Tag: sustainability

The world’s leading sustainable biomass generation and supply business

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

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

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

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

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

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

Inside a Pinnacle pellet mill

Inside a Pinnacle pellet mill

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

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

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

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

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

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

Biomass wood pellet storage dome, Drax Power Station

Biomass wood pellet storage dome, Drax Power Station

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

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

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

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

Train transporting biomass wood pellets arriving at Drax Power Station

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

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

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

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

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


At the heart of the energy transition

Tree nursery in Mississippi

Will Gardiner opened the second day of the Chatham House Energy Transitions conference. Watch his keynote address below or scroll down the page to read his speech in full.

The energy transition is central to our purpose of enabling a zero carbon, lower cost energy future.

Drax has been at the heart of Britain’s energy system for decades. And we have played a key role in the decarbonisation of the power sector: Drax Power Station in Selby, North Yorkshire, is the UK’s largest power station and Europe’s largest decarbonisation project. Cruachan, our Scottish Pumped Storage facility is a key complement to Britain’s ever increasing supply of offshore wind.

Our transition from coal to biomass has allowed us to reduce our greenhouse gas emissions by over 80% while providing clean and flexible energy to millions of homes and businesses across the UK. This month saw the end of commercial coal generation at Drax power station – a milestone in the history of our company and of the UK economy, too.

But the scale of the climate crisis means that we cannot stop here.

Which is why we have committed to a world-leading ambition to be carbon negative by 2030.

We will achieve this by making a transformational investment in bioenergy with CCS, or BECCS, which will enable us to permanently remove carbon emissions from the atmosphere while continuing to supply the renewable electricity that millions of British homes and businesses depend upon.

Water outlet into Loch Awe from Cruachan Power Station

Water outlet into Loch Awe from Cruachan Power Station

Today, we are pioneering BECCS at Drax Power Station as part of the Zero Carbon Humber Cluster, a coalition of diverse businesses with one ambition: to create the world’s first net zero emissions industrial cluster.

The benefits are enormous

BECCS is a vital technology in the fight against climate change. Expert bodies such as the Climate Change Committee here in the UK and the IPCC at a global level are clear that we need negative emissions technologies including BECCS to reach net zero, and BECCS is central to the UK and Europe’s decarbonisation plans.

As the world’s largest, and most experienced, generator and supplier of sustainable bioenergy there is no better place to pioneer BECCS than at Drax. The economic, social and environmental benefits are enormous.

BECCS at Drax will permanently remove millions of tonnes of carbon from the atmosphere and help heavy industry in the UK’s largest emitting area decarbonise quickly and cost effectively;

It will enable the creation of tens of thousands of green jobs in the North of England, levelling up the economy and delivering a green recovery from the Covid crisis;

And it will put the UK at the forefront of global efforts to develop carbon removal technology in this, the year that we host COP26 in Glasgow.

The scale of the climate crisis means that we cannot stop here.

A proven technology

We know that BECCS works and that the technology is available now. Looking at cost projections from the CCC, we also know that it is the best value negative emissions technology.

Engineer at BECCS pilot project within Drax Power Station

Engineer at BECCS pilot project within Drax Power Station

We have already successfully run two BECCS pilots at the power station. In 2019 we demonstrated that we can capture CO2 from a 100% biomass feedstock. And in 2020, we began a second pilot working with Mitsubishi Heavy Industries to further enhance the potential for delivering negative emissions.

We aim to deploy BECCS at scale by 2027. To that end, earlier this month, we kickstarted the planning process for our proposals to build our first BECCS units, marking a major milestone in the project and putting us in a position to commence building BECCS as soon as 2024.

The support we need

Drax Power Station has a proud history of transformation. And today we are making rapid progress in further decarbonising our operations and making bold commitments about our future.

The core of our successful decarbonisation has been a close partnership with government. And it is this partnership that will make BECCS a reality and enable the multiple benefits that come with it. An effective negative emissions policy and regulatory framework from government will enable further investments from companies such as Drax.

