Tag: investors

Strong performance in Q1 2022, continuing to play an important role in energy security and global decarbonisation

27 April 2022

Investors

RNS Number : 4455J
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Trading and Operational Highlights

  • Strong system support performance during the first three months of 2022
  • Increase in value of contracted power prices 2022 – 2024
  • >99% of generation from renewables – sustainable biomass, hydro and pumped storage
  • 400Kt of new biomass pellet production capacity commissioned in US southeast

Financial Highlights

  • 2022 Adjusted EBITDA(1) – around the top end of current range of analyst expectations(2)
    • Expect to be significantly below 2x net debt to Adjusted EBITDA by the end of 2022
  • Final dividend of 11.3 pence to be paid subject to shareholder approval at today’s AGM
    • Total dividend for 2021 – 18.8 pence per share (2020: 17.1 pence per share)

Drax CEO, Will Gardiner [click to view/download]

Drax CEO Will Gardiner said:

“In the first quarter of 2022 we delivered a strong system support performance as our reliable, renewable electricity continued to support UK energy security and helped to keep the lights on for millions of British homes and businesses.

“We advanced our strategy to increase biomass pellet production, with another 400Kt of capacity commissioned from two new pellet plants in the US. We also progressed the engineering design work for our UK BECCS project, which will deliver negative emissions for the UK and pioneer BECCS technology at scale. BECCS is a vital carbon removals technology that the UN’s IPCC says is needed globally to achieve net zero.

“With the right government support, Drax is ready to invest £3bn this decade in delivering vital renewable energy technologies including BECCS, a carbon removal technology that is cost-effective but also the only one that generates reliable, renewable electricity while removing millions of tonnes of CO2 from the atmosphere.”

Pellet Production

In April 2022, the Group completed the commissioning of its 360Kt plant at Demopolis, Alabama and its 40Kt satellite plant in Leola, Arkansas. The Group is also currently constructing a second 40Kt satellite plant at Russellville, Arkansas, allowing greater utilisation of lower cost sawmill residues whilst leveraging on existing infrastructure in the US southeast.

Leola satellite plant under construction [February 2022]

Once at full capacity these developments, alongside incremental capacity expansions at existing sites, will increase nameplate production capacity to around 5Mt p.a. Over 2Mt p.a. of production is contracted to high-quality third-parties under long-term contracts, with the balance available to Drax to fulfil its own-use requirements.

Strong demand for forest products in construction and manufacturing markets continues to support good fibre residue availability with no material change in fibre cost. Drax notes an incremental increase in transportation costs in North America principally related to truck driver shortages and haulage costs.

The Group continues to target a Final Investment Decision (FID) on up to 1Mt of new capacity in 2022 as part of its plans to increase total pellet production capacity to 8Mt by 2030.

Generation

In the UK, the Group’s biomass, hydro and pumped storage assets have continued to play an important role in security of supply, providing stability to the UK power system at a time when higher gas prices and interconnector availability have placed the system under increased pressure.

To maximise renewable output at times of high demand, the Group is continuing to optimise biomass generation across all four biomass units at Drax Power Station, contributing to an increase in average achieved power prices.

The current power price environment increases the importance of appropriate investment to ensure good operational performance and availability, and, in March and April 2022, two biomass units underwent planned maintenance outages. The unit’s contracted positions in this period were bought back and the generation reprofiled, with no net change in output over the ROC compliance period.

Drax’s two legacy coal units were called into the Balancing Mechanism by the system operator in January for limited operations to support security of supply. These short-term measures helped to stabilise the power system during periods of system stress and did not result in any material increase in the Group’s total carbon emissions.

Drax continues to expect to formally close these two legacy coal units following the fulfilment of their Capacity Market obligations in September 2022 but remains committed to supporting security of supply in the UK. Drax has recently been asked by the UK Government to consider options for a limited extension of its coal operations and this remains under review.

Generation contracted power sales

The Group has continued to add to its forward power sales book. As at 22 April 2022, Drax had 22.2TWh of power hedged between 2022 and 2024 on its ROC and hydro generation assets at an average price of £78.1/MWh.

A further 1.8TWh equivalent of gas hedges have been contracted in 2023 and 2024 for the purpose of accessing additional liquidity for forward power sales from the ROC units. These contracts are highly correlated to forward power prices.

Due to the optimisation of biomass generation in 2022, to support increased generation at times of high demand, CfD output will be lower than historic average, with ROC unit output higher.

Contracted power sales 22 April 2022202220232024
ROC (TWh(3))11.17.73.1
- Average achieved £ per MWh74.979.084.0
Hydro (TWh)0.20.1-
- Average achieved £ per MWh107.0173.1-
Gas hedges (TWh equivalent)(4)-0.51.3
Pence per therm-108.4118.5
CfD(3/5) typical annual output c.5TWh and current strike price £126.4/MWh

Since the Group’s last update on 24 February 2022, incremental power sales from the ROC units total 1.8TWh across 2022, 2023 and 2024.

War in Ukraine

Cooling towers at Drax Power Station light up to show support for Ukraine [March 2022]

Drax previously sourced a small volume of Russian and Belarussian biomass, which it has now removed from its supply chain. The biomass that Drax uses comes from stable, sustainable markets in North America and Europe and is sourced under long-term fixed formula contracts.

