Tag: investors

Half year results for the six months ended 30 June 2024

RNS Number: 9278X
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Six months ended 30 JuneH1 2024H1 2023
Key financial performance measures
Adjusted EBITDA(1)(2)(3)(£ million)515417
Net debt(4)(£ million)1,0351,274
Adjusted basic EPS(1)(pence)65.646.0
Dividend per share (pence)10.49.2
Total financial performance measures
Operating profit (£ million)518392
Profit before tax (£ million)463338

Will Gardiner, CEO of Drax Group, said:

Will Gardiner, Drax Group CEO

“Drax has delivered a strong operational performance, playing an important role supporting the UK energy system with dispatchable, renewable power, keeping the lights on for millions of homes and businesses, while supporting thousands of jobs throughout our supply chain.

“As well as celebrating 50 years of operations in 2024, we are excited about the opportunities for Drax Power Station, including bioenergy with carbon capture and storage (BECCS). Both the National Grid ESO and the UK’s Climate Change Committee have recently reiterated that BECCS is important for the UK to achieve its decarbonisation goals.

“We look forward to working with the new UK Government to help grow the economy and take steps urgently to deliver a net zero electricity system by 2030. We believe that Drax and our partners across the Humber and Scotland can accelerate growth, create thousands of new jobs and channel billions in private investment into carbon capture and green energy projects, subject to the right government policies to support regional development plans.

“Outside of the UK, through our plans for global BECCS, we are continuing to develop opportunities to provide long-term, large-scale carbon removals and attractive opportunities for growth as part of a potentially trillion-dollar market.”

Financial highlights – strong operational and financial performance

  • Adj. EBITDA growth driven by renewable generation, pellet production and Industrial & Commercial (I&C)
  • Strong liquidity and balance sheet
    • £515 million of cash and committed facilities at 30 June 2024
    • £682 million of new facilities maturing 2027-2029 and repayment of £949 million(5) of shorter dated maturities
  • Sustainable and growing dividend – expected full year dividend up 12.6% to 26.0 p/share (2023: 23.1 p/share)
    • Interim dividend of 10.4 p/share (H1 2023: 9.2 p/share) – 40% of full year expectation
  • Up to £300 million two-year share buyback to commence in Q3 2024

Financial outlook

  • Full year 2024 expectations for Adj. EBITDA around the top end of analysts’ consensus estimates(6)
  • Outlook for 2025 Adj. EBITDA underpinned by a strong hedge book – fully hedged on RO units

Progress in H1 towards >£500 million EBITDA post 2027 from FlexGen & Energy Solutions and Pellet Production

  • FlexGen & Energy Solutions – targeting post 2027 recurring Adj. EBITDA of >£250 million
    • Continued development of three new OCGTs (c.900MW)
    • Sale of non-core SME customer meters
  • Pellet Production – targeting post 2027 recurring Adj. EBITDA >£250 million
    • Increased production, including Aliceville expansion
    • Pipeline of opportunities for sales in existing and new markets, including sustainable aviation fuel (SAF)

Biomass generation – Drax Power Station

  • Biomass generation – 2.6GW of flexible 24/7 renewable generation – important role in UK energy security
    • >£1 billion of est. post-tax operating cash flow (Jan 2024 to Mar 2027) underpinned by forward power hedges
    • Expect long-term value from bridging mechanism, BECCS and other opportunities
    • Bridging mechanism – targeting clarity in 2024, ongoing discussions with UK Government

Attractive opportunities to invest for long-term growth linked to energy transition and security of supply

  • Options for c.£4 billion of growth investment by 2030, with additional investment through 2030s
    • UK BECCS – targeting first unit (4Mt pa) by 2030 in line with UK ambition, with second unit (4Mt pa) to follow
    • Global BECCS – first potential site shortlisted, targeting operations from 2030
    • Pumped Storage – targeting 600MW expansion of Cruachan Power Station, FID 2026, operational by 2030

Capital returns

  • In line with our capital allocation policy and reflecting (a) a strong balance sheet, (b) investment requirements and (c) the mitigation of equity dilution expected to arise from share schemes, Drax will commence a share buyback programme for the purchase of up to £300 million of Drax shares over a two-year period, expected to begin in Q3 2024
  • Drax remains committed to its current capital allocation policy, which remains unchanged and will continue to assess its capital requirements in line with the current policy

Operational and financial review

£ millionH1 2024H1 2023(7)
Adj. EBITDA breakdown515417
Biomass generation393226
Pellet production6543
Pumped storage and hydro76141
Energy solutions - I&C3627
Energy solutions - SME(14)7
Global BECCS (20)(6)
Innovation, Capital Projects and Other(21)(20)

