Tag: investors

What does the internet of things mean for energy?

Internet of things (IoT) technology, which connects everyday appliances to one another allowing them to collect data and become ‘smart’, presents an exciting view of the modern home or workspace.

The future IoT-enabled office or household is one with autonomous appliances, remote-operated thermostats, and fridges that monitor their contents and reorder supplies when they run low. You may never go hungry again.

There’s arguably an even brighter future for the IoT’s potential in industry – it can bring about value through applications like predictive maintenance and performance optimisation.

On paper these two scenarios – that of industrial optimisation and convenience throughout our daily lives – might seem worlds away. But James Robbins, Chief Information Officer at Drax, is thinking about how to bring them together – particularly when it comes to energy use.

Central to the approach is a question: could a better understanding of how households and businesses use energy change how it’s generated and provided?

The importance of data

At its heart, the IoT is about data. What data you collect and how you use it determines what value you can create, says Robbins. He explains: “Whether you’re talking about the IoT, big data, artificial intelligence [AI] or robotics – they’re all the modernisation of information collection and use.”

And nowhere is this more applicable than at a large-scale power station. “At Drax we’re used to managing what’s basically our own private IoT in the station,” he explains. “The real-time control systems we have for the generators and the Grid are essentially a bunch of sensors tied to a central network.” These sensors collect data from the power station, which then help optimise it for better performance.

The same approach to data collection can have benefits for bill payers, too.

Tracking energy use in the workspace and home

Connected devices like smart meters can bring a precise level of insight into energy usage in the home and places of work, which can benefit both end users and suppliers of heat and power. Electricity generators and heating fuel suppliers can use this data to better manage their output by being able to predict how and when it will be required. For end users, it can help them and their energy suppliers more accurately track what they use, where they use it and how they could use it more efficiently.

For example, using IoT technology a gas or wood pellet for heat supplier may be able to identify that a home can make substantial cost savings just by turning down their heating by one degree. “Sensors and smart technology can give us that insight,” says Robbins.

This level of optimisation is already possible to a degree using existing tools, but Robbins sees a future with greater possibilities. For example, with comprehensive datasets, suppliers can compare business owners’ energy use with others in the same sector and region to highlight efficiencies.

“The whole thing is about making it easier for us to serve the customer,” says Robbins. And the better the dataset, the more exotic the services could be.

“Just looking at meters means we can only really talk to the bill payer. But who else in the home or workplace could we engage with to get them to conserve energy? For instance, we could develop a game for child in the house that’s linked to energy use, where they get points for turning off lights or turning down heating,” he explains.

The gamification of energy use is – at this stage – just an idea, Robbins says, but it is exactly the kind of thing that better data allows energy suppliers and generators to think about.

A challenging journey, but an exciting one

The IoT approach to energy generation and use won’t be without its challenges – security being one major concern. But there will also be substantial technical and standardisation issues any provider keen to leverage IoT must tackle to make it a truly effective technology.

“In the 80s, you couldn’t play a VHS cassette in a Betamax player,” Robbins explains. “The compatibility issue with IoT could be an even bigger problem – all these gadgets need to be built into an architecture that can handle them and make them work together.”

Consider the so-called smart meter that provides data for a customer’s itemised bill. The bill payer is told that a tumble dryer in their home is using a significant proportion of the power they are paying for. The problem is that their appliances and devices have not been meshed together in a way that gives the system sufficient context about the customer’s situation. In the worst-case scenario, the customer asks for a refund and switches supplier because they don’t actually have a tumble dryer.

Robbins and his team are working with Drax suppliers to make sure that compatibility and context don’t become a problem. He aims to ensure that unintended consequences in the Group’s use of IoT are only of the positive variety. By investing in back-office infrastructure that can use big data processing to ingest and analyse meter data down to the 10-second level, Drax can take advantage of smart tech when it arrives in earnest.

It’s an exciting period of technological advancement – but as Robbins is keen to point out, it’s only the start.

“It’ll probably only be over the next few years that we actually begin to really understand how to leverage IoT data, when we pass the tipping point of user adoption. When that happens, we’ll be starting a very exciting journey with a clearer purpose – to spot and solve meaningful problems faced by people and businesses, in context, in real-time.”

Batteries as big as biomass domes?