The removal of Russian biomass cargoes from European supply chains has led to higher prices and lower availability in the small European spot market, adding incremental costs and limiting the potential to source additional cargoes to support incrementally higher levels of generation in 2022.

Full year expectations

Reflecting these factors, the Group now expects that full year Adjusted EBITDA for 2022 will be around the top of the range of analyst expectations, subject to continued good operational performance.

Reflecting the improved outlook for Adjusted EBITDA the Group expects net debt to Adjusted EBITDA to be significantly below 2x by the end of 2022.

Bioenergy Carbon Capture and Storage (BECCS)

During 2022 Drax is investing incremental capital expenditure and development expenditure into BECCS, including continuing a Front-End Engineering Design study at Drax Power Station.

Drax continues to expect to take a FID in 2024 and expects the UK Government to set out the process for selection and support for individual BECCS projects, such as BECCS at Drax Power Station, during 2022.

The development of BECCS in the UK is supported by the Group’s plans to invest in the expansion of its biomass pellet production to deliver security of supply for the biomass volumes required for BECCS, which are expected to be underpinned by long-term contracts reflecting the market price of biomass.

The Group is also continuing to develop options to deliver 4Mt of negative CO2 emissions each year from new-build BECCS outside of the UK by 2030 and is currently developing models for North American and European markets.

Other

The Group is continuing to assess operational and strategic solutions to support the development of its SME(6) supply business.

In March 2022, Drax signed a development agreement with EPC contractor Mytilineos for the development of three Open Cycle Gas Turbine (OCGT) developments.

At the full year results in February 2022 Drax noted it would invest up to £100 million in 2022 to fulfil obligations under the Capacity Market agreements, but was continuing to evaluate options for its OCGT developments, including their sale. Drax expects that any capital invested in 2022 will be recovered in the event of a sale.

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

Full year results for the twelve months ended 31 December 2021

24 February 2022

Investors

RNS Number : 6410C
Drax Group PLC
24 February 2022

Twelve months ended 31 December20212020
Key financial performance measures
Adjusted EBITDA (£ million) (1)(2)398412
Continuing operations378366
Discontinued operations – gas generation2046
Net debt (£ million) (3)1,044776
Adjusted basic EPS (pence) (1)26.529.6
Total dividend (pence per share)18.817.1
Total financial performance measures from continuing operations
Operating profit / (loss) (£ million)197(156)
Profit / (loss) before tax (£ million)122(235)

Will Gardiner, CEO of Drax Group, said:

Drax Group CEO Will Gardiner

Drax Group CEO Will Gardiner

“2021 was a transformational year for Drax as we became the world’s leading sustainable biomass generation and supply company, whilst continuing to invest in delivering positive outcomes for the climate, nature and people.

“Over the past ten years Drax has invested over £2 billion in renewable energy and has plans to invest a further £3 billion this decade, supporting the global transition to a low-carbon economy. Our investment has reduced our emissions from power generation by over 95% and we are the UK’s largest producer of renewable power by output. We are proud to be one of the lowest carbon intensity power generators in Europe – a significant transformation from being the largest coal power station in Western Europe.

“We have significantly advanced our plans for bioenergy with carbon capture and storage (BECCS) in the UK and globally. By 2030 we aim to deliver 12 million tonnes of negative emissions and lead the world in providing a critical technology which scientists agree is key to delivering the global transition to net zero.”

Financial highlights

  • Adjusted EBITDA £398 million (2020: £412 million)
  • Strong liquidity and balance sheet – £549 million of cash and committed facilities at 31 December 2021
    • Expect to be below 2x net debt to Adjusted EBITDA by the end of 2022
  • Total dividend – 10% increase to 18.8 pence per share (2020: 17.1 pence per share)
    • Proposed final dividend of 11.3 pence per share (2020: 10.3 pence per share)

Strategic highlights

  • Acquisition of Pinnacle Renewable Energy Inc. for C$385 million (£222 million) (enterprise value of C$796 million)
  • Sale of Combined Cycle Gas Turbine (CCGT) generation assets for £186 million
  • Development of the world’s leading sustainable biomass generation and supply company
    • Supply – 17 pellet plants and developments across three major fibre baskets, production capacity of c.5Mt pa
    • 22Mt (c.$4.5 billion) of long-term contracted sales to high-quality customers in Asia and Europe
    • 14Mt of own-use sales through 2026
    • Generation – 2.6GW of biomass generation – UK’s largest source of renewable power by output
  • Development of BECCS in UK
    • East Coast Cluster – selected as one of two priority carbon capture and storage clusters
    • Government – BECCS included in Net Zero Strategy and Interim Bioenergy Strategy
    • Drax Power Station – planning application started, technology partner selected and FEED study commenced

Strategic outlook – growth plans aligned with global low-carbon growth

  • To be a global leader in sustainable biomass
    • Targeting 8Mt pa of production capacity and 4Mt pa of biomass sales to third parties by 2030
  • To be a global leader in negative emissions
    • Targeting 12Mt pa of negative CO2 – UK and international BECCS
  • To be a UK leader in dispatchable, renewable generation
    • Key system support role for biomass and expansion of Cruachan Pumped Storage Power Station
  • All underpinned by continued focus on safety, sustainability and biomass cost reduction
  • Investments totalling £3bn in period to 2030, fully funded through cash generation
    • Pellet production, UK BECCS and Cruachan expansion

