP 50 million to GBP 100 million on the BESS, I'd be interested to understand how well underpinned you see the GBP 50 million and then what has to happen and how do you see the opportunity in the market to be at the upper end of that range?

[Alex Wheeler, Analyst at RBC]

Then just lastly, when you talk about the development of other opportunities at Drax Power Station, particularly on the system support services, I appreciate there's a range there of 2025-2031, but what may happen there, and I guess, when may we see that potentially coming into numbers? Thanks.

[Will Gardiner, CEO at Drax Group]

Okay. On the data center point, I think the simple answer, Alex, and I appreciate you're looking for other catalysts or other milestones that we might have. There's nothing that I can point to now that would be additional progress that we could point to before actually probably announcing that we got a customer. I would say, as and when we have other information that we think is of value, we will obviously provide that. On the BESS stuff, I think that it's really about the range in terms of the volatility in the market, I would say. But I think the GBP 50 million is something we would be quite confident in a downside year that we would cover that. GBP 100 million would be more the upside year.

[Will Gardiner, CEO at Drax Group]

It's an interesting one because obviously the market this summer has been a bit unusual, different from normal, right? The idea that there's more volatility in summer, that was probably more expected in winter in the past. Again, I think that it's a function of volatility, I think quite simply. Right. On the system support stuff, the system operator is running auctions for system support services. One of those has happened. I think the decision on that is sometime middle of next year. That actually is then, that's when we would start building and that takes some time. I would expect those sort of significant projects to be several years away before they would start producing anything, as and when we would win a contract.

[Alex Wheeler, Analyst at RBC]

Okay. Thank you.

[Operator]

The next question from Dominic Nash, Barclays. Please go ahead.

[Dominic Nash, Analyst at Barclays]

Good morning, everyone. Thank you for taking my questions. I've actually got three. Apologies. The first one's on security of supply. I think the unprecedented situation that you've kind of alluded to at the moment with the geopolitics, but also the extreme weather. I'll be interested in your view on the threats and potential opportunities for Drax. Firstly, with the potential gas crunch coming in winter. Clearly, we've got very low gas storage levels. In fact, we have none in the U.K. If demand does pick up, then clearly whether or not Drax can benefit from that. The second one is clearly also on the electricity and the sort of alleged cover-up by NESO that the U.K. grid came quite close to a blackout. Whether or not that gives you, if you can give us some update on what your view is there.

[Dominic Nash, Analyst at Barclays]

Then, of course, from the water angle as well. Half the country is now in drought. Do you see the potential for abstraction and cooling issues for Drax and how your hydro assets are going to perform under those conditions? That probably is quite a long first one, but they're all linked. The second two are actually quite quick. Remind me on data centers, I think Ofgem's announcing a GBP 7 million per MW development transmission fee. Are you going to be subject to that as part of your development? Sorry, can you remind me again on the BESS GBP 50 million-GBP 100 million? I presume you're relying on the T-1 Capacity Market auction or can we model a T-4 in that one and then how can that fit for 2029? Thank you.

[Will Gardiner, CEO at Drax Group]

Okay. I think that's about eight questions, Dominic.

[Dominic Nash, Analyst at Barclays]

Another 10 if you want them.

[Will Gardiner, CEO at Drax Group]

Okay. Let me start with the first one. In terms of security of supply, any sort of extreme weather, gas crunch, et cetera. I guess the first thing I would say is that we've run our assets as we always would have expected to run them. We obviously try, have endeavored to provide as much supply as we could. I feel as though we've absolutely done what we wanted and we've also responded to the system operator asking us to run and/or in the case of Cruachan, run pump, et cetera. We're very comfortable with the role we're playing in trying to provide energy security for the U.K. In that context, very pleased that the first of the open cycles was online in June. That was doing a small part to help with the security of supply challenges.

[Will Gardiner, CEO at Drax Group]

I think it's a sort of simple thing to say. It would have been nice to have two other ones up and running at the same time for us and for the system. Unfortunately, they have not been running. I can't comment on what's happening inside the system operator. Can't really comment on how close or not we were to having a system sort of a blackout type event. I would say that I think that the summer situation is going to become increasingly more challenging relative to what it has been, right? You get this combination of heat wave across the continent, challenges with nuclear cooling water, et cetera. Challenges in efficiency of various different types of technologies as it gets hotter and air conditioning sales are going through the roof, right? It's probably something we should have and will be expecting to be the new reality.

