Tag: Will Gardiner

Full year results for the twelve months ended 31 December 2022

RNS Number : 7781Q
Drax Group PLC
23 February 2023

Twelve months ended 31 December20222021
Key financial performance measures
Adjusted EBITDA (£ million) (1)(2)731398
Net debt (£ million) (3)1,2061,108
Net debt to Adjusted EBITDA1.6x2.8x
Adjusted basic EPS (pence)(1) (1)85.126.5
Total dividend (pence per share)21.018.8
Total financial performance measures from continuing operations
Operating profit (£ million)146197
Profit before tax (£ million)78122

Will Gardiner, CEO of Drax Group, said:

Will Gardiner, Drax Group CEO

“Drax delivered a strong performance in 2022, and played a significant role in ensuring security of supply during a challenging year for the UK’s energy system.

“Our renewable generation – biomass, hydro and pumped storage – are a major source of power in the UK and during periods of peak demand when there was low wind and solar power, these assets collectively supplied up to 70% of the UK’s renewable power in certain periods.

“We believe that BECCS can become a world-leading solution for large-scale high-quality carbon removals and we are seeing increasing global policy support for its delivery.

“Drax stands ready to invest billions of pounds in the development of this technology and, following the introduction of the US Inflation Reduction Act, we are increasingly excited about the opportunities to deploy BECCS in the US. In response, the UK Government should accelerate its policy support for BECCS to make the UK a world leader in carbon removals, while attracting investment and delivering its net zero targets.

“Drax is a growing international business with strong cash returns which we are reinvesting to produce more renewable energy and deliver carbon removals while reducing our own carbon emissions. We aim to be at the heart of the energy transition, creating the jobs, renewable power and large-scale carbon removals that the world needs.”

Financial highlights – strong financial performance underpinning investment and a sustain and growing dividend

  • Adjusted EBITDA of £731 million up 84% (2021: £398 million)
  • Strong liquidity and balance sheet – £698 million of cash and committed facilities at 31 December 2022
    • 1.6x Net debt to Adjusted EBITDA – significantly below 2x target
  • Total dividend increased 11.7% to 21.0 pence per share (2021: 18.8 pence per share)
    • Proposed final dividend of 12.6 pence per share (2021: 11.3 pence per share)

Operational highlights – optimisation of supply chain and generation to support security of supply

  • UK’s largest source of renewable power by output – 11% of annualised total, 19% of peak (up to 70% in-day peak)

Strategy highlights – developing a pipeline for carbon removals, biomass and dispatchable, renewable power

  • Ambition to be a global leader in carbon removals
    • Global BECCS – developing a pipeline of projects in the US targeting long-term large-scale carbon removal
      • First new-build site chosen, with over 10 sites currently under evaluation
      • MoU agreed with large timberland owner to develop a pipeline of BECCS opportunities
      • MoU agreed with Respira for sale of 2Mt of carbon removals from new-build BECCS plants
    • UK BECCS – UK Government to confirm shortlisting for “Track 1” UK BECCS projects
  • Ambition to be a global leader in sustainable biomass – targeting 8Mt of capacity and 4Mt of third-party sales by 2030
    • Addition of 0.5Mt of operational pellet production capacity and final investment decision (FID) on 0.6Mt in 2023
  • Ambition to be a UK leader in dispatchable, renewable power
    • Aim to reach agreement regarding long-term incentives for biomass generation not operating as BECCS
    • Planning application submitted for 600MW expansion of Cruachan and connection agreement secured

Future positive – climate, nature, people

  • Exiting gas sales on Customers SME business
  • Drax Power Station sustainability sourcing requirements are compliant with UK law on sustainable sourcing
  • Biomass produced using material from well-established forestry markets in the US, Canada and Europe
  • Subject to national and regional regulation and typically supported by, and independently monitored for compliance by, forest certification schemes such as: the Forestry Stewardship Council® (FSC)(4), Sustainable Forestry Initiative (SFI) and Programme for the Endorsement of Forest Certification© (PEFC)(5)
  • Launch of Drax Foundation to deliver community initiatives that support education and skills development in Science, Technology, Engineering and Maths (STEM), and that improve green spaces and enhance biodiversity within local communities

Operational review

Pellet Production – increased production, flexible operations to support UK generation, addition of 0.5Mt of capacity

  • Adjusted EBITDA up 56% to £134 million (2021: £86 million)
    • Production up 26% to 3.9Mt (2021: 3.1Mt, including Pinnacle since 13 April 2021)
    • Lower than planned production – delays achieving full production at new plants, North American rail restrictions and flexible production
  • Optimisation of supply chain supports value for the Group
    • Flexible production to support generation
    • Sales to third parties under long-term contracts
    • Spot sales and purchases
  • Addition of c.0.5Mt of production capacity – Demopolis, Leola and Russellville – completing commissioning and acquisition of Princeton
  • 6% year-on-year production cost increase to $152/t(6) (2021: $143/t(6))
    • Inflation impact on utility costs (>35%) and fuel surcharges (barge and rail transport to port (>20%))
  • Outlook – clear pathway to improved earnings profile
    • Incremental production at existing sites and addition of new capacity
    • Continued headwind from inflation in 2023
    • Development and introduction of new technologies and innovation, including c.£10 million R&D investment in a biomass sugar extraction plant
    • Increased use of residuals and a wider range of sustainable biomass materials

Generation – flexible operations and dispatch to capture value – increased system support and security of supply