Future positive – people, nature, climate

  • CO2 – >95% reduction in generation emissions since 2012 – sale of CCGT generation assets and end of commercial coal in March 2021 and closure in September 2022 following fulfilment of Capacity Market agreements
  • Sustainable biomass sourcing
    • Science-based sustainability policy compliant with current UK and EU law on sustainable biomass
    • Biomass produced using sawmill and forest residuals, and low-grade roundwood, which often have few alternative markets and would otherwise be landfilled, burned or left to rot, releasing CO2 and other GHGs
    • Significant increase in sawmill residues used by Drax to produce pellets – 57% of total fibre (2020: 21%)
    • 100% of woody biomass produced by Drax verified against SBP, SFI, FSC®(4) or PEFC Chain of Custody certification with third-party supplier compliance primarily via SBP certification
    • Glasgow Declaration launched at COP26 to establish a world-wide industry standard on biomass sustainability
  • People – Diversity, Equity and Inclusion – female representation in the UK business increased to 36% (2020:34%)
  • Governance – two new North America based Non-Executive Directors – Kim Keating and Erika Peterman

Operational review

Pellet Production – acquisition of Pinnacle, capacity expansion and biomass cost reduction

  • Adjusted EBITDA (including Pinnacle since 13 April 2021) up 65% to £86 million (2020: £52 million)
    • Pellet production up 107% to 3.1Mt (2020: 1.5Mt), with 1.2Mt sales to third parties and increased own-use
    • Total $/t cost of production down 7% to $143/t(5) (2020: $153/t(5))
  • Developments in US southeast (2021-22) – addition of c.0.6Mt of new production capacity
    • Completion of LaSalle and Morehouse plant expansions
    • Commissioning of Demopolis and first satellite plant (Leola)
    • Commencement of construction of second satellite plant (Russellville)
  • Further opportunities for growth and cost reduction – increased production capacity, sales to third parties, continued operational efficiencies and improvement, wider range of sustainable biomass and technical innovation

Generation – dispatchable renewable generation and system support services

  • UK’s largest generator of renewable power by output – 12% of total
  • Adjusted EBITDA from discontinued CCGT generation assets £20 million (2020: £46 million)
  • Adjusted EBITDA from continuing operations £352 million (2020: £400 million)
    • Biomass – 5% increase in generation less major planned outage on CfD unit (successfully completed November 2021), higher cost from historic foreign exchange hedging and system charges
    • Pumped storage / hydro – good operational performance
    • Strong portfolio system support role (balancing mechanism, ancillary services and optimisation)
    • Limited role for coal in H2 at request of system operator
  • Ongoing cost reductions to support operating model for biomass generation at Drax Power Station from 2027
    • Reduction in fixed cost base – end of commercial coal operations March 2021, closure September 2022
    • Third biomass turbine upgrade, delivering improved thermal efficiency and lower maintenance cost
    • Trials to expand range of lower cost sustainable biomass – up to 35% blend achieved in test runs on one unit
  • As at 21 February 2022, Drax had 20.4TWh of power hedged between 2022 and 2024 on its ROC and hydro generation assets at £70.2/MWh, with a further 0.9TWh equivalent of gas sales (transacted for the purpose of accessing additional liquidity for forward sales from ROC units and highly correlated to forward power prices) plus additional sales under the CfD mechanism
Contracted power sales 21 February 2022202220232024
ROC (TWh(6))10.96.92.4
ROC (£ per MWh)70.070.070.6
Hydro (TWh)0.2--
Hydro (£ per MWh)90.9--
Gas hedges (TWh equivalent)(7)0.50.4
Pence per therm105101
CfD(6/8) typical annual output c.5TWh and current strike price £118.5/MWh

Customers – renewable power under long-term contracts to high-quality I&C customers and decarbonisation products

  • Adjusted EBITDA of £6 million inclusive of impact of mutualisation changes and Covid-19 (2020: £39 million loss)
  • Continued development of Industrial & Commercial (I&C) portfolio
    • Focusing on key sectors to increase sales to high-quality counterparties supporting generation route to market
    • Energy services to expand the Group’s system support capability and customer sustainability objectives
  • Rebranding of the Haven Power I&C business to Drax Energy Solutions
  • Closure of Oxford and Cardiff offices as part of Small & Medium-Size (SME) strategic review and continuing to evaluate options for SME portfolio to maximise value and align with strategy