We believe it is possible for such a policy framework to emerge in the coming months.

With COP26 later this year, making that policy commitment will allow us to accelerate our own decarbonisation journey and support the industries of the future here in the UK.

BECCS in context

But we know that there is no silver bullet solution to tackling climate change.

Negative emissions technologies such as BECCS will be needed alongside others, for example more renewables, electric vehicles, energy storage, energy efficiency and hydrogen.

BECCS will enable us to permanently remove carbon emissions from the atmosphere while continuing to supply the renewable electricity that millions of British homes and businesses depend upon.

BECCS complements – and does not – and should not – substitute for ambitious decarbonisation plans. Technologies such as BECCS have a clear and unique role to play by helping harder to abate sectors such as heavy industry, aviation and agriculture – decarbonise.

This is critically important if we are to meet our legally binding 2050 net zero target. The CCC estimates that 51m tonnes of CO2 will need to be captured via BECCS to meet net zero.

Sustainability at our core

We know that BECCS can only make a meaningful contribution to tackling climate change if the bioenergy is sustainably sourced. This has been fundamental to Drax’s transition from coal to biomass, and it remains fundamental as we progress our plans for BECCS.

Infographic showing how BECCS removes carbon from the atmosphere

Biomass, as the UK Government has stated, is one of our most valuable tools for reaching net zero emissions. So we need the right framework to ensure it is sourced sustainably.

As the world’s largest bioenergy producer and generator, we recognise our responsibility to be the world leaders in sustainability, too.

At Drax, we have invested in world leading policies, tools and expertise to ensure that our biomass is sustainably sourced. We go beyond regulatory compliance and have set up an Independent Advisory Board, Chaired by the UK Government’s former Chief Scientific Advisor, to help us and challenge us on sustainable biomass and its role in Drax’s transition to net zero.

front cover of 'Responsible sourcing' PDF

[click to read]

Thanks to our independent catchment area analyses, we know more about the forests we source from than ever before. We know and can demonstrate how demand for biomass can support healthy forests. For example, in the South East US where Drax sources most of its biomass, there is more than double the carbon stored in forests than there was 50 years ago.

A partnership with our stakeholders

The purpose of today’s session is to discuss all these issues and more. Our aim is clear: to enable a successful energy transition.

At Drax we stand ready to invest hundreds of millions of pounds to scale up BECCS technology;

To put the UK at the forefront of global efforts to reach net zero emissions;

And to help create tens of thousands of green jobs in the North of England.

But I want your help in making BECCS as sustainable and successful as it can be.

We know and can demonstrate how demand for biomass can support healthy forests.

Thank you very much for listening and I wish you a good and constructive session tackling this critical global challenge.

Will Gardiner delivered this keynote address at Energy Transitions 2021.

The video of Will’s speech can be watched in full here and with subtitles here.

The jobs and careers supporting the UK’s net zero future

In October last year several of our employees, from policy managers to apprentices, took over the Energy UK Young Energy Professional (YEP) Forum’s Twitter account to share their experiences so far working in the energy industry and their roles at Drax. The YEP forum consists of a network of energy industry professionals with less than 10 years’ experience, and aims to provide them with opportunities to collaborate, develop and recognise successes. The following insights from employees at Drax show the importance of our workforce in achieving our ambition and what they have learnt so far about starting a career in the energy industry.

Engineer working in the turbine hall at Drax Power Station, North Yorkshire

Meet Samuel, the apprentice

One of our technical apprentices, Samuel Plumb, explains why he decided to kick-start his career with a Drax apprenticeship plus what the selection process involves: “I applied for this role because it’s a mix of practical skills and problem-solving. Drax has a large site with a huge range of equipment and processes so no two days are the same. Working here appealed to me because I’m really interested in the power industry and Drax plays a key role in generation. I found out about this apprenticeship through online research, submitted an application, completed aptitude tests online, sat another aptitude test on-site and then eventually attended an interview.”