  • Adjusted EBITDA £696 million up 87% (2021: £372 million)
    • Optimisation of generation and logistics to support UK security of supply at times of higher demand
      • Summer – lower power demand, lower power generation and sale of reprofiled biomass
      • Winter – maximise biomass deliveries to support increased generation at times of higher demand
    • Higher biomass and system costs reflecting a more challenging energy environment
  • Strong pumped storage and hydro performance – value from increased system support activity and generation
  • Six-month extension of coal at request of UK Government – winter contingency contract for security of supply
    • Units not called other than for testing
    • Closure of coal units in March 2023 following expiration of current agreement
  • As at 17 February 2023, Drax had 23.3TWh of power hedged between 2023 and 2025 on its ROC and hydro generation assets at an average price of £152.8/MWh, inclusive of equivalent gas sales (transacted for the purpose of accessing additional liquidity for forward sales from ROC units and highly correlated to forward power prices) and the cost of unwinding equivalent gas sales. Excludes any sales under the CfD mechanism.
Contracted power sales as at 17 February 2023202320242025
Net ROC, hydro and gas (TWh(7/8/9))12.49.01.9
-Average achieved £ per MWh (£ per MWh)158.1149.2135.7
Lower expected level of ROC generation in 2023 due to major planned outages on two units

Electricity pylons take flexible power generated from water stored in a reservoir at Cruachan Power Station in the Highlands into the national grid

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

  • Adjusted EBITDA of £26 million (2021: £6 million) – continued improvement in profitability post impact of Covid-19
  • Continued development of Industrial & Commercial (I&C) portfolio
    • 14.8TWh of power sales – 24% increase compared to 2021 (11.9TWh)
    • Commencement of new supply contracts to three major high-quality customers supporting generation route to market

Other financial information

Profits

  • Total operating profit from continuing operations of £146 million (2021: £197 million), including £298 million mark-to-market loss on derivative contracts and £25 million of exceptional costs
  • Total profit after tax of £83 million (2021: £55 million profit after tax from continuing operations, including a £49 million non-cash charge from revaluing deferred tax balances)
  • Depreciation, amortisation, impairment, loss on disposal and exceptional items of £286 million (2021: £209 million) reflects inclusion of Pinnacle for a full 12 months, plant upgrades and accelerated depreciation of certain pellet plant equipment in line with planned capital upgrades and asset impairment of £17 million

Capital investment

  • 2022 capital investment of £255 million (2021: £238 million) – includes c.£90 million from OCGT projects
  • 2023 expected capital investment of £570 – £630 million
    • £120 million maintenance, including two major planned outages on biomass units; £30 million enhancements; £430 million strategic – includes >£200 million OCGT and >£100 million pellet plant developments

Cash and interest

  • Group cost of debt below 4.2%
  • Cash Generated from Operations £320 million (2021: £354 million), inclusive of collateral payments (2021: £168 million inflow) typically associated with higher commodity prices and expected to unwind through 2023 and 2024
    • £234 million of collateral placed in 2022 (2021: £173 million held)
  • Net debt of £1,206 million (31 December 2021: £1,108 million), including cash and cash equivalents of £238 million (31 December 2021: £317 million)
    • 1.6x Net debt to Adjusted EBITDA, inclusive of temporary collateral outflows – significantly below 2x target
    • 1.3x Net debt to Adjusted EBITDA, excluding collateral

Capital allocation policy – unchanged

  • Maintain a strong balance sheet
  • Invest in the core business and strategy, including new biomass pellet plants, the development of options for BECCS, and the expansion of pumped storage power station at Cruachan
  • Pay a sustainable and growing dividend
  • Return surplus capital to shareholders – if there is a build-up of capital, the Board will consider the most appropriate mechanism to return this to shareholders
    • Considerations include – timing of capital deployment, leverage profile, prevention of dilution and divestment of non-core assets

2023 financial and operational outlook

  • Continued optimisation of biomass supply chain and generation to create value for the Group
  • Baseload ROC generation, plus two planned major outages
  • CfD unit held in reserve – operation subject to good ROC unit operational performance and market conditions
  • Biomass generation cost >£100/MWh
  • Forward selling of pumped storage and hydro underpins expectations
  • Electricity Generator Levy applicable to ROC and hydro assets, but not pumped storage, CfD or coal

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; uncertainty as to future investment and support achieved in enabling the realisation of strategic aims and objectives; and/or general economic conditions or conditions affecting the relevant industry, both domestically and internationally, being less favourable than expected, including the impact of prevailing economic and political uncertainty. 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

Event Title: Drax Group plc: Full Year Results
Event Date: Thursday 23 February 2023
9:00am (UK time)
Webcast Live Event Link: https://secure.emincote.com/client/drax/drax024
Conference call and pre-register Link: https://secure.emincote.com/client/drax/drax024/vip_connect
Start Date: Thursday 23 February 2023
Delete Date: Thursday 23 February 2024
Archive Link:  https://secure.emincote.com/client/drax/drax024

For further information, please contact: [email protected]

View investor presentation here

Critical role supporting UK energy system and progress with BECCS

RNS Number : 7670J
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Operational Highlights

  • Critical role supporting UK energy system with biomass, pumped storage and hydro
  • System support – strong pumped storage and hydro performance in H2-22
  • Strong contracted power sales 2022-24
  • >99% of generation from renewables – biomass, pumped storage and hydro
    • Jan to Nov Drax generated 20% of UK renewables at peak demand and 11% in total

 Financial Highlights

  • 2022 Adjusted EBITDA(1) now slightly above the top of the range of analyst expectations(2)
  • Remain on track to be significantly below 2x net debt to Adjusted EBITDA by the end of 2022

Strategic Highlights

  • Growing global demand for negative emissions and increasing opportunities for BECCS
    • Development of North American options including two new-build BECCS power stations, a pellet plant with BECCS and coal-to-biomass-to-BECCS
    • £30 million development expenditure in 2023 to support options in North America
    • MoU signed for sale of 2Mt of Carbon Dioxide Removal (CDR) certificates
  • UK BECCS
    • “Track 1” Power-BECCS application submitted, shortlisted projects selected in Q1-23
    • UK Government – publication of Power-BECCS business model consultation
  • Pellet Production
    • $300m investment in new US pellet plant, port and capacity expansion – c.0.6Mt
    • 90kt pellet plant acquired – Princeton, British Columbia

Drax Group CEO, Will Gardiner said:

Will Gardiner, Drax Group CEO

“Drax plays a critical role in supporting the UK energy system, generating more renewable power by output than any other company. During the difficult winter ahead, we will continue to optimise our biomass operations to ensure that more renewable power is available, when the country needs it most.

