Tag: BECCS (bioenergy with carbon capture and storage)

Building back better by supporting negative emissions technologies

12 October 2020

Carbon capture
CCUS Incubation Unit, Drax Power Station
Rt Hon Rishi Sunak MP, Chancellor of the Exchequer
Rt Hon Alok Sharma MP, Secretary of State for Business, Energy & Industrial Strategy
Rt Hon George Eustice MP, Secretary of State for Environment, Food & Rural Affairs
Rt Hon Grant Shapps MP, Secretary of State for Transport
Rt Hon Michael Gove MP, Chancellor of the Duchy of Lancaster

Dear Chancellor, Secretaries of State,

Building back better by supporting negative emissions technologies

Today our organisations have launched a new coalition with a shared vision: to build back better as part of a sustainable and resilient recovery from Covid-19, by developing pioneering projects that can remove carbon dioxide (CO2) and other pollutants from the atmosphere. Together, we represent hundreds of thousands of workers across some of the UK’s most critical industries, including aviation, energy and farming, each of which contribute billions of pounds each year to the economy.

A growing number of independent experts, including the Committee on Climate Change, Royal Society and Royal Academy of Engineering and the Electricity System Operator, have recognised the crucial role of ‘negative emissions’ or ‘greenhouse gas removal’ technologies in fighting the climate crisis. Whilst we should seek to decarbonise sectors such as aviation, heavy industry and agriculture as far as practically possible, due to technical or commercial barriers it is unlikely we will eliminate their greenhouse gas emissions completely. Negative emissions technologies are critical therefore to balancing out these residual emissions and ensuring we achieve Net Zero in a credible, cost effective and sustainable way.

As well as benefiting the environment, negative emissions technologies and projects can build back a cleaner, greener economy in the wake of Covid-19. The foundations for this are already being laid by our coalition’s members today.

For example:

  • The National Farmers Union has set out a Net Zero vision for the agricultural sector whereby UK farmers harness the ability to capture carbon to create new income streams.
  • The aviation industry through the Sustainable Aviation initiative has identified negative emissions projects, alongside other measures as sustainable jet fuel, as being crucial to greening the industry.
  • In North Yorkshire, Drax is developing plans to combine sustainable biomass with carbon capture technology (BECCS) to create the world’s first carbon negative power station – supporting thousands of jobs in the process.
  • In North East Lincolnshire, Velocys with the support of British Airways is developing the Altalto waste-to-jet fuel project that could produce negative-emission jet fuel once the Humber industrial cluster’s carbon capture and storage infrastructure is established.
  • Finally, Carbon Engineering has announced a partnership with Pale Blue Dot Energy to deploy commercial-scale Direct Air Capture projects in the UK that would remove significant volumes of carbon dioxide from the atmosphere.

With COP26 fast approaching, there is a real and compelling opportunity for the UK Government to demonstrate to the world it is taking a leadership position on negative emissions. Conversely if the UK does not act quickly, it could jeopardise the delivery of projects in the 2020s that can support innovation, learning by doing and the scale-up of negative emissions in the 2030s. It also risks Britain falling behind in the race to scale and commercialise these technologies, with a view to exporting them to other countries around the world to support their own decarbonisation efforts.

We therefore call on this Government, supported by your departments, to pursue the following ‘low regrets’ interventions to support this critical emerging industry:

  1. Adopt a clear, unambiguous commitment to supporting negative emissions in the 2020s and beyond. The last significant reference to negative emissions by Government was in the 2017 Clean Growth Strategy. Between now and the end of the year there is a window of opportunity for the Government to go further, reflecting the changed reality of a Net Zero world and the growing consensus on the need for negative emissions. A clear signal of intent would also give greater confidence to investors and developers in negative emissions projects, in the absence of a long-term strategy.
  2. Develop targeted policies to support viable negative emissions projects in the 2020s. In order to scale up in the 2030s at a pace compatible with the UK’s climate commitments, it is essential that Government works with industry to bring forward early projects in the 2020s that are viable and represent value for money. However, there is no marketplace or regulatory regime in the UK today that incentivises or rewards negative emissions, making financing projects extremely challenging. Dedicated policy frameworks and business models for solutions such as afforestation, BECCS and Direct Air Capture are therefore urgently needed.
  3. Seize the opportunity to make negative emissions a point of emphasis at COP26. The UK has already led the way at a global level by adopting Net Zero as a legally binding target. At COP26, the UK can showcase its further commitment to continuous innovation around the decarbonisation agenda by signposting the early actions it has taken to deploy negative emissions – which other countries will also need to meet their own zero carbon ambitions. This statement would be particularly powerful as it can be credibly supported by several pioneering projects already being undertaken by British businesses and research organisations in this space.

We would welcome the opportunity to meet with each of you to discuss these points in further detail.

Yours,

The Coalition for Negative Emissions

carbon engineering logo carbon removal centre cbi logo
CCSA logo climeworks logo drax logo
energy uk logo heathrow logo iag logo
nfu logo velocys logo

View/download the letter as a PDF. 

Could hydrogen power stations offer flexible electricity for a net zero future?

26 August 2020

Power generation
Pipework in a chemical factory

We’re familiar with using natural gas every day in heating homes, powering boilers and igniting stove tops. But this same natural gas – predominantly methane – is also one of the most important sources of electricity to the UK. In 2019 gas generation accounted for 39% of Great Britain’s electricity mix. But that could soon be changing.

Hydrogen, the super simple, super light element, can be a zero-carbon emissions source of fuel. While we’re used to seeing it in everyday in water (H2O), as a gas it has been tested as an alternative to methane in homes and as a fuel for vehicles.

Could it also replace natural gas in power stations and help keep the lights on?

The need for a new gas

Car arriving at hydrogen gas station

Hydrogen fuel station

Natural gas has been the largest single source of electricity in Great Britain since around 2000 (aside from the period 2012-14 when coal made a resurgence due to high gas prices). The dominance of gas over coal is in part thanks to the abundant supply of it in the North Sea. Along with carbon pricing, domestic supply makes gas much cheaper than coal, and much cleaner, emitting as much as 60% less CO2 than the solid fossil fuel.

Added to this is the ability of gas power stations to start up, change their output and shut down very quickly to meet sudden shifts in electricity demand. This flexibility is helpful to support the growth of weather-dependant renewable sources of power such as wind or solar. The stability gas brings has helped the country decarbonise its power supply rapidly.

Hydrogen, on the other hand, can be an even cleaner fuel as it only releases water vapour and nitrous oxide when combusted in large gas turbines. This means it could offer a low- or zero-carbon, flexible alternative to natural gas that makes use of Great Britain’s existing gas infrastructure. But it’s not as simple as just switching fuels.

