Drax lifts biomass self-supply target as it reiterates FY guidance

Power generator Drax on Tuesday said it was targeting biomass self-supply capacity of 5m tonnes by 2027 as it reiterated full year trading guidance.

In a trading update, the company said it was evaluating options for a further 3.0m tonnes over the next seven years. Drax added that it was targeting returns “significantly in excess” of the group's cost of capital.

"These activities would enable Drax to develop an unsubsidised biomass generation business by 2027, with the option to service wood pellet demand in other markets - Europe, North America and Asia," the company said.

It reaffirmed guidance for adjusted earnings before interest, taxes, depreciation and amortisation of £90m - £110m in the 2019 financial year from the assets acquired from Iberdrola in December 2018.

Management also confirmed expectations for its full-year EBITDA, with the analyst consensus at the time standing at £409.0m.

Drax said it expected the capacity market to be re-instated shortly with a retrospective payment of £75m to be settled next January.

Chief executive Will Gardiner said the self-supply of biomass would “cut costs and reduce supply chain risks, ensuring our biomass power generation remains viable in the long term”.

“When combined with carbon capture it will also enable negative emissions, helping the UK on its path to net zero by 2050."

Drax said the performance of assets acquired from Spain's Iberdrola in December 2018 had been strong, “particularly the pumped storage business which has performed well, driven by the system support market”.

Drax bought a group of gas, hydro and pumped storage power plants for £702m as part of its plan to end coal-based production before a 2025 government deadline.

"The outlook for coal generation remains challenging and Drax continues to monitor the situation with regards to future operation, noting that all unabated UK coal generation must close by 2025," the company said.