Renewables are playing a bigger part of our electricity mix as the UK moves towards a low carbon economy. How we ‘plug the gaps’ left by intermittent renewables is among the greatest challenges faced by the energy sector.

Sources like wind and solar are intermittent – they can’t generate electricity all the time. When the sun doesn’t shine or the wind doesn’t blow they lack the fuel needed to generate power and can’t feed into the grid.

This leaves a gap in the UK’s electricity supply that needs to be filled. Today that’s done by sources like coal, gas and biomass which can be dialled up and down to accommodate for the dips and peaks in generation created by changes in demand and the weather.

One alternative being touted as a possible solution is storage and in particular, battery technology. However, creating batteries on a scale big enough to meet our incredible demand is a considerable challenge. It’s a challenge that will be met in a future where giant, affordable batteries are able to store solar power captured in the summer months for use in the winter. But costs would have to come down at an even faster rate than they have done in recent years.

The challenge of building bigger batteries

To demonstrate the size of this challenge, consider the biomass storage domes at Drax Power Station. These effectively operate as giant energy stores with the flexible ability to quickly feed renewable fuel to the power station, which generates electricity on demand.

Our biomass domes can hold 300,000 tonnes of sustainably-sourced compressed wood pellets, the equivalent of 600 GWh worth of electricity. Currently, batteries cost £350 per kWh, meaning at present prices it would cost £210 billion to replace the capacity of all four of our biomass domes using battery power.

Even if battery technology advances dramatically over the next few years that figure is only likely to fall to around £60 billion. Then there is the question of the ancillary services that thermal power stations provide. The batteries of the future may be able to provide these vital services (such as synthetic inertia, short-term reserve and reactive power), but for now, providing these via battery power is prohibitively expensive and in some cases best left to biomass and gas power stations.

We should not underestimate the challenges ahead. The UK’s ever-changing power system will need to balance more electricity generated via wind and solar with affordable solutions that are also reliable, flexible and lower carbon than coal. This is why Drax is developing four rapid-response gas power stations in addition to continuing its investment in biomass generation and supply.

Everything you ever wanted to know about cooling towers

Close up image of Drax cooling tower

Cooling towers aren’t beautiful buildings in the traditional sense, but it’s undeniable they are icons of 20th century architecture. They’re a ubiquitous part of our landscape – each one a reminder of our industrial heritage.

Yet despite the familiarity we have with them, knowledge about what a cooling tower actually does remains limited. A common misconception is that they release pollution. In fact, what they actually release is water vapour – similar to, but nowhere near as hot, as the steam coming out of your kettle every morning. And this probably isn’t the only thing you never knew about cooling towers. 

What does a cooling tower do?

As the name suggests, a cooling tower’s primary function is to lower temperatures – specifically of water, or ‘cooling water’ as it’s known at Drax.

Power stations utilise a substantial amount of water in the generation of electricity. At a thermal power plant, such as Drax, fuel is used to heat demineralised water to turn it to high pressure steam. This steam is used to spin turbines and generate electricity before being cooled by the cooling water, which flows through two condensers on either side of each of the steam turbines, and then returning to the boiler. It is this process that the cooling towers support – and it plays a pivotal role in the efficiency of electricity generation at Drax’s North Yorkshire site.

To optimise water utilisation, some power stations cycle it. To do this, they have cooling towers, of which at Drax there are 12. These large towers recover the warmed water, which then continues to be circulated where chemistry is permitting.

The warmed water (about 40°C) is pumped into the tower and sprayed out of a set of sprinklers onto a large volume of plastic packing, where it is cooled by the air naturally drawn through the tower. The plastic packing provides a large surface area to help cool the water, which then falls in to the large flat area at the bottom of the massive structure called the cooling tower pond.

As the water cools down, some of it (approximately 2%) escapes the top of the tower as water vapour. This water vapour, which is commonly mistakenly referred to as steam, may be the most visible part of the process but it’s only a by-product of the cooling process.

The majority of the water utilised by Drax Power Station is returned back to the environment, either as vapour from the top of the towers or safely discharged back to the River Ouse. Each year, about half of the water removed from the river is returned there. In effect, it is a huge amount of water recycling and in environmental terms, it is not a consumptive process.

Close-up of side of Drax cooling towers

How do you build a cooling tower?