Pellet Production – supporting UK generation and sales to third parties

  • Improved operational and financial performance versus H1 2023
    • 2.0Mt of pellets produced (H1 2023: 1.9Mt) and improved margin
  • Development of new capacity
    • Aliceville expansion commissioned H1 2024 (130kt)
    • Longview pellet plant (450kt)

Generation – energy security with dispatchable renewable generation and system support services

  • Pumped storage and hydro – performance supportive of post 2027 Adj. EBITDA target
    • Strong system support earnings with lower forward power sales, as expected, compared to H1 2023
    • Progressing c.£80 million refurbishment and upgrade (40MW) of Cruachan underpinned by 15-year Capacity Market agreement (>£220 million)
  • Biomass generation – increased level of renewable generation and continuing system support role
    • 7.0TWh – c.32% increase on H1 2023 (5.3TWh)
    • Single major planned outage on track, expected to complete August 2024
  • Strong contracted power and renewables position
    • As at 22 July 2024 c.£3.1 billion of forward power sales between 2024 and 2026 on RO biomass, pumped storage and hydro generation assets – 25.8TWh at an average price of £120.7/MWh(8/9)
    • RO generation – fully hedged in 2024 and 2025, with >£1 billion of associated ROCs
    • A further 4.7TWh of CfD generation contracted for 2024/25
Contracted power sales 22 July 2024202420252026
Net RO, hydro and gas (TWh)(8)11.010.04.8
Average achieved £ per MWh(9)150.9107.179.7
CfD (TWh)3.90.8-

Energy Solutions (Customers) – renewable power sales and energy services

  • Strong underlying I&C performance
    • Increase in achieved margin offsetting small reduction in power sales – 7.6TWh (H1 2023: 8.0TWh)
    • Growing value from 100% renewable power products
    • Development of Energy Solutions business including system support services via demand response, and electric vehicle services following acquisition of BMM (August 2023)
  • SME business (Opus Energy)
    • Asset sale of majority of Opus Energy’s meter points (c.90,000) (expected to complete Q3 2024), reflecting focus on core I&C business
    • Employee consultation process underway to reflect reduced customer base

Other financial information

Capital investment

  • Capital investment of £147 million (H1 2023: £210 million)
  • 2024 FY expected capital investment of c.£360-400 million – growth, maintenance and other
    • Growth – c.£270 million, primarily the development of a new pellet plant (Longview), three new OCGTs (continuing to evaluate options for these projects) and refurbishment of Cruachan units 3 and 4
    • Maintenance – c.£100 million, including major planned outage at Drax Power Station

Cash and balance sheet

  • Cash generated from operations £400 million (H1 2023: £404 million)
  • Net working capital outflow (£93 million) inclusive of an increase in renewable certificate assets
  • Net debt at 30 June 2024 of £1,035 million (31 December 2023: £1,084 million), including cash and cash equivalents of £263 million (31 December 2023: £380 million)
  • £682 million of new loan facilities maturing 2027-2029 and repayment of £949 million(5) of shorter dated maturities
    • New c.£383 million term-loan facilities, maturing 2027-2029
    • New €350 million Eurobond, maturing 2029
    • Repaid £347 million of infrastructure facilities, maturing 2025-2026
    • Repaid $500 million US bond, maturing 2025
    • Repaid €106 million of €250 million Eurobond through tender offer, bond maturing 2025
    • Repaid £120 million collateral facility in July 2024

Notes:

Full year results for the twelve months ended 31 December 2023

RNS Number : 8820E
Drax Group PLC
29 February 2023

Twelve months ended 31 December20232022
Key financial performance measures
Adjusted EBITDA (excl. EGL)(1)(2)(3) (£ million)1,214731
Electricity Generator Levy (EGL)(3) (£ million)(205)-
Adjusted EBITDA (incl. EGL)(1)(2)(3) (£ million)1,009731
Net debt(4) (£ million)1,0841,206
Net debt to Adjusted EBITDA (incl. EGL)1.1x1.6x
Adjusted basic EPS (1) (pence)119.685.1
Dividend per share (pence)23.121.0
Total financial performance measures
Operating profit (£ million)908146
Profit before tax (£ million)79678

Will Gardiner, CEO of Drax Group, said:

Will Gardiner, Drax Group CEO

“Drax performed strongly in 2023 and we remained the single largest provider of renewable power by output in the UK. We have created a business which plays an essential role in supporting energy security, providing dispatchable, renewable power for millions of homes and businesses, particularly during periods of peak demand when there is low wind and solar power.