Switching gases

Some thermal power stations work by combusting a fuel, such as biomass or coal, in a boiler to generate intense heat that turns water into high-pressure steam which then spins a turbine. Gas turbines, however, are different.

Engineer works on a turbine at Drax Power Station

Instead of heating water into steam, a simple gas turbine blasts a mix of gas, plus air from the surrounding atmosphere, at high pressure into a combustion chamber, where a chemical reaction takes place – oxygen from the air continuously feeding a gas-powered flame. The high-pressure and hot gasses then spin a turbine. The reaction that takes place inside the combustion chamber is dependent on the chemical mix that enters it.

“Natural gas turbines have been tailored and optimised for their working conditions,” explains Richard Armstrong, Drax Lead Engineer.

“Hydrogen is a gas that burns in the same way as natural gas, but it burns at different temperatures, at different speeds and it requires different ratios of oxygen to get the most efficient combustion.”

Switching a power station from natural gas to hydrogen would take significant testing and refining to optimise every aspect of the process and ensure everything is safe. This would no doubt continue over years, subtly developing the engines over time to improve efficiency in a similar way to how natural gas combustion has evolved. But it’s certainly possible.

What may be trickier though is providing the supply of hydrogen necessary to power and balance the country’s electricity system. 

Making hydrogen

Hydrogen is the most abundant element in the universe. But it’s very rare to find it on its own. Because it’s so atomically simple, it’s highly reactive and almost always found naturally bonded to other elements.

Water is the prime example: it’s made up of two hydrogen atoms and one oxygen atom, making it H2O. Hydrogen’s tendency to bond with everything means a pure stream of it, as would be needed in a power station, has to be produced rather than extracted from underground like natural gas.

Hydrogen as a gas at standard temperature and pressure is known by the symbol H2.

A power station would also need a lot more hydrogen than natural gas. By volume it would take three times as much hydrogen to produce the same amount of energy as would be needed with natural gas. However, because it is so light the hydrogen would still have a lower mass.

“A very large supply of hydrogen would be needed, which doesn’t exist in the UK at the moment,” says Rachel Grima, Research & Innovation Engineer at Drax. “So, at the same time as converting a power plant to hydrogen, you’d need to build a facility to produce it alongside it.”

One of the most established ways to produce hydrogen is through a process known as steam methane reforming. This applies high temperatures and pressure to natural gas to break down the methane (which makes up the majority of natural gas) into hydrogen and carbon dioxide (CO2).

The obvious problem with the process is it still emits CO2, meaning carbon capture and storage (CCS) systems are needed if it is to be carbon neutral.

“It’s almost like capturing the CO2 from natural gas before its combusted, rather than post-combustion,” explains Grima. “One of the advantages of this is that the CO2 is at a much higher concentration, which makes it much easier to capture than in flue gas when it is diluted with a lot of nitrogen.”

Using natural gas in the process produces what’s known as ‘grey hydrogen’, adding carbon capture to make the process carbon neutral is known as ‘blue hydrogen’ – but there are ways to make it with renewable energy sources too.

Electrolysis is already an established technology, where an electrical current is used to break water down into hydrogen and oxygen. This ‘green hydrogen’ cuts out the CO2 emissions that come from using natural gas. However, like charging an electric vehicle, the process is only carbon-neutral if the electricity powering it comes from zero carbon sources, such as nuclear, wind and solar.

It’s also possible to produce hydrogen from biomass. By putting biomass under high temperatures and adding a limited amount of oxygen (to prevent the biomass combusting) the biomass can be gasified, meaning it is turned into a mix of hydrogen and CO2. By using a sustainable biomass supply chain where forests absorb the equivalent of the CO2 emitted but where some fossil fuels are used within the supply chain, the process becomes low carbon.

Carbon capture use and storage (CCUS) Incubation Area, Drax Power Station

Carbon capture use and storage (CCUS) Incubation Area, Drax Power Station

CCS can then be added to make it carbon negative overall, meaning more CO2 is captured and stored at forest level and in below-ground carbon storage than is emitted throughout its lifecycle. This form of ‘green hydrogen’ is known as bioenergy with carbon capture and storage (BECCS) hydrogen or negative emissions hydrogen.

There are plenty of options for making hydrogen, but doing it at the scale needed for power generation and ensuring it’s an affordable fuel is the real challenge. Then there is the issue of transporting and working with hydrogen.

“The difficulty is less in converting the UK’s gas power stations and turbines themselves. That’s a hurdle but most turbine manufacturers already in the process of developing solutions for this,” says Armstrong.

“The challenge is establishing a stable and consistent supply of hydrogen and the transmission network to get it to site.”

Working with the lightest known element

Today hydrogen is mainly transported by truck as either a gas or cooled down to minus-253 degrees Celsius, at which point it becomes a liquid (LH2). However, there is plenty of infrastructure already in place around the UK that could make transporting hydrogen significantly more efficient.

“The UK has a very advanced and comprehensive gas grid. A conversion to hydrogen would be more economic if you could repurpose the existing gas infrastructure,” says Hannah Steedman, Innovation Engineer at Drax.

“The most feasible way to feed a power station is through pipelines and a lot of work is underway to determine if the current natural gas network could be used for hydrogen.”

Gas stove

Hydrogen is different to natural gas in that it is a very small and highly reactive molecule,  therefore it needs to be treated differently. For example, parts of the existing gas network are made of steel, a metal which hydrogen reacts with, causing what’s known as hydrogen embrittlement, which can lead to cracks and failures that could potentially allow gas to escape. There are also factors around safety and efficiency to consider.

Like natural gas, hydrogen is also odourless, meaning it would need to have an odourant added to it. Experimentation is underway to find out if mercaptan, the odourant added to natural gas to give it a sulphuric smell, is also compatible with hydrogen.

But for all the challenges that might come with switching to hydrogen, there are huge advantages.

The UK’s gas network – both power generation and domestic – must move away from fossil fuels if it is to stop emitting CO2 into the atmosphere, and for the country to reach net zero by 2050. While the process will not be as simple as switching gases, it creates an opportunity to upgrade the UK’s gas infrastructure – for power, in homes and even as a vehicle fuel.

It won’t happen overnight, but hydrogen is a proven energy fuel source. While it may take time to ramp up production to a scale which can meet demand, at a reasonable cost, transitioning to hydrogen is a chance to future-proof the gas systems that contributes so heavily to the UK’s stable power system.

What are negative emissions?

21 August 2020

Carbon capture
Negative emissions

What are negative emissions?

