Drax Still Locked In Talks With UK Over £2 Billion Carbon Capture Plan

Drax has confirmed talks are still ongoing with the UK government over its multibillion pound plans to develop carbon capture and storage facilities at its flagship power station in North Yorkshire.

Will Gardiner, chief executive of the London-listed energy giant, revealed Drax remains in “formal discussions” with the government to upgrade its biomass facilities so they can offset carbon emissions by the end of the decade.

The company is prepared to invest up to £2bn into the bioenergy carbon capture and storage (BECCS) development, but is looking for a bridging mechanism to ensure revenues from its legacy renewable contracts for the power plant stay in place during the transition period.

“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,” Gardiner said.

Drax first revealed it was in talks with the government in March earlier this year, after the project missed out on so-called track one status – the government’s first approval round for subsidies and development.

But it suspended funding plans for the BECCS (Bioenergy with carbon capture and storage) project after warning support was needed to ensure Drax Power Station remained financially viable beyond 2027.

Carbon capture and storage involves capturing and storing carbon dioxide before it is released into the atmosphere. The technology can capture up to 90 per cent of carbon dioxide released by burning fossil fuels in electricity generation and industrial processes, such as cement production.

Drax’s power station was originally a coal-fired plant, but the company has converted four of the six units to burn biomass wood pellets, which qualify for renewable energy subsidies.

This makes up 12 per cent of the UK’s renewable energy mix – with its 2.6GW biomass plant burning millions of tonnes of imported wood pellets to generate energy – providing around four per cent of the UK’s overall output.

The company received £617m in subsidies for the government last year, while also keeping the two remaining coal units open as emergency backup last winter before announcing their closure last summer.

Drax unveils upturn in profits

Drax confirmed continuation of talks between both parties comes as the London-listed company unveiled robust profits for the first six months of trading this year.

It posted a sharp year-on-year upturn in pre-tax earnings, rising from £225m to £417m.

It was helped by substantially high energy prices, reporting an average hedged price of £150 per megawatt hour.

However, it took a £36m tax hit from the electricity generator levy, the government’s clampdown measure on renewable windfalls.

Operating profits have soared from £207m to £392m, with a more than doubling of earnings per share from 20p to 46p.

It also unveiled strong liquidity across its balance sheet, with £586m of cash and committed facilities by the end of June.

Drax’s share price has rocked back and forth this year (Source: London Stock Exchange)

Gardiner 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.”

However, shares dipped nearly two per cent on the FTSE 250, with Drax struggling to tame its debt levels.

Net debt has risen from £1.16bn to £1.27bn, raising concerns from investors over financial prudence.

Jefferies has maintained its buy stance, at a target price of 700p per share.

By Nicholas Earl via CityAM

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