The history of cooling towers as we know them today dates back to the beginning of the 20th century, when two Dutch engineers were the first to build a tower using a ‘hyperboloid’ shape. Very wide on the bottom, curved in the centre and flared at the top, the structure meant fewer materials were required to construct each tower, it was naturally more robust, and it helped draw in air and aid its flow upwards. It quickly became the de facto design for towers across the world.

The Dutch engineers’ tower measured 34 metres, which at the time was a substantial achievement, but as engineering and construction abilities progressed, so too did the size of cooling towers.

Today, each of 12 towers measures 115 metres tall – big enough to fit the dome of St Paul’s Cathedral or the whole of the Statue of Liberty, with room to spare. If scaled down to the size of an egg, the concrete of each cooling tower would be the same thinness as egg shell.

The structures at Drax are dwarfed by the cooling towers at the Kalisindh power plant in Rajasthan, India, the tallest in the world. Each stands an impressive 202 metres tall – twice the height of the tower housing Big Ben and just a touch taller than the UK’s joint fifth tallest skyscraper, the HSBC Tower at 8 Canada Square in London’s Canary Wharf.

The industrial icon of the future

Today’s energy mix is not what is used to be. The increased use of renewables means we’re no longer as reliant on fossil fuels, and this has an effect on cooling towers. Already a large proportion of the UK’s most prominent towers have been demolished, going the same way as the coal they were once in service to. But this doesn’t mean cooling towers will disappear completely.

Power stations such as Drax, which has upgraded four of its boilers to super-heat water with sustainably-sourced compressed wood pellets instead of coal, the dwindling coal fleet, and some gas facilities still rely on cooling towers. As they continue to be part of our energy mix, the cooling tower will remain an icon of electricity generation for the time being. But it’ll be a mantle it shares with biomass domes, gigantic offshore wind turbines and field-upon-field of solar panels – the icons of today’s diverse energy mix.

View our water cooling towers close up. Drax Power Station is open for individual and group visits. See the Visit Us section for further information.

Completion of Acquisition of Louisiana Pellets

RNS Number : 3839D
Drax Group PLC
(Symbol: DRX)

Following a court hearing to approve the result of an auction on 30 March 2017, Drax has now completed the acquisition of substantially all of the assets of Louisiana Pellets(1). The acquisition price was $35.4m.

Louisiana Pellets will provide additional biomass pellet capacity in the region of 450k tonnes pa, playing an important part in Drax’s strategy to build a flexible supply chain capable of self-supplying 30% of its generation requirement.

The plant is expected to return to service by early 2018 following incremental investment to upgrade and optimise the facility.

Dorothy Thompson, Chief Executive Officer of Drax Group, said:

“Louisiana Pellets marks another positive step in delivering the Drax Group strategy.

“The deal forms part of our plan to significantly increase our capability to manufacture high quality compressed wood pellets and increase self-supply to Drax Power Station.

“Upgrading half the Power Station to use sustainable wood pellets has resulted in Drax producing 16% of the UK’s renewable electricity and with the right conditions we aim to do more.”

Enquiries:

Drax Investor Relations:

Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications:

Paul Hodgson

+44 (0) 1757 612026

Ali Lewis

+44 (0) 1757 612165

Website: www.drax.com

Notes:

(1)   Louisiana Pellets is the owner and developer of a wood biomass pellet manufacturing facility located in Urania, Louisiana.

END

Pricing of offering of senior secured notes due 2022

London Skyline with cranes
RNS Number : 0509D
Drax Group PLC
(Symbol: DRX)

Drax Group plc’s (“Drax”) indirect wholly owned subsidiary, Drax Finco plc, has today priced its offering of £350 millionsenior secured fixed rate notes due 2022 (the “Fixed Rate Notes”) and £200 million senior secured floating rate notes due 2022 (the “Floating Rate Notes” and together with the Fixed Rate Notes, the “Notes”).

The Fixed Rate Notes will bear interest at a rate of 4.25 per cent. per annum and will be issued at 100 per cent. of their nominal value.  

The Floating Rate Notes will bear interest at an annual rate of 3 month LIBOR (subject to a zero per cent. floor) plus 4.0 per cent. per annum and will be issued at 100 per cent. of their nominal value.    

