Tag: Pinnacle Renewable Energy

Alabama Cluster Catchment Area Analysis

The area of timberland in the Alabama cluster catchment area has remained stable over the last 20 years, increasing slightly from 4.08 million ha to 4.16 million ha, an increase of 79 thousand hectares.  This area represents 79.6% of the total land area in 2020, up from 78.1% in 2020.  The total area of forestland and woodland was 86% of the catchment area in 2020, with farmland making up 13% and urban areas 1%.  This land base can be considered to be heavily forested and dominated by timberland.

Figure 1: Land Use Type – Alabama cluster

The timberland area is classified by growth rate potential, capable of achieving a minimum of 0.57 m3/ha/year.  More than 95% of the timberland area is in private ownership.  This proportion has remained stable since 2000 as shown in Figure 2.

Figure 2: Timberland Ownership Profile – Alabama cluster

The total standing volume, the amount of carbon stored in the forest area, has increased by 115 million m3 since 2000 an increase of 30%. Most of this increase has occurred since 2010, with 90 million m3 added to the inventory since this time, reflecting the maturing age class of the forest resource as it passes through the peak growth phase.  Almost all of this increase has been in the softwood pine forest area, with a combined increase of 86 million m3 since 2010.  Pine saw-timber and chip-n-saw both increased by 46% since 2010 and pine pulpwood by 25% over the same period. Suggesting that the average tree size is getting larger as the forest matures.

Figure 3: Standing Volume by Product Class – Alabama cluster

One measure of the sustainability of harvesting levels is to compare average annual growth against removals.  This comparison gives a growth drain ratio (GDR).  Where removals are equal to or lower than growth (a GDR of 1 or more) this is a measure of sustainability, where the ratio falls below 1, this can indicate that harvesting levels are not sustainable in the long-term.  Figure 4 shows that all pine product classes have a positive GDR since 2010.  In particular the pine pulpwood GDR ratio is in excess of 2 suggesting that there is a substantial surplus of this product category.  By contrast, the hardwood GDR for both saw-timber and pulpwood are both lower than 1 suggesting that harvesting levels for hardwood species should be reduced until growth can recover.

Figure 4: Growth Drain Ratio by Product Class – Alabama cluster

Figure 5 shows the maturing age class of the forest area, charting the change in annual surplus and deficit in each product class.  The trend shows that harvesting of pine saw-timber from 2000 to 2008 represented a deficit of growth compared to harvesting removals.  This indicates an immature forest resource with a low quantity of forest categorised as saw-timber, therefore harvesting volume in mature stands outweighed the growth in mid-rotation stands.  As the forest aged, and more standing timber grew into the saw-timber category, the surplus of annual growth compared to removals increased.  Saw-timber growth in 2020 was 3 million m3 higher than in 2000.  The surplus of pine pulpwood has remained positive and has increased substantially from 3 million m3 in 2000 to 6.5 million m3 in 2020 despite harvesting levels increasing slightly over this period.

Figure 5: Annual Surplus/Deficit of Growth and Removal by Product Class – Alabama Cluster

Biomass demand began in 2008 at a very small scale, representing just 0.5% of total pulpwood demand in the catchment area.  From around 2013 it began to increase and reached peak in 2015 with a total demand of 724,000 tons of pulpwood in that year, representing 8.1% of total pulpwood demand in the catchment area.  After that time, demand for pulpwood declined as pellet mills switched to mill residuals.  The latest data on pulpwood demand shows that the biomass sectors made up just 2.8% of total pulpwood demand in 2020 with just over 216,000 tonnes of total demand.  This demonstrates that the biomass and wood pellet sector is a very small component of the market in this region and unlikely to influence forest management decision making, as shown in Figure 6.

Figure 6: Pulpwood Demand by Market – Alabama Cluster

Pine pulpwood stumpage prices have declined significantly since a peak in 2013, falling from an annual high of $9.46 when demand was strongest to just $4.12 in 2020 as demand for pine pulpwood declined in 2020.  Pine saw-timber prices have seen a similar decline from a high point in the early 2000’s to a plateau from 2011 onwards.  Saw-timber stumpage more than halved in value over this period from $49 per ton to $22 per ton.  This can have a significant impact on forest management objectives and decision making.

Figure 7: Stumpage Price Change by Product Category – Alabama Cluster

Detailed below are the summary findings from Hood Consulting on the impact of biomass demand on key issues in the Alabama cluster catchment area.

Is there any evidence that bioenergy demand has caused the following:

Deforestation?