[Will Gardiner, CEO at Drax Group]

We don't expect any water issues at the Drax power station or anywhere. The hydro, clearly the run-of-river is very much water, rain dependent. To the extent there's less water, there's less generation. Cruachan, on the other hand, there's plenty of water on the bottom and the top. That isn't very much rain and drought dependent. On your second question, because we're an existing connection, we don't expect to have any issues with that topic. Then on the BESS topic, we have some T-4 capacity contracts in place already. I think the important point probably there is that given the derating on the batteries, it's not a very significant piece of the puzzle. On the tolled assets, I think the owner actually keeps those payments anyway. I think that's probably about four of the questions. Are there four that I missed?

[Dominic Nash, Analyst at Barclays]

No. I think you answered them evidently. Thank you.

[Will Gardiner, CEO at Drax Group]

Thank you. Thanks, Dominic. Feel free to come back if you have other ones as well.

[Operator]

The next question from Mark Folsom, UBS. Please go ahead.

[Mark Folsom, Analyst at UBS]

Hi. Thanks for taking my questions. Firstly, just on the strategic review of the Canadian assets, I just wondered whether you'd be able, Will, to give any kind of overview on what the options are or anything that you've found, and what the benefit could be to Drax Group. Just secondly, it sounds like you've been seriously let down by National Grid hooking up the three OCGTs, which has cost you money, also by ScottishPower. Surely, there are options, if only through insurance, for you to get compensation for that. Can you talk about whether there may be any potential flow back of economics there? Thank you.

[Will Gardiner, CEO at Drax Group]

Okay. On Canada, I guess two points I would make. The team there is doing a very nice job of working through the economics and improving the fundamental performance of that business. That's sharpening your pencil all the way around. There are a couple of things that are sort of specifically improving things. They've been through the portfolio of contracts, to the extent that we can reach agreement with some people who have lower value contracts, we've been able to sort of close some of those down. We've actually, again, on the flip side, on the supply side, we've, as you know, closed one of our sites, that's sort of averaged down our own cost. Right? The second side of this is that to the extent we have lower demand for fiber, we then actually can reduce it.

[Will Gardiner, CEO at Drax Group]

The further out you go with the fiber, as you know, Mark, the more expensive it gets. To the extent there's less demand, we have cheaper pellets. All of that is contributing to a significant improvement in the operational performance. In terms of the actual strategic review, we're looking at various different options, including potential sale, that process is ongoing, I would say early days, but potentially encouraging. I think frankly, the benefits to the group, as you can see from our strategy, we're very focused on the opportunities we have in the U.K. Very focused on sort of having a supply chain from the U.S. South supporting the U.K. sort of biomass generation. Being able to sort of focus more on that piece of our business long term is absolutely part of what we're trying to get to.

[Will Gardiner, CEO at Drax Group]

In terms of the system operator and spend, I think what I would say is that we're working very closely with both. I think that they're doing the best that they can within the constraints they have, both contractually and regulatorily to support us. I think that the fact that the way the system is designed, that's not that easy for them to do. Right? The contractual sort of framework is not conducive to us getting either sort of having strong contractual remedies to support actually their delivery. Doesn't also give us sort of financial remedies, as I'm sure we all know.

[Will Gardiner, CEO at Drax Group]

Again, the cooperation and the willingness is strong. We're actually working cooperatively with them, which I think is helpful. In terms of insurance, we do have business interruption insurance, and that has the potential to support things on the Cruachan side. I would say it's less relevant on the open cycle side.

[Mark Folsom, Analyst at UBS]

Thank you.

[Operator]

The next question from Adam Forsyth, Longspur Research. Please go ahead.

[Adam Forsyth, Analyst at Longspur Research]

Good morning. Two questions. Firstly, on Hirwaun, are you able to give the split of revenue between non-generation and generation, either in revenue or in terms of the EBITDA? I'm trying to get a feel for how material the non-generation income is. The second question, just around the route to market opportunity. I think, am I right in saying you said GBP 10 million in earnings? Was that an expectation or is that actually what you delivered this half? Where do we see that in the numbers? Thanks.

[Will Gardiner, CEO at Drax Group]

Yeah. On the open cycles, we haven't broken that out so far, Adam. I think what I'll do, let's take that question away, because I think when we get to a capital market today, for example, that's the type of thing where I think we potentially could provide more detail that it sounds like would be helpful. We will work on that. In terms of the route to market, the GBP 10 million I mentioned is, call it a circa GBP 10 million number that we've been earning from the route to market business that we've had in place for several years.

[Will Gardiner, CEO at Drax Group]

That business originally came to us through the Opus acquisition. Again, it's circa GBP 10 million. I think that's a good ballpark number for that size of portfolio with that type of route to market assets, et cetera. That number appears in the DESL numbers. Right? That's a full-year, not a half year.

