Trading Update – Strong System Support Performance

RNS Number : 6382V
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)


  • 2023 Adjusted EBITDA(1/2) and EGL(2) expectations in line with consensus estimates(3)
  • Continued progress on UK BECCS – bridging mechanism consultation expected shortly
  • Letter of Intent agreed for sale of up to one million tonnes of biomass to major European utility for projects including biofuels
  • £150 million share buyback programme completed

Drax Group CEO, Will Gardiner said:

Will Gardiner, Drax Group CEO

“We continue to deliver a strong system support and generation performance, providing dispatchable, renewable power for millions of homes and businesses.

“Drax Power Station is the UK’s single largest provider of renewable energy by output during 2023 and a critical contributor to the country’s security of supply.

“We are excited about the opportunity to deliver BECCS in Yorkshire, which could help the UK meet its net zero targets and continue to support the country’s long-term energy security, whilst creating thousands of new jobs across the region.

“BECCS can also help deliver the global energy transition and we are continuing to screen options for projects in North America, which could provide long-term, large-scale carbon removals and attractive opportunities for growth as part of a potential trillion-dollar global carbon removals market.”


The Group’s UK generation assets – backed up by its integrated global biomass supply chain – have performed well, supporting UK energy security, with flexible and reliable renewable power generation and a wide range of system support services.

Generation contracted power sales

As at 30 November, Drax had over £4.4 billion of forward power sales between 2023 and 2025 on its ROC, pumped storage and hydro generation assets – 30.2TWh at an average price of £146.6/MWh(4/5/6). Both 2023 and 2024 are effectively fully hedged.

The Group has a further 3.3TWh of CfD generation contracted for 2023 and 2024.

Contracted power sales as at 30 November 2023202320242025
Net ROC, hydro and gas (TWh)(4/5)
- Average achieved £ per MWh(6)169.1148.0115.3
CfD (TWh) 1.22.1-

Pumped storage and hydro

Cruachan pumped storage and the Lanark and Galloway hydro schemes continue to perform well. The primary driver of this performance is Cruachan, which delivers system support services via the short-term balancing mechanism, in addition to ancillary services, power generation and the Capacity Market.

Drax now expects 2023 full year Adjusted EBITDA for pumped storage and hydro to be significantly above full year 2022 (£171 million).

Drax believes that the retirement of dispatchable assets and increased reliance on intermittent renewables in the UK system will continue to drive further demand for dispatchable power and system support services, creating long-term enduring earnings opportunities for assets like Cruachan.

Drax is continuing to develop options for Cruachan, including a 600MW expansion.

Biomass generation and supply chain

The current operating environment highlights the importance of continued investment to ensure good operational performance and availability. As a part of this investment programme, two major planned outages were completed at Drax Power Station in July and November.

The Group has a robust and diversified global supply chain comprised of third-party suppliers, as well as operating around five million tonnes of production capacity across the Group’s own 17 facilities in the US and Canada. This diversification provides a high level of operational redundancy designed to mitigate any potential disruption at supplier level.

In the UK, Drax utilises dedicated port facilities at Hull, Immingham, Tyne and Liverpool, with annual throughput capacity and biomass rail sets providing supply chain capacity significantly in excess of the Group’s typical annual biomass usage.

Drax Power Station has c.300,000 tonnes of onsite biomass storage capacity. Taken together with volumes throughout its supply chain the Group currently has visibility of around one million tonnes of biomass in inventories. This adds significantly to the resilience and security of the UK power market over the winter period, with around 30% of the UK’s largest gas storage site required to produce the equivalent electricity supported by Drax’s inventory.

As a vertically integrated producer, user, buyer and seller of biomass, Drax operates a differentiated biomass model from its peers and sees the current global biomass market as representing a balance of short-term risks and long-term opportunities for the Group.

Pellet Production

Against the backdrop of a more challenging operational and market environment the business has continued to deliver a robust performance and has now commenced supply of a new 450,000 tonne five-year contract with a Japanese customer.