No. US Forest Service (USFS) data shows that total timberland area has held steady and averaged roughly 4,172,000 hectares in the Alabama Cluster catchment area since Alabama Pellets-Aliceville started up in late-2012. More importantly, planted pine timberland (the predominant source of roundwood utilized by the bioenergy industry for wood pellet production) has increased more than 75,000 hectares (+4.9%) in the catchment area since Alabama Pellets’ startup in 2012.

A change in management practices (rotation lengths, thinnings, conversion from hardwood to pine)?

Inconclusive. Changes in management practices have occurred in the catchment area over the last two decades. However, the evidence is inconclusive as to whether increased demand attributed to bioenergy has caused or is responsible for those changes.

Clearcuts and thinnings are the two major types of harvests that occur in this region, both of which are long-standing, widely used methods of harvesting timber. TimberMart-South (TMS) data shows that the prevalence of thinnings temporarily increased in the Alabama Cluster market (from 2007-2013) due to the weakening of pine sawtimber markets. Specifically, challenging market conditions saw pine sawtimber stumpages prices decline from an average of $47 per ton from 2000-2006 to just over $23 per ton in 2011, or a roughly 50% decrease from 2000-2006 average levels. This led many landowners to refrain from clearcutting (a type of harvest which typically removes large quantities of pine sawtimber), as they waited for pine sawtimber prices to improve. However, pine sawtimber stumpage prices never recovered and have held between $22 and $25 per ton since 2011. Ultimately, landowners returned to more ‘normal’ management practices by 2014, with thinnings falling back in line with pre-2007 trends.

The catchment area has also experienced some conversion. Specifically, from 2000-2020, planted pine timberland increased more than 460,000 hectares while natural hardwood and mixed pine-hardwood timberland decreased a combined 390,000 hectares. Note that the increase in planted pine timberland and decrease in natural hardwood/mixed pine-hardwood timberland over this period were both gradual and occurred simultaneously. This suggests a management trend in which natural timber stands are converted to plantation pine following final harvest. It’s also important to note that there is little evidence that links these changes to increased demand from bioenergy, as this conversion trend begun years prior to the startup of Alabama Pellets and continued nearly unchanged following the pellet mill’s startup.

Diversion from other markets?

No. Demand for softwood (pine) sawlogs increased an estimated 12% in the catchment area from 2012-2020. Also, there is no evidence that increased demand from bioenergy has caused a diversion from other softwood pulpwood markets (i.e. pulp/paper). Also, even though softwood pulpwood demand not attributed to bioenergy is down 14% since Alabama Pellets-Aliceville’s startup in 2012, there is no evidence that increased demand from bioenergy has caused this decrease. Rather, the decrease in demand from non-bioenergy sources is due to a combination of reduced product demand (and therefore reduced production) and increased utilization of sawmill residuals.

An unexpected or abnormal increase in wood prices?

No. The startup of Alabama Pellets-Aliceville added roughly 450,000 metric tons of softwood pulpwood demand to the catchment area from 2012-2016, and this increase in demand coincided with essentially no change in delivered pine pulpwood (PPW) price over this same period. Ultimately, the additional demand placed on the catchment area following the startup of Alabama Pellets-Aliceville was offset by a decrease in demand from other sources from 2012-2016, and, as a result, delivered PPW prices remained nearly unchanged.

However, the Aliceville facility was shut down for a majority of 2017 due to the catastrophic failure of a key piece of environmental equipment, and this was followed by Alabama Pellets’ strategic decision to transition to residual-consumption only beginning in 2018, which eliminated more than 360,000 metric tons of annual softwood pulpwood demand from 2016-2018. Over this same period, softwood pulpwood demand from other sources also decreased nearly 360,000 metric tons. So, with the elimination of roughly 720,000 metric tons of annual softwood pulpwood demand from all sources from 2016-2018, delivered PPW prices in the catchment area proceeded to decrease more than 6% over this period. Since 2018, total softwood pulpwood demand has increased roughly 4% in the catchment area (due to increases in demand from non-bioenergy sources), and this increase that has coincided with a simultaneous 4% increase in delivered PPW price.

Statistical analysis did identify a positive relationship between softwood biomass demand and delivered PPW price. However, the relationship between delivered PPW price and non-biomass-related softwood pulpwood demand was found to be stronger, which is not unexpected given that pine pulpwood demand not attributed to bioenergy has accounted for 94% of total pine pulpwood demand in the catchment area since 2012. Ultimately, the findings provide evidence that PPW price is influenced by demand from all sources – not just from bioenergy or from pulp/paper, but from both.

