12 November 2024
Drax Group plc
("Drax", "the Group", "Drax Group", "the
Company"; Symbol: DRX)
Trading update - strong performance,
disciplined capital allocation
Highlights
·
Strong performance - Flexible Generation(1),
Pellet Production and Biomass Generation
·
Progressing target for >£500 million EBITDA post 2027 from
FlexGen(1) and Pellet Production
· UK
energy system operator confirms large-scale biomass required for
2030 clean power system
·
Launch of Elimini - US-based developer of 24/7 renewable
power and carbon removals
· Up
to £300 million two-year share buyback programme
progressing
·
Full year 2024 expectations for Adj. EBITDA(2)
around the top end of analyst estimates(3)
Drax Group CEO, Will Gardiner said: "We continue
to deliver a strong operational performance, supporting the UK
energy system with dispatchable, renewable power, keeping the
lights on for millions of homes and businesses, while supporting
thousands of jobs throughout our supply chain.
"Our Flexible Generation and Pellet Production
businesses are making good progress towards our target to deliver
post 2027 recurring EBITDA over £500 million and we are continuing
to develop options for growth, while remaining disciplined on
capital allocation.
"The UK Government aims to deliver a clean
energy system by 2030, and NESO's Clean Power 2030 report shows
that large-scale biomass, BECCS and flexible generation are
included in both pathways. We are excited to be a part of that
process. Our investment in BECCS remains contingent on gaining
further clarity from UK Government on the frameworks for continuing
the operation of the power station beyond 2027 and supporting BECCS
conversions from 2030.
"Subject to the right investment framework and
milestones, Drax will develop its options for BECCS and pumped
storage hydro which could create thousands of new jobs and private
investment into green energy projects in both Yorkshire and
Scotland.
"We believe that biomass has a growing role to
play in the energy transition, such as in the production of SAF. We
have also launched our new Elimini carbon removals business which
aims to develop projects providing 24/7 power and carbon removals
outside the UK, offering long-term investment opportunities in what
we believe could be a major new global market."
Full year
expectations
Reflecting a continued strong performance across
the business - Flexible Generation, Pellet Production and Biomass
Generation - Drax now expects 2024 full year Adj. EBITDA to be
around the top end of analysts' consensus
estimates(3).
Drax expects Net debt to Adj. EBITDA to be
around 1x at the end of 2024.
Full year expectations remain subject to
continued good operational performance.
Flexible
Generation (FlexGen)
Drax continues to target post 2027 recurring
Adj. EBITDA of over £250 million from FlexGen.
Drax believes that the retirement of older
thermal assets and increased reliance on intermittent renewables,
as well as an increase in power demand, will drive a growing need
for dispatchable power and system support services, creating
long-term, enduring earnings opportunities for, and value from, the
Group's Flexible Generation assets. As such, and in line with its
ambition to be a UK leader in flexible renewable generation, the
Group continues to assess opportunities for the development of its
portfolio.
Pumped Storage and Hydro
The Group's pumped storage and hydro business is
performing well, providing flexible and renewable power generation
and a wide range of system support services.
An £80 million investment to refurbish and
upgrade two units at Cruachan Power Station is progressing. The
project, which is underpinned by a 15-year Capacity Market
agreement worth over £220 million (c.£15 million Adj. EBITDA pa),
will add 40MW of additional capacity by 2027 and improve unit
operations.
Open Cycle Gas Turbines
(OCGTs)
Commissioning of three new-build OCGTs at two
sites in England and one in Wales is due to commence from Q1 2025.
This is later than originally planned, primarily due to delays in
grid connection by the relevant authorities. The OCGTs will provide
combined capacity of c.900MW and be remunerated under 15-year
Capacity Market agreements, worth over £250 million, in addition to
revenues from peak power generation and system support services.
Drax will continue to assess options for these assets, including
their potential sale.
Energy Solutions
In September 2024, Drax completed the sale of
the majority of its non-core Opus Energy SME customer meter points.