The proceeds from the offering of the Notes, together with cash on hand will be used as part of a refinancing of Drax’s existing debt.

An amendment to the current £400 million credit facility is also expected to become effective on or around 5 May. Under the amendment, an aggregate principal amount of £350 million will be made available to Drax Corporate Limited. It is expected that approximately £35 million will be drawn at closing.

Drax has also extended its existing commodity trading facility, to include gas related commodity trades in addition to the existing power and dark green spread facility. The extension of the commodity trading facility allows Drax to transact prescribed volumes of trades without the requirement to post collateral.  

Enquiries:

Drax Investor Relations:

Mark Strafford

+44 (0) 1757 612 491 

Media:

Drax External Communications:

Paul Hodgson

+44 (0) 1757 612026

Website: www.drax.com

Cautionary Statement
This release is for information purposes only and does not constitute a prospectus or any offer to sell or the solicitation of an offer to buy any security in the United States of America or in any other jurisdiction. Securities may not be offered or sold in the United States of America absent registration or an exemption from registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”). The Notes will be offered in a private offering exempt from the registration requirements of the Securities Act and will accordingly be offered only to (i) qualified institutional buyers pursuant to Rule 144A under the Securities Act and (ii) certain non-U.S. persons outside the United States in compliance with Regulation S under the Securities Act.  No indebtedness incurred in connection with any other financing transactions will be registered under the Securities Act. 
This communication is directed only at (i) persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended (the “Order”), (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations, etc.”) of the Order,  (iii) are persons who are outside the United Kingdom, and (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any notes may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). Any investment activity to which this communication relates will only be available to, and will only be engaged in with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.  
This announcement is not a public offering in the Grand Duchy of Luxembourg or an offer of securities to the public in any European Economic Area member state that has implemented Directive 2003/71/EC, and any amendments thereto (together with any applicable implementing measures in any member state, the “Prospectus Directive”). 
Forward Looking Statements
This release includes forward-looking statements within the meaning of the securities laws of certain applicable jurisdictions. These forward-looking statements can be identified by the use of forward-looking terminology, including, but not limited to, terms such as “aim”, “anticipate”, “assume”, “believe”, “continue”, “could”, “estimate”, “expect”, “forecast”, “guidance”, “intend”, “may”, “outlook”, “plan”, “predict”, “project”, “should”, “will” or “would” or, in each case, their negative, or other variations or comparable terminology.  These forward-looking statements include, but are not limited to, all statements other than statements of historical facts and include statements regarding Drax’s intentions, beliefs or current expectations concerning, among other things, Drax’s future financial conditions and performance, results of operations and liquidity, strategy, plans, objectives, prospects, growth, goals and targets, future developments in the markets in which Drax participate or are seeking to participate, and anticipated regulatory changes in the industry in which Drax operate. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors because they relate to events and depend on circumstances that may or may not occur in the future. Readers are cautioned that forward-looking statements are not guarantees of future performance and are based on numerous assumptions. Given these risks and uncertainties, readers should not rely on forward looking statements as a prediction of actual results. 

END

AGM Statement

Photo of Philip Cox CBE
RNS Number : 4477C
Drax Group PLC
(Symbol: DRX)

Drax holds its Annual General Meeting at 11:30am today at The Grand Hotel and Spa, Station Rise, York.  At this meeting Philip Cox, Chairman of Drax, will make the following comments:

“The Annual Report and Accounts were published on 10 March and therefore I hope that you’ve had time to review them. By way of a reminder, our principal performance indicators and operational achievements for 2016 are summarised on the screen. 

2016 was a pivotal year for Drax, marking the completion of the biomass transformation project which commenced in 2012, and the announcement of a new strategy to deliver long-term sustainable value for our shareholders.

Our underlying earnings for 2016 at £140 million was in line with our guidance, although £29 million below 2015. This reflects the continuation of challenging commodity markets and the removal of Climate Change Levy (CCL) exemptions. However, we were pleased to be able to partly offset the impact of these factors with a focus on flexible system support, the prompt and balancing markets, ancillary services and improving retail margins, all of which are important parts of our strategy to develop broader, non-commodity exposed earnings. 

Against a background of low wholesale electricity prices, the Group has again delivered strong operational performance. This is not something we take for granted and it remains at the core of our strategy.