Meet Richard, the policy manager

Richard Gow explains that with the right policies in place, Drax could become a carbon negative power station, enabling a zero carbon industrial cluster in the Humber region. The Drax Group Policy and Government Relations Manager outlines how his role helps to develop the necessary frameworks: “I engage with policymakers, advisors and experts across the UK to understand the policy and political landscape and how this could impact Drax’s commercial objectives. The energy sector is at the forefront of decarbonisation and it’s exciting to be involved in developing policies and market frameworks to support this transition to net zero.”

By investing in bioenergy with carbon capture and storage (BECCS), hydrogen and other green technologies in the Humber, industry can regain a competitive edge. New jobs can help to rejuvenate communities and the wider region, as evidenced by a recent report from Vivid Economics on the socio-economic benefits of BECCS. This investment at Drax supports the UK’s levelling up agenda and to Build Back Better, emphasising the need for the UK to have a skilled workforce to achieve net zero. Will Gardiner, CEO of Drax Group, has explained how our own ambitions will also boost our communities and local economies by “helping to create a cleaner environment for future generations whilst creating new jobs and export opportunities for British businesses.”

Noting that BECCS at Drax is not just limited to new engineering or technician roles, as a UK-US company, with sites from Selby to the Scottish Highlands to Louisiana and Mississippi in the US South, we continue to attain young professionals and apprentices across a wide-range of departments, including sustainable business and smart energy services.

Engineer below Cruachan Power Station dam

Engineer below Cruachan Power Station dam

Meet Emma, the renewables engagement officer

And at Drax we emphasise that now is the time for action to tackle climate change. Emma Persson, Renewables Engagement Officer, describes her motivations for joining the clean energy transition and how her role is helping to ensure the UK reaches its net zero target: “As a recent graduate with a Masters in energy and society, I wanted to work in the energy sector and be part of its real and current transition to mitigating climate change instead of contributing to it. This is an exciting time, and my part in this transformation involves stakeholder engagement and contributing to Drax’s climate policy to ensure we reach our carbon negative ambition.”

By developing talent within schools from a young age and inspiring students to study Science, Technology, Engineering and Maths (STEM) subjects, Drax also encourages future career opportunities. We are proud to be working with a number of local schools and colleges, such as Selby College, with whom we recently signed a new five-year partnership. This shows our continued commitment to ensuring students of all ages are equipped with the skills needed to progress the UK’s cleaner energy future, while having a positive social impact on our local communities.

Mobilising a Million

Students from Selby College collect their laptops donated by Drax (April 2020)

We recently became the UK’s first energy company to announce an initiative to improve employability for a million people by 2025. Drax’s Opportunity Action Plan is in partnership with the Social Mobility Pledge, led by the former Education Secretary, the Rt Hon Justine Greening. Through our ‘Mobilising a Million’ initiative, we aim to connect with one million people by 2025, improving skills, education, employability and opportunity. This sets a new and higher standard for the levelling up agenda in Britain, with a wider focus on environmental, social and corporate governance (ESG) issues. Clare Harbord, Drax Group Director of Corporate Affairs, said of the initiative, “By boosting education, skills and employability opportunities for a million people, we can start to level the playing field and build a more diverse workforce. This will make the energy sector stronger and able to make a more significant contribution to the UK’s green recovery.”

During the COVID-19 pandemic we have also been using virtual resources to provide new ways of learning from home, delivering laptops for learners, and a new series of webinars titled ‘Drax in the Classroom’ as well as virtual work experience and tours of Drax Power Station, North Yorkshire and Cruachan in Scotland. Before the pandemic, we also hosted a number of inspiring careers events at Drax, including the ‘Women of the Future’. The event showcased the various opportunities available for young women, part of our continued efforts to increase diversity in our workforce and develop the future generation of energy professionals.

Learn more about careers at Drax and our current opportunities here.