“As governments around the world increasingly look to introduce supportive policies for carbon removals, Drax is considering more exciting global opportunities for deployment of BECCS, advancing our ambition to be a leader in this critical technology.

“Drax is a growing, international business at the heart of the green energy transition and we are accelerating our plans to invest billions of pounds in critical renewable energy and carbon removal technologies which could create thousands of jobs and generate the secure, renewable power that this planet urgently needs.”

Pellets Production

The Group’s sustainable biomass pellet business has continued to support efforts to optimise biomass power generation and security of supply in the UK at times of higher demand this winter.

As outlined at the Group’s half year results, in July 2022, there has been an incremental increase in costs in North America, primarily in transportation and utility costs. These cost increases have continued in the second half of 2022 and taken together with costs incurred in providing supply-side flexibility, production costs for the business are expected to be higher in 2022 and 2023. These increased costs have been considered in an adjusted transfer price, which was implemented in the second half of the 2022.

Drax remains focused on opportunities to reduce the cost of biomass but will balance this against the need to optimise its supply chain to deliver value for the Group.

In the second half of 2022, Drax commissioned a second 40kt satellite plant at Russellville (Arkansas) and in August 2022, Drax acquired a 90kt pellet plant in Princeton (British Columbia) from Princeton Standard Pellet Corporation. In addition, following commissioning in the first half of 2022 both the Demopolis (Alabama) and Leola (Arkansas) pellet plants have continued to work towards full production and these four plants combined will add over 500kt of full production capacity.

Investment in new production capacity

Drax has taken a Final Investment Decision (FID) to invest in two new pellet production projects – a 450kt new-build pellet plant at Longview (Washington State), including the development of a new port facility at this location, and a 130kt expansion of its Aliceville site (Alabama). The combined investment in these three projects is expected to be in the region of $300 million, inclusive of the effect of inflation on construction costs.

The development of the new plant at Longview will provide the Group with access to a new fibre basket and Drax will also develop port infrastructure at the Port of Longview, adding a fifth port to the Group’s North American supply chain, with the opportunity to consolidate additional capacity in the future. The US Pacific North-West will be the Group’s fourth major fibre basket alongside; the US South; British Columbia; and Alberta. The new facility is expected to support further diversification of the Group’s fibre sourcing production and export capacity, supporting sales into Asian and European markets, as well as own-use.

The Longview plant will be located next to the Port of Longview, removing the need for rail or road transport of pellets, significantly reducing transport time, cost and carbon emissions.

The plant and port are expected to begin commissioning in 2025.

The Aliceville expansion includes upgrades to existing systems as well as new truck dumps and pelletiser units which will allow for an increase in the amount of sawmill residuals processed. The additional capacity is expected to begin commissioning in 2024.

Generation

The Group’s biomass, pumped storage and hydro assets have continued to support UK security of supply, providing power system stability at a time of higher gas prices and volatility on the power system.

Drax has continued to optimise biomass generation across all four biomass units (ROC and CfD), maximising generation in the winter, based on system need and sustainable biomass supply.

In October 2022, due to a fall in gas prices and a consequential fall in short-term power prices, Drax bought back certain existing forward sold power sales for 2022 on its ROC units. As a result, Drax has taken steps to reprofile and optimise biomass supplies between own-use and third-party supply.

The Group’s pumped storage and hydro assets have performed strongly in the second half of 2022, providing a wide range of services to the system operator in support of system stability and renewable electricity.

Generation contracted power sales

As at 8 December 2022, Drax had 28.3TWh of contracted power sales between 2022 and 2024 on its ROC and hydro generation assets at an average price of £135.8/MWh, with a further 1.4TWh 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 8 December 2022202220232024
ROC (TWh)10.711.16.1
- Average achieved £ per MWh90.2154.5159.0
Hydro (TWh)0.3<0.1-
- Average achieved £ per MWh255.6--
Gas hedges (TWh equivalent)-0.11.3
Pence per therm-153.2133.9
Lower expected level of ROC generation in 2023 due to major planned outages on two units

Generation biomass costs

Over the past 12 months the cost of biomass in the European spot market has increased significantly, with cargoes trading at over three times their historic average.

Reflecting higher production costs in its own supply chain, those of third parties and higher spot market prices, Drax has incurred additional costs in the second half of 2022, securing biomass to support its reliable and dispatchable generation. Accordingly, the Group currently expects its all-in contracted cost of biomass for the UK generation business to be over £100/MWh in 2023. This is above the historic average, in part reflecting increased transportation and fuel costs associated with higher energy costs, inflation and the lower value of Sterling captured in the Group’s foreign exchange hedges.

These factors, alongside the Electricity Generators Levy (EGL) (see note below), could make generation at certain times less economic and is expected to restrict the Group’s purchase of additional biomass cargoes at spot prices.

Coal

In July 2022, at the request of the UK Government, Drax entered into an agreement with National Grid, to provide a “winter contingency” service to support the UK power system via its legacy coal units.

The units will not generate commercially for the duration of the agreement and will only operate if, and when, instructed to do so by National Grid. To date National Grid has not instructed the units to run, other than for testing. The contract, which covers the period October 2022 to March 2023, provides Drax with a fixed fee for the provision of the units with National Grid remunerating Drax for costs, including the coal and carbon associated with any generation.

Drax’s decision, in 2020, to end coal generation supports the Group’s purpose of enabling a zero-carbon, lower-cost energy future and the transition to a flexible, renewable generation model. This has led to a c.99% reduction in the Group’s Scope 1 and Scope 2 carbon emissions since 2012 and enabled Drax to become the UK’s largest source of renewable electricity by output.

Full year expectations

Reflecting these factors, and the strong pumped storage and hydro performance in the second half of 2022, Drax now expects that full year Adjusted EBITDA(1) for 2022 will be slightly above the top of the range of analyst expectations(2), subject to continued good operational performance and logistics for the remainder of the year.