“Policy support for our UK BECCS project continues to progress and we remain in formal discussions with the UK Government to ensure Drax Power Station can play a long-term role in UK energy security, creating thousands of jobs during construction and helping the country reach Net Zero.

“We have made further progress in our ambition to be a world leader in carbon removals and have visibility of high-quality, long-term earnings to 2042 and a strong balance sheet which supports returns to shareholders and investment in growth, both in the UK and internationally.”

Financial highlights – strong financial performance and returns to shareholders

  • Adj. EBITDA growth driven by system support services, renewable generation, and energy solutions (Customers)
  • Strong liquidity and balance sheet – £639 million of cash and committed facilities at 31 December 2023
  • New £258 million term-loan facilities with 2027-2029 maturities (February 2024)
  • Proposed final dividend of 13.9 pence per share (2022: 12.6 pence per share) – 10% increase
  • £150 million share buyback programme concluded(5)

Current business and targets provide strong long-term foundation for balance sheet, dividend and investment

  • Flexible generation and energy solutions portfolio – targeting post 2027 recurring Adj. EBITDA of >£250 million
    • Pumped storage, hydro, Open Cycle Gas Turbines (OCGTs) and energy solutions
    • Operating in power, renewable, system support and capacity markets
    • c.£580 million of capacity payments to 2042 – existing and new capacity, including Cruachan refurbishment
  • Pellet production – targeting post 2027 recurring Adj. EBITDA >£250 million from own-use and third-party sales
  • Biomass generation – 2.6GW of flexible renewable generation
    • Strong forward hedges support firm cash flows (2024-2026) with additional value from uncontracted power
    • Expect long-term value from bridging mechanism and BECCS

Financial outlook

  • Full year 2024 expectations for Adj. EBITDA in line with analysts’ consensus estimates(6)
  • Expect to repay Q4 2025 debt maturities through cash generation and refinancing activities in 2024
  • Outlook for 2025 Adj. EBITDA underpinned by a strong hedge book – >90% hedge of power on RO units

Attractive opportunities to invest for long-term growth linked to energy transition and security of supply

  • Options for c.£4 billion of growth investment by 2030, with additional investment through 2030s
    • UK BECCS – targeting first unit (4Mt pa) by 2030 in line with UK ambition, with second unit (4Mt pa) to follow – good progress over last 12 months
    • UK Government Biomass Strategy (August 2023) highlights important role for BECCS
      • Planning consent granted for two units (January 2024)
      • Consultation on BECCS bridging mechanism (January – February 2024)
      • MoU with Harbour Energy and bp to assess options for transportation and storage of CO2 (February 2024)
      • Ongoing formal discussions with UK Government regarding bridging mechanism and BECCS
    • Global BECCS – targeting first project (3Mt pa) by 2030 – site selected in US South, moving to FEED in 2024
    • Targeting 600MW expansion of Cruachan Power Station (pumped storage) by 2030, planning consent granted
  • Targeting 8Mt pa of pellet production capacity by 2030, subject to clarity on UK BECCS
  • Ambition for the development of over 20Mt pa of carbon removals through 2030s

Capital allocation policy unchanged – continue to assess capital requirements in line with the current policy

Sustainability

  • Compliance with TCFD reporting requirements
  • Science Based Targets initiative (SBTi) targets approved
  • Forum for the Future BECCS Done Well report and publication of initial Drax response

National Audit Office (NAO) and Ofgem

  • NAO review of UK Government’s biomass strategy published (January 2024)
    • Outlines opportunities to develop standards consistent with existing statements from UK Government
    • Highlights UK Government’s commitment to biomass and its long-term role in delivering UK targets
  • Ofgem – annual assessment of compliance with Renewables Obligation (RO) scheme (May 2023) – “Good” rating
  • Ofgem – investigation of annual biomass profiling reporting under RO scheme (ongoing)

Operational and financial review

£ million20232022
Adj. EBITDA breakdown (incl. EGL)1,009731
Pellet production89134
Pumped storage and hydro230171
Biomass generation703525
Energy solutions (Customers)7226
Corporate, innovation, Global BECCS and other(7)(8)(85)(125)