Following a comprehensive review, initiated in 2015, the Group’s new strategy has been defined and is based on creating a more diversified earnings base that will produce higher-quality returns in the long term.

Central to this strategy, Drax aims to play an increasing role in the way energy is generated, supplied and used for a better future. We announced our new strategy to the market in December. Evidence of delivering on the new strategy can already be seen in the acquisition of Opus Energy and four projects to develop rapid-response Open Cycle Gas Turbine (OCGT) generation plants and most recently we have made progress in our plans to expand our biomass pellet self-supply capability with the provisional acquisition of a new biomass pellet plant in Louisiana.

Sustainably sourced biomass generation remains at the heart of your business and we were delighted to be able to complete the full conversion of our third biomass generating unit, resulting in Drax delivering 16 per cent of the UK’s renewable electricity. 

Biomass is the most cost-effective large scale renewable and with the right policy frameworks we could become 100% renewable through the full conversion of our three remaining coal units and we could do this well before 2025, supporting the Government’s objective to remove unabated coal from the system.

Through our strategy your Board remain focused on optimising the value of the Group as well as remaining alert to opportunities for growth.

The sustainable biomass we use to provide energy is at the heart of our business. Because this must be sustainable we always strive to ensure all our pellets comply with our policy. We are well aware of the obligations we have to society, and specifically the communities in which we are located, as well as the wider environment. 

We take these obligations very seriously. 

And, I’d like to remind you our shareholders of our guiding principles:

  • We never work in countries that lack proper regulation.
  • We never cause deforestation or forest decline.
  • We never source from areas that are officially protected or where our activities would harm endangered species.
  • We only take wood from working forests that grow back and stay as forests.
  • We require all our suppliers to pass tough screening and sustainability audits, conducted by independent auditors.
  • We only source wood from countries that already have huge working forests where we provide another market for low grade material that solid-wood industries, such as construction and furniture manufacture, aren’t using.

This year there are a larger number of resolutions than usual as a result of the submission of a new Remuneration Policy for consideration by shareholders and a number of other resolutions as set out in the Notice of Meeting.  Following comments by shareholder advisory bodies and discussions with major shareholders, I want to be clear that all payments and awards made to directors are in line with our remuneration policy, although I acknowledge that some elements of remuneration structure could have been better explained in the previous year’s Directors’ Remuneration Report.”        

Enquires:

Investor Relations

Mark Strafford        +44 (0) 1757 612491

Media 

Paul Hodgson +44 (0) 1757 612026

Website: www.drax.com

Notes:

(1)  The principal performance indicators and operational achievements for 2016 which were  “summarised on the screen” were as follows:

During 2016:

  • Total revenue – £2,950 million
    (2015: £3,065 million)
  • Gross Profit was £376 million
    (2015: £409 million)
  • EBITDA – £140 million
    (2015: £169 million)
  • Net debt – £93 million
    (2015: £187 million)
  • Underlying basic earnings – 5 pence per share
    (2015: 11 pence per share)
  • Total recordable injury rate – 0.22
    (2015: 0.31)
  • Percentage of UK renewable electricity generated – 16% (1)
    (2015: 16%)
  • Biomass generation – 65%
    (2015: 43%)

Note

(1)    Drax estimates that it produced around 16% of the renewable electricity generated under support schemes covered by the Levy Control Framework. 

How much does it cost to charge my iPhone?

It’s difficult to imagine life without electricity. Its ubiquity means it’s easy to forget the incredible feats of science, engineering, and infrastructure that allow us to undertake a task as simple as plugging in our smartphones.

In fact, so expansive are the nationwide infrastructure networks that lie beyond the wall socket, keeping a top-of-the-range mobile phone charged for a year can cost as much as… 67p.

To work out how much electricity an appliance uses there’s a relatively straightforward equation we can follow of power (kilowatt, kW) x time (hours used) = energy transferred (kilowatt-hour, kWh). To then work out how much that costs in real terms we need to take the wattage of the appliance (worked out in kilowatts as this is the metric electricity tariffs are measured in), multiply that by the number of hours it is being used for, then multiply that figure (kWh) by your energy tariff (£).