Other financial information

  • Total operating profit from continuing operations of £197 million (2020: £156 million loss, including exceptional costs totalling £275 million principally in respect of the announced closure of coal operations)
  • Total profit after tax from continuing operations of £55 million including a £49 million non-cash charge from revaluing deferred tax balances following confirmation of UK corporation tax rate increases from 2023 (2020: loss of £195 million)
  • 2021 capital investment of £230 million (2020: £183 million) – continued investment in biomass strategy
  • 2022 expected capital investment of £230–250 million – £70-80 million maintenance, £20 million enhancements, £110-120 million strategic, (primarily biomass and BECCS), and £30 million other (primarily safety and systems)
    • Excludes any material investment in non-core Open Cycle Gas Turbine developments – continuing to evaluate options, including sale, but continue to invest as appropriate to fulfil obligations under the Capacity Market agreements and to maximise value from any sale. In the event of a sale Drax expects to recover any capital expenditure incurred during 2022, which could total up to £100 million
  • Group cost of debt below 3.5%
    • Refinancing of Canadian facilities (July 2021) with lower cost ESG facility following Pinnacle acquisition
  • Net debt of £1,044 million (31 December 2020: £776 million), including cash and cash equivalents of £317 million (31 December 2020: £290 million)
    • Expect net debt to Adjusted EBITDA below 2x by the end of 2022
Forward Looking Statements
This announcement may contain certain statements, expectations, statistics, projections and other information that are, or may be, forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans, beliefs and objectives for the management of future operations of Drax Group plc (“Drax”) and its subsidiaries (the “Group”), are not warranted or guaranteed. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Although Drax believes that the statements, expectations, statistics and projections and other information reflected in such statements are reasonable, they reflect the Company’s current view and no assurance can be given that they will prove to be correct. Such events and statements involve risks and uncertainties. Actual results and outcomes may differ materially from those expressed or implied by those forward-looking statements. There are a number of factors, many of which are beyond the control of the Group, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These include, but are not limited to, factors such as: future revenues being lower than expected; increasing competitive pressures in the industry; and/or general economic conditions or conditions affecting the relevant industry, both domestically and internationally, being less favourable than expected. We do not intend to publicly update or revise these projections or other forward-looking statements to reflect events or circumstances after the date hereof, and we do not assume any responsibility for doing so.

Results presentation and webcast arrangements

Management will host a webcast presentation for analysts and investors at 11:00am (UK Time) on Thursday 24 February 2022.

The presentation can be accessed remotely via a live webcast link, as detailed below. After the meeting, the webcast recording will be made available and access details of this recording are also set out below.

A copy of the presentation will be made available from 7:00am (UK time) on Thursday 24 February 2022 for download at: https://www.drax.com/investors/announcements-events-reports/presentations/

Event Title: Drax Group plc: Full Year Results
Event Date: Thursday 24 February 2022
Event Time: 11:00am (UK time)
Webcast Live Event Link:  https://secure.emincote.com/client/drax/drax019
Conference call and pre-register Link: https://secure.emincote.com/client/drax/drax019/vip_connect
Start Date:  Thursday 24 February 2022
Delete Date:  Friday 24 February 2023
Archive Link:  https://secure.emincote.com/client/drax/drax019

 

For further information, please contact: [email protected]

View investor presentation here

Capacity Market Agreements

23 February 2022

Investors

RNS Number : 5553C
Drax Group PLC
23 February 2022

T-4 auction – provisional results for existing pumped storage and hydro assets

Drax confirms that it has provisionally secured agreements to provide a total of 621MW of capacity (de-rated 586MW) principally from its pumped storage and hydro assets(1). The agreements are for the delivery period October 2025 to September 2026, at a price of £30.59/kW(2), with income of around £18 million in that period. These are in addition to existing agreements which extend to September 2025.

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications: Aidan Kerr

+44 (0) 7849 090 368

Website: www.drax.com

Notes:

  • Cruachan Pumped Storage, the Galloway hydro scheme (Tongland, Kendoon and Glenlee) and three small legacy gas turbines at Drax Power Station (96MW, de-rated 92MW).
  • Capacity Market agreements stated in 2020/21 real-terms, with payments indexed to UK CPI.

END

Updating on ambitions for pellet plants, biomass sales and BECCS

1 December 2021

Investors
Foresters in working forest, Mississippi

Highlights

  • New targets for pellet production and biomass sales
    • Biomass pellet production – targeting 8Mt pa by 2030 (currently c.4Mt)
    • Biomass pellet sales to third parties – targeting 4Mt pa by 2030 (currently c.2Mt)
  • Continued progress with UK BECCS(1) and biomass cost reduction
    • BECCS at Drax Power Station – targeting 8Mt pa of negative CO2 emissions by 2030
    • Biomass cost reduction – continuing to target biomass production cost of $100/t(2)
  • £3bn of investment in opportunities for growth 2022 to 2030
    • Pellet production, UK BECCS and pumped storage
    • Self-funded and significantly below 2x net debt to Adjusted EBITDA(3) in 2030
  • Development of additional investment opportunities for new-build BECCS
    • Targeting 4Mt pa of negative CO2 emissions outside of UK by 2030
  • Targeting returns significantly in excess of the Group’s cost of capital

Will Gardiner, Drax Group CEO, said:

Drax Group CEO Will Gardiner

Will Gardiner, CEO, Drax Group. Click to view/download.

“Drax has made excellent progress during 2021 providing a firm foundation for further growth. We have advanced our BECCS project – a vital part of the East Coast Cluster that was recently selected to be one of the UK’s two priority CCS projects. And we’re now setting out a strategy to take the business forward, enabling Drax to make an even greater contribution to global efforts to reach net zero.