The power sales reflected in the Generation business’s contracted power sales book includes some exchange traded contracts, with higher power prices resulting in an increase in collateral payments on these contracts in 2022. Inclusive of these temporary cash outflows the Group continues to expect net debt to Adjusted EBITDA(1) to be significantly below 2x at the end of 2022.

Electricity Generators Levy

In November 2022, the UK Government announced a windfall tax on renewable and low-carbon generators, the EGL.

The EGL, which is expected to be implemented from 1 January 2023, represents a levy on power sales above a threshold and would apply to Drax’s three biomass units operating under the Renewable Obligation scheme and its run of river hydro operations, but does not include the sale of ROCs. Drax’s CfD biomass unit is exempt, along with Cruachan pumped storage hydro power station and coal generation.

Through November and December Drax has engaged with the UK Government regarding the precise details of the EGL, including UK investment allowances and the treatment of costs for dispatchable generators. Drax notes the UK Government’s reference to the potential for cost adjustments in its EGL technical note published in November 2022. Drax anticipates an update from Government on these issues shortly.

Bioenergy Carbon Capture and Storage (BECCS) – UK

Drax has continued to commit development expenditure into its Drax Power Station BECCS project, including continuing a Front-End Engineering Design study.

The project would see the addition of post combustion Carbon Capture and Storage (CCS) to two of the existing biomass units, using sustainable biomass and adapting a proven technical solution from Drax technology partner, Mitsubishi Heavy Industries. By 2030 the project aims to permanently remove 8Mt of CO2 per annum from the atmosphere. In doing so Drax Power Station aims to become one of the largest sources of Carbon Dioxide Removals (negative CO2) in the world.

The UK Government recognises the important role which BECCS has to play in delivering net zero, requiring at least 5Mt of CO2 removals per annum from BECCS and other engineered Greenhouse Gas Removal technologies by 2030.

In August 2022, the UK Government published a Power-BECCS business model consultation which set a viable investment framework based on a CfD mechanism for both power generation and negative emission production. In addition, the UK Government also set out the timeframe for the selection of “Track 1” Power-BECCS projects, stating that shortlisted projects could be confirmed from December 2022 with draft heads of terms for the contracts in the first half of 2023. “Track 1” projects are expected to commission in the mid-2020s and along with expected clarity on the financial model, this supports Drax’s aim to take a FID in 2024 and commission a first unit in 2027, with a second by 2030.

The six-month extension of coal unit availability to March 2023 is not expected to impact the timing of a FID or intended commissioning date for the project. Site preparation works for BECCS are ongoing and will continue following formal closure of the coal units in March 2023 on conclusion of the contract with National Grid (see above).

BECCS – North America

Drax aims to realise its ambition to become a carbon negative company by 2030 primarily through the development of BECCS, including the development of BECCS globally.

To realise these opportunities, the Group is progressing a number of work streams including regulation and policy, technology, fibre sourcing, logistics and commercial.

Over the course of the year, the Group has made good progress towards its ambition to deliver 4Mt per annum of CDRs from new-build BECCS outside of the UK by 2030, with a primary focus on North America.

Opportunities under consideration include two new-build 300MW BECCS power units each capable of producing 2TWh of renewable electricity from sustainable biomass and each capturing over 2Mt of CO2 per annum. Drax is also developing options for a pellet plant with BECCS and the addition of BECCS to existing generation assets, including coal-to-biomass-to-BECCS.

Key considerations for these opportunities include proximity to sustainable biomass fibre, CCS infrastructure, regulatory support, commercial potential and technology.

Drax is evaluating a range of potential financial models for these projects, which could include long-term Power Purchase Agreements (PPAs), long-term CDR offtake agreements and government investment frameworks. As part of the development of these models, in September 2022, Drax announced a Memorandum of Understanding (MoU) for the world’s biggest carbon removals deal with Respira, a carbon broker. Under the terms of the MoU, Respira will be able to purchase up to 2Mt of CDRs over a five-year period from Drax’s North American BECCS projects.

Regulation and policy development

The regulatory environment for BECCS in the US has continued to develop in 2022, with the inclusion of BECCS as an eligible technology under the Department of Energy climate goals funding scheme and the increase in 45Q support to $85 per tonne of CO2 captured, under the Inflation Reduction Act. A recent National Renewable Energy Lab report highlights that by 2035, the US could need c.100Mt of negative emissions from BECCS to offset remaining carbon emissions in the power sector.

In addition, recent State level developments in Louisiana and California have both been supportive of the development of BECCS. The Louisiana Congress approved a bill that classifies biomass as carbon neutral and BECCS as carbon negative. Similarly, California’s net zero strategy identifies BECCS as a critical tool in the delivery of their climate targets. The California Air Resources Board, which is responsible for climate policy, has stated its intention to deploy 75Mt of carbon removals, including BECCS, by 2045.

Potential for significant growth in CDRs

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

All the illustrative mitigation pathways assessed in the IPCC’s latest report use significant volumes of CDRs, and specifically BECCS as a key tool for mitigating climate change. The IPCC believes that globally between 0.5 and 9.5 billion tonnes of CDRs via BECCS will be required and the UN-backed Principles for Responsible Investment estimate that the CDR market could be worth over a trillion dollars by 2050.

Drax sees significant growth opportunities linked to BECCS in North America and in order to progress these opportunities in 2023, expects to invest in development expenditure in the region of £30 million with a view to progressing these opportunities to a FID. Drax expects to update on progress with these opportunities in the first half of 2023.

 

Biomass Sustainability

Delivering positive outcomes for people, climate and nature are at the core of Drax’s business model and ensuring that Drax only uses biomass which is sourced sustainably is central to this ambition.

Biomass – when sustainably sourced – supports good forestry, is a renewable source of energy, and an important part of both UK and international renewable energy policy.