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

  • Robust performance in a challenging environment
  • Progressing development of new Longview pellet plant, and Aliceville expansion complete
    • Investment of c.$300 million adding c.0.6Mt of new capacity
  • Pipeline of new third-party sales opportunities
    • 5Mt contract to Japan over five years, commenced in 2023
    • Letter of Intent for sale of up to 1Mt of biomass to European utility, for projects incl. Sustainable Aviation Fuel

Generation – energy security with dispatchable renewable generation and system support services

  • Pumped storage and hydro – strong system support and generation performance
    • Includes forward sale of peak power (Q1 2023), system support services, renewables and capacity payments
  • Biomass generation – strong system support and renewable generation performance
    • Period-on-period reduction in output reflects two major planned outages
    • Higher achieved power price and value from system support, but higher biomass costs
  • As at 26 February >£2.8 billion of forward power sales between 2024 and 2026 on RO biomass, pumped storage and hydro generation assets – 22.3TWh at an average price of £127.3/MWh(9/10)
    • RO generation – fully hedged in 2024 and >90% hedged in 2025
    • A further 2.6TWh of CfD generation contracted for 2024

Contracted power sales as at 26 February 2024

2024

2025

2026
Net RO, hydro and gas (TWh)(9)10.89.32.2
Average achieved £ per MWh(10)149.0111.189.6
CfD (TWh)2.6

Energy Supply (Customers) – renewable power and energy services

  • Strong Industrial and Commercial (I&C) performance with 7% increase in power sales – 15.8TWh (2022: 14.8TWh), stable margins on contracted sales and lower balancing costs
  • Growing value from 100% renewable power products
  • Development of energy solutions business including system support services via demand response, and electric vehicle services following acquisition of BMM (August 2023)
  • Impairment of Opus Energy of £69 million, following transfer of renewables activities to Drax Energy Solutions (along with £145 million of Goodwill) and the previously announced ending of gas sales

Other financial information

Capital investment

  • Capital investment of £519 million (2022: £255 million)
    • £187 million maintenance and other, including two major planned outages on biomass units
    • £332 million growth, including £189 million OCGTs and £76 million pellet plant developments
  • 2024 expected capital investment of £410-450 million
  • OCGTs – c.900MW – three new-build sites, commissioning in H2 2024
    • Continuing to evaluate options for these projects

Cash and balance sheet

  • Cash generated from operations £1,111 million (after £155 million inflow of collateral) (2022: £320 million, after £407 million outflow of collateral)
  • Net debt at 31 December 2023 of £1,084 million (31 December 2022: £1,206 million), including cash and cash equivalents of £380 million (31 December 2022: £238 million)
  • Good progress on financing activities
    • ESG term loan, extended maturity to 2026 and reduced size to C$200 million (November 2023)
    • £144 million of infrastructure facilities repaid (January 2024)
    • Extension of £300 million revolving credit facility to 2026 (January 2024)
    • New £258 million term-loan facilities with 2027-2029 maturities (February 2024)

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, the impact of strikes, the impact of adverse weather conditions or events such as wildfires. 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.

Webcast Arrangements

Management will host a webcast presentation for analysts and investors at 9:00am (GMT), Thursday 29 February 2024.

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

A copy of the presentation will be made available from 7:00am (GMT) on Thursday 29 February 2024 for download at: https://www.drax.com/investors/announcements-events-reports/presentations/

Event Title: Drax Group plc: Full Year Results
Event Date: Thursday 29 February 2024
Event Time: 9:00am (GMT)
Webcast Live Event Link: https://secure.emincote.com/client/drax/drax028
Conference call and pre-register Link: https://secure.emincote.com/client/drax/drax028/vip_connect
Start Date:  Thursday 29 February 2024
Delete Date:  Saturday 1 March 2025
Archive Link: https://secure.emincote.com/client/drax/drax028

For further information, please contact: [email protected]

 Website: www.drax.com

View investor presentation here

 

 

 

Notes:

(1) Financial performance measures prefixed with “Adjusted” are stated after adjusting for exceptional items (including impairment of non-current assets, proceeds from legal claims, change in fair value of financial instruments and impact of tax rate changes). Adj. EBITDA and EPS measures exclude earnings from associates and amounts attributable to non-controlling interests.
(2) Earnings before interest, tax, depreciation, amortisation, other gains and losses and impairment of non-current assets, excluding the impact of exceptional items and certain remeasurements, earnings from associates and earnings attributable to non-controlling interests.
(3) In December 2022, the UK Government confirmed the details of a windfall tax – the Electricity Generator Levy (EGL) – on renewable and low-carbon generators, implemented in 2023 and running to 31 March 2028. The EGL applies to the three biomass units operating under the RO scheme and run-of-river hydro operations. It does not apply to the Contract for Difference (CfD) biomass or pumped storage hydro units. Following review, we have concluded that EGL will be accounted for as a levy within Gross Profit and therefore Adj. EBITDA. For 2023 we have presented Adj. EBITDA including and excluding EGL for ease of comparison.
(4) Net debt is calculated by taking the Group’s borrowings, adjusting for the impact of associated hedging instruments, and subtracting cash and cash equivalents. Net debt excludes the share of borrowings and cash and cash equivalents attributable to non-controlling interests.
Borrowings includes external financial debt, such as loan notes, term loans and amounts drawn in cash under revolving credit facilities, net of any deferred finance costs.
(5) Following completion of the share buyback programme Drax has c.384.7 million shares in issue, with a further c.40.3 million held in treasury.
(6) As of 21 February 2024, analyst consensus for 2024 Adj. EBITDA (incl. EGL) was £968 million, with a range of £882 – 1,097million. The details of this company collected consensus are displayed on the Group’s website. https://www.drax.com/investors/announcements-events-reports/presentations/
(7) In 2023 a review of the mechanism for corporate recharges was performed, leading to a greater proportion being recharged to business units, primarily Generation. The remaining £85 million in 2023 is comprised of £57 million for Global BECCS (2022: £14 million) and £28 million of other corporate and innovation costs, including the development of options for pumped storage expansion (2022: £24 million) and intercompany eliminations. 2022 is not restated in the table, but footnote 8, below includes a restated Adj. EBITDA breakdown for 2022 which includes the cost reallocation on the same basis as 2023.
(8) The table shows Adj. EBITDA breakdown with 2022 restated inclusive of the cost reallocation exercise described in footnote 7.

£ million20232022
Adj. EBITDA breakdown (incl. EGL)1,009731
Pellet production89125
Pumped storage and hydro230171
Biomass generation703453
Energy solutions (Customers)7220
Corporate, innovation, Global BECCS and other(85)(38)

(9) Includes 3.5TWh of structured power sales in 2025 and 2026 (forward gas sales as a proxy for forward power), transacted for the purpose of accessing additional liquidity for forward sales from RO units and highly correlated to forward power prices.
(10) Presented net of cost of closing out gas positions at maturity and replacing with forward power sales.

 

Development of UK CCS infrastructure and BECCS business model

Drax notes the announcement by the UK Government of further policy support for the development of carbon capture utilisation and storage clusters (CCUS) in the UK, including an update on the Track-1 expansion and Track-2 processes.

The UK Government has also reiterated its ambition to deploy at least 5 MtCO2/year of engineered greenhouse gas removals by 2030, potentially scaling to 23 MtCO2/year by 2035 and up to 81 MtCO2/year by 2050, and published its latest position on the design of a Power BECCS business model, which includes a 15-year CfD with a dual payment mechanism linked to both low-carbon electricity and negative emissions.

Drax Group CEO, Will Gardiner said:

Will Gardiner, Drax Group CEO

“Today’s announcements by the Government will further progress the development of CCUS clusters in the UK and are an important step forward in facilitating the deployment of large-scale BECCS.

“We welcome the publication of further details on a BECCS business model and the Government’s continued commitment to deploy at least five million tonnes of greenhouse gas removals by 2030, which we believe can only be achieved through delivering BECCS at Drax Power Station.

“BECCS has the potential to deliver carbon removals whilst generating renewable power and installing this technology at Drax Power Station will enable it to continue to play a critical role in the UK’s energy security, creating and supporting thousands of jobs in the Humber region and helping the country meet its Net Zero targets.”

Details of the update from the UK Government:

Track-1 expansion – the Government has agreed Heads of Terms with the operator of the East Coast Cluster CO2 transport and storage network and will now consider the best time to launch an expansion process for the East Coast Cluster from 2024.

Track-2 cluster deployment – the Government has confirmed plans for the assessment of an initial “anchor phase” of capture projects connecting to the Acorn and Viking clusters, which will target projects for deployment in 2028/9, and the development of a “buildout phase” for additional projects to connect thereafter.

The updates on Track-1 expansion and Track-2 cluster deployment continue to affirm that there are two potential routes which could support BECCS at Drax Power Station as well as wider CCS projects in the Humber region by 2030 – the East Coast Cluster and Viking CCS cluster. Drax is in discussions with all relevant stakeholders in the region about the potential of deploying BECCS at Drax Power Station.

Separately, Drax continues to expect that a public consultation on a bridging mechanism will commence shortly.