[Adam Forsyth, Analyst at Longspur Research]

Okay. Can I just ask, is that capacity related, or do you get any element of price exposure?

[Will Gardiner, CEO at Drax Group]

Not sure. Can you explain what you mean? I'm not sure I understand the question.

[Adam Forsyth, Analyst at Longspur Research]

Is your route to market fee for each generator, is that related to the capacity they have or is it like a royalty payment from the income they're getting?

[Will Gardiner, CEO at Drax Group]

Basically, the way it works is that these smaller shell generators will sort of come to market where they ask for a proposal, "How much will you charge me in order for you to bring that power to market?" We earn a fee from them. The flip side of that is actually then we have to manage the actual market risk associated with, for example, day ahead CFD pricing and bringing that to market. It's effectively the earnings net of the cost for managing the risk.

[Adam Forsyth, Analyst at Longspur Research]

Got it. Thanks.

[Operator]

The next question from Charles Swabey, HSBC. Please go ahead.

[Charles Swabey, Analyst at HSBC]

Hi. Good morning, everyone. I've got two questions. First, on the pellets and focusing on the U.S. South and the pellets business there. I wonder if you could provide an update on the cost reduction program, in the H1 year, how you see this playing out H2 and into 2027, and obviously the impact on margins. The second one, again, just to go back to data centers and a slightly different angle. Just in terms of the conversations you mentioned you've had with government, appreciate that this is still in the early stages. I wonder if you could provide any insights into the government's position there. Would you say they're supportive of a large behind-the-meter data center at Drax? Any insight would be helpful. Thanks.

[Will Gardiner, CEO at Drax Group]

Yeah. I think on the pellet side, I think it significantly fits into what Frank talked about in terms of the overall program, right? Which is that we've got this program, which we call Future Focus. It includes everything from top to bottom, power station operations, pellet plant operations, internal costs, third-party costs. What we've been doing now for several years quite successfully in the pellet business is effectively looking for every opportunity, whether that's simple things, better procurement, for example, right? Just simple things like that, sort of optimizing operations across the piece. For me, the way I'm thinking about it is look to take out inflation every year kind of scenario as a sort of maybe a rule of thumb, right? I did that nicely.

[Will Gardiner, CEO at Drax Group]

The power station may be a little bit differently because the power station, we're clearly going to be running less. The program there is designed to make sure we have the right sort of cost base relative to a smaller set of operations, right? Maybe one thing I'll just throw in here, which I think is interesting, is that if the system is going to be shorter in the summer with Drax Power Station operating effectively two full biomass units, it's going to be shorter still if we're running at 30% capacity instead of at 60% capacity. Next year might be a tougher one for the system. In terms of government discussions, I guess two things I would say. One is that, we have ongoing, I would say call them natural day-to-day discussions with NESO as a major generator.

[Will Gardiner, CEO at Drax Group]

Those discussions are already sort of about what do we think the system's going to look like in 2031? What's the role that we might play? How does the data center fit into that? I think from their perspective, clearly the investment that the data center brings is very attractive. At the same time, I think they recognize that the power station is very well likely to be needed for security of supply well into the 2030s, right? Balancing those two things in a very constructive way, I would say our discussion. To say discussions is a bit grand, but I would say the regular interactions we're having to sort of throw these ideas around would indicate that they have recognized the value in both of those things.

[Charles Swabey, Analyst at HSBC]

Great. Thank you.

[Operator]

This was the last question. I would like to turn the conference back over to Mr. Gardiner for any closing remarks.

[Will Gardiner, CEO at Drax Group]

Well, thanks very much, guys. Really appreciate the questions. One is that, I think we've operated well, safely delivered power. 6% is much higher than what we've been doing in terms of contribution to the overall system in the H1 of the year. Much more significantly, our business is just rapidly becoming very different from what you and your investors might have remembered, right? If I would take away one thing from this, it's basically we are a 6 GW under management business with a broad range of technologies doing lots of different things. I'll just leave that with you. Thanks very much.

[Frank Lemmink, CFO at Drax Group]

Thank you.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Participants

Executives

• Will Gardiner, CEO
• Frank Lemmink, CFO

Analysts

• Pavan Mahbubani, Analyst at JPMorgan
• Alex Wheeler, Analyst at RBC
• Dominic Nash, Analyst at Barclays
• Mark Folsom, Analyst at UBS
• Adam Forsyth, Analyst at Longspur Research
• Charles Swabey, Analyst at HSBC