In the case of an iPhone, it works out like this: a typical iPhone charger is 5W (0.005 kW) and a full charge from empty takes a maximum of three hours (a conservative estimate). The average electricity tariff in the UK is 15p per kWh, which leads to an equation that looks like this:

0.005 x 3 x 0.15 = £0.00225 a day

And if we assume that an iPhone owner might fully charge their phone roughly 300 times a year, the total annual sum amounts to a princely 67.5p.

There’s no other way of looking at this – it’s a very low number. But it’s important to think about this number in scale. Extrapolate it across the number of devices in the country and it grows significantly.

A 2016 study on UK smartphone owners suggests three quarters of all adults have smartphones, which would put the country total somewhere in the region of 40 million. Per day, that’s 600 MWh of electricity needed to power their smartphones. That’s the equivalent of 200 MW of power generation, or enough to power 565,000 households, for one hour.

Charger with device on wooden desk

How much electricity do my other appliances use?

Unfortunately, not all appliances are as modern, efficient and cost effective as your average smartphone. In fact, when it comes to household appliances, charging your Apple iPhone, Samsung, Sony or Windows Phone device is one of the least power-hungry activities you can undertake.

A bigger offender is your fridge-freezer, but not because they need a lot of electricity to run. Instead, it comes down to the fact it is plugged in and drawing power for a significant amount of time. A fridge freezer is plugged in for 24 hours a day, seven days a week, and even though modern fridge freezers have good energy efficiency mechanisms to limit their usage, they can very easily use 427 kWh a year, leading to an annual cost of over £50.

To put that into perspective, here’s how much your other household items cost per hour according to the same equation used earlier.

How much does it cost to charge an iphone

What’s new?

As our homes, workplaces and industries have become more energy efficient, the country as a whole is using less power. Nowhere is this more evident than in our lighting – today, the common LED lightbulb uses just 17% of the power needed for an incandescent lightbulb of equivalent brightness.

The news has been full of stories about how much more power 4K TVs use compared to high definition TVs. But because most of us buy a TV once every decade or so, replacing your 2007 1080p full HD TV with the UK’s best-selling 4K model and watching it for an hour will actually use around 70% less power.

This continued trend towards efficiency has had a marked effect on the country’s use of power. In March 2017, the government published its latest electricity demand data for the UK, showing the country’s power needs falling all the way through to 2020.

But then something interesting happens. From 2026 the forecast shows us beginning to use increasingly more power than we are due to in 2017. To the point where by 2035, we’re using more power than we are today – 19% more. Why is this?

One possibility is electric cars. In 2015, electric vehicles (EVs) consumed 0.25 TWh of power, but that’s set to grow significantly. In its Future Energy Scenarios report published in 2016, National Grid projected EVs will consume 19 TWh in 2035, but it has already said it believes its projections might be understated. In short, the EV revolution could drive demand far higher, which leads to the question, ‘Where is all of this extra power going to come from?’.

Charging an electric car

Understanding the smart home 

Our future energy needs are not just going to be met by more electricity generation capacity, they will also be assisted by something closer to home. With the introduction of smart meters, pinpointing the devices and appliances in our homes that use the most electricity will become more widespread. More than this we’ll be able to identify what time of day they’re using the most energy and when we might be able to turn them off. With this information we can optimise our usage and save money.

And while cutting down your yearly phone charging budget from 67p to 50p might not sound like much, if three quarters of the country are joining you, those pennies can quickly add up.

Annual report and accounts 2016: Smart Energy Solutions – Q&A

View the Drax Group plc annual report and accounts

Q. Do you think performance got better or worse in 2016?

A. Financially, EBITDA was in line with our guidance, although below 2015. This principally reflects very challenging commodity markets and the removal of the Climate Change Levy exemption.

We were able to partly offset the impact of these factors with a focus on flexible system support, in the prompt and balancing markets, ancillary services and improving retail profitability, all of which are important parts of our strategy to develop broader, non-commodity exposed earnings.

Operationally, 2016 was another good year across our business, but particularly
in generation where the team completed a significant outage programme and on the regulatory front the European Commission’s approval of the CfD meant we could complete the final stages of the upgrade to our third biomass unit.

Q. What were the most significant changes for the Group in 2016?

A. The most important change was the new Group strategy, which gives us all a very clear direction for the future and will see Drax become a broader business across our markets – pellet supply, generation and retail. The acquisition of Opus Energy will strengthen our retail offer, and our plans to build four rapid response gas power stations will plug the gaps at times of system stress.