Furthermore, note that Alabama Pellets’ shift to residual-consumption only beginning in 2018 resulted in no increase in pine sawmill chip prices, as the price of pine sawmill chips in the Alabama Cluster catchment area rather decreased from 2018-2020, despite a more than 100,000-metric ton increase in pine sawmill chip consumption by the Aliceville mill over this period.

A reduction in growing stock timber?

No. From 2012 (the year Alabama Pellets started up) to 2020, total growing stock inventory increased an average of 2.6% per year (+22% total) in the Alabama Cluster catchment area. Specifically, inventories of pine sawtimber and pine chip-n-saw increased 41% and 40%, respectively, while pine pulpwood (PPW) inventory increased 25% over this same period.

A reduction in the sequestration rate of carbon?

No. US Forest Service (USFS) data shows the average annual growth rate of total growing stock timber in the Alabama Cluster catchment area increased from 6.0% in 2012 to 6.2% in 2020, suggesting that the sequestration rate of carbon also increased slightly over this period.

Note that the increase in overall growth rate (and therefore increase in the sequestration rate of carbon) can be linked to gains in pine timberland and associated changes with the catchment area forest. Specifically, growth rates decline as timber ages, so the influx of new pine timberland (due to the conversion of both hardwood forests and cropland) has resulted in just the opposite, with the average age of softwood (pine) growing stock inventory decreasing from an estimated 35.4 years of age in 2000 to 33.2 years of age in 2010 and to 32.2 years of age in 2020 (total growing stock inventory decreased from 41.9 to 41.0 and to 40.4 years of age over these periods).

An increase in harvesting above the sustainable yield capacity of the forest area?

No. Growth-to-removals (G:R) ratios, which compare annual timber growth to annual timber removals, provides a measure of market demand relative to supply as well as a gauge of market sustainability. In 2020, the latest available, the G:R ratio for pine pulpwood (PPW), the predominant timber product utilized by the bioenergy sector, equaled 3.26 (recall that a value greater than 1.0 indicates sustainable harvest levels).

Moreover, note that the PPW G:R ratio has increased in the catchment area since the Aliceville mill’s startup in 2012, despite the associated increases in pine pulpwood demand. In this catchment area, pine pulpwood demand from non-bioenergy sources decreased more than 860,000 metric tons from 2012 to 2020, and this decrease more than offset any increase in demand from bioenergy.

Impact of bioenergy demand on:

Timber growing stock inventory

Neutral. According to USFS data, inventories of pine pulpwood (PPW) increased 25% in the catchment area from 2012-2020, and this increase in PPW inventory can be linked to both increases in pine timberland and harvest levels below the sustainable yield capacity of the forest area. Specifically, pine timberland (both planted and natural combined) increased more than 185,000 hectares in the catchment area from 2012-2020. Over this same period, annual harvests of PPW were 65% below maximum sustainable levels.

Timber growth rates

Neutral. The average annual growth rate of total growing stock timber increased from 6.0% in 2012 to 6.2% in 2020 in the Alabama Cluster catchment area, despite pine pulpwood (PPW) growth rate decreasing from 15.1% to 12.5% over this period. However, this decrease in PPW growth rate was not due to increased demand attributed to bioenergy but rather to the aging of PPW within its product group and its natural movement along the pine growth rate curve. Specifically, USFS data indicates the average age of PPW inventory in the catchment area increased from an estimated 13.4 years of age in 2012 to 13.6 years of age in 2020.

Forest area

Neutral. In the Alabama Cluster catchment area, total forest (timberland) area remained nearly unchanged (decreasing only marginally) from 2012-2020. However, pine timberland – the predominant source of roundwood utilized by the bioenergy industry for wood pellet production – increased more than 185,000 hectares over this period, and this increase can be linked to several factors, including conversion from both hardwood and mixed pine-hardwood forests as well as conversion from cropland.

Specifically, the more than 185,000-hectare increase in pine timberland from 2012-2020 coincided with a roughly 197,000-hectare decrease in hardwood/mixed pine-hardwood timberland and a more than 8,000-hectare decrease in cropland over this period. Furthermore, statistical analysis confirmed these inverse relationships, identifying strong negative correlations between pine timberland area and both hardwood/mixed pine-hardwood timberland area and cropland in the catchment area from 2012-2020.

