Drax set for gains as it hopes to turn page on biomass farrago
Energy giant Drax is expecting a long-awaited report into the government’s biomass strategy from the National Audit Office to be published this month, as it looks to turn the page from an ongoing scandal over the environmental credentials of its biomass materials.
The NAO will report on the government’s biomass strategy’s deployment, funding and safety, with the probe hanging like a Sword of Damocles over Drax’s short-term stock price.
Investors were initially spooked by news of the audit, coming as it did after questions were asked of the sustainability of Drax’s biomass materials by environmental campaigners.
The strategy allows for the burning of biomass materials – such as wood pellets – as long as they are counterbalanced by carbon capture facilities. Campaigners said Drax was using pellets from so-called ‘primary’ Canadian forests for biomass power generation, a claim Drax continues to deny.
The NAO report is expected to deliver a verdict on whether the government should continue giving subsidies to power generation via biomass, though it would not be a binding recommendation and the government would still be the final arbiter.
In a trading update today, the FTSE250 company noted that its pumped storage and hydro solutions division of the business is set to “significantly ” outperform the 2022 adjusted EBITDA of £171m.
Elsewhere, full-year adjusted group EBITDA is expected to be in line with market estimates when reported in late February 2024.
As of 30 November, Drax had over £4.4bn of forward power sales between 2023 and 2025.
The company said “in order to bring multi-year certainty” to its long-term biomass supplies, it has been in discussions with the UK Government in relation to a bridging mechanism between the end of the current renewable schemes in 2027 and bioenergy with carbon capture and storage (BECCS) operations at Drax Power Station.
“Drax Power Station is the UK’s single largest provider of renewable energy by output during 2023 and a critical contributor to the country’s security of supply,” said group chief executive, Will Gardiner.
“We are excited about the opportunity to deliver BECCS in Yorkshire, which could help the UK meet its net zero targets and continue to support the country’s long-term energy security, whilst creating thousands of new jobs across the region.”
Drax operates the UK’s largest power station, with four biomass terminals, which make up 12 per cent of the country’s renewable mix and is the single largest CO2 emitting power plant in the UK, responsible for 12.1 metric tonnes according to climate analyst Ember.
The company also said it has commenced supply on a new 450,000 tonne five-year contract for the wood pellets it burns at the plant.