Tag: Will Gardiner

Full year results for the twelve months ended 31 December 2023

29 February 2024

Financial News

RNS Number : 8820E
Drax Group PLC
29 February 2023

Twelve months ended 31 December	2023	2022
Key financial performance measures
Adjusted EBITDA (excl. EGL)^(1)(2)(3) (£ million)	1,214	731
Electricity Generator Levy (EGL)⁽³⁾ (£ million)	(205)	-
Adjusted EBITDA (incl. EGL)^(1)(2)(3) (£ million)	1,009	731
Net debt⁽⁴⁾ (£ million)	1,084	1,206
Net debt to Adjusted EBITDA (incl. EGL)	1.1x	1.6x
Adjusted basic EPS ⁽¹⁾ (pence)	119.6	85.1
Dividend per share (pence)	23.1	21.0
Total financial performance measures
Operating profit (£ million)	908	146
Profit before tax (£ million)	796	78

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

£ million	2023	2022
Adj. EBITDA breakdown (incl. EGL)	1,009	731
Pellet production	89	134
Pumped storage and hydro	230	171
Biomass generation	703	525
Energy solutions (Customers)	72	26
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⁾	10.8	9.3	2.2
Average achieved £ per MWh⁽¹⁰⁾	149.0	111.1	89.6

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.

£ million	2023	2022
Adj. EBITDA breakdown (incl. EGL)	1,009	731
Pellet production	89	125
Pumped storage and hydro	230	171
Biomass generation	703	453
Energy solutions (Customers)	72	20
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.

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

10 August 2023

Financial News

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 6^th 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

27 July 2023

Financial News

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

Six months ended 30 June	2023	2022
Key financial performance measures
Adjusted EBITDA (£ million)⁽¹⁾⁽²⁾(excl. Electricity Generator Levy) (EGL)⁽³⁾	453	225
Adjusted EBITDA (£ million)⁽¹⁾⁽²⁾(incl. EGL)	417	225
Net debt (£ million)⁽⁴⁾	1,274	1,116
Adjusted basic EPS (pence)⁽¹⁾	46.0	20.0
Dividend (pence per share)	9.2	8.4
Total financial performance measures from continuing operations
Operating profit (£ million)	392	207
Profit before tax (£ million)	338	200

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 2023	2023	2024	2025

Net ROC, hydro and gas (TWh^(8/9/10))	11.7	11.2	5.2
Average achieved £ per MWh	162.7	147.5	126.2

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

23 May 2023

Financial News

^{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 1.5^oC.

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

26 April 2023

Financial News

^{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 2023	2023	2024	2025
Net ROC, hydro and gas (TWh)	12.5	10.5	3.2
- Average achieved £ per MWh	158.6	149.1	137.3
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:

Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements.
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
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.
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.
2023 includes limited forward selling of pumped storage generation resulting in higher captured prices but lower system support availability.
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.
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.

Full year results for the twelve months ended 31 December 2022

23 February 2023

Financial News

RNS Number : 7781Q
Drax Group PLC
23 February 2023

Twelve months ended 31 December	2022	2021
Key financial performance measures
Adjusted EBITDA (£ million) ⁽¹⁾⁽²⁾	731	398
Net debt (£ million) ⁽³⁾	1,206	1,108
Net debt to Adjusted EBITDA	1.6x	2.8x
Adjusted basic EPS (pence)⁽¹⁾ ⁽¹⁾	85.1	26.5
Total dividend (pence per share)	21.0	18.8
Total financial performance measures from continuing operations
Operating profit (£ million)	146	197
Profit before tax (£ million)	78	122

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 2023	2023	2024	2025

Net ROC, hydro and gas (TWh^(7/8/9))	12.4	9.0	1.9
-Average achieved £ per MWh (£ per MWh)	158.1	149.2	135.7

Lower expected level of ROC generation in 2023 due to major planned outages on two units

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

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

Other financial information

Profits

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

Capital investment

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

Cash and interest

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

Capital allocation policy – unchanged

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

2023 financial and operational outlook

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

Forward Looking Statements

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

Results presentation and webcast arrangements

Event Title:	Drax Group plc: Full Year Results
Event Date:	Thursday 23 February 2023
	9:00am (UK time)

Webcast Live Event Link:	https://secure.emincote.com/client/drax/drax024

Conference call and pre-register Link:	https://secure.emincote.com/client/drax/drax024/vip_connect