Wood prices

Negative/Neutral. Softwood pulpwood demand attributed to bioenergy increased from roughly 80,000 metric tons in 2012 (the year Alabama Pellets-Aliceville started up) to more than 655,000 metric tons in 2015 (the year biomass demand reached peak levels). However, this roughly 575,000-metric ton increase in softwood biomass demand coincided with essentially no change in delivered pine pulpwood (PPW) price – which averaged $26.40 per ton in 2012 and $26.39 per ton in 2015. Ultimately, the additional demand placed on this catchment area following the startup of Alabama Pellets-Aliceville was offset by a more than 680,000-metric ton decrease in demand from other sources over this same period, and, as a result, delivered PPW prices remained nearly unchanged. Also note that Alabama Pellets’ strategic shift to consume residuals only (a transition that begun in 2018 and had been completed by 2019) resulted in a nearly 480,000-metric ton decrease in softwood biomass demand in the catchment area from 2015 to 2020. Over this same period, softwood pulpwood demand from other sources decreased more than 180,000 metric tons. In total, softwood pulpwood demand from all sources decreased more than 660,000 metric tons from 2015 to 2020, and this decrease in demand resulted in delivered PPW prices decreasing 5% over this period.

Statistical analysis did identify a positive relationship between softwood biomass demand and delivered PPW price. However, the relationship between delivered PPW price and non-biomass-related softwood pulpwood demand was found to be stronger, which is not unexpected given that pine pulpwood demand not attributed to bioenergy has accounted for 94% of total pine pulpwood demand in the catchment area since 2012. Ultimately, the findings provide evidence that PPW price is influenced by demand from all sources – not just from bioenergy or from pulp/paper, but from both.

Markets for solid wood products

Positive. In the Alabama Cluster catchment area, demand for softwood sawlogs used to produce lumber and other solid wood products has increased an estimated 12% since 2012, and this increase in softwood lumber production has consequentially resulted in the increased production of sawmill residuals (i.e. chips, sawdust, and shavings) – by-products of the sawmilling process and materials utilized by Alabama Pellets to produce wood pellets.

Moreover, the increased availability of sawmill residuals and lower relative cost compared to roundwood (after chipping and other processing costs are considered) led Alabama Pellets to make a strategic shift to utilize residuals only for wood pellet production beginning in 2019. So, not only has Alabama Pellets benefited from the greater availability of this lower-cost sawmill by-product, but lumber producers have also benefited, as Alabama Pellets has provided an additional outlet for these producers and their by-products.

Read the full report: Alabama Cluster Catchment Area Analysis

This is part of a series of catchment area analyses around the forest biomass pellet plants supplying Drax Power Station with renewable fuel. Others in the series can be found here

2021 Adjusted EBITDA around top of current analyst expectations

Highlights

  • Major planned outage on CfD(1) unit completed on schedule
  • Incremental power sales on biomass ROC(2) units since July 2021 capturing higher prices
  • Commissioning of 550Kt of new biomass pellet production capacity in US Southeast
  • 2021 Adjusted EBITDA(3) – around the top end of current range of analyst expectations, subject to continued baseload generation on biomass units throughout December
  • Positive policy developments for biomass and framework for UK BECCS(4)

Pellet Production

In North America, the Group has made good progress integrating Pinnacle Renewable Energy Inc. (“Pinnacle”) since acquisition in April 2021 and is currently in the final stages of commissioning over 360Kt of new production capacity at Demopolis, Alabama. In October 2021, the Group commissioned a 150Kt expansion at its LaSalle plant in Louisiana and at Leola, Arkansas, a new 40Kt satellite plant is due to be commissioned in December.

These developments, along-side incremental new capacity in 2022, support the Group’s continued focus on production capacity expansion and cost reduction. Once fully commissioned, Drax will operate around 5Mt of production capacity across three major North American fibre baskets – British Columbia, Alberta and the US Southeast, of which around 2Mt are contracted to high-quality third-party counterparties under long-term contracts, with the balance available for Drax’s own-use requirements.

There has been no disruption to own-use or third-party volumes from the global supply chain delays currently being experienced in some other sectors. However, as outlined at the Group’s 2021 Half Year Results, summer wildfires led to pellet export restrictions in Canada. More recently, heavy rainfall and flooding in British Columbia have led to some further disruption to rail movements and regional supply chains. Through its enlarged and diversified supply chain Drax has been able to manage and limit the impact on biomass supply for own-use and to customers.