Drax sources its biomass from well-established forestry markets in the US and Canada as well as Europe. The main output from these markets is sawlogs, which are processed for use in construction and manufacturing, such as house building. When used in this way, these materials represent a source of long-term carbon storage and when the forest regenerates or is replanted these growing trees absorb carbon from the atmosphere.

Drax supports these forest economies by providing incremental secondary revenues to forest landowners through the purchase of material which is not merchantable to a sawmill, such as bark, branches, low-grade wood and woody material from forest management activities (thinning), in addition to purchasing sawmill residues from sawmills. These materials often have limited alternative uses. In some instances, where there would otherwise be no demand for these materials, they are burned to reduce the risk of wildfire, the spread of disease and to allow the forest to be replanted – this is especially prevalent in Canada.

In the US South, the periodic thinning of a forest helps improve the size and quality of sawlogs when the trees reach maturity, the economic value of the timber produced and the carbon absorbed and stored, as well as forest health and biodiversity. If forests were not thinned, the revenue from sawlogs would be reduced and landowners may consider other uses for their land, such as agricultural crops and livestock farming. The management of forestland to produce sawlogs ensures forests are growing vigorously, absorbing carbon, and forests remain a carbon sink.

Forests in the areas where Drax sources material are subject to national and regional regulation and typically supported by, and independently monitored for compliance by, forest certification schemes such as: the Forestry Stewardship Council® (FSC)(3), Sustainable Forestry Initiative (SFI) and Programme for the Endorsement of Forest Certification (PEFC).

Drax supplements this regulation through its own biomass sourcing policy and checks of its supply chain, with third party verification under the Sustainable Biomass Program (SBP).

Other

In December 2022 Drax agreed a new £200 million credit facility with banks within its lending group. The facility provides an additional source of liquidity to the Group’s undrawn £300 million revolving credit facility, over the next 12 months.

Drax will report its full year results on 23 February 2023. 

Notes:

  1. Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements.
  2. As of 12 December 2022, analyst consensus for 2022 Adjusted EBITDA was £668 million, with a range of £651-£681 million. The details of this company collected consensus are displayed on the Group’s website. https://www.drax.com/investors/announcements-events-reports/presentations/
  3. FSC C119787.

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, 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.

END

Half year results for the six months ended 30 June 2022

RNS Number: 6883T
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Six months ended 30 JuneH1 2022H1 2021
Key financial performance measures
Adjusted EBITDA (£ million)(1)(2)225186
Continuing operations225165
Discontinued operations – gas generation-21
Net debt (£ million)(3)1,1011,029
Adjusted basic EPS (pence)(1)20.014.6
Interim dividend (pence per share)8.47.5
Total financial performance measures from continuing operations
Operating profit (£ million)20784
Profit before tax (£ million)20052

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

Will Gardiner, CEO of Drax Group, said:

“As the UK’s largest generator of renewable power by output, Drax plays a critical role in supporting the country’s security of supply. We are accelerating our investment in renewable generation, having recently submitted planning applications for the development of BECCS at Drax Power Station and for the expansion of Cruachan Pumped Storage Power Station.

“As a leading producer of sustainable wood pellets we continue to invest in expanding our pellet production in order to supply the rising global demand for renewable power generated from biomass. We have commissioned new biomass pellet production plants in the US South and expect to take a final investment decision on up to 500,000 tonnes of additional capacity before the end of the year.

“As carbon removals become an increasingly urgent part of the global route to Net Zero, we are also making very encouraging progress towards delivering BECCS in North America and progressing with site selection, government engagement and technology development.

“In the UK and US we have plans to invest £3 billion in renewables that would create thousands of green jobs in communities that need them, underlining our position as a growing, international business at the heart of the green energy transition.”

Financial highlights

  • Adjusted EBITDA £225 million up 21% (H1 2021: £186 million)
  • Strong liquidity and balance sheet – £539 million of cash and committed facilities at 30 June 2022
    • Expect to be significantly below 2 times Net Debt to Adjusted EBITDA by the end of 2022
  • Sustainable and growing dividend – expected full year dividend up 11.7% to 21.0 p/share (2021: 18.8 p/share)
    • Interim dividend of 8.4 p/share (H1 2021: 7.5 p/share) – 40% of full year expectation

Engineers at Cruachan Power Station

Progress with strategy in H1 2022

  • To be a global leader in sustainable biomass – targeting 8Mt of capacity and 4Mt of sales to 3rd parties by 2030
    • Addition of 0.4Mt of operational pellet production capacity
    • New Tokyo sales office opened July 2022
  • To be a global leader in negative emissions
    • BECCS – UK – targeting 8Mt of negative emissions by 2030
    • Planning application submitted and government consultation on GGR business models published with power BECCS business model consultation expected “during the summer”
    • BECCS – North America – targeting 4Mt of negative emissions by 2030
    • Ongoing engagement with policy makers, screening of regions and locations for BECCS
  • To be a leader in UK dispatchable, renewable power
    • >99% reduction in scope 1 and 2 emissions from generation since 2012
    • UK’s largest generator of renewable power by output – 11% of total
    • Optimisation of biomass generation and logistics to support security of supply at times of higher demand
    • Planning application submitted for 600MW expansion of Cruachan and connection agreement secured

Outlook for 2022

  • Expectations for full year Adjusted EBITDA unchanged from 6 July 2022 update which reflected optimisation of biomass generation and logistics to support UK security of supply this winter when demand is high, a strong pumped storage performance and agreement of a winter contingency contract for coal

Future positive – people, nature, climate

  • People
    • Diversity and inclusion programme – inclusive management, promoting social mobility via graduates, apprenticeships and work experience programmes
    • Continued commitment to STEM outreach programme

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

  • Nature and climate
    • Science-based sustainability policy fully compliant with current UK and EU law on sustainable sourcing and aligned with UN guidelines for carbon accounting
    • 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
    • Increase in sawmill residues used by Drax to produce pellets – 67% of total fibre (FY 2021: 62%)
    • 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