Start Date:	Thursday 23 February 2023
Delete Date:	Thursday 23 February 2024
Archive Link:	https://secure.emincote.com/client/drax/drax024

For further information, please contact: [email protected]

View investor presentation here

Critical role supporting UK energy system and progress with BECCS

15 December 2022

Financial News

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

Operational Highlights

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

Financial Highlights

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

Strategic Highlights

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

Drax Group CEO, Will Gardiner said:

Will Gardiner, Drax Group CEO

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

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

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

Pellets Production

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

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

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

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

Investment in new production capacity

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

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

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

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

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

Generation

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

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

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

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

Generation contracted power sales

As at 8 December 2022, Drax had 28.3TWh of contracted power sales between 2022 and 2024 on its ROC and hydro generation assets at an average price of £135.8/MWh, with a further 1.4TWh equivalent of gas sales (transacted for the purpose of accessing additional liquidity for forward sales from ROC units and highly correlated to forward power prices) plus additional sales under the CfD mechanism.

Contracted power sales 8 December 2022	2022	2023	2024

ROC (TWh)	10.7	11.1	6.1
- Average achieved £ per MWh	90.2	154.5	159.0

Hydro (TWh)	0.3	<0.1	-
- Average achieved £ per MWh	255.6	-	-

Gas hedges (TWh equivalent)	-	0.1	1.3
Pence per therm	-	153.2	133.9

Lower expected level of ROC generation in 2023 due to major planned outages on two units

Generation biomass costs

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

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

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

Coal

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

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

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

Full year expectations

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

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

Electricity Generators Levy

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

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

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

Bioenergy Carbon Capture and Storage (BECCS) – UK

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

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

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

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

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

BECCS – North America

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

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

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

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

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

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

Regulation and policy development

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

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

Potential for significant growth in CDRs

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

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

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

Biomass Sustainability

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

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

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

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

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

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

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

Other

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

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

Notes:

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

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis

+44 (0) 7712 670 888

Website: www.Drax.com

Forward Looking Statements

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

END

Half year results for the six months ended 30 June 2022

26 July 2022

Investors

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

Six months ended 30 June	H1 2022	H1 2021
Key financial performance measures
Adjusted EBITDA (£ million)⁽¹⁾⁽²⁾	225	186
Continuing operations	225	165
Discontinued operations – gas generation	-	21
Net debt (£ million)⁽³⁾	1,101	1,029
Adjusted basic EPS (pence)⁽¹⁾	20.0	14.6
Interim dividend (pence per share)	8.4	7.5
Total financial performance measures from continuing operations
Operating profit (£ million)	207	84
Profit before tax (£ million)	200	52

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

Will Gardiner, CEO of Drax Group, said:

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

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

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

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

Financial highlights

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

Engineers at Cruachan Power Station

Progress with strategy in H1 2022

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

Outlook for 2022

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

Future positive – people, nature, climate

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

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

Nature and climate
- Science-based sustainability policy fully compliant with current UK and EU law on sustainable sourcing and aligned with UN guidelines for carbon accounting
- Biomass produced using sawmill and forest residuals, and low-grade roundwood, which often have few alternative markets and would otherwise be landfilled, burned or left to rot, releasing CO₂ and other GHGs
- Increase in sawmill residues used by Drax to produce pellets – 67% of total fibre (FY 2021: 62%)
- 100% of woody biomass produced by Drax verified against SBP, SFI, FSC®⁽⁴⁾ or PEFC Chain of Custody certification with third-party supplier compliance primarily via SBP certification

Operational review

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

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

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

Adjusted EBITDA from continuing operations £205 million up 24% (H1 2021: £165 million)
- Optimisation of biomass generation and logistics to support security of supply at times of higher demand
- Summer – lower power demand, lower power generation and sale of reprofiled biomass
- Winter – maximise biomass deliveries to support increased generation at times of higher demand
- Four small, planned biomass outages completed in H1, supporting higher planned generation in H2-22
- Strong portfolio system support performance (balancing mechanism, ancillary services and optimisation)
- Higher cost of sales – logistics optimisation, biomass and system costs
Six-month extension of coal at request of UK government – winter contingency contract for security of supply
- Closure of coal units in March 2023 following expiration of agreement with ESO at end of March 2023
- Fixed fee and compensation for associated costs, including coal
- Remain committed to coal closure and development of BECCS, with no change to expected timetable
As at 21 July 2022, Drax had 25.4TWh of power hedged between 2022 and 2024 on its ROC and hydro generation assets at an average price of £95.9/MWh, with a further 2.3TWh equivalent of gas sales (transacted for the purpose of accessing additional liquidity for forward sales from ROC units and highly correlated to forward power prices) plus additional sales under the CfD mechanism