In addition, due to the Group’s active and long-term hedging of freight costs, there has been no material impact associated with higher market prices for ocean freight. The Group uses long-term contracts to hedge its freight exposure on biomass for its Generation business, and following the acquisition of Pinnacle, is taking steps to optimise freight requirements between production centres in the US Southeast and Western Canada, and end markets in Asia and Europe.

Generation

In the UK, the Group’s biomass and pumped storage generation assets have continued to play an important role providing stability to the UK power system at a time when higher gas prices, European interconnector issues, and periods of low wind have placed the system under increased pressure. The Group’s strong forward sold position means that it has not been a significant beneficiary of higher power prices from these activities in 2021 but has been able to increase forward hedged prices in 2022 and 2023.

In March, the Group’s two legacy coal units ended commercial generation activities and will formally close in September 2022 following the fulfilment of their Capacity Market obligations. Reflecting the system challenges described above, these units were called upon in the Balancing Mechanism by the system operator for limited operations in September and November. These short-term measures helped to stabilise the power system during periods of system stress and have not resulted in any material increase in the Group’s total carbon emissions.

In September, the Generation business experienced a two-week unplanned outage on one biomass unit operating under the ROC scheme. The unit’s contracted position in this period was bought back and the generation reprofiled across the two unaffected biomass ROC units and deferred until the fourth quarter. During this period, the Group’s pumped storage power station (Cruachan) provided risk mitigation from the operational or financial impact of any additional forced outages.

In November, the Generation business successfully completed a major 98 day planned outage on its biomass CfD unit, which included the third in a series of high-pressure turbine upgrades. Drax now expects the unit to benefit from thermal efficiency improvements and lower maintenance costs, incrementally reducing the cost of biomass generation at Drax Power Station.

Customers

The Group continues to expect the Customers business will return to profitability at the Adjusted EBITDA level for 2021, inclusive of an expected increase in mutualisation costs associated with the failure of a number of energy supply businesses in the second half of 2021. Separately, the Group is continuing to assess operational and strategic solutions to support the development of the SME(5) supply business.

Full year expectations

Reflecting these factors, the Group now expects that full year Adjusted EBITDA for 2021 will be around the top of the range of current analyst expectations(6), subject to good operational performance during December, including baseload running of all four biomass units. The Group’s financial expectations do not include any Balancing Mechanism activity in December for the coal units.

Drax continues to expect net debt to Adjusted EBITDA to return to around 2x by the end of 2022.

Negative emissions

In October, the UK Government selected the East Coast Cluster and Hynet as the first two regional clusters in the UK to take forward the development of the infrastructure required for carbon capture and storage. In addition, the UK Government published its Net Zero Strategy and Biomass Policy Statement, reaffirming the established international scientific consensus that sustainable biomass is renewable and indicating that it will play a critical role in helping the UK achieve its climate targets. It also signposted an ambition for at least 5Mt pa of negative emissions from BECCS and Direct Air Capture by 2030, 23Mt pa by 2035 and up to 81Mt pa by 2050. The reports commit the Government to the development during 2022 of a financial model to support the development of BECCS to meet these requirements.

The Group is continuing to progress its work on BECCS with the aim to develop 8Mt of negative CO2 emissions pa at Drax Power Station by 2030 and expects to make a decision on the commencement of a full design study in the coming weeks.

Generation contracted power sales

As at 25 November 2021, Drax had 34.3TWh of power hedged between 2021 and 2023 at £61.3/MWh as follows:

 202120222023
Fixed price power sales (TWh)16.012.45.8
Of which ROC (TWh)10.810.15.8
Of which CfD (TWh)(7)(8)3.82.1-
Other (TWh)1.40.2-
Average achieved price (£ per MWh)54.070.7 61.2
Of which ROC (£ per MWh)56.961.161.2
Of which CfD (£ per MWh)(7)47.3118.3-
Of which Other (£ per MWh)50.058.2-

Since the Group’s last update on 29 July 2021, incremental power sales from the ROC units were 3.3TWh between 2022 and 2023, at an average price of £98.7/MWh.

Notes:
(1) Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements.
(2) BioEnergy Carbon Capture and Storage.
(3) Renewable Obligation Certificate.
(4) Contract for Difference.
(5) Small and Medium-size Enterprise.
(6) As at 26 November 2021 analyst consensus for 2021 Adjusted EBITDA was £380 million, with a range of £374-£391 million. The details of this company collected consensus are displayed on the Group’s website.
(7) The CfD biomass unit typically operates as a baseload unit, with power sold forward against a season ahead reference price. The CfD counterparty pays the difference between the season ahead reference price and the strike price. The contracted position therefore only includes CfD volumes and prices for the front six months.
(8) Expected annual CfD volumes of around 5TWh. Lower level of generation in 2021 unit due to major planned outage.