In order to meet the long-term climate goals laid out in the Paris Agreement, there is a need to not only reduce the emission of harmful greenhouse gases into the air, but actively work to remove the excess carbon dioxide (CO2) currently in the atmosphere, and the CO2 that will continue to be emitted as economies work to decarbonise.

The process of greenhouse gas removal (GGR) or CO2 removal (CDR) from the atmosphere is possible through negative emissions, where more CO2 is taken out than is being put into the atmosphere. Negative emissions can be achieved through a range of nature-based solutions or through man-made technologies designed to remove CO2 at scale.

What nature-based solutions exist to remove CO2 from the atmosphere?

One millennia-old way of achieving negative emissions is forests. Trees absorb carbon when they grow, either converting this to energy and releasing oxygen, or storing it over their lifetime. This makes forests important tools in limiting and potentially reducing the amount of CO2 in the atmosphere. Planting new forests and regenerating forests has a positive effect on the health of the world as a result.

However, this can also go beyond forests on land. Vegetation underwater has the ability to absorb and store CO2, and seagrasses can in fact store up to twice as much carbon as forests on land – an approach to negative emissions called ‘blue carbon’.

Key negative emissions facts

 

Did you know?

Bhutan is the only carbon negative country in the world – its thick forests absorb three times the amount of CO2 the small country emits.

What man-made technologies can deliver negative emissions?

Many scientists and experts agree one of the most promising technologies to achieve negative emissions is bioenergy with carbon capture and storage (BECCS). This approach uses biomass – sourced from sustainably managed forests – to generate electricity. As the forests used to create biomass absorb CO2 while growing, the CO2 released when it is used as fuel is already accounted for, making the whole process low carbon.

By then capturing and storing any CO2 emitted (often in safe underground deposits), the process of electricity generation becomes carbon negative, as more carbon has been removed from the atmosphere than has been added.

Direct air carbon capture and storage (DACCS) is an alternative technological solution in which CO2 is captured directly from the air and then transported to be stored or used. While this could hold huge potential, the technology is currently in its infancy, and requires substantial investment to make it a more widespread practice.

The process of removing CO2 from the atmosphere is known as negative emissions, because more CO2 is being taken out of the atmosphere than added into it.

How much negative emissions are needed?

According to the Intergovernmental Panel on Climate Change, negative emissions technologies could be required to capture 20 billion tonnes of carbon annually to help prevent catastrophic changes in the climate between now and 2050.

Negative emissions fast facts

Go deeper

What is carbon capture usage and storage?

Carbon capture
Carbon capture

What is carbon capture usage and storage?

Carbon capture and storage (CCS) is the process of trapping or collecting carbon emissions from a large-scale source – for example, a power station or factory – and then permanently storing them.

Carbon capture usage and storage (CCUS) is where captured carbon dioxide (CO2) may be used, rather than stored, in other industrial processes or even in the manufacture of consumer products.

How is carbon captured?

Carbon can be captured either pre-combustion, where it is removed from fuels that emit carbon before the fuel is used, or post-combustion, where carbon is captured directly from the gases emitted once a fuel is burned.

Pre-combustion carbon capture involves solid fossil fuels being converted into a mixture of hydrogen and carbon dioxide under heat pressure. The separated CO2 is captured and transported to be stored or used.

Post-combustion carbon capture uses the addition of other materials (such as solvents) to separate the carbon from flue gases produced as a result of the fuel being burned. The isolated carbon is then transported (normally via pipeline) to be stored permanently –  usually deep underground – or used for other purposes.

Carbon capture and storage traps and removes carbon dioxide from large sources and most of that CO2 is not released into the atmosphere.

 What can the carbon be used for?

Once carbon is captured it can be stored permanently or used in a variety of different ways. For example, material including carbon nanofibres and bioplastics can be produced from captured carbon and used in products such as airplanes and bicycles, while several start-ups are developing methods of turning captured CO2 into animal feed.

Captured carbon can even assist in the large-scale production of hydrogen, which could be used as a carbon-neutral source of transport fuel or as an alternative to natural gas in power generation.

Key carbon capture facts

Where can carbon be stored?

Carbon can be stored in geological reserves, commonly naturally occurring underground rock formations such as unused natural gas reservoirs, saline aquifers, or ‘unmineable’ coal beds. The process of storage is referred to as sequestration.

The underground storage process means that the carbon can integrate into the earth through mineral storage, where the gas chemically reacts with the minerals in the rock formations and forms new, solid minerals that ensure it is permanently and safely stored.

Carbon injected into a saline aquifer dissolves into the water and descends to the bottom of the aquifer in a process called dissolution storage.

According to the Global CCS Institute, over 25 million tonnes of carbon captured from the power and industrial sectors was successfully and permanently stored in 2019 across sites in the USA, Norway and Brazil. 

What are the benefits of carbon storage?

CO2 is a greenhouse gas, which traps heat in our atmosphere, and therefore contributes to global warming. By capturing and storing carbon, it is being taken out of the atmosphere, which reduces greenhouse gas levels and helps mitigate the effects of climate change.

Carbon capture fast facts

  • CCUS is an affordable way to lower CO2 emissions – fighting climate change would cost 70% more without carbon capture technologies
  • The largest carbon capture facility in the world is the Petra Nova plant in Texas, which has captured a total of 5 million tonnes of CO2, since opening in 2016
  • Drax Power Station is trialling Europe’s biggest bioenergy carbon capture usage and storage project (BECCS), which could remove and capture more than 16 million tonnes of CO2 a year by the mid 2030s, delivering a huge amount of the negative emissions the UK needs to meet net zero

Go deeper

What is decarbonisation?

Carbon capture
Decarbonisation

What is decarbonisation?

Decarbonisation is the term used for the process of removing or reducing the carbon dioxide (CO2) output of a country’s economy. This is usually done by decreasing the amount of CO2 emitted across the active industries within that economy. 

Why is decarbonisation important?

Currently, a wide range of sectors – industrial, residential and transport – run largely on fossil fuels, which means that their energy comes from the combustion of fuels like coal, oil or gas.

The CO2 emitted from using these fuels acts as a greenhouse gas, trapping in heat and contributing to global warming. By using alternative sources of energy, industries can reduce the amount of CO2 emitted into the atmosphere and can help to slow the effects of climate change.

Key decarbonisation facts

Why target carbon dioxide?

 There are numerous greenhouse gases that contribute to global warming, however CO2 is the most prevalent. As of 2018, carbon levels are the highest they’ve been in 800,000 years.

The Paris Agreement was created to hold nations accountable in their efforts to decrease carbon emissions, with the central goal of ensuring that temperatures don’t rise 2 degrees Celsius above pre-industrial level.