Full year results for the twelve months ended 31 December 2020

Water outlet into Loch Awe from Cruachan Power Station

Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)
RNS Number : 2751Q

Twelve months ended 31 December20202019
Key financial performance measures
Adjusted EBITDA (£ million) (1)(2)412410
Continuing operations366371
Discontinued operations – gas generation4639
Cash generated from operations (£ million)413471
Net debt (£ million) (3)776841
Adjusted basic EPS (pence) (1)29.629.9
Total dividend (pence per share)17.115.9
Total financial performance measures
Coal and other asset obsolescence charges(239)-
Operating (loss) / profit (£ million)(156)48
Loss before tax (£ million)(235)(16)

Financial highlights

  • Adjusted EBITDA from continuing and discontinued operations up £2 million to £412 million (2019: £410 million)
    • Includes estimated impact of Covid-19 of around £60 million, principally SME customers
    • Strong performance in Pellet Production and Generation
  • Strong cash generation and balance sheet
    • 1.9 x net debt to Adjusted EBITDA, with £682 million of cash and committed facilities at 31 December 2020
    • New carbon-linked RCF, Eurobond and infrastructure facilities with maturities to 2030 and reduced cost of debt
  • Sustainable and growing dividend up 7.5% to 17.1 pence per share (2019: 15.9 pence per share)
    • Proposed final dividend of 10.3 pence per share (2019: 9.5 pence per share)

Operational highlights

  • Pellet Production – 7% increase in production, improved quality and 5% reduction in cost
  • Generation – 11% of UK’s renewable electricity, strong operations and system support performance
  • Customers – lower demand and an increase in bad debt provisions, principally SME customers
  • Sustainability – sale of gas assets, end of coal generation, CDP Climate A- rating (2019: C) and TCFD Supporter
Train carrying sustainably sourced compressed wood pellets arriving at Drax Power Station in North Yorkshire

Train carrying sustainably sourced compressed wood pellets arriving at Drax Power Station in North Yorkshire [click to view/download]

Will Gardiner, CEO of Drax Group said:

“Drax has supported its customers, communities and employees throughout the Covid-19 pandemic and I want to thank colleagues across the Group for their commitment and hard work over the last year. We have delivered strong results, a growing dividend for shareholders and excellent progress against our business strategy.

Drax Group CEO Will Gardiner

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

“Our focus is on renewable power. Our carbon intensity is one of the lowest of all European power generators. We aim to be carbon negative by 2030 and are continuing to make progress. We are announcing today that we will not develop new gas fired power at Drax. This builds on our decision to end commercial coal generation and the recent sale of our existing gas power stations.

“The proposed acquisition of Pinnacle Renewable Energy will position Drax as the world’s leading sustainable biomass generation and supply business, paving the way for us to develop bioenergy with carbon capture and storage (BECCS) – taking us even further in our decarbonisation.”

2021 outlook

  • Targeting carbon negative
    • No new gas generation at Drax Power Station, retain options for system support gas in next capacity auction
    • Completion of sale of existing gas generation (January 2021) and end of commercial coal (March 2021)
  • Progressing biomass strategy
    • Proposed acquisition of Pinnacle Renewable Energy Inc. (Pinnacle) – supports long-term options for third-party supply, BECCS and biomass generation
    • BECCS – commencement of DCO planning process, potential FEED study and clarity on regional clusters

Infographic: How BECCS removes carbon from the atmosphere

  • Operations
    • Major planned outage on CfD unit and continued impact of Covid-19 on SME customers
    • Strong contracted power sales (2021–2023) 24.4TWh at £48.5/MWh

Operational review

Pellet Production – capacity expansion, improved quality and reduced cost

  • Adjusted EBITDA up 63% to £52 million (2019: £32 million)
    • Pellet production up 7% to 1.5Mt (2019: 1.4Mt)
    • Reduction in fines (larger particle-sized dust)
    • Cost of production down 5% to $153/t(4) (2019: $161/t(4))
  • Cost reduction plan – targeting $35/t (£13/MWh(5)) saving vs. 2018 on 1.9Mt by 2022 – annual savings of $64 million
    • $28 million of run-rate savings from projects delivered 2019-2020
    • Low-cost fibre, LaSalle (improved rail infrastructure, woodyard and sawmill co-location) and HQ relocation
    • $36 million of additional run-rate savings to be delivered by end of 2022
    • Expansion of Morehouse plant completed Q4 2020
    • Expansion of Amite and LaSalle, increased use of low-cost fibre and improved logistics
  • Additional savings from $40 million investment in three 40kt satellite plants in US Gulf – commissioning from 2021, with potential for up to 0.5Mt – targeting 20% reduction in pellet cost versus current cost