Notes:

Links to documents

https://www.gov.uk/government/publications/carbon-capture-usage-and-storage-ccus-december-2023-statement/ccus-december-2023-statement

https://assets.publishing.service.gov.uk/media/6581851efc07f3000d8d447d/ggr-power-beccs-business-models-december-2023.pdf

Enquiries:

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

Media:

Drax External Communications:
Chris Mostyn
[email protected]
+44 (0) 7548 838 896

Andy Low
[email protected]
+44 (0) 7841 068 415

Website: www.Drax.com

END

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

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

Will Gardiner, Drax CEO, said:

Will Gardiner, Drax Group CEO

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

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

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

A priority role for BECCS

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

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

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

Biomass availability and sustainability

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

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

A link to the Strategy can be found here.

Scientific assessment of carbon removals from BECCS

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

BECCS at Drax Power Station

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

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

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

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

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

Enquiries:

Drax Investor Relations:

Mark Strafford
+44 (0) 7730 763 949

Media:

Drax External Communications:

Chris Mostyn
+44 (0) 7548 838 896

Sloan Woods
+44 (0) 7821 665 493

END

Half year results for the six months ended 30 June 2023

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

Six months ended 30 June20232022
Key financial performance measures
Adjusted EBITDA (£ million)(1)(2)(excl. Electricity Generator Levy) (EGL)(3)453225
Adjusted EBITDA (£ million)(1)(2)(incl. EGL)417225
Net debt (£ million)(4)1,2741,116
Adjusted basic EPS (pence)(1)46.020.0
Dividend (pence per share)9.28.4
Total financial performance measures from continuing operations
Operating profit (£ million)392207
Profit before tax (£ million)338200

Will Gardiner, Drax Group CEO

Will Gardiner, CEO of Drax Group, said:

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

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

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

Financial highlights – strong financial performance and returns to shareholders

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

2023 outlook

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

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

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

UK BECCS

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

Operational review

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

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

Generation – renewable generation and system support services

  • UK’s largest source of renewable power by output, primarily biomass generation at Drax Power Station
    • 9% of annualised UK renewables(7)
  • Adjusted EBITDA (excl. EGL) £457 million up 123% (H1 2022: £205 million)
    • Adjusted EBITDA (incl. EGL) £421 million up 106% (H1 2022: £205 million, £nil EGL)
  • Biomass generation – strong system support and renewable generation performance
    • Period-on-period reduction in generation
      • Maintenance – first major planned outage completed, second major planned outage in H2 2023 and forced outage on one unit due to a transformer issue – unit back in service
    • Higher achieved power price and value from system support
    • Higher biomass costs
  • Pumped storage and hydro – strong system support and generation performance
    • £154 million Adjusted EBITDA (excl. EGL) (H1 2022: £53 million)
    • Includes forward sale of peak power (winter 2022)
    • Increased level of wind capacity, intermittency and volatility underpin long-term need for dispatchable generation
  • Coal – no generation in 2023 – currently decommissioning following formal closure (March 2023)
  • As at 21 July 2023, Drax had 28.1TWh of power hedged between 2023 and 2025 on its ROC, pumped storage and hydro generation assets at an average price of £150.0/MWh(8)
    • Excludes sales under the CfD mechanism, which remains available subject to good ROC unit operational performance and market conditions
Contracted power sales 21 July 2023202320242025
Net ROC, hydro and gas (TWh(8/9/10))11.711.25.2
Average achieved £ per MWh162.7147.5126.2
Lower expected level of ROC generation in 2023 due to major planned outages on two units

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

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

Other financial information

Adjusted EBITDA and EGL

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

Profits

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

Capital investment

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

Cash and interest

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

Capital allocation policy – unchanged

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

Progressing Global BECCS opportunities

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

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

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

Progress on Global BECCS commercial arrangements

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

Attractive portfolio of investment opportunities

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

2023 outlook

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

Drax Group CEO, Will Gardiner said:

Will Gardiner, Drax Group CEO

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

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

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

Capital Markets Day

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

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

Purpose and ambition

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

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

Global need for carbon removals

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

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

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

BECCS – North America

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

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

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

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

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

Commercial arrangements

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

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

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

Resourcing

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

Other developments

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

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

Capital allocation

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

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

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

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

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

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

Outlook

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

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

Webcast and presentation material

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

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

Notes:
[1] Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements. Excludes the Electricity Generator Levy, which is currently presented as a tax and reflected in EPS.
[2] As of 18 May 2023, analyst consensus for 2023 Adjusted EBITDA was £1,162 million, with a range of £1,100 – 1,200 million. The details of this company collected consensus are displayed on the Group’s website. Excludes the Electricity Generator Levy, which is currently presented as a tax and reflected in EPS.
[3] IPCC Sixth Assessment Report, Working Group III (2022).
https://www.drax.com/wp-content/uploads/2023/05/Company-Collected-Consensus-May-2023.pdf

