Tag: BECCS (bioenergy with carbon capture and storage)

Can the EU lead certification of carbon removals globally?

20 September 2023

Opinion

By Kasia Wilk, Head of Public Affairs and Policy for Europe and Asia, Drax

Key takeaways:

Certification of carbon removals provides a mechanism to verify and ensure the credibility of carbon removal projects and their outcomes
EU’s proposed certification mechanism is first of its kind but does not fully reflect the international dimension of carbon markets: it is unclear how removals outside of the EU and certificates issued outside of the EU will be treated.
Understanding the use case of the certified units is equally important to the success of the regulation. Voluntary markets and corporate claims are essential to support the scale up of the industry. If the EU recognises and handles this challenge it could lead the world in carbon removals certification.
EU climate policies should prioritise support for carbon removal solutions that are technically ready, economically feasible, permanent and have additional co-benefits.
Bioenergy with Carbon Capture and Storage (BECCS) is unique in its ability to deliver renewable power and remove carbon from the atmosphere simultaneously. 
Sustainability of biomass is heavily regulated by the Renewable Energy Directive (RED). It is one of the strictest set of sustainability criteria for forest biomass in the world.

Why do we need carbon removals?

This summer was the warmest month ever recorded, the impact of climate change is being felt here and now. Tackling the causes of global warming is now more pressing than ever. We are currently on track for a 14% rise in greenhouse gas emissions by 2030. This could lead to temperatures increasing by more than double the Paris Climate Agreement’s 1.5 degrees target and bringing about even more extreme weather. Urgent action is needed now to revert this catastrophic trend. It’s increasingly clear that carbon dioxide removal (CDR) will be essential to reach Net Zero by 2050 as these technologies balance out those emissions that are difficult to avoid as well as help companies remove their historic emissions. They do so by capturing carbon dioxide (CO2) that is already in the atmosphere and removing it and storing it permanently. According to the Sixth Assessment Report of the UN’s IPCC, nearly all pathways to Net Zero by 2050 will require a significant scale-up of carbon removals. Carbon removal technologies are developing at pace and can make a significant contribution to tackling climate change. Nevertheless, to get the sector to where it needs to be by mid-century requires the right policies and investment to support deployment.

The EU has already taken a number of steps to support the development of carbon removals. The CCS Directive establishes a regulatory framework for the geological storage of CO2 and the proposal for a Carbon Removal Certification Framework (CRCF) will support the development of a voluntary carbon market which is a cornerstone for the development of CDR.

However, to support the scaling up of the sector it is essential to (1) assess the scale of removals required, (2) define binding EU targets and (3) develop roadmaps for the scale up of carbon removals in Europe. It is also important to coordinate Member State commitments, ensuring their plans for deployment can be realised through greater cooperation.

The importance of certification

Certification of carbon removals is essential for driving technological development and deployment. It provides a mechanism to verify and ensure the credibility of carbon removal projects and their outcomes. We need transparent and robust rules and procedures to ensure that only high-quality removals and removals that would not otherwise have taken place are credited, and to prevent the same activity from being certified twice or using the same certificate twice. This is what the EU proposal for a regulation establishing a Union certification framework for carbon removals aims to do.

The proposed certification mechanism is a world-first and positions the EU as the leader in the field, addressing the need for removals in climate policy and providing a stringent, transparent regulatory oversight on certification. It has the potential to set high-quality criteria, create much needed standards for growing the carbon removal market and address many of the shortcomings that hamper its growth today.

Yet, the scope of the EU certification proposal does not go far enough. It is currently limited to removals within the EU and it is unclear how removals outside of the EU and certificates issued outside of the EU will be treated, despite the important international dimension of climate policy.

The European Commission has said that international carbon markets can play a key role in reducing global greenhouse gas emissions cost-effectively. Although specifics are still under development, the Paris Agreement provides a robust and ambitious basis for the use of international markets and reinforces international targets, transparency and the accountability. Recognising the importance of international carbon markets, Article 6 of the agreement:

allows parties to use international trading of emission allowances to help achieve emissions reduction targets
establishes a framework for common robust accounting rules, and
creates a new, more ambitious market mechanism.

The lack of international consideration in the Commission’s proposals for certifying carbon removals could be challenging in the long run – particularly in light of the foreseen end uses of certified removal units, including their international exchange through voluntary carbon markets.