 Power Generation – flexible and renewable generation

  • Adjusted EBITDA up 9% to £446 million (2019: £408 million)
    • Biomass generation up 5% to 14.1TWh (2019: 13.4TWh) – record CfD availability (Q2 2020 – 99.5%)
    • Good commercial availability across the portfolio – 91% (2019: 88%)
    • Strong contracted position provided protection from lower demand and reduction in ROC(6) prices
    • Includes £46 million from discontinued gas (2019: £39 million)
Water cooling tower at Drax Power Station

Water cooling tower at Drax Power Station [click to view/download]

  • System support (balancing mechanism, Ancillary Services and optimisation) of £118 million (2019: £120 million)
    • Hydro and gas – one-off hydro contracts in 2019, offset by higher demand for system support services in 2020
    • Lower level of biomass activity due to higher value in generation market
    • 2019 included benefit of buying back coal generation
  • Pumped storage / hydro – excellent operational and system support performance
    • £73 million of Adjusted EBITDA (Cruachan, Lanark Galloway schemes and Daldowie) (2019: £71 million)
Aqueduct supplying water into the reservoir at Cruachan pumped hydro storage plant in Scotland

Aqueduct supplying water into the reservoir at Cruachan pumped hydro storage plant in Scotland [click to view/download]

  • Coal – 8% of output in 2020 and short-term increase in carbon emissions – utilisation of coal stock by March 2021
  • Covid-19 – business continuity plan in place to ensure continued operation and two major outages completed

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

  • Customer service employeeAdjusted EBITDA loss of £39 million (2019: £17 million profit) inclusive of estimated £60 million impact of Covid-19
    • Reduced demand, MtM loss on pre-purchased power and increase in bad debt, principally SME customers
    • Continue to evaluate SME options to maximise value and alignment with strategy
  • Development of Drax Customers Industrial & Commercial portfolio – increased sales to high-quality counterparties providing revenue visibility, while supporting the Group’s flexible and renewable energy proposition
  • Renewable and energy services expand Group system support capability and customer sustainability objectives

Other financial information

  • Total operating loss from continuing operations of £156 million reflects:
    • £70 million MtM loss on derivative contracts
    • £239 million obsolescence charges, principally coal (includes £13 million associated with decision not to develop new gas generation at Drax Power Station)
    • £34 million of costs associated with coal closure (redundancy, pensions and site reparations), with annual run-rate savings once complete of c.£30-35 million
  • Total loss after tax of £158 million includes £18 million reduced valuation of deferred tax asset resulting from UK Government’s reversal of previously announced corporation tax rate change (adjusted impact of £14 million, 3.5 pence per share)
  • Capital investment of £183 million(7) – continued invest in biomass strategy, some delay into 2021 due to Covid-19
    • 2021 expected investment of £190-210 million (excludes proposed acquisition of Pinnacle), includes expansion of LaSalle and Amite pellet plants and satellite plant development
  • Net debt of £776 million, including cash and cash equivalents of £290 million (31 December 2019: £404 million)
      • 1.9 x net debt to EBITDA, with £682 million of total cash and total committed facilities
      • Expect around 2 x net debt to EBITDA by end of 2022 inclusive of proposed acquisition of Pinnacle


View complete full year report View investor presentation Listen to webcast

What is renewable energy?

These differ to non-renewable energy sources such as coal, oil and natural gas, of which there is a finite amount available on Earth, meaning if used excessively they could eventually run out.

Renewable resources can provide energy for a variety of applications, including electricity generation, transportation and heating or cooling.