Enquiries:

Drax Investor Relations: Mark Strafford
+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis
+44 (0) 7712 670 888

Website: www.drax.com/northamerica

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, investments, beliefs and objectives for the management of future operations of Drax Group plc (“Drax”) and its subsidiaries (the “Group”), including in respect of Pinnacle Renewable Energy Inc. (“Pinnacle”), together forming the enlarged business, 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 the Company’s current view and beliefs and no assurance can be given that they will prove to be correct. Such events and statements involve significant 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; and/or general economic conditions or conditions affecting the relevant industry, both domestically and internationally, being less favourable than expected; change in the policy of key stakeholders, including governments or partners or failure or delay in securing the required financial, regulatory and political support to progress the development of Drax and its operations. 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.

END

Refinancing of Pinnacle Debt with Lower Cost ESG Facility

Demopolis wood pellet plant being constructed

RNS Number: 9930E
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Drax is pleased to announce that it has completed the refinancing of the Canadian dollar facilities it acquired as part of the Group’s acquisition of Pinnacle Renewable Energy Inc. (Pinnacle) in April 2021.

The new C$300 million term facility (“the Facility”) matures in 2024, with an option to extend by two years(1), and has a customary margin grid referenced over CDOR(2).

A Pinnacle wood pellet plant

A Pinnacle wood pellet plant

The Facility reduces further the Group’s all-in cost of debt to below 3.5% and includes an embedded ESG component which adjusts the margin payable based on Drax’s carbon intensity measured against an annual benchmark.

The Facility, along with surplus cash, replaces Pinnacle’s approximately C$435 million facilities which had a cost of over 5.5%.

Enquiries

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media

Drax External Communications: Ali Lewis

+44 (0) 7712 670 888

Website: www.Drax.com

END

Acquisition of Joint Venture Interest from Westervelt

RNS Number : 7524D
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Drax is pleased to announce that it has agreed to acquire a 20% minority interest in Alabama Pellets, LLC (“Alabama Pellets”) – the joint venture which owns the Demopolis and Aliceville pellet plants – from The Westervelt Company (“Westervelt”) for $29.7 million cash consideration. The acquisition will increase the Group’s interest in Alabama Pellets to 90% and provide Drax with economic control over a further c.130,000 tonnes of biomass production capacity per annum. Completion is expected to take place in July 2021.

Westervelt is considered to be a Related Party under the UK Listing Rules with the proposed transaction constituting a Smaller Related Party Transaction under Listing Rule 11.1.10.

The acquisition of Pinnacle Renewable Energy Inc. included a change of control provision over Alabama Pellets. Drax has been in discussions with Alabama Pellets joint venture partners regarding future working relationships, including their minority interests. The remaining joint venture partner, Two Rivers Lumber Co., LLC, holds a 10% economic interest.

Demopolis and Aliceville are located in Alabama, in the US southeast, close to the Group’s existing US operations and have a combined nameplate production capacity of 660,000 tonnes per annum. Aliceville was commissioned in 2018 and Demopolis is expected to be commissioned in 2021.

Drax Group has 13 operational pellet plants (including Aliceville) plus satellite plant developments and Demopolis, with total nameplate production capacity of 4.9 million tonnes per annum once commissioned. These plants are geographically diverse and sited in three major fibre baskets (British Columbia, Alberta and the US southeast) with access to four deep water ports providing routes to markets in Asia, Europe and the UK.

Enquiries

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media

Drax External Communications: Ali Lewis

+44 (0) 7712 670 888

Website: www.Drax.com

END

The world’s leading sustainable biomass generation and supply business

Today we completed a transformational deal – our acquisition of Canadian biomass pellet producer Pinnacle Renewable Energy.

I’m very excited about this important acquisition and welcoming our new colleagues to the Drax family – together we will build on what we have already achieved, having become the biggest decarbonisation project in Europe and the UK’s largest single site renewable power generator as a result of us using sustainable biomass instead of coal.

The deal positions Drax as the world’s leading sustainable biomass generation and supply business – making us a truly international business, trading biomass from North America to Europe and Asia. It also advances our strategy to increase our self supply, reduces our biomass production costs and creates a long-term future for sustainable biomass – a renewable energy source that the UN’s IPCC says will be needed to achieve global climate targets.