With 195 current signatories, economies have begun to factor in the need for less investment in carbon, with the UK leading the G20 nations in decarbonising its economy in the 21st century.

How is decarbonisation carried out?

There are numerous energy technologies that aim to reduce emissions from industries, as well as those that work towards reducing carbon emissions from the atmosphere.

Decarbonisation has had the most progress in electricity generation because of the growth of renewable sources of power, such as wind turbines, solar panels and coal-to-biomass upgrades, meaning that homes and businesses don’t have to rely on fossil fuels. Other innovations, such as using batteries and allowing homes to generate and share their own power, can also lead to higher rates of decarbonisation. As the electricity itself is made cleaner, it therefore assists electricity users themselves to become cleaner in the process.

Other approaches, such as reforestation or carbon capture and storage, help to pull existing carbon from the air, to neutralise carbon output, or in some cases, help to make electricity generation – and even entire nations – carbon negative.

Alternative power options means that homes and businesses don’t have to rely on traditional carbon fuels.

What is the future of decarbonisation?

For decarbonisation to be more widely adopted as a method for combating climate change, there needs to be structural economical change, according to Deloitte Access Economics. Creating more room for decarbonisation through investing in alternative energies means that “there are a multitude of job-rich, shovel-ready, stimulus opportunities that also unlock long-term value”.

 Decarbonisation fast facts

Go deeper

Button: What is biomass?

 

Half year results for the six months ended 30 June 2020

29 July 2020

Investors
LaSalle BioEnergy (centre) and co-located sawmill (right), Louisiana

RNS Number : 3978U
Drax Group PLC (Symbol: DRX)

Six months ended 30 JuneH1 2020H1 2019
Key financial performance measures
Adjusted EBITDA (£ million) (1)(2)179138
Cash generated from operations (£ million)226229
Net debt (£ million) (3)792924
Interim dividend (pence per share)6.86.4
Adjusted basic earnings per share (pence) (1)10.82
Total financial performance measures
Coal obsolescence charges-224-
Operating (loss) / profit (£ million)-3234
(Loss) / profit before tax (£ million)-614
Basic (loss) / earnings per share (pence)-141

Financial highlights

  • Group Adjusted EBITDA up 30% to £179 million (H1 2019: £138 million)
    • Includes estimated £44 million impact of Covid-19, principally in Customers SME business
    • £34 million of capacity payments (H1 2019: nil) following re-establishment of the Capacity Market
    • Strong biomass performance in both Pellet Production and Generation
  • Strong cash generation and balance sheet
    • £694 million of cash and total committed facilities
    • Extended £125 million ESG CO2 emission-linked facility to 2025
    • DBRS investment grade rating
  • Sustainable and growing dividend
    • Expected full year dividend up 7.5% to 17.1 pence per share (2019: 15.9 pence per share), subject to good operational performance and impact of Covid-19 being in line with current expectations
    • Interim dividend of 6.8 pence per share (H1 2019: 6.4 pence per share) – 40% of full year
Biomass storage dome with conveyor in the foreground, Drax Power Station, North Yorkshire

Biomass storage dome with conveyor in the foreground, Drax Power Station, North Yorkshire [Click to view/download]

Operational highlights

  • Biomass self-supply – 9% reduction in cost, 15% increase in production and improved quality vs. H1 2019
  • Generation – 11% of UK’s renewable electricity, strong operational performance and system support services
  • Customers – lower demand and an increase in bad debt provisions, principally in SME business

Progressing plans to create a long-term future for sustainable biomass

  • Targeting five million tonnes of self-supply at £50/MWh(4) by 2027 from expanded sources of sustainable biomass
    • Plan for $64 million ($35/t, £13/MWh(4)) annual savings on 1.85Mt by 2022 vs. 2018 base
    • Investment in new satellite plants in US Gulf – targeting 20% reduction in pellet cost versus current cost
  • BECCS(5) – developing proven and emerging technology options for large-scale negative emissions
  • End of coal operations – further reduction in CO2 emissions and lower cost operating model for biomass

Outlook

  • Full year Adjusted EBITDA, inclusive of c.£60 million estimated impact of Covid-19, in line with market consensus
  • Evaluating attractive investment options for biomass growth: cost reduction and capacity expansion
  • Strong contracted power sales (2020–2022) 34TWh at £51.4/MWh and high proportion of non-commodity revenues

Will Gardiner, CEO of Drax Group said:

“With these robust half-year results, Drax is delivering for shareholders with an increased dividend while continuing to support our employees, communities and customers during the Covid-19 crisis.

Drax Group CEO Will Gardiner

Drax Group CEO Will Gardiner in the control room at Drax Power Station [Click to view/download]

“As well as generating the flexible, reliable and renewable electricity the UK economy needs, we’re delivering against our strategy to reduce the costs of our sustainable biomass and we’re continuing to make progress pioneering world-leading bioenergy with carbon capture technologies, known as BECCS, to deliver negative emissions and help the UK meet its 2050 net zero carbon target.

“National Grid stated this week that the UK can’t reach net zero by 2050 without negative emissions from bioenergy with carbon capture and storage. BECCS delivers for the environment and also provides an opportunity to create jobs and clean economic growth in the North and around the country.”

Operational review

Pellet Production – capacity expansion, improved quality and reduced cost

  • Adjusted EBITDA up 213% to £25 million (H1 2019: £8 million)
    • Pellet production up 15% to 0.75Mt (H1 2019: 0.65Mt) – impact of adverse weather in H1 2019
    • Cost of production down nine per cent to $154/t(6) (H1 2019: $170/t(6))
    • Reduction in fines (larger particle-sized dust) in each cargo
  • Cost reduction plan – targeting $64 million ($35/t, £13/MWh(4)) annual savings on 1.85Mt by 2022 vs. 2018 base
    • Expect to deliver $27 million of annual savings by end of 2020 – a saving of $18/t vs. 2018
    • Greater use of low-cost fibre, LaSalle (improved rail infrastructure, woodyard and sawmill co-location) and relocation of HQ from Atlanta to Monroe
    • Savings from projects to be delivered in 2020-2022
    • 35Mt capacity expansion (LaSalle, Morehouse and Amite), increased use of low-cost fibre, improved logistics and other operational enhancements
  • $40 million investment in three 40kt satellite plants in US Gulf – commissioning from 2021, potential for up to 0.5Mt
    • Use of Drax infrastructure and sawmill residues – targeting 20% reduction in pellet cost versus current cost
Power lines and pylon above Cruachan Power Station, viewed from Ben Cruachan above