The difference between low-carbon, carbon neutral and renewable energy

Renewables such as wind, solar and hydropower are zero carbon sources of energy because they do not produce any carbon dioxide (CO2) when they generate power. Low-carbon sources might produce someCO2, but much less than fuels like coal.

Bioenergy that uses woody biomass from sustainably managed forests to generate electricity is carbon neutral because forests absorb CO2 from the atmosphere as they grow, meaning the amount of CO2 in the atmosphere remains level. Supply chains that bring bioenergy to power stations commonly use some fossil fuels in manufacturing and transportation. Therefore woody biomass is a low carbon fuel, when its whole lifecycle is considered.

Managing forests in a sustainable way that does not lead to deforestation allows bioenergy to serve as a renewable source of power. Responsible biomass sourcing also helps forests to absorb more carbon while displacing fossil fuel-based energy generation.

Nuclear is an example of a zero carbon source of electricity that is not renewable. It does not produce CO2,but it is dependent on uranium or plutonium, of which there is a finite amount available.

Managing forests in a sustainable way that does not lead to deforestation allows bioenergy to serve as a renewable source of power.

How much renewable energy is used around the world?

Humans have harnessed renewable energy for millions of years in the form of woody biomass to fuel fires, as well as wind to power ships and geothermal hot springs for bathing. Water wheels and windmills are other examples of humans utilising renewable resources, but since the industrial revolution fossil fuels, coal in particular, have been the main source of power.

However, as the effects of air pollution and CO2 produced from burning fossil fuels become increasingly apparent, renewable energy is gradually replacing sources which contribute to climate change.

In the year 2000 renewable energy accounted for 18% of global electricity generation, according to the IEA. By 2019, renewable sources made up 27% of the world’s electrical power.

Why renewable energy is essential to tackling climate change

The single biggest human contribution to climate change is greenhouse gas emissions, such as CO2, into the atmosphere. They create an insulating layer around the planet that causes temperatures on Earth to increase, making it less habitable.

Renewable sources of electricity can help to meet the world’s demand for power without contributing to global warming, unlike carbon-intensive fuels like coal, gas and oil.

Bioenergy can also be used to remove CO2 from the atmosphere while delivering renewable electricity through a process called bioenergy with carbon capture and storage (BECCS).

Forests absorb CO2 from the atmosphere, then when the biomass is used to generate electricity the same CO2 is captured and stored permanently underground – reducing the overall amount of CO2 in the atmosphere.

Humans have used renewable energy for millions for years, from wood for fires to wind powering boats to geothermal hot springs. 

What’s holding renewables back?

The world’s energy systems were built with fossil fuels in mind. This can make converting national grids difficult and installing new renewable energy sources expensive. However, as knowledge grows about how best to manufacture, build and operate renewable systems, the cost of deploying them at scale drops.

There are future changes needed. Renewables such as wind, solar and tidal power are known as intermittent renewables because they can’t generate electricity when there is no sun, wind or the tidal movement. For future energy systems to deliver enough power, large scale energy storage, as well as other flexible, reliable forms of generation will also be needed to meet demand and keep systems stable.

Renewable energy key facts:  

Go deeper

Burns Lake and Houston pellet plant catchment area analysis

British Columbia, near Barriere, North Thompson River, aspen trees, dead pine trees behind infected with pine bark beetle (aka mountain pine beetle)

The eigth report in a series of catchment area analyses for Drax looks at the fibre sourcing area surrounding two compressed wood pellet plants operated by Pinnacle.

This part of interior British Columbia (BC) is unique in the Drax supply chain. Forest type, character, history, utilisation, natural challenges, logistics, forest management and planning are all very different to the other regions from which Drax sources biomass. Recently devasted by insect pest and fire damage, Arborvitae Environmental Services has produced a fascinating overview of the key issues and challenges that are being experienced in this region.