The new Group strategy is underpinned by new people and IT strategies which are crucial to its successful delivery.

Haven Power has also seen significant change with the arrival of CEO Jonathan Kini. He, along with his team have been working to ensure we are well placed to continue growing and to boost our retail offer with the recent acquisition of Opus.

Q. How do you think 2017 will be different to 2016?

A. The focus will be on continuing to deliver good performance right across the Group, but there will also be changes as we work closely with the Opus team to ensure we create the best possible retail offer for the UK’s SMEs. Drax Power will be progressing the OCGT gas projects, and it will be an exciting year for Drax Biomass as they look to secure acquisitions of pellet mills and opportunities to export compressed word pellets to other markets. Everyone across the Group will see further evidence of the new strategy roll-out, particularly in the form of the people and IT strategies.

Q How does diversifying into gas fit with your aim to replace coal with renewable generation at Drax?

A. It complements it perfectly. The European Commission’s approval of the CfD enabled us to complete the upgrade of half the power station to run on compressed wood pellets in place of coal and in 2016, 65% of the electricity we generated at Drax was renewable.

The job is not yet done, and with the right conditions we will upgrade the remaining coal units. We can do this in just two to three years, when the conditions are right.

The planned gas power stations will not be run to produce baseload power, but as rapid response units to plug the gaps at times of system stress, for example when wind and solar fail to contribute what’s required. They will also be part of a solution that can accelerate the end of coal in the UK.

Q. Can you explain the acquisition of Opus? Wouldn’t it have made more sense to grow Haven?

A. We acquired Haven in 2009 when it was an SME focused business. Since then the business has grown significantly by principally focusing on the I&C market to provide a route to market for around half the electricity Drax Power produces, although it retains a relatively small SME presence.

Opus – like Haven – is a challenger business and brings with it 265,000 customer metered sites, largely SMEs. Opus also supplies gas, which for the first time will see us having the ability to provide a dual fuel offer, something that is vital for many SMEs.

Opus gives us immediate scale in the SME market and we think the complementary nature of the Haven and Opus models can provide a compelling challenger retail proposition for our customers.

Q. Have you got the right team and systems in place to ensure that Opus will join the group with minimal disruption?

A. Yes, Jonathan Kini, who leads our retail business has a great depth of experience in SME markets and integration. He has strengthened his team to ensure we have the expertise required to make this a very successful transition as Opus becomes a member of the Drax family.

However, I’m in no way complacent about the challenges, that’s why we developed a plan to embed Opus covering everything from IT to communications. It’s vital we get this right and that our new colleagues become part of delivering our new Group strategy and share in our values. Clearly I also want both Haven and Opus customers to continue experiencing high levels of service along with the benefits of a more comprehensive retail offer.

Q. How is Drax Power different to when you joined?

A. In many ways Drax is now a very different place to what it was when I joined Drax more than ten years ago. The fact that in 2016 65% of our output was renewable is something I’m very proud of, and right across the power station you can actually see the difference that using compressed wood pellets has made: huge storage domes, specially designed train wagons, and a visitor centre and guides explaining the latest chapter in the Drax story.

Essentially today the power station operates as two power stations: a reliable, flexible, renewable generator producing electricity for businesses and homes and a fossil fuel generator providing system support and security of supply.

Q. You have highlighted the role that Drax coal units can play in system support and ancillary services – what is this and why is it important?

A. Increasing levels of intermittent renewables and inflexible nuclear present the grid with a challenge, and for Drax, opportunities.

When the grid needs capacity our coal units have the flexibility to turn on and off, and ramp up and down responding to demand as weather and time of day determine the availability of wind and solar. It is already common place for Drax to “two-shift” the coal units; using them to provide flexible, responsive power, rather than baseload.

But it’s not just about generation – a well-functioning grid needs other services too. 2017 will see Drax seeking further opportunities to provide the electricity grid with this increasingly important system support.

Q. Did the result of the UK’s EU referendum have any impact on the business?

A. Our business model is largely unaffected by the decision to leave the EU. We will continue to generate and sell power in the UK. We purchase a significant amount of the fuel we require in foreign currency and our long-term hedging strategy – five years ahead – has protected us against any negative impacts of exchange rate fluctuations for the medium-term.