To mitigate this, the Commission should consider two additional scenarios as part of the discussions on the scope of this voluntary certification framework:

Credits generated outside the EU – EU businesses will still be able to use voluntary markets to purchase credits from projects in other jurisdictions, outside of the EU. These could not be subject to the same high standards, unless they are being given the option to comply with the voluntary framework.
Linking compliance markets – While integration of carbon removals with the Emissions Trading Scheme (ETS) framework will be assessed by the European Commission over the next few years, this proposal should take account of future potential linking of compliance markets. Should removals be fungible in those linked ETS markets, it will be within the EU’s interest to ensure removals outside the EU are subject to the requirements and standards of the EU CRCF.

How to assess and compare the existing CDRs methods?

All carbon removal technologies will have a role to play in tackling climate change. However, they all differ in terms of process, permanence and technological readiness. To reach its Net Zero targets, EU climate policies should prioritise support for carbon removal solutions that are technically ready, economically feasible and permanent. They should take into account additional co-benefits for local communities, power systems and the environment, as well as the potential to be deployed at scale to ensure these technologies can make maximum contribution to the achievement of EU climate goals.

BECCS is one of the best examples of this. When compared to other technologies, BECCS is unique in its ability to deliver renewable power and remove carbon from the atmosphere simultaneously whilst generating thousands of jobs across its value chain.

It is also very well regulated. Sustainability of biomass is already covered by the Renewable Energy Directive (RED). The sustainability criteria for biomass in RED were updated in 2023 and has been formally adopted by the European Parliament. It is one of the strictest set of sustainability criteria for forest biomass in the world. It applies equally to domestic and imported biomass and protects against over-sourcing. It also safeguards biodiversity, ensures forest regeneration and sets strict limits on all supply chain emissions, including transportation. The 2023 revision of the RED (REDIII) specifically took account of the projected growth in biomass demand to 2050, including for BECCS, and amended the sustainability criteria appropriately.

BECCS projects will see carbon capture equipment installed in plants that will also produce power, heat or fuels. In many cases the technology will be retrofitted to existing plants. Regulatory consistency here will be paramount.

The detailed methodologies that will be developed under the certification framework will need to reflect the vast array of existing regulations, such as RED, to support deployment of these technologies, stimulate investment – and ascertain EU climate leadership – supporting domestic technologies/ or technologies in the region.

What are the end uses of certified removals?

Understanding the use case of the certified units is essential to the success of the regulation. The Commission proposal alludes to different end-uses, such as the compilation of national and corporate greenhouse gas inventories, the proof of climate-related corporate claims, or the exchange of verified carbon removal units through voluntary carbon markets.

However, ongoing debates in the European Parliament – including on related files such as the Green Claims Directive – seem to threaten some uses. Banning claims based on offsetting would reduce incentives for companies to take supplementary action outside their value chains and deter the necessary investment going into the sector.

Whilst emissions reductions should remain the absolute priority, carbon removals are essential to meet net zero targets and to address residual emissions and potentially historical emissions. The sector needs to start scaling up now for the EU to reach its climate targets in the coming decades. We cannot afford to wait until 2040 for a compliance market to begin scaling up carbon removals as it will be too late. This is why voluntary markets and claims are critical.

Companies should be incentivized to make some claims now provided they are on track with their GHG emissions reduction targets. At the same time, the EU should ensure consistency with other pieces of legislation such as the Corporate Sustainability Reporting Directive (CSRD) which also covers the use of carbon credits.

Coming back to the international dimension, it will be important in that context to clarify how removals from outside the EU are to be treated on the EU market given the extraterritorial dimension of certain pieces of EU legislation and global nature of supply chains.

Biomass and BECCS are essential in the UK’s journey to Net Zero

10 August 2023

Opinion

The Strategy provides an important steer on the short-, medium- and long-term use of biomass in the UK’s 2050 Net Zero target.

With the Government’s Strategy in hand, I am more certain than ever on two things. First, that there remains a clear and powerful role for biomass and BECCS in helping the UK balance harder to abate sectors, like aviation, and reach Net Zero.

And secondly, that bioenergy with carbon capture and storage (BECCS) has a vital role to play in our global energy transition – and that Drax is well placed to deliver.

Why we should be confident

In developing the Strategy, the Government has considered several factors including: availability of biomass and the priorities for end use; impacts on air quality; the sustainability of biomass use; as well as the role of BECCS in helping to reach our long-term climate goals.

The ‘Priority Use Framework’ evaluates where biomass would be most sustainably and efficiently used across sectors, given supply constraints. This framework is an important tool, which has been developed with four key principles in mind; sustainability; air quality; the circular economy and resource efficiency; and ability to support us getting to Net Zero.