Operational review

Pellet Production – increased production, flexible operations to support UK generation, addition of 0.4Mt of capacity 

  • Adjusted EBITDA up 13% to £45 million (H1 2021: £40 million)
    • Pellet production up 54% to 2.0Mt (H1 2021: 1.3Mt) (including Pinnacle since 13 April 2021)
  • Addition of c.0.4Mt of new production capacity
    • Commissioning of Demopolis and Leola, expect to reach full production capacity in H2 2022
  • Total $/t cost of $146/t(5) – 2% increase on 2021 ($143/t(5))
    • Increase in utility costs in Q2-22 (>20% increase)
    • Fuel surcharge – barge and rail to port (> 10% increase)
    • Commissioning costs at Demopolis and Leola plants
    • Net reduction in other costs, inclusive of optimisation of supply chain to meet reprofiling of Generation
    • No material change in fibre costs
  • Areas of focus for further savings – wider range of sustainable biomass fibre, continued focus on operational efficiency and improvement, capacity expansion, innovation and technology
  • Continue to target final investment decision on up to 0.5Mt of new capacity in H2 2022

Generation – increased recognition of value of long-term security of supply from biomass and pumped storage

  • Adjusted EBITDA from continuing operations £205 million up 24% (H1 2021: £165 million)
    • Optimisation of biomass generation and logistics to support security of supply at times of higher demand
    • Summer – lower power demand, lower power generation and sale of reprofiled biomass
    • Winter – maximise biomass deliveries to support increased generation at times of higher demand
    • Four small, planned biomass outages completed in H1, supporting higher planned generation in H2-22
    • Strong portfolio system support performance (balancing mechanism, ancillary services and optimisation)
    • Higher cost of sales – logistics optimisation, biomass and system costs
  • Six-month extension of coal at request of UK government – winter contingency contract for security of supply
    • Closure of coal units in March 2023 following expiration of agreement with ESO at end of March 2023
    • Fixed fee and compensation for associated costs, including coal
    • Remain committed to coal closure and development of BECCS, with no change to expected timetable
  • As at 21 July 2022, Drax had 25.4TWh of power hedged between 2022 and 2024 on its ROC and hydro generation assets at an average price of £95.9/MWh, with a further 2.3TWh 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 July 2022202220232024
ROC (TWh(6))11.78.84.5
Average achieved £ per MWh87.298.3109.5
Hydro (TWh)0.30.1-
-Average achieved £ per MWh133.1242.0-
Gas hedges (TWh equivalent)(0.1)0.51.9
-Pence per therm361.0145.8135.0
Lower expected level of ROC generation in 2023 due to major planned outages on two units

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

  • Adjusted EBITDA of £24 million (H1 2021: £5 million loss) – continued improvement following impact of Covid-19
    • principally in the SME business
    • Includes benefit of excess contracted power sold back into merchant market
  • Continued development of Industrial & Commercial (I&C) portfolio
    • 9TWh of power sales – 21% increase compared to H1 2021 (5.7TWh)
    • 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
  • SME – increasingly stringent credit control in SME business to reflect higher power price environment

Other financial information

  • Total operating profit from continuing operations of £207 million (H1 2021: £84 million), including £130 million mark-to-market gain on derivative contracts and £27 million of exceptional costs
  • Total profit after tax from continuing operations of £148 million includes an £8 million non-cash charge from revaluing deferred tax balances following confirmation of UK corporation tax rate increases from 2023 (H1 2021: £6 million loss including a £48 million non-cash charge from revaluing deferred tax balances)
  • Capital investment of £60 million (H1 2021: £71 million) – primarily maintenance
    • Full year expectation of £290–£310 million, includes £120 million for Open Cycle Gas Turbine projects, £20 million BECCS FEED and site preparation, and £10 million associated with new pellet capacity, subject to final investment decision (FID)
  • Depreciation and amortisation of £121 million (H1: £89 million) reflects inclusion of Pinnacle for a full six months, plant upgrades and accelerated depreciation of certain pellet plant equipment in line with planned capital upgrades
  • Group cost of debt below 3.6%
  • Cash Generated from Operations £185 million (H1 2021: £138 million)
  • Net Debt of £1,101 million (31 December 2021: £1,044 million), including cash and cash equivalents of £288 million (31 December H1 2021: £317 million)
    • Continue to expect Net Debt to Adjusted EBITDA significantly below 2 times by end of 2022, reflecting optimisation of generation and logistics to deliver higher levels of power generation and cash flows in H2 2022

View complete half year report

View Investor Presentation

Webcast Live Event

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

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

A letter from Drax CEO, Will Gardiner, on the current situation in Ukraine

Will Gardiner, Chief Executive Officer, Drax Group

The situation in Ukraine is increasingly worrying and I want to share my view of what we are doing as a company.

I absolutely condemn the Russian invasion of Ukraine. I am heartened by the resolute stance of NATO, the EU and many companies and stand behind and recognise the bravery of the Ukrainian people.

Our thoughts are with the Ukrainian people and our first concern is for their safety.

In regards to our biomass, we source the vast amount from North America. We have ceased the supply of the small percentage – less than 1% – of Russian biomass we use and are working with our suppliers and customers, to identify any further links to Russia.

We have systems in place and are working closely with the UK Government and other critical national infrastructure organisations to manage security threats arising from this conflict and to maintain our security of supply to all our customers.

Thank you

Will Gardiner
CEO, Drax

Updating on ambitions for pellet plants, biomass sales and BECCS

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

Half year results for the six months ended 30 June 2021

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 2021 202120222023
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

Landmark moments on the path to a net zero UK

Biomass domes on a sunny day

In brief

  • £75m backing for Zero Carbon Humber to develop net zero technologies
  • Accenture and World Economic Forum report says Humber could decarbonise quicker than any other UK industrial region
  • Mitsubishi Heavy Industries partners with Drax, supplying its advanced carbon capture technology, making millions of tonnes of negative emissions possible at Drax Power Station this decade
  • Deploying bioenergy with carbon capture and storage (BECCS) in the 2020s will have ‘positive spillover’ for a net zero economy, says Frontier Economics
  • Delaying BECCS until the 2030s, argues Baringa research, could increase energy system costs by £4.5bn
  • Planning consent process for BECCS at Drax from 2027 is underway, with public consulted
  • Drax and Bechtel studying global BECCS deployments

Around the world governments, industries and societies have begun to set themselves targets for reaching net zero but it is at home in the UK where real progress is starting to be made in answering some of the tougher challenges posed by the global environmental crisis.