The Group currently has contracted over 17 million tonnes of long-term biomass sales to third parties in Asia and Europe extending to the mid-2030s.

In December, Drax agreed a Letter of Intent for the sale of up to one million tonnes of biomass to a major European utility, for projects including a biofuel project which is targeting a final investment decision during 2025.

Drax believes that these developments demonstrate the growing demand for biomass pellets in Asia and Europe and its wider application in the energy transition, including for BECCS, sustainable aviation fuel (SAF) and other industrial processes.

With its robust and diversified global supply chain Drax believes that it is well placed to support increased demand for sustainable biomass in a wider range of applications and in doing so create value for stakeholders.


The Industrial and Commercial (“I&C”) business has continued to perform well reflecting strong growth in renewables.

In September, Drax acquired BMM Energy Solutions (“BMM”), an installer of electric vehicle charge points. The acquisition of BMM strengthens Drax’s end-to-end EV charging proposition, as part of the Group’s commitment to support customers in achieving their net zero ambitions.

Ofgem and the National Audit Office

In May, Ofgem announced the opening of an investigation into Drax Power Limited’s annual biomass profiling reporting under the Renewables Obligation scheme. In its opening statement, Ofgem confirmed that it had not established any non-compliance that would affect the issuance of ROCs. Drax awaits the conclusion of this investigation.

Also in May, Ofgem (via its audit contractor, Black and Veatch), completed an annual assessment of the Group’s compliance with the Renewable Obligation scheme, with Drax receiving a “Good” rating (the highest of four available ratings).

In September, the National Audit Office (NAO) announced a review of the UK Government’s biomass strategy. Drax believes that the NAO’s report will be published in December.


In August, the UK Government published a Biomass Strategy which set out its position on the use of biomass in the UK’s plans for delivering net zero. The Biomass Strategy outlined the potential “extraordinary” role which biomass can play across the economy in power, heating and transport, including a priority role for BECCS, which is seen as critical for meeting net zero plans due to its ability to provide large-scale carbon dioxide removals.

In September, the UK Government set out an indicative position that large-scale BECCS projects would be eligible to participate in an expansion of the Track-1 carbon cluster sequencing process and confirmed its intent to progress both Track-1 expansion and Track-2.

Both of these options are potentially available to Drax and the timing for their deployment is consistent with the Group’s ambition to develop BECCS at Drax Power Station by 2030.

Further details of the process are expected to be published by the UK Government shortly.

Bridging mechanism

Drax has held formal bilateral discussions with the UK Government in relation to a potential bridging mechanism between the end of the current renewable schemes in 2027 and BECCS operations at Drax Power Station.

Drax believes that a bridging mechanism offers the most effective way to link between the end of the current renewable schemes in 2027 and BECCS operations. This could provide multi-year certainty allowing Drax to secure long-term biomass supplies and continue to support energy security via flexible and reliable renewable biomass operations in advance of BECCS.

In line with the Group’s expectations, the UK Government has confirmed that a consultation on a bridging mechanism will commence shortly.

Consistent with its view that a bridging mechanism offers the best route for Drax Power Station, the Group did not prequalify its biomass units for the next Capacity Market auction, which will take place in February 2024 for delivery of capacity between October 2027 and September 2028.

BECCS – Global

Drax is continuing to develop global options for BECCS, with a primary focus on North America. A number of sites have been identified with the aim of creating a pipeline of development opportunities into the 2030s, although the precise details remain commercially sensitive.

In August, Drax opened a new Global BECCS headquarters in Houston, Texas, and now has over 100 employees working on its Global BECCS programme in the UK and North America.

Full Year Expectations

Drax continues to expect full year Adjusted EBITDA and the Electricity Generator Levy (EGL) for 2023 to be in line with analysts’ consensus estimates, subject to continued good operational performance.

Drax also expects Net debt to Adjusted EBITDA excluding EGL to be around 1x at the end of 2023.