Power lines and pylon above Cruachan Power Station, viewed from Ben Cruachan above [Click to view/download]

Power Generation – flexible, low-carbon and renewable generation

  • Adjusted EBITDA up 45% to £214 million (H1 2019: £148 million)
    • Limited impact from Covid-19 – strong contracted position provided protection from lower demand, reduction in ROC(7) prices offset by increased system support services
    • £34 million of Capacity Market income (H1 2019: nil; £36 million in relation to H1 2019 subsequently recognised in H2 2019 following re-establishment of the Capacity Market)
    • £54 million of Adjusted EBITDA from hydro and gas generation assets (H1 2019: £36 million)
    • System support (Balancing Market, ancillary services and portfolio optimisation) up 8% to £66 million (H1 2019: £61 million)
    • Good commercial availability across the portfolio – 91% (H1 2019: 87%)
  • Covid-19 – business continuity plan in place to ensure safe and uninterrupted operations
  • Biomass generation up 16% to 7.4TWh (H1 2019: 6.4TWh)
    • Strong supply chain (impact of adverse weather in H1 2019) and record CfD availability (Q2 2020 – 99.5%)
  • Pumped storage / hydro – excellent operational and system support performance
  • Gas – excellent operational and system support performance, Damhead Creek planned outage underway
  • Coal – 10% of output in H1 2020 – utilisation of coal stock before end of commercial generation (March 2021)

Customers – managing the impact of Covid-19 on SME business

  • Adjusted EBITDA loss of £37 million (H1 2019: £9 million profit) inclusive of estimated £44 million impact of Covid-19 – reduced demand, MtM loss on pre-purchased power and increase in bad debt, principally in SME business
  • Covid-19 – implemented work from home procedures to allow safe and continuous operations and customer support
  • Good performance in Industrial and Commercial market – new contracts with large water companies providing five-year revenue visibility, while supporting the Group’s flexible, renewable and low-carbon proposition
  • Monitoring and optimisation of portfolio to ensure alignment with strategy

Other financial information

  • Total financial performance measures reflects £108 million MtM gain on derivative contracts, £224 million coal obsolescence charges and £10 million impact (£6 million adjusted impact) from UK Government’s reversal of previously announced corporation tax rate reduction resulting in revaluation of deferred tax asset and increased current tax charge
    • Additional c.£25–£35 million for coal closure costs expected to be reported as exceptional item in H2 2020 when coal consultation process is further advanced
  • Capital investment – continuing to invest in biomass strategy, some delay in investment due to Covid-19
    • H1 2020: £78 million (H1 2019: £60 million)
    • Full year expected investment £190–£210 million (was £230–£250 million), includes 0.35Mt expansion of existing pellet plants and $20 million initial investment in satellite plants ($40 million in total)
  • Net debt of £792 million, including cash and cash equivalents of £482 million (31 December 2019: £404 million)
    • Remain on track for around 2.0x net debt to Adjusted EBITDA by end of 2020

View complete half year report

View analyst presentation

Listen to webcast

View/download main image. Caption: LaSalle BioEnergy (centre) and co-located sawmill (right), Louisiana

Is Formula One on the road to a big clean-up?

26 June 2020

Electrification
London E-Prix is set for July 2021 Credit: Courtesy of Formula E

On the eve of the new F1 season, the motor sport faces an existential dilemma. While the Covid-19 pandemic has inflicted huge uncertainty throughout 2020, environmental concerns continue to question its long-term viability.

The Australian Grand Prix in Melbourne has long been the curtain-raiser to eight months of gas-guzzling, decibel-deafening action on racetracks across the globe, contributing to a carbon footprint of 256,551 tonnes. Due to the season being delayed, the first race will now take place in Austria. But the focus on Australia has been sharpened by the New Year bushfires – visible evidence, say some scientists and environmentalists, of the climate crisis.  This adds fuel to the fiery debate on Formula One’s perceived failure to take its environmental responsibilities seriously.

Koala bear on eucalyptus branch escaping from Australian bushfires in 2019 and 2020.

Significantly, it is not the cars doing 70 laps that generate most of F1’s emissions but the thousands of air miles covered by drivers, their teams, the media and spectators in getting to each race weekend:

Activity% of carbon footprint
🚚 Logistics (road, air and sea freight)45%
🛩 Personnel travel27.7%
🏭 Factories and facilities19.3%
🎤 Events7.3%
🏎 Total F1 car emissions including all race and test mileage0.7%

Carbon footprint of F1 in 2018, not including fans’ transport to races

But is a genuine shift in attitudes about to descend on the circuits of Monaco, Silverstone and Interlagos? Firstly, a raft of countries have announced plans to phase out petrol and diesel-powered engines between 2030 and 2050. This could force the hand of motorsport bosses who have long been accused of talking a good game but failing to act.

The sport recently announced a pledge to become carbon neutral by 2030 and in pursuit of this goal, it is looking to introduce two-stroke engines that run on synthetic fuel by the mid-2020s while current F1 hybrid engines will be replaced by a new specification of power unit from 2025 or 2026.

Max Verstappen, Formula One driver

Max Verstappen, Formula One driver

Currently, under Article 19.4.4 of the FIA’s 2019 technical regulation for F1 a minimum of 5.75% of the fuel must comprise bio‐components. The sport wants to reach 100%, aiming for 10% in 2021 and a gradual subsequent increase.

Such developments could potentially seize upon the opportunities offered by companies pioneering the use of carbon capture, use and storage (CCUS), such as Drax.

One of several ideas discussed to make the sport more sustainable has been capturing carbon that is then mixed with hydrogen from water to form liquid fuel. Such technology is in development and Drax is researching how carbon dioxide (CO2) can be used to produce fuels. Its innovation engineers recently met with Velocys, the fuels technology company, which plans to produce carbon negative fuels in the Humber.

Could F1 go electric?

While greener fuels are the most obvious way forward, there have been calls for alternative forms of energy to be used to power F1 cars. A hydrogen solution could be developed quickly but it would significantly increase the bulkiness and weight of cars. But what about electric?

Formula One race car

“Electric power is attractive, but it’s currently still quite difficult to scale that up,” Pat Symonds, Chief Technical Officer at Formula One, said in an interview. “With any of the technologies on the horizon at the moment an electric truck or an electric aircraft is not a particularly feasible product. So, there is still a case for having liquid hydrocarbon fuels in trucks and in aircraft. However, what we cannot do is carry on digging those out of the ground, we’re going to have to somehow synthesise them and that’s what we want Formula 1 to explore and hopefully to lead.”