Q. Has the change in the UK Government resulted in any different signals being sent out to the renewables sector?

A. I think that still remains to be seen. We have to look at the huge changes that have happened in Government since the EU referendum as a potential opportunity for us as we continue to make the case for investment in further biomass upgrades.

What is clear is that the focus is still very much on affordable energy. In 2016, Imperial College London and the economic consultancy NERA published new research that we commissioned. It showed that when whole system costs are factored in biomass is the cheapest large scale renewable technology. If Government applied this method of support to future CfD auctions, consumers could benefit by up to £2.2 billion.

As we take forward our new strategy we will also be clearly communicating our plans for rapid response gas power stations and how the system support they will provide contributes to decarbonising the UK’s energy system.

 

Q. What are the latest plans to convert the remaining generating units that run on coal?

A. We have now delivered on our original strategy to upgrade three generating units to run on compressed wood pellets. However, we would like to do more, and have consistently said that with the right conditions we stand ready to convert further units.

The transformation we’ve been through has meant we’ve learnt a huge amount over the last few years, and there’s no doubt that for future upgrades we can carry them out quicker and more cost-effectively.

Q. Why do you think questions around the sustainability of biomass continue to be raised?

A. I think many companies involved in the sourcing and supply of sustainable products will face questions in this area. What we will do is continue to be open and honest about all aspects of how our business operates including sustainability. Much of that evidence can be seen in this annual report, from our own stringent sustainability policy, to how we comply with the UK Government’s sustainability legislation criteria.

However, we are never complacent and for example each new pellet supplier to Drax is fully and independently audited before a contract is signed and our existing suppliers are audited at least once every three years.

Q. Which other business roles do you have outside of Drax and how do they help the Group

A. I’m a non-executive director at the Eaton Corporation and also the Court of the Bank of England. I think it’s important to have roles outside the business, as long as they allow you to get the balance right and these do. So, clearly they should in no way be a distraction from the “day job”, but worth an investment of time that allows you to see how others operate and whether there are lessons that we can learn or best practice that we can adopt.

Q. What’s the feeling around the Board table?

A. I’d say it’s one of excitement at the opportunities our new Group strategy and acquisitions present for the future. While there’s obviously satisfaction that we’ve delivered on what we initially set out to do – upgrade three generating units to run on compressed wood pellets, there is certainly no feeling of “job done”.

In the months ahead the Board will rightly want to see clear and positive progress as we work to boost our retail offer through Opus Energy and develop our plans to build four rapid response gas power stations.

View the Drax Group plc annual report and accounts

Mailing of Annual Report to Shareholders

RNS Number : 1940Z
DRAX GROUP PLC
(Symbol: DRX)

Mailing of the Annual report and accounts 2016 and ancillary documents to shareholders

The following documents are being mailed to the registered shareholders of Drax Group plc today, Friday 10 March 2017:

  • Annual report and accounts 2016;
  • Notice of the 2017 Annual General Meeting; and
  • Form of Proxy for the 2017 Annual General Meeting.

In accordance with Listing Rule 9.6.1 a copy of each of these documents has been submitted to the National Storage Mechanism and will be available for viewing shortly.

The Annual report and accounts 2016 and the Notice of the 2017 Annual General Meeting will also available from 10 March 2017 as follows:

  • for viewing on the Company’s website, www.drax.com; and/or
  • by writing to the Company Secretary at the Registered Office; Drax Power Station, Selby, North Yorkshire YO8 8PH.

Annual General Meeting

The Company is to hold its Annual General Meeting at 11.30am on Thursday 13 April 2017, at The Grand Hotel & Spa, Station Rise, York YO1 6GD.

Key dates relating to the final dividend

Detailed below are the key dates regarding the final dividend:

  • 20 April 2017 – ordinary shares marked ex-dividend.
  • 21 April 2017 – record date for entitlement to the dividend.
  • 12 May 2017 – payment date for the dividend.

The rate of the final dividend is 0.4 pence per share.

  

David McCallum

Company Secretary

10 March 2017


The Annual report and accounts can be downloaded here: https://www.drax.com/investors/results-and-reports/#annual-report-and-accounts