Eyebrows were raised when the UK set itself one of the most stretching timeframes in which to decarbonise but like many business leaders, I am firmly of the belief that this ambitious target will be the catalyst to deliver the innovative thinking needed to get the planet to where it needs to be.

I was delighted to learn recently that Government has awarded the Zero Carbon Humber partnership £75 million in funding to develop world-leading net zero technologies.

MHI BECCS pilot plant within CCUS Incubation Area, Drax Power Station, North Yorkshire

MHI BECCS pilot plant within CCUS Incubation Area, Drax Power Station, North Yorkshire

Drax was one of the founder members of the Partnership and its goal is to build the world’s first net zero industrial cluster and decarbonise the North of England. Along with the other members, we worked hard to secure this Government support and it consists of money from the Department for Business, Energy & Industrial Strategy’s Industrial Decarbonisation Challenge fund, with two thirds coming from private backing. This financing is a vote of confidence from investors and highlights the Government’s commitment to developing the world’s first zero-carbon industrial cluster in the region.

Projects of this scale, backed with meaningful funding, are key to accelerating a range of technologies that will be essential to advancing decarbonisation. These include hydrogen production, carbon capture usage and storage (CCUS) and negative emissions through bioenergy with carbon capture and storage (BECCS). But more than just having a positive effect on reducing emissions, delivering this in the Humber will also support clean economic growth and future-proof vital industries.

Biomass storage domes and water cooling towers at Drax Power Station in North Yorkshire

Biomass storage domes and water cooling towers at Drax Power Station in North Yorkshire

I believe that in a similar way to how renewables have made huge strides in helping decarbonise power, a range of new technologies are now needed to decarbonise industry and industrial regions. Our work as a partnership in the Humber is establishing a landmark project for the UK and the world’s journey to net zero and clean growth.

Reaching net zero depends on a diverse range of technologies

There are many factors that will be essential for the world to reach net zero, but perhaps none more important than open collaboration and integration. Government, industry and individual businesses will need to work together and share learnings and infrastructure to be able to make true progress. This collaboration will of course take many forms, but one that is crucially important is industrial clusters, such as Zero Carbon Humber and neighbouring Net Zero Teesside.

A recent report by Accenture highlighted how vital decarbonising industrial regions will be to reaching climate goals. Industrial carbon dioxide (CO2) emissions account for as much as 11 gigatonnes, or 30% of global greenhouse gas emissions (GHG). However, the report also highlights the opportunities, both environmental and economic, in decarbonising clusters. The market for global industrial efficiency alone is expected to receive investments worth as much as $40bn, while the global hydrogen market was estimated at around $175bn in 2019.

The Humber is the UK’s largest cluster by industrial emissions, emitting 10 million tonnes of CO2 per year – more than 2% of the UK’s total GHG emissions. Pioneering projects around hydrogen production, CCUS and negative emissions through BECCS are all ready to scale in the region, beginning the task of reducing and removing emissions. The potential benefit to the regional economy could also be significant – it’s estimated these technologies could create 48,000 direct, indirect and induced jobs in the Humber region by 2027. This new £75 million in funding will allow work to gather pace on these transformational projects.

The funding will be used to obtain land rights and begin front-end engineering design (FEED) for the hydrogen facility at H2H Saltend, as well as onshore pipeline infrastructure for CO2 and hydrogen. It marks the beginning of the vital work of putting transportation systems in place that will take captured CO2 from Drax Power Station’s BECCS generating units and permanently store it under the southern North Sea’s bed.

Drax’s BECCS power generation is one of Zero Carbon Humber’s anchor projects. Our recently confirmed partnership with Mitsubishi Heavy Industries (MHI) will see its Advanced KM CDR™️ carbon capture technology deployed at Drax Power Station. The negative emissions that this long-term agreement will make possible, will enable the region to reduce its emissions faster than any other UK cluster, according to Accenture. Developing negative emissions through BECCS will help us achieve our ambition of becoming a carbon negative company by 2030. By that time, Drax Power Station could remove 8 million tonnes of CO2 from the atmosphere each year, playing a major part in helping the UK meet its climate goals.

From BECCS to a net zero UK

In March 2021, Drax kickstarted the process to gain the necessary planning permissions called a Development Consent Order (DCO) from the Government. It’s a crucial administrative step towards delivering a BECCS unit as early as 2027, and a landmark moment in developing negative emissions in the UK.

A report by Frontier Economics for Drax highlights BECCS as a necessary step on the UK’s path to decarbonisation. Developing a first-of-a-kind BECCS power plant would also have ‘positive spillover’ effects that can contribute to wider decarbonisation and a net zero economy. These include learnings and efficiencies that come from developing and operating the country’s first BECCS power station, as well as transport and storage infrastructure, which will reduce the cost of subsequent BECCS, negative emissions and other CCS projects.

However, the benefits of acting quickly and pioneering BECCS deployment at scale can only be achieved if policy is put in place to enable the right business models for BECCS and negative emissions. According to the Frontier report, intervention is needed to instil confidence in investors while also protecting consumer energy prices from spikes.

Inside MHI pilot carbon capture plant, Drax Power Station

Inside MHI pilot carbon capture plant, Drax Power Station

Failure to implement negative emissions through BECCS could also be costly. Time is of the essence for the UK to reach net zero by 2050 and research by energy consultancy Baringa, commissioned by Drax, highlights the economic cost of hesitation. Findings showed that delaying BECCS from 2027 to 2030 could increase energy system costs by more than £4.5bn over the coming decade and over £5bn by the time the UK has to reach net zero.