Critically, the Priority Use Framework states that:

In the short-term (2020s) government will continue to facilitate sustainable biomass deployment through a range of incentives and requirements covering power, heat and transport
In the medium-term (to 2035) government intends to further develop biomass use for utilities such as heat and power with a view to where possible transition to BECCS
Biomass for use in BECCS should be prioritised in the long term (to 2050)

It’s very encouraging to see Government recognise the important role that biomass plays in our energy transition in both the short and medium term, as well as its prioritisation of BECCS in the long term.

Although there are various routes for deploying BECCS across different industries, the strategy further prioritises the deployment of BECCS on existing biomass generation plants with established supply chains, further supported by the development of the Power-BECCS business model for the first BECCS projects.

The Strategy is also promising as it presents an evidence-driven basis for long-term policy stability and I believe if the Government continues in this direction, it will draw investment to the UK’s bioenergy industry.

Why this is critical for the country

Biomass has already played an important role in supporting energy security while helping the UK decarbonise, displacing fossil fuels with a source of renewable, dispatchable power. Our work has also made a significant contribution to the UK economy, adding an estimated £1.8 billion to the UK GDP and supporting 17,800 jobs in 2021 alone.

And, looking to the future, BECCS presents an enormous opportunity to the UK.

Early investment in this critical technology has the potential to support energy security, and climate targets whilst creating jobs and making the UK a leader in the potentially trillion-dollar global CDR market.

This work needs to happen now – nearly all realistic pathways to limit warming to 1.5C require the carbon removal technology and renewable power BECCS offers, and expert voices at the UN’s Intergovernmental Panel on Climate Change, the UK’s Climate Change Committee, and Forum for the Future have said that carbon removals will be needed to address the climate crisis.

Today’s Strategy is a clear signal from Government that they recognise the importance of BECCS and the urgency with which we must employ it within the UK.

Why this is encouraging for Drax

Drax is an international, growing, sustainable business at the heart of global efforts to deliver Net Zero and energy security and I believe the Strategy we have seen from Government today is a clear indication of their support for the work that we do.

With BECCS, Drax has the ability to become a global leader in carbon removals technology. We are engaged in formal discussions with the UK Government about the project and, providing these are successful, we plan to invest billions in transforming Drax Power Station into the world’s largest carbon removals project. The prioritisation of BECCS within the Priority Use Framework shows the Government is aligned to this vision.

As we look forward

We welcome the Government’s Biomass Strategy and will continue to unpack what it means for our business over the coming days and weeks with a mind to our next steps.

Government must now ensure that as it progresses its consultation on biomass sustainability that that process is equally evidence-driven and ensures that science-based methods drive the policy forward. We hope to continue to work alongside Government to support these efforts.

Our formal discussions with the UK Government on BECCS and a ‘bridging mechanism’ to support the transition to BECCS have been productive, but to realise the scale of the ambition included in the Government’s Strategy, we need commitment through the delivery of a clear business model that supports BECCS.

Today’s support from Government brings us a big step closer and we look forward to continuing the work.

Will Gardiner
CEO
Drax

Read RNS here.

UK Biomass Strategy – Highly Supportive of Biomass and a Priority Role for BECCS

Financial News

The Strategy outlines the potential extraordinary role which biomass can play across the economy in power, heating and transport, including a priority role for Bioenergy Carbon Capture and Storage (BECCS), which is seen as critical for meeting net zero plans due to its ability to provide large-scale carbon removals.

Will Gardiner, Drax CEO, said:

Will Gardiner, Drax Group CEO

“We welcome the UK Government’s clear support for sustainably sourced biomass and the critical role that BECCS can play in achieving the country’s climate goals.

“The inclusion of BECCS at the top of a priority use framework is a clear signal that the UK wants to be a leader in carbon removals and Drax is ready to deliver on this ambition. We are engaged in formal discussions with the UK Government about the project and, providing these are successful, we plan to invest billions in delivering BECCS at Drax Power Station in North Yorkshire, simultaneously providing reliable, renewable power and carbon removals.

“We look forward to working alongside the Government to ensure biomass is best used to contribute to net zero across the economy, through further progression of plans for BECCS and ensuring an evidence-driven, best practice approach to sustainability.”

A priority role for BECCS

The Strategy reiterates the Government’s ambition to deliver 5Mt pa of carbon removals by 2030, with the potential for this to increase to 23Mt by 2035 and up to 81Mt by 2050, with BECCS expected to provide the majority of the total in 2050.