It’s also an important milestone in Drax’s ambition to become a carbon negative company by 2030 and play an important role in tackling the global climate crisis with our pioneering negative emissions technology BECCS.

That’s because increasing our annual production capacity of sustainable biomass while also reducing costs helps pave the way for our plans to use bioenergy with carbon capture and storage (BECCS) at Drax.

Negative emissions from BECCS are vital to address the global climate emergency while also providing the renewable electricity needed for a net zero economy, supporting jobs and clean growth in a post-Covid recovery.

Inside a Pinnacle pellet mill

Inside a Pinnacle pellet mill

We already know Pinnacle well – it is one of our key suppliers and the company is a natural fit with Drax.

Our new colleagues have a wealth of operational and commercial expertise so I’m looking forward to seeing what we can achieve together.

We will benefit from Pinnacle’s scale, operational efficiency and low-cost fibre sourcing, that includes a high proportion of sawmill residues. In 2019, Pinnacle’s production cost was 20% lower than Drax’s.

Completing this deal will increase our annual production capacity to 4.9 million tonnes of sustainable biomass pellets at 17 plants in locations across Western Canada and the US South – up from 1.6Mt now.

It also expands our access to three major North American fibre baskets and four export facilities, giving us a large and geographically diversified asset base, which enhances our sourcing flexibility and security of supply.

This positions us well to take advantage of the global growth opportunities for sustainable biomass. The market for biomass wood pellets for renewable generation in Europe and Asia is expected to grow in the current decade, principally driven by demand in Asia.

Biomass wood pellet storage dome, Drax Power Station

Biomass wood pellet storage dome, Drax Power Station

We believe that with increasingly ambitious global decarbonisation targets, the need for negative emissions and improved understanding of the role that sustainably sourced biomass can play, will result in continued robust demand.

Pinnacle is already a key supplier of wood pellets to other markets with C$6.7 billion of long-term contracts with high quality Asian and European customers, including Drax, and a significant volume contracted beyond 2027.

Drax aims to leverage Pinnacle’s trading capability across its expanded portfolio. We believe that the enlarged supply chain will provide greater opportunities to optimise the supply of biomass from its own assets and third-party suppliers.

The transport and shipping requirements of the enlarged company will provide further opportunities to optimise delivery logistics, helping to reduce distance, time, carbon footprint and cost.

Train transporting biomass wood pellets arriving at Drax Power Station

Importantly – there will also be opportunities to share best practice and drive sustainability standards higher across the group.

We recognise that the forest landscape in British Columbia and Alberta is different to the commercially managed forests in the south eastern US where we currently operate.

In line with our world leading responsible sourcing policy, Drax will work closely with environmental groups, Indigenous First Nation communities and other stakeholders and invest to deliver good environmental, social and climate outcomes in Pinnacle’s sourcing areas.

We are determined to create a long-term future for sustainable biomass and deliver BECCS –  the negative emissions technology that will be needed around the world to meet global climate targets. The acquisition of Pinnacle takes us a big step forward in achieving our goals.


Read press release: Drax completes acquisition of Pinnacle Renewable Energy Inc.


 

Completion of the acquisition of Pinnacle Renewable Energy Inc.

Pinnacle named ship

RNS Number : 2689V 
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Drax is pleased to announce that it has completed the acquisition of the entire issued share capital of Pinnacle Renewable Inc.

The Acquisition was originally announced on 8 February 2021.

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis

+44 (0) 7712 670 888

 

Satisfaction / waiver of conditions in relation to the proposed acquisition of Pinnacle Renewable Energy Inc.

RNS Number : 6420U
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

On 8 February 2021, Drax announced that it had entered into an agreement to acquire the entire issued share capital of Pinnacle Renewable Energy Inc. (the “Acquisition”). On 31 March 2021, Drax announced that the Acquisition had been approved by Drax Shareholders at the General Meeting and Pinnacle announced that the Acquisition had been approved by Pinnacle Shareholders.

Drax is pleased to announce that on 6 April 2021 the Supreme Court of British Columbia granted the Final Order. All of the conditions to the Completion of the Acquisition have now been satisfied or waived (other than conditions which can only be satisfied at Completion) and Completion is expected to occur on 13 April 2021.

Capitalised terms used but not defined in this announcement have the meanings given to them in the Circular.

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis

+44 (0) 7712 670 888

Results of General Meeting

RNS Number : 1936U
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Drax is pleased to announce the results of its General Meeting held today, Wednesday 31 March 2021.