“We believe Drax can deliver growth and become a global leader in sustainable biomass and negative emissions and a UK leader in dispatchable, renewable generation. We aim to double our sustainable biomass production capacity by 2030 – creating opportunities to double our sales to Asia and Europe, where demand for biomass is increasing as countries transition away from coal.

“As a global leader in negative emissions, we’re going to scale up our ambitions internationally. Drax is now targeting 12 million tonnes of carbon removals each year by 2030 by using bioenergy with carbon capture and storage (BECCS). This includes the negative emissions we can deliver at Drax Power Station in the UK and through potential new-build BECCS projects in North America and Europe, supporting a new sector of the economy, which will create jobs, clean growth and exciting export opportunities.”

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. The day will outline the significant opportunities Drax sees to grow its biomass supply chain, biomass sales and BECCS, as well as long-term dispatchable generation from biomass and pumped storage.

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, which increasingly recognise the unique role that biomass can play in the fight against climate change.

Strategic pillars

  • To be a global leader in sustainable biomass pellets
  • To be a global leader in negative emissions
  • To be a leader in UK dispatchable, renewable generation

The development of these pillars remains underpinned by the Group’s continued focus on safety, sustainability and biomass cost reduction.

A Global leader in sustainable biomass pellets

Drax believes that the global market for sustainable biomass will grow significantly, creating opportunities for sales to third parties in Asia and Europe, BECCS, generation and other long-term uses of biomass. Delivery of these opportunities is supported by the expansion of the Group’s biomass pellet production capacity.

The Group has 13 operational pellet plants with nameplate capacity of c.4Mt, plus a further two plants currently commissioning and other developments/expansions which will increase this to c.5Mt once complete.

Drax is targeting 8Mt of production capacity by 2030, which will require the development of over 3Mt of new biomass pellet production capacity. To deliver this additional capacity Drax is developing a pipeline of organic projects, principally focused on North America. Drax expects to take a final investment decision on 0.5-1Mt of new capacity in 2022, targeting returns significantly in excess of the Group’s cost of capital.

Underpinned by this expanded production capacity, Drax aims to double sales of biomass to third parties to 4Mt pa by 2030, developing its market presence in Asia and Europe, facilitated by the creation of new business development teams in Tokyo and London.

Drax is a major producer, supplier and user of biomass, active in all areas of the supply chain with long-term relationships and almost 20 years of experience in biomass operations. The Group’s innovation in coal-to-biomass engineering, supply chain management and leadership in negative emissions can be deployed alongside its large, reliable and sustainable supply chain to support customer decarbonisation journeys with long-term partnerships.

Drax expects to sell all the biomass it produces, based on an appropriate market price, typically with long-term index-linked contracts.

Continued focus on cost reduction

In 2018 the Group’s biomass production cost was $166/t(2). At the H1 2021 results, through a combination of fibre sourcing, operational improvements and capacity expansion (including the acquisition of Pinnacle Renewable Energy Inc), the production cost had reduced to $141/t(2). Drax’s aims to use the combined expertise of Drax and Pinnacle to apply learnings and cost savings across its portfolio and continues to target $100/t(2) (£50/MWh equivalent(4)) by 2027.

A Global leader in negative emissions

The Intergovernmental Panel on Climate Change(5) and the Coalition for Negative Emissions(6) have both outlined a clear role for BECCS in delivering the negative emissions required to limit global warming to 1.5oC above pre-industrial levels and to achieve net zero by 2050, identifying a requirement of between 2bn and 7bn tonnes of negative emissions globally from BECCS.

Separately, the UK Government has recently published its Net Zero Strategy and Biomass Policy Statement reaffirming the established international scientific consensus that sustainable biomass is renewable and that it will play a critical role in helping the UK achieve its climate targets. It also signposted an ambition for at least 5Mt pa of negative emissions from BECCS and Direct Air Capture by 2030, 23Mt pa by 2035 and up to 81Mt pa by 2050. The reports commit the Government to the development during 2022 of a financial model to support BECCS to meet these requirements.

Subject to the right regulatory environment, Drax plans to transform Drax Power Station into the world’s biggest carbon capture project using BECCS to permanently remove 8Mt of CO2 emissions from the atmosphere each year by 2030. The project is well developed, the technology is proven and an investment decision could be taken in 2024 with the first BECCS unit operational in 2027 and a second in 2030, subject to the right investment framework.

The Group aims to build on this innovation with a new target to deliver 4Mt of negative CO2 emissions pa from new-build BECCS outside of the UK by 2030 and is currently developing models for North American and European markets.

A UK leader in dispatchable, renewable generation

The UK’s plans to achieve net zero by 2050 will require the electrification of heating and transport systems, resulting in a significant increase in demand for electricity. Drax believes that over 80% of this could be met by intermittent renewable and inflexible low-carbon energy sources – wind, solar and nuclear. However, this will only be possible if the remaining power sources can provide the dispatchable power and non-generation system support services the power system requires to ensure security of supply and to limit the cost to the consumer.

Long-term biomass generation and pumped storage hydro can provide these increasingly important services. Drax Power Station is the UK’s largest source of renewable power by output and the largest dispatchable plant. The Group is continuing to develop a lower cost operating model for this asset, supported by a reduction in fixed costs associated with the end of coal operations.