Enquiries:

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

Media:

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

Q1 2023 Trading Update and £150 Million Share Buyback Programme

RNS Number : 4506X
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Highlights

  • Strong system support and generation performance during the first three months of 2023
  • Closure of remaining coal units, decommissioning commenced April 2023
  • 2023 Adjusted EBITDA(1) expectations in line with analysts’ consensus estimates(2)
  • Final dividend of 12.6 pence to be paid subject to shareholder approval at today’s AGM
    • Total dividend for 2022 – 21.0 pence per share (2021: 18.8 pence per share)
  • £150 million share buyback programme to commence in Q2 2023

Drax Group CEO, Will Gardiner said:

“In the first quarter of 2023, we have delivered a strong system support and generation performance, providing renewable, secure, dispatchable power for millions of homes and businesses across the UK.

“We remain excited about the opportunity to do BECCS in the UK. Whilst the project is not currently in the Track 1 process, we have commenced formal discussions with the Government to facilitate the transition to BECCS at Drax Power Station by 2030.

“At the end of March, we formally closed the remaining two coal units at Drax Power Station. This is a significant moment for the business and I’d like to thank the many hundreds of people involved in making this happen and transforming Drax into a global leader in biomass power generation.

“In the US, we continue to make good progress screening options for over 10 BECCS projects which will deliver long-term, large-scale carbon removal.”

Generation

Drax has continued to optimise generation across all four biomass units (ROC and CfD), based on system need and sustainable biomass supply. The Group’s biomass, pumped storage and hydro assets have continued to support UK security of supply, providing a wide range of system support services and renewable electricity generation, which included forward power sales from pumped storage in the first three months of 2023.

Generation contracted power sales

As at 21 April 2023, Drax had 26.2TWh of power hedged between 2023 and 2025 on its ROC, pumped storage and hydro generation assets at an average price of £152.2/MWh(3). This excludes any sales under the CfD mechanism.

Contracted power sales as at 21 April 2023202320242025
Net ROC, hydro and gas (TWh)12.510.53.2
- Average achieved £ per MWh158.6149.1137.3
Lower expected level of ROC generation in 2023 due to major planned outages on two units

Coal

Following the completion of a “winter contingency” service agreement (October 2022 – March 2023) with National Grid, Drax has commenced the decommissioning of its two coal units. There was no coal generation during the agreement period.

Bioenergy Carbon Capture and Storage (BECCS) – UK

In March 2023, the UK Government provided an update on its plans for the deployment of carbon capture and storage infrastructure and projects. This confirmed that Power BECCS and certain other shortlisted projects were not included in the initial Track 1 process, which relates to projects targeting commissioning in the mid-2020s. The Government confirmed that during 2023 it will set out a process for the expansion of Track 1 and has also launched a Track 2 process. Power BECCS is eligible for both tracks.

Alongside this update the Government confirmed its commitment to support the deployment of large-scale Power BECCS projects by 2030. Drax has now commenced formal bilateral discussions with the Government to move the project at Drax Power Station forward and ensure that the Government is able to fulfil its restated commitment of achieving 5Mt pa of engineered Greenhouse Gas Removals by 2030. Drax believes that BECCS at Drax Power Station is the only project in the UK that can enable the Government to achieve this goal(6). This process will also include discussion of a bridging mechanism for biomass power generation between the end of the current renewable schemes in 2027 and the commissioning of BECCS.

In addition, the Government has now published its response to the Power BECCS business model consultation, which took place in 2022, confirming its preference for the use of a CfD mechanism to remunerate renewable power and carbon removals in BECCS. The Government has also committed to publish its biomass strategy by the end of June 2023 which will set out how the technology could be deployed.

Drax’s plan of record for investment in UK BECCS was based on a first BECCS unit commissioning in 2027 and a second by 2030. Since Power BECCS is not currently in the Track 1 process and Government’s aim is to support BECCS by 2030, Drax has paused further investment in its UK BECCS project in 2023 and will revise its UK BECCS investment schedule subject to further clarity on support for BECCS at Drax Power Station.

Pellet 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. In the US, the focus has remained on ensuring the Demopolis plant reaches full capacity and reliable, safe operation.