In the period to 2035 Government intends to facilitate the use of biomass for power and heating, whilst supporting projects transitioning to BECCS. BECCS projects, which includes Drax Power Station, are seen as a priority use of biomass given existing generation assets with established supply chains and Carbon Capture and Storage (CCS) technology ready to be deployed. Beyond 2035 there will remain a role for biomass without BECCS in harder to decarbonise sectors and in supporting energy security.

The Strategy notes the active work in government to support BECCS, including the development of business models.

Biomass availability and sustainability

The Strategy considers the global availability of sustainable biomass, finding that by using domestic and imported biomass sources there is sufficient material to meet estimated future demand in the 6^th Carbon Budget.

Alongside the increased use of sustainable biomass, Government will continue to develop sustainability criteria and Drax supports the development of robust standards across sectors.

A link to the Strategy can be found here.

Scientific assessment of carbon removals from BECCS

Alongside publication of the Strategy, the Government has published an evidence-based assessment of BECCS as a route to negative emissions. The report sets out how “well regulated” BECCS can deliver negative emissions and ensure positive outcomes for people, the environment, and the climate.

BECCS at Drax Power Station

In March 2023, the Government confirmed its commitment to support the deployment of large-scale Power-BECCS projects by 2030 and that the Drax Power Station BECCS project had passed the deliverability assessment for the Power-BECCS project submission process.

Formal bilateral discussions with the Government are ongoing to move the project forward and help realise the Government’s ambition to deliver 5Mt pa of carbon removals by 2030. These discussions include a bridging mechanism between the end of the current renewable schemes in 2027 and the commissioning of BECCS at Drax Power Station.

Drax believes that BECCS at Drax Power Station is the only project in the UK that can enable the Government to achieve this ambition, in addition to the large-scale renewable power and system support services it provides to the UK power system.

In July 2023, the Government designated the Viking CCS cluster as a Track 2 cluster. Progressing a CO₂ transport and storage network in the Humber represents a significant step toward helping the region meet its net zero ambitions and ensuring that it remains a source of high-skilled jobs and energy security for decades to come. Along with the East Coast Cluster, Viking creates an additional potential pathway to support BECCS at Drax Power Station.

The Government has also confirmed that during 2023 it will set out a process for the expansion of its wider CCS programme for individual projects, including BECCS (Track 1 expansion and Track 2).

Enquiries:

Drax Investor Relations:

Mark Strafford
+44 (0) 7730 763 949

Media:

Drax External Communications:

Chris Mostyn
+44 (0) 7548 838 896

Sloan Woods
+44 (0) 7821 665 493

END

Half year results for the six months ended 30 June 2023

27 July 2023

Financial News

^{RNS Number: 3301H}^{Drax Group plc}
^{(“Drax” or the “Group”; Symbol:DRX)}

Six months ended 30 June	2023	2022
Key financial performance measures
Adjusted EBITDA (£ million)⁽¹⁾⁽²⁾(excl. Electricity Generator Levy) (EGL)⁽³⁾	453	225
Adjusted EBITDA (£ million)⁽¹⁾⁽²⁾(incl. EGL)	417	225
Net debt (£ million)⁽⁴⁾	1,274	1,116
Adjusted basic EPS (pence)⁽¹⁾	46.0	20.0
Dividend (pence per share)	9.2	8.4
Total financial performance measures from continuing operations
Operating profit (£ million)	392	207
Profit before tax (£ million)	338	200

Will Gardiner, Drax Group CEO

Will Gardiner, CEO of Drax Group, said:

“In the first half of 2023, we delivered a strong system support and generation performance, providing dispatchable, renewable power for millions of UK homes and businesses. Drax Power Station remained the UK’s single largest provider of renewable energy by output during the period.

“We continue to focus on our role as the UK’s leading generator of flexible renewable power and our ambition to be a world leader in carbon removals. To that end, in the US, we have made good progress screening options for BECCS projects which can deliver long-term, large-scale carbon removal and attractive opportunities for growth.

“We are excited about the opportunity for BECCS in the UK and are in formal discussions with the UK Government to facilitate the transition to BECCS at Drax Power Station by 2030. Our plans could create thousands of new jobs in the Humber region, help the UK meet its carbon removals targets and support long-term energy security.”