Details of the Group’s definition and the basis of calculation for Net debt are summarised in the 2022 Annual Report and Accounts, note 2.7, with further details of working capital in note 4.3.

Balance sheet and working capital

In November, Drax repaid CAD$100 million of its ESG term-loan and extended the maturity of the remaining CAD$200 million from 2024 to 2026. The facility includes an embedded ESG component which adjusts the margin payable based on Drax’s carbon intensity measured against an annual benchmark.

Separately, the Group has extended a £400 million receivable facility in its Customers I&C business to 2025, reducing to £300 million thereafter. The facility has grown with customer revenues, as power prices have risen, helping to offset the associated working capital requirements and will reduce as contracted positions unwind and power prices fall.

This is a non-recourse facility, with a sale of the underlying receivable asset, accelerating cash receipt. At the point of sale, Drax transfers substantially all the risks and rewards of ownership through the non-recourse nature of the transaction. No obligations are created from the transfer and no obligation is recognised.

Capital allocation

The Group’s policy remains unchanged and Drax continues to assess options for capital investment, further returns to shareholders and the repurchase or retirement of debt.

Following the completion of the Group’s £150 million share buyback programme Drax has c.384.6 million shares in issue, with a further c.40.3 million held in treasury.


Drax will report its full year results on 29 February 2024.


  1. Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements.
  2. In December 2022, the UK Government confirmed the details of the Electricity Generator Levy (EGL) on renewable and low-carbon generators, implemented in 2023 and running to 31 March 2028. The levy applies to the three biomass units operating under the Renewables Obligation (RO) scheme and run-of-river hydro operations. It does not apply to the Contract for Difference (CfD) biomass or pumped storage hydro units. Following review, Drax has concluded that EGL will be accounted for as a levy within Gross Profit and therefore Adjusted EBITDA. For the remainder of 2023 Drax will present Adjusted EBITDA including and excluding EGL for ease of comparison.
  3. As of 28 November 2023, analyst consensus for 2023 Adjusted EBITDA before EGL was £1,164 million, with a range of £1,100 – 1,199 million. Analyst consensus for 2023 EGL was £198 million. The details of this company collected consensus are displayed on the Group’s website.
  4. Includes 2.3TWh of structured power sales in 2024 and 2025 (forward gas sales as a proxy for forward power), transacted for the purpose of accessing additional liquidity for forward sales from ROC units and highly correlated to forward power prices.
  5. 2023 includes limited forward selling of pumped storage generation resulting in higher captured prices but lower system support availability.
  6. Presented net of cost of closing out gas positions at maturity and replacing with forward power sales.


Drax Investor Relations: Mark Strafford
[email protected]
+44 (0) 7730 763 949


Drax External Communications:

Chris Mostyn
[email protected]
+44 (0) 7548 838 896

Andrew Low
[email protected]
+44 (0) 7841 068 415


Forward Looking Statements

This announcement may contain certain statements, expectations, statistics, projections and other information that are, or may be, forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans, beliefs, and objectives for the management of future operations of Drax Group plc (“Drax”) and its subsidiaries (the “Group”), are not warranted or guaranteed. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Although Drax believes that the statements, expectations, statistics and projections and other information reflected in such statements are reasonable, they reflect Drax’s current view and no assurance can be given that they will prove to be correct. Such events and statements involve risks and uncertainties. Actual results and outcomes may differ materially from those expressed or implied by those forward-looking statements. There are a number of factors, many of which are beyond the control of the Group, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These include, but are not limited to, factors such as: future revenues being lower than expected; increasing competitive pressures in the industry; uncertainty as to future investment and support achieved in enabling the realisation of strategic aims and objectives; and/or general economic conditions or conditions affecting the relevant industry, both domestically and internationally, being less favourable than expected, including the impact of prevailing economic and political uncertainty, the impact of strikes, the impact of adverse weather conditions or events such as wildfires. We do not intend to publicly update or revise these projections or other forward-looking statements to reflect events or circumstances after the date hereof, and we do not assume any responsibility for doing so.