Drax is also developing an option for new pumped storage – Cruachan II – which could take a final investment decision in 2024 and be operational by 2030, providing an additional 600MW of dispatchable long-duration storage to the power system.

In its Smart Systems and Flexibility plan (July 2021), the UK Government described long-duration storage technologies as essential for achieving net zero and has committed to take actions to de-risk investment for large-scale and long-duration storage.

Capital allocation and dividend

Strategic capital investment (3Mt of new biomass pellet production capacity, BECCS at Drax Power Station and Cruachan II) is expected to be in the region of £3bn between 2022 and 2030, backed by long-term contracted cashflows and targeting high single-digit returns and above.

No final investment decision has been taken on any of these projects and both BECCS and Cruachan II remain subject to further clarity on regulatory and funding mechanisms.

The Group believes these investments can be self-funded through strong cash generation over the period with net debt to Adjusted EBITDA significantly below 2x at the end of 2030, providing flexibility to support further investment, such as new-build BECCS as these options develop.

Drax remains committed to the capital allocation policy established in 2017, noting that average annual dividend growth was around 10% in the last 5-years.

Webcast and presentation material

The event will be webcast from 10.00am and the material made available on the Group’s website from 7:00am. Joining instructions for the webcast and presentation are included in the links below.

https://secure.emincote.com/client/drax/drax016

Notes:
(1) BioEnergy Carbon Capture and Storage.
(2) Free on Board – cost of raw fibre, processing into a wood pellet, delivery to Drax port facilities in US and Canada, loading to vessel for shipment and overheads.
(3) Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements.
(4) From c.£75/MWh in 2018 to c.£50/MWh, assuming a constant FX rate of $1.45/£.
(5) Coalition for Negative Emissions (June 2021).
(6) Intergovernmental Panel on Climate Change (August 2021).

Enquiries:

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

Media:

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

Website: www.drax.com

Forward Looking Statements
This announcement may contain certain statements, expectations, statistics, projections and other information that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans, investments, beliefs and objectives for the management of future operations of Drax Group plc (“Drax”) and its subsidiaries (the “Group”), including in respect of Pinnacle Renewable Energy Inc. (“Pinnacle”), together forming the enlarged business, are not warranted or guaranteed. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Although Drax believes that the statements, expectations, statistics and projections and other information reflected in such statements are reasonable, they reflect the Company’s current view and beliefs and no assurance can be given that they will prove to be correct. Such events and statements involve significant risks and uncertainties. Actual results and outcomes may differ materially from those expressed or implied by those forward-looking statements. There are a number of factors, many of which are beyond the control of the Group, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These include, but are not limited to, factors such as: future revenues being lower than expected; increasing competitive pressures in the industry; and/or general economic conditions or conditions affecting the relevant industry, both domestically and internationally, being less favourable than expected; change in the policy of key stakeholders, including governments or partners or failure or delay in securing the required financial, regulatory and political support to progress the development of Drax and its operations. We do not intend to publicly update or revise these projections or other forward-looking statements to reflect events or circumstances after the date hereof, and we do not assume any responsibility for doing so.

END

2021 Adjusted EBITDA around top of current analyst expectations

Investors

Highlights

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

Pellet Production

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

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

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

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

Generation

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

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

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

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

Customers

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

Full year expectations

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

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

Negative emissions

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

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

Generation contracted power sales

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

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

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

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

Enquiries:

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

Media:

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

Website: www.drax.com

Forward Looking Statements
This announcement may contain certain statements, expectations, statistics, projections and other information that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans, investments, beliefs and objectives for the management of future operations of Drax Group plc (“Drax”) and its subsidiaries (the “Group”), including in respect of Pinnacle Renewable Energy Inc. (“Pinnacle”), together forming the enlarged business, are not warranted or guaranteed. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Although Drax believes that the statements, expectations, statistics and projections and other information reflected in such statements are reasonable, they reflect the Company’s current view and beliefs and no assurance can be given that they will prove to be correct. Such events and statements involve significant risks and uncertainties. Actual results and outcomes may differ materially from those expressed or implied by those forward-looking statements. There are a number of factors, many of which are beyond the control of the Group, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These include, but are not limited to, factors such as: future revenues being lower than expected; increasing competitive pressures in the industry; and/or general economic conditions or conditions affecting the relevant industry, both domestically and internationally, being less favourable than expected; change in the policy of key stakeholders, including governments or partners or failure or delay in securing the required financial, regulatory and political support to progress the development of Drax and its operations. We do not intend to publicly update or revise these projections or other forward-looking statements to reflect events or circumstances after the date hereof, and we do not assume any responsibility for doing so.

END

Appointment of two new non-executive directors

21 October 2021

Investors
Sunset behind biomass storage domes at Drax Power Station in North Yorkshire

RNS Number : 8439P
DRAX GROUP PLC
(Symbol: DRX)

The Board of Drax Group plc (“Drax” or “the Company”) is pleased to announce the appointments of Erika Peterman and Kim Keating as Non-Executive Directors with immediate effect.

Both Erika and Kim bring extensive experience gained from more than 20 years working at global organisations, enabling the delivery of change and growth in complex, world leading businesses.