Financial highlights – strong financial performance and returns to shareholders

Adjusted EBITDA (excl. EGL) of £453 million up 101% (H1 2022: £225 million)
- Driven by system support services and dispatchable, renewable generation
Strong liquidity and balance sheet – £586 million of cash and committed facilities at 30 June 2023
- Expect Net debt to Adjusted EBITDA (incl. EGL) to be significantly below 2 times target at the end of 2023
Sustainable and growing dividend – expected full year dividend up 10% to 23.1 p/share (2022: 21.0 p/share)
- Interim dividend of 9.2 p/share (H1 2022: 8.4 p/share) – 40% of full year expectation
£150 million share buy-back programme ongoing⁽⁵⁾

2023 outlook

Full year expectations for Adjusted EBITDA and EGL unchanged and in line with analysts’ consensus estimates⁽⁶⁾, inclusive of increased development expenditure on US BECCS
For the remainder of 2023 Drax will present Adjusted EBITDA including and excluding EGL

Progressing options for £7 billion of strategic growth opportunities 2024-2030, primarily BECCS

Ambition for the development of over 20Mt pa of carbon removals – 14Mt pa by 2030
- New-build BECCS – two sites selected in US – targeting c.6Mt pa by 2030
- Evaluating additional sites for greenfield and brownfield BECCS in US
- Drax Power Station – targeting 8Mt pa by 2030
Targeting 8Mt pa of pellet production capacity and 4Mt pa of third-party sales by 2030
Targeting 600MW expansion of Cruachan Pumped Storage Power Station by 2030
- Planning approval granted (July 2023)

UK BECCS

UK BECCS investment paused, subject to further clarity on support for BECCS at Drax Power Station
Formal discussions with UK Government – bridging mechanism between end of current renewable schemes in 2027 and BECCS

Operational review

Pellet Production – production and sales supporting UK generation, and sales to third parties

Adjusted EBITDA £48 million (H1 2022: £45 million)
Integrated supply chain model supports resilience and opportunities in a challenging market
- Producer, user and seller of biomass pellets across multiple international markets
Production of 1.9Mt (H1 2022: 2.0Mt)
- Unplanned outages, wind damage at Port of Baton Rouge and temporary suspension of production at one site due to wildfires, partially offset by production at the Demopolis plant
- Ongoing disruption in H2 from wildfires and industrial action by Canadian transport workers in July
Increase in production cost (maintenance, labour, transport, energy and fibre costs) offset by revenue growth
Progressing development of new Longview pellet plant and Aliceville expansion
- Investment of c.$300 million, operational 2025, 0.6Mt of new capacity
Third-party sales – heads of terms agreed for sale of 0.5Mt of biomass over five years to a Japanese customer

Generation – renewable generation and system support services

UK’s largest source of renewable power by output, primarily biomass generation at Drax Power Station
- 9% of annualised UK renewables⁽⁷⁾
Adjusted EBITDA (excl. EGL) £457 million up 123% (H1 2022: £205 million)
- Adjusted EBITDA (incl. EGL) £421 million up 106% (H1 2022: £205 million, £nil EGL)
Biomass generation – strong system support and renewable generation performance
- Period-on-period reduction in generation
  - Maintenance – first major planned outage completed, second major planned outage in H2 2023 and forced outage on one unit due to a transformer issue – unit back in service
- Higher achieved power price and value from system support
- Higher biomass costs
Pumped storage and hydro – strong system support and generation performance
- £154 million Adjusted EBITDA (excl. EGL) (H1 2022: £53 million)
- Includes forward sale of peak power (winter 2022)
- Increased level of wind capacity, intermittency and volatility underpin long-term need for dispatchable generation
Coal – no generation in 2023 – currently decommissioning following formal closure (March 2023)
As at 21 July 2023, Drax had 28.1TWh of power hedged between 2023 and 2025 on its ROC, pumped storage and hydro generation assets at an average price of £150.0/MWh⁽⁸⁾
- Excludes sales under the CfD mechanism, which remains available subject to good ROC unit operational performance and market conditions

Contracted power sales 21 July 2023	2023	2024	2025

Net ROC, hydro and gas (TWh^(8/9/10))	11.7	11.2	5.2
Average achieved £ per MWh	162.7	147.5	126.2

Lower expected level of ROC generation in 2023 due to major planned outages on two units

Customers – renewable power sales to high-quality Industrial & Commercial (I&C) customers

Adjusted EBITDA of £37 million (H1 2022: £24 million) reflects continued improvement in I&C portfolio
- 8.0TWh of power sales to I&C customers – c.16% increase compared to H1 2022 (6.9TWh)

Other financial information

Adjusted EBITDA and EGL

Accrued costs for EGL for the first time in H1 2023 and reported EGL within Adjusted EBITDA
- H1 charge of £35 million
- H2 charge expected to increase significantly reflecting higher achieved power price in H2
For the remainder of 2023 Drax will present Adjusted EBITDA including and excluding EGL