An employee consultation process has also been completed resulting
in a reduction in headcount to reflect Energy Solutions' focus on
core I&C and renewables services, which are continuing to
perform well.
Pellet
Production
Building on increased production and improved
margin in the first half of 2024, the Pellet Production business is
continuing to performing well.
Drax continues to target post 2027 recurring
Adj. EBITDA over £250 million from Pellet Production. This could
comprise a combination of own-use and third-party sales, from
existing and new markets, including Sustainable Aviation Fuel
(SAF), where Drax is developing a pipeline of biomass sales
opportunities in North America, Asia and Europe.
Separately, in October 2024, as a part of its
plans to reduce carbon emissions in its supply chain, Drax
announced a partnership with Smart Green Shipping to trial, develop
and use an innovative wind-assisted 'FastRig' sail with a view to
demonstrating how the technology can reduce fuel consumption and
resulting emissions, which Smart Green Shipping believes could be
up to 30% per year.
Biomass
Generation
Drax Power Station, the UK's largest source of
24/7 renewable power by is performing well, supporting UK energy
security with flexible and reliable renewable power generation and
a wide range of system support services. Drax believes that the
size, flexibility and location of the asset make it an integral
long-term part of the UK energy system.
A major planned outage was completed in August
and the unit returned to service ahead of schedule.
Generation contracted power
sales
As at 8 November, Drax had over £3.2 billion of
contracted forward power sales between 2024 and 2026 on its RO
biomass, pumped storage and hydro generation assets -
27.5TWh(4) at an average price of
£118.8/MWh(5). Both 2024 and 2025 are effectively fully
hedged.
The Group has a further 6.1TWh of CfD generation
contracted for 2024 and 2025.
|
Contracted
power sales as at 8 November 2024
|
2024
|
2025
|
2026
|
|
|
|
|
|
|
Net RO, hydro and gas
(TWh)(4)
|
11.0
|
9.7
|
6.8
|
|
Average achieved £ per
MWh(5)
|
154.0
|
107.9
|
77.3
|
|
|
|
|
|
|
CfD (TWh)
|
4.4
|
1.7
|
-
|
Options for
investment in energy security, flexible generation and carbon
removals
Biomass Generation - bridging
mechanism and UK Bioenergy Carbon Capture and Storage
(BECCS)
In November 2024, the National Energy System
Operator (NESO) issued a report to the UK Government on the
pathways to a clean power system by 2030, outlining the need for
significantly more renewable energy and power system flexibility.
Drax notes that both of NESO's pathways include large-scale biomass
generation and at least one BECCS unit by 2030.
Following this year's launch of a consultation
on a mechanism for large-scale biomass generators transitioning
from their existing renewable schemes in 2027 to BECCS, Drax
continues to engage with the UK Government's Department for Energy
Security and Net Zero (DESNZ) regarding a transitional (bridging)
mechanism.
Drax believes that a bridging mechanism offers
the most effective way to build a link between the end of the
current renewable schemes in 2027 and BECCS operations. Consistent
with the position set out by Drax in 2023, clear policy support and
milestones (including details of the subsequent allocation rounds
for carbon capture and storage (CCS) projects and transportation
& storage processes) are required to unlock further investment
in the development of BECCS at Drax Power Station.
Opportunities for power supply to
data centres
The growing demand for 24/7 power to meet the
needs of data centres represents a potential opportunity for
generators like Drax. NESO's Future Energy Scenarios indicate a
potential doubling of demand for power consumption from data
centres by 2030.
The Group's asset base of large-scale
dispatchable power generation and cooling solutions from secure
sites backed up by a resilient North American supply chain, and a
route to large-scale high-integrity carbon removals via BECCS, is
well aligned with the needs of this growing industry.
Drax has received positive engagement with data
centre providers in relation to the potential to co-locate a data
centre with biomass generation and Drax continues to explore such
opportunities.