Figure 1: Catchment area map of the region [Click to view/download]

A positive response to natural disasters

Like the entire BC Interior, the area has suffered a devastating attack of Mountain Pine Beetle (MPB) damage over the last 20 years which has completely dominated every forest management decision and action. Within the catchment area, the MPB killed an estimated 157 million cubic metres (m3) between 1999 and 2014, representing 42% of the estimated 377 million m3 of total standing timber in the catchment area in 1999.  In addition, severe wildfires in 2018 burned an estimated 7.1 million m3.

These natural events have had a devastating impact on the forest resource. Harvesting increased significantly to utilise the dead and dying timber as lumber in sawmills whilst it was still viable.

Net carbon emissions in Canada’s managed forest: All areas, 1990–2017; illustrates that the impact of fires and insect damage have been far more significant, by hectares affected, than forestry activity; Chart via Natural Government of Canada

The Pinnacle pellet mills at Burns Lake and Houston were established alongside the sawmills to utilise the sawmill residues as there were no other viable markets for this material. These sawmills draw fibre from a large distance, up to 300 miles away. Therefore, the size of the catchment area in this piece of analysis is determined by the sourcing practices of the sawmills rather than the economic viability of low grade roundwood transport to the pellet mill (see Figure 1).

Damage to pine trees by Mountain Pine Beetle (MPB)

Utilising forest residues

The two mills producing high-density biomass pellets have provided an essential outlet for residue material that would otherwise have no other market and until very recently were supplied almost entirely by mill residuals. As the quantity of dead and dying timber has reduced and sawmill production has declined, the pellet mills are beginning to utilise more low-grade roundwood and forest residues (that are otherwise heaped and burned at roadside following harvest) to supplement the sawmill co-products.

Primarily State owned managed forests

The total land area in the catchment for Burns Lake and Houston is 4.47 million hectares (ha) of which 3.75 million ha is classed as forest land, 94% of the catchment area is public land under provincial jurisdiction. The provincial forest service is responsible for all decisions on land use and forest management on public land, in consultation with communities and indigenous groups, determining which areas are suitable for timber production and which areas require protection. Approximately 34% of the catchment area is not available for commercial timber harvesting because it is either non-forested or it has low productivity, and other operational challenges, or it is protected for ecological and wildlife reasons.

The Chief Forester for the province sets the Annual Allowable Cut (AAC) which determines the quantity of timber that can be harvested each year. Ordinarily this will be based on the sustainable yield capacity of the working forest area, but in recent years the MPB damage has necessitated a significant increase in AAC to facilitate the salvage of areas that have been attacked and damaged (see Figure 2).

Figure 2: Changes in Annual Allowable Cut 1980 to 2018 (Source: Nadina District FLNRORD) [Click to view/download]

The catchment area is in the Montane Cordillera ecozone and the Canadian Forest Service reports that between 1980 and 2017, the area of forest in the ecozone declined from 31,181,000 ha to 31,094,000 ha, a decline of 87,000 ha or 0.28 % of the forest area. Deforestation in the catchment area was estimated at 300 ha per year. Most deforestation in the ecozone occurred because of conversion to agriculture, as well as other contributing factors, such as mining, urban expansion and road construction (including forest roads).

The forest area is dominated by coniferous species (see Figure 3) predominantly lodgepole pine, spruce and fir (90% of the total area), with hardwood species (primarily aspen) making up just 8% of the total area.

Figure 3: Species composition of forest land in the catchment area.

Managing beetle damaged areas

The annual harvest volume was at a peak in the early part of the last decade at over 12 million m3 in 2011. This has now declined by around 4.5 million m3 in 2019 (see Figure 4) as the beetle damaged areas are cleared and replanted. The AAC and harvesting levels are expected to be reduced in the future to allow the forest to regrow and recover.

Figure 4: Annual change in harvest volume of major species

Future increases in forest growth rates

Historically, the forest area has naturally regenerated with self-seeded stands reaching a climax of mature pine, spruce, and Abies fir mixtures.  As the forest matured, it would often be subject to natural fires or other disturbance which would cause the cycle to begin again. Following the increase in harvesting of beetle damaged areas, many forests are now replanted with mixtures of spruce and pine rather than naturally regenerated. This is likely to lead to an increase in forest growth rates in the future and a higher volume of timber availability once the areas reach maturity (see Figure 5).