Profits

Total operating profit of £392 million (H1 2022: £207 million), including £85 million mark-to-market gain on derivative contracts
Total profit after tax of £247 million (H1 2022: £148 million profit after tax, including an £8 million non-cash charge from revaluing deferred tax balances) includes an increase in the headline rate of corporation tax in the UK from 19% to 25% from 1 April 2023
Depreciation and amortisation of £109 million (H1 2022: £121 million)

Capital investment

Capital investment of £210 million (H1 2022: £60 million) – primarily maintenance and development of OCGTs
2023 expected capital investment of £520-580 million
- Includes £120-140 million maintenance, including two major planned outages on biomass units; £30 million enhancements; £340-380 million strategic, including OCGT and pellet plant developments
- OCGTs – c.900MW – three new-build sites in England and Wales, commissioning in 2024 – continuing to evaluate options for these projects, including their potential sale
- Reduction in expected annual investment due to pause in investment in UK BECCS

Cash and interest

Group cost of debt c.4.6%
Cash generated from operations £404 million (H1 2022: £185 million)
Net debt of £1,274 million (31 December 2022: £1,206 million), including cash and cash equivalents of £125 million (31 December 2022: £238 million)

Capital allocation policy – unchanged

Continue to assess capital requirements in line with the current policy
- Considerations include the timing of capital deployment, leverage profile, any dilution from share issuance and divestment of non-core assets

Progressing Global BECCS opportunities

23 May 2023

Financial News

^{RNS Number : 2686A}
^{Drax Group plc}
^{(“Drax” or the “Group”; Symbol:DRX)}

Ambition for the development of over 20Mt of carbon removals – 14Mt pa by 2030

New-build BECCS – two sites selected in US – targeting c.6Mt pa by 2030
Evaluating nine additional sites in US for greenfield and brownfield BECCS
Option for CCS on a pellet plant – targeting FID in 2024/25, commissioning in 2026
Targeting 8Mt pa at Drax Power Station by 2030
Establishing HQ for Global BECCS in Houston, Texas

Progress on Global BECCS commercial arrangements

MoU with Respira for sale of up to 2Mt of Carbon Dioxide Removal (CDR) certificates
Other MoUs agreed for sale of CDRs – c.$300/t on small volumes
MoUs agreed with leading forestry and Transportation and Storage (T&S) companies

Attractive portfolio of investment opportunities

£7bn of strategic growth opportunities between 2024 and 2030
- 14Mt pa of carbon removals from BECCS, pellet production and pumped storage hydro
Targeting returns significantly in excess of the Group’s cost of capital

2023 outlook

Expectations for Adjusted EBITDA⁽¹⁾ remain in line with analysts’ consensus estimates⁽²⁾

Drax Group CEO, Will Gardiner said:

Will Gardiner, Drax Group CEO

“The world’s leading climate scientists at the UN’s IPCC are clear – the planet cannot solve the climate crisis without the combination of reliable, renewable electricity and carbon removal technologies.

“Drax is a growing and sustainable, international business providing flexible, renewable energy and carbon removals solutions, via BECCS, which put us at the heart of global efforts to deliver net zero and energy security.

“Our plans to invest billions in critical renewable energy and carbon removal technologies will help to tackle the climate crisis and could create thousands of jobs whilst generating secure, renewable power. This investment is underpinned by our strong operational performance.”

Capital Markets Day

Drax is today hosting a Capital Markets Day for investors and analysts.

Will Gardiner and members of his leadership team will update on the Group’s strategy, market opportunities and development projects, including the progress Drax is making in the development of BECCS in North America and the opportunities this represents for the Group.

Purpose and ambition

The Group’s purpose is to enable a zero carbon, lower cost energy future and its ambition is to be a carbon negative company by 2030. The Group aims to realise its purpose and ambition through three strategic pillars, which are closely aligned with global energy policies that increasingly recognise the role that biomass can play in the fight against climate change.

The Group’s three strategic pillars remain (1) to be a global leader in carbon removals, (2) to be a global leader in sustainable biomass pellets, and (3) to be a UK leader in dispatchable, renewable generation.

Global need for carbon removals

Research by the Intergovernmental Panel on Climate Change (IPCC)⁽³⁾, the world’s leading authority on climate science, states that CDR methods, including BECCS, are needed to mitigate residual emissions and keep the world on a pathway to limit global warming to 1.5^oC.

All of the illustrative mitigation pathways assessed in the IPCC’s latest report use significant volumes of carbon removals, including BECCS, as a key tool for mitigating climate change. The IPCC believes that globally up to 9.5 billion tonnes of CDRs via BECCS will be required per year by 2050.

In the USA, the supportive investment environment created by the Inflation Reduction Act is stimulating action and robust pricing for CDRs.