Contracted power sales 21 July 2022	2022	2023	2024

ROC (TWh⁽⁶⁾)	11.7	8.8	4.5
Average achieved £ per MWh	87.2	98.3	109.5

Hydro (TWh)	0.3	0.1	-
-Average achieved £ per MWh	133.1	242.0	-

Gas hedges (TWh equivalent)	(0.1)	0.5	1.9
-Pence per therm	361.0	145.8	135.0

Lower expected level of ROC generation in 2023 due to major planned outages on two units

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

Adjusted EBITDA of £24 million (H1 2021: £5 million loss) – continued improvement following impact of Covid-19
- principally in the SME business
- Includes benefit of excess contracted power sold back into merchant market

Continued development of Industrial & Commercial (I&C) portfolio
- 9TWh of power sales – 21% increase compared to H1 2021 (5.7TWh)
- Focusing on key sectors to increase sales to high-quality counterparties supporting generation route to market
- Energy services to expand the Group’s system support capability and customer sustainability objectives
SME – increasingly stringent credit control in SME business to reflect higher power price environment

Other financial information

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

View complete half year report

View Investor Presentation

Webcast Live Event

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

27 April 2022

Investors

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

Trading and Operational Highlights

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

Financial Highlights

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

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

Drax CEO Will Gardiner said:

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

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

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

Pellet Production

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

Leola satellite plant under construction [February 2022]

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

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

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

Generation

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

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

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

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

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

Generation contracted power sales

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

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

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

Contracted power sales 22 April 2022	2022	2023	2024

ROC (TWh⁽³⁾)	11.1	7.7	3.1
- Average achieved £ per MWh	74.9	79.0	84.0

Hydro (TWh)	0.2	0.1	-
- Average achieved £ per MWh	107.0	173.1	-

Gas hedges (TWh equivalent)⁽⁴⁾	-	0.5	1.3
Pence per therm	-	108.4	118.5

CfD^(3/5) typical annual output c.5TWh and current strike price £126.4/MWh

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

War in Ukraine

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

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

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

Full year expectations

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

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

Bioenergy Carbon Capture and Storage (BECCS)

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

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

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

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

Other

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

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

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

Enquiries:

Drax Investor Relations: Mark Strafford
+44 (0) 1757 612 491

Media:

Drax External Communications: Ali Lewis
+44 (0) 7712 670 888
Website: www.drax.com

END

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Will Gardiner, CEO of Drax Group, said:

Financial highlights – strong financial performance and returns to shareholders

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

Financial outlook

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

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

Sustainability

National Audit Office (NAO) and Ofgem

Operational and financial review

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

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

Energy Supply (Customers) – renewable power and energy services

Other financial information

Capital investment

Cash and balance sheet

Forward Looking Statements

Webcast Arrangements

View investor presentation here

Notes:

Will Gardiner, Drax CEO, said:

A priority role for BECCS

Biomass availability and sustainability

Scientific assessment of carbon removals from BECCS

BECCS at Drax Power Station

Enquiries:

Media:

Will Gardiner, CEO of Drax Group, said:

Financial highlights – strong financial performance and returns to shareholders

2023 outlook

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

UK BECCS

Operational review

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

Generation – renewable generation and system support services

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

Other financial information

Adjusted EBITDA and EGL

Profits

Capital investment

Cash and interest

Capital allocation policy – unchanged

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

Progress on Global BECCS commercial arrangements

Attractive portfolio of investment opportunities

2023 outlook

Drax Group CEO, Will Gardiner said:

Capital Markets Day

Purpose and ambition

Global need for carbon removals

BECCS – North America

Capital allocation

Outlook

Webcast and presentation material

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.

[3] IPCC Sixth Assessment Report, Working Group III (2022).

Enquiries:

Media:

Highlights

Drax Group CEO, Will Gardiner said:

Generation

Generation contracted power sales

Coal

Bioenergy Carbon Capture and Storage (BECCS) – UK

Pellet Production

Full Year Expectations

Capital Returns and Share Buyback Programme

Other

Notes:

Enquiries:

Media:

Will Gardiner, CEO of Drax Group, said:

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

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

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