Figure 5: Forecast of future volume production

Timber markets in the catchment area are limited in comparison to other regions like the US South.  The scale of the landscape and the inaccessible nature of many of the forest areas limit the viability of access to multiple markets. Sawmills produce the highest value end-product and these markets have driven the harvesting of forest tracts for many years. Concessions to harvest timber are licensed either by volume or for a specific area from the provincial forest service. This comes with a requirement to ensure that the forest regrows and is appropriately managed after harvesting.

There are no pulp mills within the catchment area and limited alternative markets for the lowest grades of roundwood or sawmill residuals other than the pellet mills; consequently, the pellet mills have a close relationship with the sawmills.

Wood price trends

Prices for standing timber on public land are determined by the provincial government using results from public timber sales and set according to the species and quality of timber produced (from the highest-grade logs through to forest residuals). The lack of market diversity and challenging logistics mean that there is little competition for mill residuals and low-grade fibre. The price differential in end-product value between sawtimber and wood pellets ensures that fibre suitable for sawmill utilisation does not get processed by the pellet mill. A very small volume of larger dimension material can end up in a low value market when there are quality issues that limit the value for sawtimber (e.g. rotten core, structural defects) but this represents a very small proportion of the supply volume. There is no evidence that pellet mills have displaced other markets within this catchment area.

Read the full report: Catchment Area Analysis: Pinnacle Renewable Energy’s Burns Lake & Houston Mills.

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

New ESG RCF and Financing Update

Landscape of trees in autumn Where: Cruachan Power Station, Scotland
RNS Number: 8002F
Drax Group PLC (Symbol: DRX)

Drax is pleased to announce that it has completed the refinancing of its revolving credit facility.

The new £300 million facility (“the Facility”) matures in 2025, with an option to extend by one year(1). The Facility replaces the current RCF which matures in 2021 and provides increased liquidity, enabling the full facility to be drawn as cash (the previous facility restricted cash drawn to support liquidity to £165 million). The Facility is currently undrawn for cash.

The Facility has a customary margin grid referenced over LIBOR, which reflects a small reduction in cost versus the current RCF and includes an embedded ESG component which adjusts the margin based on Drax’s carbon intensity measured against an annual benchmark.

Drax has also agreed a change to the Group’s £35 million term-loan facility, maturing in 2022, in order to simplify its capital structure. This facility will now rank as senior, previously super senior.

Drawing of previously agreed infrastructure facility

On 14 September 2020, Drax confirmed that it had agreed a new infrastructure term-loan agreement (the “Agreement”) that provided committed facilities of approximately £160 million with a range of maturities between 2024 and 2030(2). These facilities extended the Group’s maturity profile while also reducing the cost of debt. Drax has now drawn £28 million(2), with the balance to be drawn by February 2021.

The Agreement also included an option for a further £75 million. Under this option Drax has now agreed £53 million maturing in 2028, which will be drawn in December 2020.

Proceeds from Euro denominated bond issue and utilisation

On 4 November 2020, Drax issued €250 million of Euro denominated senior secured notes which mature in 2025. The effective Sterling-equivalent interest rate is 3.24% per annum.

The proceeds from this issuance, along with existing cash flows, are being used to redeem the Group’s £350 million 2022 Sterling bond and £125 million ESG term-loan facility.

The notes extend the Group’s debt maturity profile and reduce the overall cost of debt to approximately 3.7%.

Summary of Group debt structure at 19 November 2020

Infrastructure facilities (2019)2024-2029£375m
Infrastructure facilities (Sept 2020)2024-2030approx.£160m (2) (£28m (2) drawn)
Infrastructure facilities (Nov 2020)2028£53m
RCF2025£300m (undrawn for cash)
Index-linked term-loan2022£35m


Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949


Drax External Communications: Selina Williams

+44 (0) 7912 230 393

Website: www.drax.com