BECCS – North America

Over the past two years, Drax has been progressing a number of work streams to develop its options for BECCS, with a primary focus on North America.

Drax has continued to develop plans for a new-build BECCS power unit capable of producing c.2TWh of renewable electricity from sustainable biomass and capturing c.3Mt of carbon per year. Two initial sites in the US South have been selected and are progressing to option, although the precise details remain commercially sensitive. The two sites combined could enable the capture of c.6Mt of carbon per year by 2030.

Total investment would be in the region of $2 billion per plant with a target FID in 2026 and commercial operation by 2030. The capital cost reflects the construction of new-build power generation as well as carbon capture and storage (CCS) systems.

The design of new-build BECCS enables a wider choice of biomass materials, including non-pelletised material, such as woodchips. Drax aims to locate new plants in regions which are closer to sources of sustainable biomass and T&S systems to permanently store CO₂. This is expected to significantly reduce the operating cost of new-build BECCS compared to retrofit, as well as carbon emissions in the supply chain.

The Group is continuing to evaluate nine further sites in North America, creating a pipeline of development opportunities into the 2030s.

Commercial arrangements

The commercial model for US BECCS includes Power Purchase Agreements, long-term CDR offtake agreements and a direct pay tax incentive under the Inflation Reduction Act of $85/tonne.

Drax believes that the role of high-quality, permanent removals, such as BECCS and Direct Air Capture, will grow significantly as governments and companies take action to address their own carbon footprints. In September 2022, Drax announced a Memorandum of Understanding (MoU) for one of the world’s biggest carbon removals deal with Respira, a carbon broker. Under the terms of the MoU, Respira will be able to purchase up to 2Mt of CDRs over a five-year period from Drax’s North American BECCS projects.

Drax has also agreed MoUs with C-Zero, a carbon broker, for the sale of CDRs at c.$300/tonne.

Resourcing

To support the development of its BECCS projects in North America, Drax has hired 80 employees across the US and Canada and is in the process of establishing a Global BECCS headquarters in Houston, Texas, which will provide access to the highly skilled workforce needed to support the growth of this part of the Group.

Other developments

In addition to new-build BECCS, Drax is currently developing an option for a project to add a carbon capture process to an existing pellet plant in Louisiana. The project would have the capacity to capture over 100k tonnes of CO₂ per year from the pelleting process, providing an early demonstration of the technology and creating CDRs which can help to stimulate this nascent market. The project, which has a capital cost in the region of $150 million, is targeting FID in 2024/25 and commissioning in 2026.

The Group is also assessing options for BECCS on existing non-Drax assets and is continuing to screen other regions, including Europe and Australasia.

Capital allocation

The Group has previously outlined a fully funded plan to invest c.£3 billion in two BECCS units at Drax Power Station, pellet production and pumped storage hydro.

Today, the Group expands on this plan to include two new-build BECCS plants and CCS on a pellet plant, increasing the total potential investment to c.£7 billion between 2024 and 2030.

Any final investment decisions will be subject to the achievement of project milestones, including further progress on commercial arrangements as well as clarity on regulatory and funding mechanisms.

Reflecting strong expected cash generation from existing assets and new investments, Drax can fully fund the £7bn of opportunities and return to net debt to Adjusted EBITDA below 2x by the end of 2031. Drax will also continue to assess a wider range of funding options, including project finance.

The Group remains committed to its capital allocation policy, which was established in 2017, and has delivered average annual dividend per share growth of around 11%.

The Group has commenced a £150 million share buyback programme, which is expected to complete by the end of 2023. The programme is not expected to have any impact on the Group’s medium and long-term growth plans and, beyond the current buyback programme, will continue to assess its capital requirements in line with the current policy, including the return of excess capital to shareholders.

Outlook

The Group’s outlook for 2023, as set out in its recent Trading Update, remains unchanged and provides a strong platform for long-term investment and returns to shareholders.

Drax continues to expect full year Adjusted EBITDA⁽¹⁾ for 2023 to be in line with analysts’ consensus estimates⁽²⁾, subject to continued good operational performance.

Webcast and presentation material

The event will be webcast from 2pm (UK) and the material made available on the Group’s website at that time. Joining instructions for the webcast and presentation are included in the links below.

https://secure.emincote.com/client/drax/drax025
https://www.drax.com/investors/announcements-events-reports/presentations/

Notes:

[1] Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements. Excludes the Electricity Generator Levy, which is currently presented as a tax and reflected in EPS.