Erika Peterman

Erika is currently Senior Vice President at BASF Corporation where she leads the North American Chemical Intermediates business. Since 2001, Erika has held a number of management and senior executive roles with BASF, covering operations and manufacturing, process engineering, strategy, M&A, sales and marketing, as well as leading a range of their diversity and inclusion initiatives. Erika holds a BSc in chemical engineering and an MBA.

Kim is a senior energy sector executive with broad international experience. She joined the Cahill Group in 2013, one of Canada’s largest multi-disciplinary privately owned construction companies, and from August 2018 to September 2021 served as Chief Operating Officer.  On 1 October 2021, Kim was appointed Senior Adviser for special projects at Cahill. Prior to joining the Cahill Group, Kim held a variety of progressive leadership roles and has made significant engineering and project management contributions to key projects in the global energy sector.

Kim Keating

Kim has led a range of innovative growth initiatives including climate change and renewable energy strategies. Kim is a fellow of the Canadian Academy of Engineering, holds a Batchelor of Civil Engineering degree and an MBA.

Erika will also be a member of the Audit Committee and Kim will be a member of the Remuneration Committee. In addition, both will serve as members of the Nomination Committee.

Commenting on the appointments of Erika and Kim, Philip Cox, Chair of Drax commented,

“I am delighted that Erika and Kim are joining the Board. Their experience in global businesses based in the US and Canada, will strengthen our Board and contribute to the diversity of backgrounds, insights and skills, which reflect the continued growth and international presence of Drax following the acquisition of Pinnacle and the evolution of our Group as a leading global provider of sustainable biomass and renewable energy.”

Pursuant to LR 9.6.13R the Company advises that Kim Keating is a non-executive director and serves on the HSE, and HR & Compensation Committees of TSX listed Major Drilling International. Ms Keating is also a non-executive director and serves on the Compensation Committee and Sustainability Committee of Yamana Gold Inc, which is listed on the Toronto Stock Exchange, the New York Stock Exchange and the London Stock Exchange.

For further information, please contact:

Brett Gladden
Group Company Secretary
+44 (0)7936 362586
[email protected]

The person responsible for release of this announcement is Brett Gladden, Group Company Secretary.

Half year results for the six months ended 30 June 2021

Investors
Engineers walking in front of sustainable biomass wood pellet storage dome at Drax Power Station, June 2021

RNS Number: 8333G
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Six months ended 30 JuneH1 2021H1 2020
Key financial performance measures
Adjusted EBITDA (£ million)(1)(2)186179
Continuing operations165160
Discontinued operations – gas generation2119
Net debt (£ million)(3)1,029792
Adjusted basic EPS (pence)(1)14.610.8
Interim dividend (pence per share)7.56.8
Total financial performance measures from continuing operations
Operating profit / (loss) (£ million)84(57)
Profit / (loss) before tax (£ million)52(85)

Will Gardiner, CEO of Drax Group, said:

“We have had a great first half of the year, transforming Drax into the world’s leading sustainable biomass generation and supply company as well as the UK’s largest generator of renewable power.

“The business has performed well, and we have exciting growth opportunities to support the global transition to a low-carbon economy.

Drax Group CEO Will Gardiner in the control room at Drax Power Station

Drax Group CEO Will Gardiner in the control room at Drax Power Station

“Drax has reduced its generation emissions by over 90%, and we are very proud to be one of the lowest carbon intensity power generators in Europe – a huge transformation for a business which less than a decade ago operated the largest coal power station in Western Europe.

“In the past six months we have significantly advanced our plans for Bioenergy with Carbon Capture and Storage (BECCS) in the UK and globally. By 2030 Drax could be delivering millions of tonnes of negative emissions and leading the world in providing a critical technology needed to tackle the climate crisis.

“We are pleased to be announcing a 10% increase in our dividend, and we remain committed to creating long-term value for all our stakeholders.” 

Financial highlights

Pinnacle named ship

  • Adjusted EBITDA from continuing and discontinued operations up £7 million to £186 million (H1 2020: £179 million)
  • Acquisition of Pinnacle Renewable Energy Inc. (Pinnacle) for cash consideration of C$385 million (£222 million) (enterprise value of C$796 million) and sale of gas generation assets for £186 million
  • Strong liquidity and balance sheet
    • £666 million of cash and committed facilities at 30 June 2021
    • Refinancing of Canadian facilities (July 2021) with lower cost ESG facility following Pinnacle acquisition
  •  Sustainable and growing dividend – expected full year dividend up 10% to 18.8 pence per share (2020: 17.1p/share)
    • Interim dividend of 7.5 pence per share (H1 2020: 6.8p/share) – 40% of full year expectation

Strategic highlights

Kentaro Hosomi, Chief Regional Officer EMEA, Mitsubishi Heavy Industries (MHI) at Drax Power Station, North Yorkshire

Kentaro Hosomi, Chief Regional Officer EMEA, Mitsubishi Heavy Industries (MHI) at Drax Power Station, North Yorkshire