Formula E set to challenge F1 dominance

Another driver of change looming larger in Formula One’s rear-view mirror is Formula E. While this fledgling sport’s claim to quieter cars may not appeal to the most hardened of petrol-head F1 fans, its credible narrative of boosting sustainability in each of the 12 cities that host its races is always a potential attraction to new generations of increasingly climate conscious young fans.

Take Formula E’s opening race in Riyadh, Saudi Arabia, the country’s most polluted city. The sport is a beneficiary of the kingdom’s aim to reduce its reliance oil and in the last six years, the Middle Eastern country has invested over $350 billion in renewable energy projects (mainly solar and wind).

Saudi formula e grand prix Credit: Courtesy of Formula E

Saudi Arabia Formula E grand prix. Credit: Courtesy of Formula E

As with all electric cars, there are challenges. Excess heat produced by electric motors is offset by reducing the performance of the car when it is too hot. A series of cooling systems using radiators and fluid in closed loops regulate temperatures to a satisfactory level.

Appealing to fans is critical for the sport’s prosperity. Sustainability credentials are a key strand but Formula E is going beyond that and looking to optimise raceday experience through features such as FanBoost. This is an online voting system where the three drivers voted as fans’ favourites get a five second power boost of 100kj which can provide serious assistance when a car overtakes.

Maybe this is just one innovation that F1 could learn from its much younger counterpart? Perhaps there is also a case for taking the best of what both have to offer – the cities, the cars and the technology – and merging into a single championship. Whatever lies ahead in the future, Formula One is aware of the need to change. It must do if it is to survive.

How do you store CO2 and what happens to it when you do?

22 April 2020

Carbon capture
Sunrise over Saltwick Bay, Whitby, North Yorkshire

The North Sea has long shaped British trade. It’s also been instrumental in how the country is powered, historically providing an abundant source of oil and natural gas. However, this cold fringe off the North Atlantic could also play a vital role in decarbonising the UK’s economy – not because of its full oil and gas reservoirs, but thanks to its empty ones.

In an effort to limit or reduce the amount of carbon dioxide (CO2) in the atmosphere, countries around the world are rushing towards large scale carbon capture usage and storage projects (CCUS). In this process, CO2 is captured from sources, such as energy production and manufacturing, or directly removed from the air, and reused or stored permanently – for example, underground in disused oil and gas reservoirs or other suitable geological formations.

CCUS transport overview graphic

Source: CCS Image Library, Global CCS Institute [Click to view/download]

The International Energy Agency estimates that 100 billion tonnes of CO2 must be stored by 2060 to limit temperature rise to 2 degrees Celsius. Yet the Global CCS Institute reports that, as of 2019, the projects currently in operation or under construction had the capacity to capture and store only 40 million tonnes of CO2 per year.

It’s clear the global capacity for CCUS must accelerate rapidly in the coming decade, but it raises the questions: where can these millions of tonnes of CO2 be stored, and what happens to it once it is?

Where can you store CO2?

The most well-developed approach to storing CO2 is injecting it underground into naturally occurring, porous rock formations such as former natural gas or oil reservoirs, coal beds that can’t be mined, or saline aquifers. These are deep geological formations with deposits of very salty water present in the rock’s pores and most commonly found under the ocean. The North Sea and the area off the US Gulf Coast contain several saline aquifers.

Once CO2 has been captured using CCUS technology, it’s pressurised and turned into a liquid-like form known as ‘supercritical CO2’. From there it’s transported via pipeline and injected into the rocks found in the formations deep below the earth’s surface. This is a process called geological sequestration.

CCUS storage overview graphic

Source: CCS Image Library, Global CCS Institute [Click to view/download]

But while pumping CO2 into the ground is one thing, ensuring it stays there and isn’t released into the atmosphere is another. Fortunately, there are several ways to ensure CO2 is stored safely and securely.

Keeping the lid on CO2 stored underground

Put simply, the most straightforward way underground reservoirs store CO2 is through the solid impermeable rock that typically surrounds them. Once CO2 is injected into a reservoir, it slowly moves upwards through the reservoir until it meets this layer of impermeable rock, which acts like a lid the CO2 cannot pass through. This is what’s referred to as ‘structural storage’ and is the same mechanism that has kept oil and gas locked underground for millions of years.

White chalk stone

White chalk stone

Over time, the CO2 trapped in reservoirs will often begin to chemically react with the minerals of the surrounding rock. The elements bind to create solid, chalky minerals, essentially locking the CO2 into the rock in a process called ‘mineral storage’.

In the case of saline aquifers, as well as structural and mineral storage, the CO2 can dissolve into the salty water in a process called ‘dissolution storage’. Here, the dissolved CO2 slowly descends to the bottom of the aquifer.

In any given reservoir, each (or all) of these processes work to store CO2 indefinitely. And while there remains some possibility of CO2 leakage from a site, research suggests it will be minimal. One study, published in the journal Nature, suggests more than 98% of injected CO2 will remain stored for over 10,000 years.

Storage for the net zero future

In the United States, industrial scale storage is in action in Texas, Wyoming, Oklahoma and Illinois, and there are projects in progress across the United Arab Emirates, Australia, Algeria and Canada. However, there is still a long way to go for CCUS to reach the scale it needed to limit the effects of climate change.

Research has shown that globally, there is an abundance of CO2 storage sites, which could support widespread CCUS adoption. A report compiled by researchers at Imperial College London and E4tech and published by Drax details an estimated 70 billion tonnes of storage capacity in the UK alone. The US, on the other hand, has an estimated storage capacity of 10 trillion tonnes.

It’s clear the capacity for storage is present, it now remains the task of governments and companies to ramp up CCUS projects to begin to reach the scale necessary.  

In the UK, Drax Power Station is piloting bioenergy carbon capture and storage projects (BECCS), which could see it becoming the world’s first negative emissions power station. As part of the Zero Carbon Humber partnership, it could also form a part of the world’s first zero carbon industrial hub in the north of the UK.

Such projects are indicative of the big ambitions CCUS technology could realise – not just decarbonising single sites, but capturing and storing CO2 from entire industries and regions. There is still a way to go to meet that ambition, but it is clear the resources and knowledge necessary to get there are ready to be utilised.

