Drax announces £193.3m sale of its gas assets

North Yorkshire power station owner Drax Group has signed an agreement for the sale of Drax Generation Enterprise Limited (DGEL) for £193.3m.

DGEL, which holds four Combined Cycle Gas Turbine (CCGT) power stations, will be sold to VPI Holding Limited (VPI).

The price includes £29m of contingent consideration associated with the option to develop a new CCGT at Damhead Creek. 

The transaction is expected to be completed by 31 January 2021.

In an update today, Drax explains: “The CCGTs have performed well since acquisition by Drax in December 2018, but do not form part of the Group’s core flexible and renewable generation strategy.

“Drax expects to realise a premium on sale, use the proceeds to develop its biomass supply chain and accelerate its ambition to become a carbon negative business by 2030.”

Will Gardiner, Drax Group CEO, said: “By focusing on our flexible and renewable generation activities in the UK we expect to deliver a further reduction in the Group’s CO₂ emissions, which should accelerate our ambition to become not just carbon neutral but carbon negative by 2030.

“By using carbon capture and storage with biomass (BECCS) at the power station in North Yorkshire to underpin the decarbonisation of the wider Humber region, we believe we would be creating and supporting around 50,000 new jobs and delivering a green economic recovery in the North.

“We greatly value the contribution that our colleagues in gas generation have made to the Group over the last two years.

“As we focus on a renewable and flexible portfolio, it is right  we divest these gas generation assets and in doing so create value for our shareholders.”

Drax has also published a trading update today.

It says that since publishing its half year results on 29 July 2020 the trading and operational performance of the Group has remained “robust”.

In July, Drax noted that further lockdown measures in the UK in the second half of 2020 could create a small downside risk on the performance of its Customers business, principally in the SME market.

Drax says it is continuing to assess operational and strategic options for this part of the Group.

The Group’s expectations for 2020 Adjusted EBITDA remain in line with market expectations, inclusive of the impact of Covid-19, principally in relation to its Customers business.

Full year expectations for the Group remain underpinned by good operational availability for the remainder of 2020.