[2] As of 18 May 2023, analyst consensus for 2023 Adjusted EBITDA was £1,162 million, with a range of £1,100 – 1,200 million. The details of this company collected consensus are displayed on the Group’s website. Excludes the Electricity Generator Levy, which is currently presented as a tax and reflected in EPS.

[3] IPCC Sixth Assessment Report, Working Group III (2022).

https://www.drax.com/wp-content/uploads/2023/05/Company-Collected-Consensus-May-2023.pdf

Enquiries:

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

Media:

Drax External Communications: Chris Mostyn
+44 (0) 7548 838 896

Drax enters formal discussions with UK Government on large-scale Power BECCS

30 March 2023

Financial News

Drax has been invited to enter formal bilateral discussions with the Government immediately, to move the project forward and ensure the Government is able to fulfil its restated commitment to achieving 5Mtpa of engineered Greenhouse Gas Removals (GGRs) by 2030. Drax believes that BECCS at Drax Power Station is the only project that can enable the Government to achieve this goal⁽¹⁾. The Government has also committed to publish its biomass strategy by the end of June 2023 which will set out how the technology could be deployed.

During 2022 carbon removal projects, including Power BECCS, were progressed in parallel with the Track 1 process for gas, hydrogen and industrial CCS projects. While Power BECCS and other shortlisted projects are not included in the immediate Track 1 process, the Government has confirmed that in 2023 it will set out a process for the expansion of Track 1 and has today launched Track 2. BECCS is eligible for both.

Separately, the Government has stated that it will work closely with electricity generators currently using biomass to facilitate a transition to Power BECCS.

The Government has also confirmed that its response to the Power BECCS business model consultation, which took place in 2022, will be published imminently, providing further clarity on the delivery of BECCS as soon as possible.

Drax Group CEO, Will Gardiner said:

“Delivery of BECCS at Drax Power Station will help the UK achieve its net zero targets, create thousands of jobs across the north and help ensure the UK’s long-term energy security.

“We note confirmation that our project has met the Government’s deliverability criteria and Government remains committed to achieve 5Mtpa of engineered Greenhouse Gas Removals by 2030 – a goal that cannot be achieved without BECCS at Drax Power Station. We will immediately enter into formal discussions with Government to take our project forward.

“With the right engagement from Government and swift decision making, Drax stands ready to progress our £2bn investment programme and deliver this critical project for the UK by 2030.”

The Government recognises the important role which BECCS will play in delivering net zero and aims to deploy 5Mt of engineered CO₂ removals per annum from BECCS and other engineered GGR technologies by 2030, rising to 23Mt in 2035 and up to 81Mt in 2050 to keep the UK on a pathway to meet its legislated climate targets, The Sixth Carbon Budget and net zero.

Drax Power Station is the UK’s largest single source of renewable electricity and BECCS is the only technology that can produce reliable renewable power, provide system support services and permanently remove CO₂ at scale.

Coal closure

Drax continues to expect to close its two legacy coal units at the end of March 2023.

Notes

(1) In its Energy White Paper, Government noted that biomass is unique amongst renewable technologies in the wide array of applications in which it can be used as a substitute for fossil-fuel based products and activities, along with its ability to deliver permanent carbon removals.

Government recognises that biomass is one of the UKs most valuable tools for reaching net zero emissions while maintaining energy security.

Biomass is the only large-scale source of dispatchable, renewable electricity and Drax power station in Yorkshire is the largest provider of secure supply in the UK’s electricity system. Its renewable biomass generation provides 2.6GW of electricity, representing 4% of the UK’s dispatchable capacity and supplies millions of homes and businesses with dispatchable, reliable power.

The project at Drax Power Station is expected to be the world’s biggest engineered carbon removal project, permanently removing 8Mt of CO₂ from the atmosphere every year by 2030.

The project would see the addition of post combustion carbon capture to two of the existing biomass units, using sustainable biomass and technology from Drax’s technology partner, Mitsubishi Heavy Industries. Captured CO₂ would be transported and permanently stored by the Group’s partners in the East Coast Cluster.

Vivid Economics concluded that it could deliver £370 million of economic benefit for the UK during construction, creating and supporting more than 10,000 jobs during peak construction.

Recent Baringa research also demonstrates that Drax is the UK’s largest source of energy security and will continue to play a vital role in the UK security of supply in to the late 2020s.

Drax aims to source 80% of materials and services for the project from British businesses and is also working with British Steel to explore opportunities for its UK production facilities to supply a proportion of the steel needed for BECCS.

A link to the Government’s announcement can be found here.

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications: Chris Mostyn

+44 (0) 7548 838 896