  • Developing complementary biomass strategies for supply, negative emissions and renewable power
  • Creation of the world’s leading sustainable biomass generation and supply company
    • Supply – 17 operational plants and developments across three major fibre baskets with production capacity of 4.9Mt pa and $4.3 billion of long-term contracted sales to high-quality customers in Asia and Europe
    • Generation – 2.6GW of biomass generation – UK’s largest source of renewable power by output
  • >90% reduction in generation emissions since 2012
    • Sale of gas generation assets January 2021 and end of commercial coal March 2021
  • Development of BECCS
    • Planning application submitted for Drax Power Station and technology partner (MHI) selected
    • Participation in East Coast Cluster – phase 1 regional clusters and projects to be selected from late 2021
    • Partnerships with Bechtel and Phoenix BioPower evaluating international BECCS and biomass technologies
  • System support – option to develop Cruachan from 400MW to over 1GW – commenced planning approval process

 Outlook

  • Adjusted EBITDA, inclusive of Pinnacle from 13 April 2021, full year expectations unchanged

Operational review

Pellet Production – acquisition of Pinnacle, capacity expansion and biomass cost reduction

close-up of truck raising and lowering

  • Sustainable sourcing
    • Biomass produced using forestry residuals and material otherwise uneconomic to commercial forestry
    • Science-based sustainability policy fully compliant with current UK, EU law on sustainable sourcing aligned with UN guidelines for carbon accounting
    • All woody biomass verified and audited against FSC®(4), PEFC or SBP requirements
  • Adjusted EBITDA (including Pinnacle since 13 April 2021) up 60% to £40 million (H1 2020: £25 million)
    • Pellet production up 70% to 1.3Mt (H1 2020: 0.8Mt)
    • Cost of production down 8% to $141/t(5) (H1 2020: $154/t(5))
  • Near-term developments in US Southeast (2021-22)
    • Commissioning of LaSalle expansion, Demopolis and first satellite plant in H2
  • Other opportunities for growth and cost reduction
    • Increased production capacity, supply of biomass to third parties and expansion of fuel envelope to include lower cost biomass

Generation – flexible and renewable generation

  • 12% of UK’s renewable electricity, strong operational performance and system support services
  • Adjusted EBITDA down 14% to £185 million (H1 2020: £214 million)
    • Biomass – Lower achieved power prices and higher GBP cost of biomass reflecting historical power and FX hedging
    • Strong system support (balancing mechanism, Ancillary Services and optimisation) of £70 million (H1 2020: £66 million) – additional coal operations and continued good hydro and pumped storage performance, in addition to coal operations
    • Coal – utilisation of residual coal stock in Q1 2021 and capture of higher power prices
  • Pumped storage / hydro – good operational and system support performance
    • £34 million of Adjusted EBITDA (Cruachan, Lanark, Galloway schemes and Daldowie) (H1 2020: £35 million)
  • Ongoing cost reductions to support operating model for biomass at Drax Power Station from 2027
    • End of commercial coal operations in March, formal closure September 2022 – reduction in fixed cost base
    • Major planned outage for biomass CfD unit – August to November 2021 – including third turbine upgrade delivering improved thermal efficiency and lower maintenance cost, supporting lower cost biomass operations
    • Trials to expand range of lower cost biomass fuels – up to 35% load achieved in test runs on one unit
  • Strong contracted power position – 29.3TWh sold forward at £52.1/MWh 2021-2023. Opportunities to capture higher power prices in future periods, subject to liquidity
As at 25 July 2021202120222023
Fixed price power sales (TWh) 15.99.14.3
-      CfD(6)3.80.6-
-      ROC10.88.44.0
-      Other1.30.10.3
At an average achieved price (£ per MWh)51.752.452.7

Customers – renewable electricity and services under long-term contracts to high-quality I&C customer base

 

  • Adjusted EBITDA loss of £5 million inclusive of £10-15 million impact of Covid-19 (H1 2020 £37 million loss inclusive of £44 million impact of Covid-19)
  • Continuing development of Industrial & Commercial (I&C) portfolio
    • Focusing on key sectors to increase sales to high-quality counterparties supporting generation route to market
    • Energy services expand the Group’s system support capability and customer sustainability objectives
  • Closure of Oxford and Cardiff offices as part of SME strategic review and the rebranding of the Haven Power I&C business to Drax
  • Continue to evaluate options for SME portfolio to maximise value and alignment with strategy

Other financial information

  • Total operating profit from continuing operations of £84 million including £20 million mark-to-market gain on derivative contracts and acquisition related costs of £10 million and restructuring costs of £2 million
  • Total loss after tax from continuing operations of £6 million including a £48 million charge from revaluing deferred tax balances following announcement of future UK tax rate changes
  • Total loss after tax from continuing operations of £6 million including a £48 million charge from revaluing deferred tax balances following confirmation of UK corporation tax rate increases from 2023
  • Capital investment of £71 million (H1 2020: £78 million) – continued investment in biomass strategy
    • Full year expectation of £210–230 million, includes pellet plant developments – LaSalle expansion, satellite plants and commissioning of Demopolis
  • Group cost of debt now below 3.5% reflecting refinancing of Canadian facilities in July 2021
  • Net debt of £1,029 million (31 December 2020: £776 million), including cash and cash equivalents of £406 million (31 December 2020: £290 million)
    • 5x net debt to Adjusted EBITDA, with £666 million of total cash and committed facilities (31 December 2020: £682 million)
    • Continue to expect around 2.0x net debt to Adjusted EBITDA by end of 2022
View complete half year report View investor presentation Listen to webcast