Zero Carbon Humber

Source: Zero Carbon Humber [Click to view/download]

Learn more about carbon capture, usage and storage in our series:

Robust trading and operational performance; 2020 Adjusted EBITDA currently in line with consensus; delivering for all stakeholders

Investors
Drax employee in PPE in front of biomass storage dome

RNS Number : 4161K
Drax Group plc
(“Drax” or the “Company”; Symbol: DRX)

Highlights

  • Robust trading and operational performance in first three months of 2020

  • Strong contracted forward power sales supporting 2020-21 earnings visibility

  • 2020 full year Adjusted EBITDA(1) currently in line with consensus(2) inclusive of £60 million estimated potential impact from Covid-19

  • Principally lower power demand and increased bad debt risk in Customers business

  • Lower ROC(3) recycle prices in Generation, partially offset by system support services

  • Strong balance sheet at 31 March 2020 – net debt: £818 million, available cash and committed cash facilities: £663 million

  • 2019 final dividend of 9.5 pence per share (£37 million) to be paid in respect of 2019 performance, as previously announced – subject to shareholder approval at AGM

  • Strategic focus remains on biomass supply chain expansion and cost reduction

Electricity pylon near Cruachan Power Station, Argyll and Bute

Electricity pylon near Cruachan Power Station, Argyll and Bute [Click to view/download]

Will Gardiner, Drax Group CEO, said:

“With our strong balance sheet, robust trading and operational performance, and resilient sustainable biomass supply chain, Drax is in a strong position to support its employees, business customers and communities during the Covid-19 crisis, while continuing to generate returns for shareholders.

Drax Group CEO Will Gardiner

Drax Group CEO Will Gardiner in the control room at Drax Power Station. Click to view/download.

“As an important part of the UK’s critical national infrastructure, we recognise our responsibility to support the country’s response to Covid-19. We have strong business continuity plans in place and are in close contact with the UK Government. Our dedicated teams across England, Scotland and Wales, supported by our US biomass colleagues and business partners, are working around the clock to generate and supply the flexible, low-carbon and renewable electricity the UK needs, not least to the 250,000 businesses, including care homes, hospitals and schools we supply.

“The Group is also providing support for communities and others affected by Covid-19.

“Nevertheless, it is still early in this pandemic. As Covid-19 continues to develop, we remain vigilant in looking to protect all our stakeholders and will report further if there are significant changes to our outlook for 2020.”

Trading, operational performance and outlook

The trading and operational performance of the Group has been robust in the first three months of 2020.

While the impact of Covid-19 is still unfolding, the Group’s expectations for 2020 Adjusted EBITDA are currently in line with consensus inclusive of an estimated potential impact from Covid-19 of £60 million, principally in relation to its Customers business.

Full year expectations for the Group remain underpinned by good operational availability for the remainder of 2020.

In the Customers business, the consequences of Covid-19 are only now starting to become visible. It is expected to result in reduced demand and a potential increase in bad debt, which represents a major sensitivity, particularly in the SME(4) market. As a result, Drax has significantly increased its expectation of potential customer business failures and higher bad debt.

Assuming the continued impact of Covid-19 throughout 2020, Drax now expects a full year Adjusted EBITDA loss for the Customers business. The Group will closely monitor the impact on the Customers business and update the market accordingly.

In Generation, the Group’s expectations for the full year reflect a reduction in ROC recycle prices resulting from reduced power demand. Drax expects to partially offset this through increased activity in system support services across its generation portfolio.

The performance of the Generation business is dependent on the continuation of biomass deliveries to Drax Power Station. Biomass generation is currently the most material area of activity for the Group and a protracted suspension of the supply chain could lead to lower levels of biomass generation, resulting in a reduction in the Group’s expectations for the full year. At present there has been no impact from Covid-19 and the Group has a good supply of biomass throughout the supply chain, which continues to be robust and functioning well.

Engineer climbs cooling tower at Drax Power Station

Engineer climbs cooling tower at Drax Power Station [Click to view/download]

Generation

During the first three months of 2020 Drax’s generation portfolio performed well with good asset availability and optimisation of generation underpinning a strong financial performance.

The business benefits from a strong forward power sales position through 2022 which, combined with index-linked renewable schemes and capacity payments, provides a high level of earnings visibility, helping to protect the business from the current weakness in UK power prices.

In response to Covid-19, Drax has implemented robust business continuity procedures across its sites to protect employees and contractors and ensure continued operation. In addition to operating strategically important infrastructure, the components of the Group’s UK supply chain are considered key sectors allowing continued operation.

The Group’s biomass supply chain has a high level of operational redundancy designed to mitigate any potential disruption. Drax sources biomass from suppliers across North America and Europe, including the Group’s own facilities in Louisiana and Mississippi. In the UK, Drax utilises dedicated port facilities at Hull, Immingham, Tyne and Liverpool, with a capacity of eleven million tonnes, providing supply chain capacity in excess of the Group’s annual biomass usage of over seven million tonnes.

Sustainable biomass wood pellets destined for Drax Power Station unloaded from the Zheng Zhi bulk carrier at ABP Immingham

Sustainable biomass wood pellets destined for Drax Power Station unloaded from the Zheng Zhi bulk carrier at ABP Immingham [Click to view/download]

Drax Power Station has 300,000 tonnes of biomass storage capacity. Taken together with volumes throughout its supply chain the Group currently has visibility of over one million tonnes of biomass in transit – enough to operate the CfD(5) unit on its own for over four months, subject to managing deliveries to Drax Power Station.

Biomass generation has performed well in the first three months of 2020. Whilst Covid-19 has not had any measurable impact on biomass generation to date, a sustained reduction in electricity demand could result in a reduction in ROC recycle prices in the current compliance period. The Group has adjusted its expectations for the full year but the precise impact will be dependent on the depth and duration of any reduction in demand. Drax expects to partially offset this through increased activity in system support services across its generation portfolio.

Engineer at Cruachan Power Station

Engineer at Cruachan Power Station [Click to view/download]

The Group’s hydro assets have performed well, particularly the pumped storage business, primarily driven by activity in the system support services market. As previously disclosed, Cruachan Pumped Storage Power Station was successful in a tender process run by the system operator to procure inertia and reactive power services. The contract is worth up to c.£5 million per year over six years and is expected to commence during the second quarter of 2020. This was the first tender of its kind and reflects the growing importance of system support services as the generation market becomes increasingly supplied by intermittent renewable power sources. The system operator is expected to conduct further tenders over the coming year.

Thermal generation is performing in line with Drax’s expectations.

Pellet Production

LaSalle BioEnergy wood pellet manufacturing plant in Louisiana

LaSalle BioEnergy wood pellet manufacturing plant in Louisiana [Click to view/download]

Pellet Production has performed well in the first three months of 2020.

At present there has been no disruption to production caused by Covid-19, although the State of Louisiana is experiencing a high number of cases. The semi-automated nature of the pellet production process limits the need for individuals to be in contact with each other and this has been enhanced by robust business continuity procedures to further reduce the risk to employees and contractors.