I believe what we are developing at Drax can become a world-leading and exportable solution for large-scale carbon negative power generation. The potential in negative emissions is economic as well as environmental, protecting thousands of jobs in the UK’s carbon-intensive industries, as well as overseas.

BECCS offers great potential for the UK to export skills, knowledge and equipment to an international market. To help establish this market we are working with engineering and construction project management firm Bechtel to explore locations globally where there is the opportunity to deploy BECCS, and identify how new-build BECCS plants can be optimised to deliver negative emissions for those regions.

Pictured L-R: Kentaro Hosomi, Chief Regional Officer EMEA, Mitsubishi Heavy Industries (MHI); Jenny Blyth, Project Analyst, Drax Group at Drax Power Station, North Yorkshire; Carl Clayton, Head of BECCS, Drax Group;

Multiple government and independent organisations have highlighted how essential negative emissions are to reaching net zero in the UK, as well as global climate goals. The recently formed Coalition for Negative Emissions aims to advance this vital industry at a global scale. By uniting a range of negative emissions providers and users from across industries, we can make it a more powerful force for decarbonisation and sustainable growth.

It will still be a long journey towards the UK’s goals, but the Government’s funding for Zero Carbon Humber, the beginning of our BECCS DCO and partnerships with MHI and Bechtel are key steps on the path to reaching net zero by 2050. I, for one, am excited to be on this journey.

Global collaboration
is key to tackling
the climate crisis

Leaders from 40 countries are meeting today, albeit virtually, as part of President Joe Biden’s Leaders’ Summit on Climate. The event provides an opportunity for world leaders to reaffirm global efforts in the fight against climate change, set a clear pathway to net zero emissions, while creating jobs and ensuring a just transition.

Since taking office President Biden has made bold climate commitments and brought the United States back into the Paris Agreement. Ahead of the two-day summit, he announced an ambitious 2030 emissions target and new Nationally Determined Contributions. The US joins other countries that have announced significant reduction goals. For example, the EU committed to reduce its emissions by at least 55%, also South Korea, Japan and China have all set net-zero targets by mid-century.

Here in the UK, Prime Minister Boris Johnson this week outlined new climate commitments that will be enshrined in law. The ambitious new targets will see carbon emissions cut by 78% by 2035, almost 15 years earlier than previously planned. If delivered, this commitment which is in-line with the recommendations of the Climate Change Committee’s sixth carbon budget will put the UK at the forefront of climate action, and for the first time the targets include international aviation and shipping.

What makes climate change so difficult to tackle is that it requires collaboration from many different parties on a global scale never seen before. As a UK-North American sustainable energy company, with communities on both sides of the Atlantic, at Drax we are keenly aware of the need for thinking that transcends borders, creating a global opportunity for businesses and governments to work together towards a shared climate goal. That’s why we joined other businesses and investors in an open letter supporting the US government’s ambitious climate actions.

Collaboration between countries and industries

It’s widely recognised that negative emissions technologies will be key to global efforts to combat climate change.

At Drax we’re pioneering the negative emissions technology bioenergy with carbon capture and storage (BECCS) at our power station in North Yorkshire, which when up and running in 2027 will capture millions of tonnes of carbon dioxide (CO2) per year, sending it for secure storage, permanently locking it away deep under the North Sea.

Experts on both sides of the Atlantic consider BECCS essential for reaching net zero. The UK’s Climate Change Committee says it will play a major role in removing CO2 emissions that will remain in the UK economy after 2050 from industries such as aviation and agriculture that will be difficult to fully decarbonise. Meanwhile, a report published last year by New York’s Columbia University revealed that rapid development of BECCS is needed within the next 10 years in order to curb climate change and a recent report from Baringa, commissioned by Drax, showed it will be a lot more expensive for the UK to reach its legally binding fifth carbon budget between 2028 and 2031 without BECCS.

A shared economic opportunity

Globally as many as 65 million well-paid jobs could be created through investment in clean energy systems. In the UK, BECCS and negative emissions are not just essential in preventing the impact of climate change but will also be a key component of a post-Covid economy.

Government and private investments in clean energy technologies can create thousands of well-paid jobs, new careers, education opportunities and upskill workforces. Developing BECCS at Drax Power Station, for example, would support around 17,000 jobs during the peak of construction in 2028, including roles in construction, local supply chains and the wider economy. It would also act as an anchor project for the Zero Carbon Humber initiative, which aims to create the world’s first net zero industrial cluster. Developing a carbon capture, usage, and storage (CCUS) and hydrogen industrial cluster could spearhead the creation and support of tens of thousands of jobs across the Humber region and more than 200,000 around the UK in 2039.

Under the Humber Bridge

Additional jobs would be supported and created throughout our international supply chain. This includes the rail, shipping and forestry industries that are integral to rural communities in the US South and Western Canada.

A global company

As a British-North American company, Drax embodies the positive impact that clean energy investments have. We directly employ 3,400 people in the US, Canada, and the UK, and indirectly support thousands of families through our supply chains on both sides of the Atlantic. Drax is strongly committed to supporting the communities where we operate by investing in local initiatives to support the environment, jobs, education, and skills.

From the working forests of the US South and Western Canada to the Yorkshire and Humber region, and Scotland, we have a world-leading ambition to be carbon negative by 2030. At Drax, we believe the challenge of climate change is an opportunity to improve the environment we live in. We have reduced our greenhouse gas emissions by over 80% and transformed into Europe’s largest decarbonisation project. Drax Power Station is the most advanced BECCS project in the world and we stand ready to invest in this cutting-edge carbon capture and removal technology. We can then share our expertise with the rest of the world – a world where major economies are committing to a net zero future and benefiting from a green economic recovery.

If we are to reach the targets set in Paris, global leaders must lock in this opportunity and make this the decade of delivery.