New pumped storage hydro -
Cruachan
In October 2024, the UK Government confirmed its
intention to introduce a cap and floor scheme to underpin
investment in long duration storage schemes like
Cruachan.
Initial design and engineering work is now
complete on the option for a 600MW expansion of Cruachan. Drax is
continuing to target a final investment decision in 2026, with
operation from 2030.
Elimini
In September 2024, Drax launched Elimini, its
international carbon removals business, which is operationally
separate from the Group and will develop opportunities for 24/7
renewable power and high-integrity carbon removals outside of the
UK.
To support the development of this business, in
2023, Drax established a global HQ for carbon removals in Houston,
Texas, and the launch of Elimini represents the continued evolution
of the carbon removals business.
Elimini will continue to develop a pipeline of
project options, including new-build BECCS, the modification of
existing sites and other industrial applications.
Balance
sheet
In August 2024, Drax entered into a new
sustainability-linked £450 million Revolving Credit Facility (RCF)
which matures in 2027, with options to extend by two
years(6). The facility, which is undrawn, provides
additional liquidity and replaced a £300 million RCF which would
have matured in 2026.
Separately, Drax completed a £50 million
term-loan facility which matures in 2028 with a one-year extension
option(6).
In aggregate, through 2024, the Group has put in
place over £1 billion of new longer dated debt and facilities,
significantly extending the Group's maturity profile post 2027,
whilst reducing gross debt by over £200 million.
Capital
returns
At its half year results in July 2024 the Group
announced a share buyback programme for the purchase of up to £300
million of Drax shares over a two-year period. In August 2024 a
first £75 million tranche of the programme commenced. In October
2024, Drax confirmed a second £75 million tranche to follow the
first. To date the programme has purchased c.11.9 million
shares.
The total number of voting rights in Drax
Group, excluding treasury shares, as at 8 November
2024 was c.375.8 million.
Other
matters
Closure of Ofgem investigation into
biomass profiling data
In August 2024, Ofgem closed its investigation
into the Group's biomass profiling data. Ofgem has confirmed that
it did not find any evidence that the Group's biomass is not
sustainable or that Drax has been issued with Renewable Obligation
Certificates (ROCs) incorrectly.
The investigation found that Drax had process
gaps in relation to two aspects of its profiling data
for Canada in the period April
2021 to March 2022. Ofgem noted that this was technical
in nature and would not have impacted the level of ROCs earned by
Drax under the Renewable Obligation scheme.
No harm has been caused to the consumer, but in
recognition of Ofgem's findings, Drax has made a payment
of £25 million into Ofgem's voluntary redress
fund.
Opus Energy
Drax has provided c.£7 million to reflect costs
associated with historical overcharging of Opus Energy customers
between 2003 and 2023.
2024 full year
results
Drax will report its full year results on
Thursday 27 February 2025.
Notes:
(1) Flexible Generation (FlexGen) is
Flexible Generation & Energy Solutions.
(2) Earnings before interest, tax,
depreciation, amortisation, excluding the impact of exceptional
items and certain remeasurements. Adj. EBITDA includes the
Electricity Generator Levy (EGL).
(3) As of 5 November 2024, analyst
consensus for 2024 Adj. EBITDA was £1,004 million, with a range of
£993 - 1,039 million. The details of this consensus are displayed
on the Group's website.
Consensus - Drax
Global
(4) Includes 2.0TWh 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.
(5) Presented net of cost of closing
out gas positions at maturity and replacing with forward power
sales.
(6) Subject to lender
consent.
Enquiries:
Drax Investor Relations: Mark
Strafford
mark.strafford@drax.com
+44 (0) 7730 763 949
Media:
Drax External Communications: Andy
Low
andy.low@drax.com
+44 (0) 7841 068 415
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 Drax'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 conflict
including those in the Middle East and Ukraine, the impact of cyber
attacks on IT and systems infrastructure (whether operated directly
by Drax or through third parties), 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.
END