As outlined in the 2022 Full Year Results (February 2023), inflationary pressures, primarily in transportation and utilities have contributed to an increase in pellet production costs. Taken together with costs incurred in providing supply-side flexibility, Drax continues to expect production costs to be higher in 2023.

While continuing to optimise its supply chain to maximise value for the Group, Drax remains focused on opportunities to reduce the cost of biomass.

Full Year Expectations

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

Reflecting the reprofiling of investment in UK BECCS, Drax now expects capital investment in 2023 to be in the range of £520-580 million (was £570-630 million).

Capital Returns and Share Buyback Programme

In line with its capital allocation policy and reflecting (a) a strong net debt to Adjusted EBITDA position, (b) the revised timing of UK BECCS investment and (c) the mitigation of equity dilution associated with the vesting of share schemes(7), the Group plans to return up to £150 million to shareholders via a share buyback programme. The programme is expected to commence in Q2 2023 and be completed by the end of 2023.

The programme is not expected to have any impact on the Group’s medium and long-term growth plans which continues to include UK BECCS, US BECCS, pellet plant and pumped storage hydro expansion.

The Group remains committed to its current capital allocation policy, which remains unchanged and, beyond the current buyback programme, will continue to assess its capital requirements in line with the current policy.

Other

Drax will host a Capital Markets Day on 23 May 2023, updating on its plans for growth with a focus on BECCS.

Drax will report its half year results on 27 July 2023.

Notes:

  1. Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements.
  2. As of 21 April 2023, analyst consensus for 2023 Adjusted EBITDA was £1,156 million, with a range of £1,100 – 1,200 million. The details of this company collected consensus are displayed on the Group’s website. https://www.drax.com/wp-content/uploads/2023/04/Company_Collected_Consensus_April_2023.pdf
  3. Includes structured power sales in 2023 and 2024 (forward gas sales as a proxy for forward power), transacted for the purpose of accessing additional liquidity for forward sales from ROC units and highly correlated to forward power prices. 2024: 1.1TWh, 2025: 0.8TWh, presented net of cost of closing out gas positions at maturity and replacing with forward power sales.
  4. Typical estimated annual biomass generation from ROC and CfD units c.13-14TWh based on estimated biomass availability, incrementally lower in 2023 due to major planned outages on two ROC units, resulting in lower ROC cap versus 2022.
  5. 2023 includes limited forward selling of pumped storage generation resulting in higher captured prices but lower system support availability.
  6. Biomass is the only large-scale source of dispatchable, renewable electricity and Drax power station in Yorkshire is the largest provider of secure supply in the UK’s electricity system. Its renewable biomass generation provides 2.6GW of electricity, representing c.4% of the UK’s dispatchable capacity and supplies millions of homes and businesses with dispatchable, reliable power. BECCS at Drax Power Station is expected to be one of the world’s biggest engineered carbon removal projects, permanently removing 8Mt of CO2 from the atmosphere every year by 2030. The project would see the addition of post combustion carbon capture to two of the existing biomass units, using sustainable biomass and technology from Drax’s technology partner, Mitsubishi Heavy Industries. Captured CO2 would be transported and permanently stored by the Group’s partners in the East Coast Cluster. Vivid Economics concluded that it could deliver £370 million of economic benefit for the UK during construction, creating and supporting more than 10,000 jobs during peak construction. Recent Baringa research also demonstrates that Drax is the UK’s largest source of energy security and will continue to play a vital role in the UK security of supply in to the late 2020s. Drax aims to source 80% of materials and services for the project from British businesses and is also working with British Steel to explore opportunities for its UK production facilities to supply a proportion of the steel needed for BECCS.
  7. Of the total share options outstanding as at 31 March 2023 (18.6 million), an aggregate number of approximately 9.4 million are expected to vest in 2023 under the Company’s various share plans. This includes approximately 6.8 million under the all-UK employee Sharesave Plan which matures in June 2023 when the three-year savings contract period concludes for approximately 900 participating employees. More information on outstanding awards and associated share-based payments can be found in note 6.2 to the Consolidated Financial Statements in the Annual Report and Accounts for the year ended 31 December 2022.

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications: Chris Mostyn

+44 (0) 7548 838 896

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; 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.

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

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

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

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

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

Drax Group CEO, Will Gardiner said:

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

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

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

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

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

Coal closure

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

Notes

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

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

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

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

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

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

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

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

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

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications: Chris Mostyn

+44 (0) 7548 838 896

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