No.ResolutionVotes For%Votes Against%Votes Total (not including withheld)Votes Withheld
1.To approve the acquisition of the entire issued share capital of Pinnacle Renewable Energy Inc.318,727,66499.99%20,7440.01%318,748,40895,895

The resolution was passed.

Completion of the acquisition is expected to occur in April 2021, subject to the satisfaction or waiver of the final outstanding conditions.

The number of shares in issue is 411,732,605 (of which 13,841,295 are held in treasury. Treasury shares don’t carry voting rights).

Votes withheld are not a vote in law and have not been counted in the calculation of the votes for and against the resolution, the total votes validly cast or the calculation of the proportion of issued share capital voted.

A copy of the resolution is available for inspection in the Circular, which was previously submitted to the Financial Conduct Authority’s National Storage Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The Circular and the voting results are also available on the Company’s website at www.drax.com/northamerica.

Capitalised terms used but not defined in this announcement have the meanings given to them in the Circular.

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis

+44 (0) 7712 670 888

Publication of Circular and Notice of General Meeting in relation to proposed acquisition of Pinnacle Renewable Energy Inc.

RNS Number : 1426S
Drax Group PLC
(Symbol: DRX)

On 8 February 2021, Drax announced that it had entered into an agreement to purchase Pinnacle Renewable Energy Inc. (the “Acquisition”).

Drax is pleased to announce that a Circular in relation to the Acquisition (the “Circular”) has been published.

The Acquisition is subject to the approval of the shareholders of the Company and, accordingly, the Circular contains a notice convening a general meeting of the Company to be held at Opus Energy House, 8-10 The Lakes, Northampton NN4 7YD, UK at 4:30 pm on 31 March 2021. In light of COVID-19 restrictions and current prohibitions on public gatherings, attendance at the general meeting shall be restricted and therefore shareholders are strongly encouraged to vote electronically or to vote by proxy.

The Company will be accepting shareholders’ questions for the general meeting via the facility on the Company’s website at https://www.drax.com/northamerica/investors/disclaimer-proposed-acquisition-of-pinnacle-renewable-energy-inc-by-drax. The deadline for submitting questions is 5:00pm on 19 March 2021. The Company will look to post answers to questions received on the Company’s website.

The Circular, which has been produced in accordance with the Listing Rules and approved by the Financial Conduct Authority, will shortly be available on the Company’s website at www.drax.com/northamerica. In accordance with Listing Rule 9.6.1, a copy of the Circular has been submitted to the National Storage Mechanism and will be available shortly at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. Printed copies of the Circular will be posted to shareholders who have elected to receive them.

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis

+44 (0) 7712 670 888

Royal Bank of Canada (Financial Adviser, Sponsor and Joint Corporate Broker):

+44 (0) 20 7653 4000

James Agnew Peter Buzzi Mark Rushton Evgeni Jordanov Jonathan Hardy Jack Wood

Important notice

The contents of this announcement have been prepared by and are the sole responsibility of Drax Group plc (the “Company”).

RBC Europe Limited (“RBC”), which is authorised by the Prudential Regulation Authority (the “PRA”) and regulated in the United Kingdom by the Financial Conduct Authority (“FCA”) and the PRA, is acting exclusively for the Company and for no one else in connection with the Acquisition, the content of this announcement and other matters described in this announcement and will not regard any other person as its clients in relation to the Acquisition, the content of this announcement and other matters described in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to its clients nor for providing advice to any other person in relation to the Acquisition, the content of this announcement or any other matters referred to in this announcement.

This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares in the Company or in any entity discussed herein, in any jurisdiction nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract commitment or investment decision in relation thereto nor does it constitute a recommendation regarding the securities of the Company or of any entity discussed herein.

RBC and its affiliates do not accept any responsibility or liability whatsoever and make no representations or warranties, express or implied, in relation to the contents of this announcement, including its accuracy, fairness, sufficient, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the Acquisition and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. RBC and its respective affiliates accordingly disclaim to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise which it might otherwise be found to have in respect of this announcement or any such statement.

Each of the Company, RBC and their respective affiliates expressly disclaim any obligation or undertaking to supplement, amend, update, review or revise any of the forward looking statements made herein, except as required by law.

You are advised to read this announcement and the circular in their entirety for a further discussion of the factors that could affect the Company and its group and/or, following completion, the enlarged group’s future performance. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this announcement may not occur.

Neither the content of the Company’s website (or any other website) nor any website accessible by hyperlinks on the Company’s website (or any other website) is incorporated in, or forms part of, this announcement.