Drax continues to monitor developments closely and notes that energy, rail, port and forestry are designated key sectors in the USA allowing continued operation.

Customers

The Group’s Customers business, which sells power, gas and energy services to the I&C(6) and SME markets has seen a significant reduction in demand as a result of Covid-19. The Group has been working to assess the potential impact of this demand reduction, the increased risk of business failure and bad debt. The impact is expected to be most pronounced in the SME market, which represents c.30 percent of monthly billing. The impact is expected to be partially mitigated by credit insurance in respect of certain customers.

Balance sheet

At 31 December 2019 Drax had £404 million of cash, which increased to £454 million at 31 March 2020.

The Group’s plan for 2020 included capital investment of £230-£250 million, with half of this assigned to strategic investment in biomass expansion and cost reduction. Whilst the Group continues to see its biomass strategy as both a primary long and short-term source of value, Drax is reviewing the timing of its investment programme in 2020 and in the short-term investment is expected to be lower.

At 31 March 2020 net debt had reduced to £818m million and Drax continues to target around 2 x net debt to EBITDA for the full year.

The Group has available cash and committed facilities of £663 million including a cash line available within a £315 million Revolving Credit Facility (RCF), which is currently undrawn and matures in April 2021. The Group has an ESG facility with final maturity in 2022 and a £350m sterling bond which matures in 2022. The Group has a further $500 million fixed rate USD bond maturing in 2025 and infrastructure private placement loans maturing through 2024-2029.

The Group’s facilities include a maintenance covenant which, if triggered, requires a minimum EBITDA level requirement around 40% of 2020 current consensus Adjusted EBITDA. Customary covenants apply to all other facilities.

The Group’s rolling five-year foreign exchange hedge book continues to provide protection from the recent weakness in sterling to 2025. The Group actively manages risk limits with counterparties providing forward foreign exchange contracts and the current weakness in sterling has led to the rebasing of a number of contracts, resulting in the acceleration of cash flows from these contracts to the benefit of Drax.

Contracted power sales

As at 16 April 2020, the power sales contracted for 2020, 2021 and 2022 were as follows:

202020212022
Power sales (TWh) comprising:16.79.64.3
– Fixed price power sales (TWh) 17.110.14.3
Of which CfD unit (TWh)3.8
At an average achieved price (£ per MWh)53.249.448
– Gas hedges (TWh)-0.4-0.5-
At an achieved price (pence per therm)1.732-

Merchant power prices remain an important part of the Group’s earnings, but by focusing on flexible, renewable and low-carbon generation, which includes index-linked renewable schemes, capacity payments and system support services, the impact of power prices has reduced.

Exposure to merchant power prices by generation asset class

  • Biomass CfD – power produced by this unit is remunerated based on an index-linked strike price and underpinned by a private law contract which runs until March 2027. At baseload the unit is expected to produce over 5TWh per year. The current strike price is c.£116/MWh and taken together with a biomass cost at or below c.£75/MWh gives a margin of over £40/MWh and an annual contribution to gross profit of over £200 million, with daily cash settlement in 30 days
  • Biomass ROC – ROC buyout prices are index-linked and extend to March 2027, acting as a premium on UK power prices. The buyout price for the current compliance period is £50.05 per ROC. Annual generation is in the region of 9-10 TWh, with the associated power sold up to two years forward, providing strong earnings visibility over the period 2020-21
  • Hydro – a small but profitable volume of merchant power generation (144MW) with zero fuel cost
  • Pumped storage – operates in the system support services market and carries little net exposure to merchant power prices
  • Coal – commercial generation will end in March 2021, ahead of which date Drax will utilise its residual coal stock to realise further cash flows
  • Gas – the Group’s mid-merit CCGT(7) assets have power forward sales for 2020. To the extent that gas prices continue to set the price of power, the clean spark spread from these assets is expected to be maintained at or around current levels in future periods
Engineer working in PPE at Rye House Power Station in Hertfordshire

Engineer working in PPE at Rye House Power Station in Hertfordshire [Click to view/download]

Investment in biomass to increase capacity and reduce cost

Biomass sustainability remains at the heart of the Group’s activities and building a long-term future for sustainable biomass remains the Group’s strategic objective. Drax remains focused on reducing biomass costs to a level which makes biomass generation in the UK economically viable when the existing renewable schemes end in 2027.

Innovation engineer looks up at flue gas desulphurisation unit. The massive pipe above him could be used to transport more than 90% of the carbon captured in the BECCS power generation process.

An engineer looks up at flue gas desulphurisation unit (FGD) at Drax Power Station. The massive pipe would transport flue gas from the Drax boilers to the carbon capture and storage (CCS) plant for CO2 removal of between 90-95%. [Click to view/download]

The Group is targeting five million tonnes of self-supply capacity by 2027 (1.5 million today, plus 0.35 million tonnes in development), with greater scope for operational leverage and cost reduction. These savings will be delivered through further optimisation of existing biomass operations, greater utilisation of low-cost wood residues and an expansion of the fuel envelope to incorporate other low-cost renewable fuels across its expanded self-supply chain. Drax remains alert to sector opportunities for organic and inorganic growth.

By 2027 these activities would enable Drax to develop a biomass generation business operating without the current renewable schemes and potentially the development of BECCS(8), subject to the right support from the UK Government. Drax notes the incremental progress and support announced for carbon capture and storage at the UK Government’s Budget in March 2020.

These efforts support the Group’s ambition to become a carbon negative company by 2030.

In addition, the Group is exploring options to service biomass demand in other markets – Europe, North America and Asia.

Capital allocation and dividend

The Group remains committed to its capital allocation policy established in 2017, through which it aims to maintain a strong balance sheet; invest in the core business; pay a sustainable and growing dividend and return surplus capital beyond investment requirements.

A final dividend of 9.5 pence per share in respect of 2019 performance was proposed at the 2019 Full Year Results on 27 February 2020 and, subject to shareholder approval at today’s Annual General Meeting, will be paid on 15 May 2020.

An interim dividend of 6.4 pence per share was paid in October 2019, making the total dividend in relation to 2019 performance 15.9 pence per share.

In determining the continued appropriateness of the dividend, the Board has considered a range of factors – trading performance, current liquidity, the outlook for the year in the context of Covid-19, as well as the steps being taken to support all stakeholders. The Board believes payment of the final dividend remains consistent with the Group’s commitment to stakeholders.

Drax will update on its expectations for the 2020 full year dividend at the 2020 interim results on 29 July 2020.

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 1757 612 491

Media:

Drax External Communications: Ali Lewis

+44 (0) 7712 670 888

Website: www.drax.com

END