Proposed acquisition to create ‘global leader in sustainable biomass’

Will Gardiner

Energy group Drax has signed an agreement for its wholly-owned subsidiary, Drax Canadian Holdings Inc, to acquire Pinnacle Renewable Energy Inc.

The deal, which values the fully diluted equity of Pinnacle at £226m, is intended to create the world’s leading sustainable biomass generation and supply business.

It remains subject to Drax and Pinnacle shareholder approval, as well as court and regulatory approvals, but has been unanimously backed by the board of Pinnacle and has the full support of Pinnacle’s major shareholder, affiliates of ONCAP.

Completion is expected to occur in the second or third quarter of 2021 and the acquisition is expected to be funded from cash and existing agreements.

Pinnacle, which is listed on the Toronto Stock Exchange, operates 2.5 million tonnes of biomass capacity at sites in Western Canada and the Southeastern USA, with a further 0.4 million tonnes of capacity in development (commissioning in 2021).

It is a key supplier of wood pellets for Drax and other third parties in Asia and Europe.

A Drax spokesman said: “The Board believes the acquisition advances Drax’s biomass strategy by more than doubling its biomass production capacity, significantly reducing its cost of biomass production and adding a major biomass supply business underpinned by long-term contracts with high-quality Asian and European counterparties.

“The acquisition positions Drax as the world’s leading sustainable biomass generation and supply business, alongside the continued development of Drax’s ambition to be a carbon negative company by 2030, using Bioenergy Carbon Capture and Storage (BECCS).”

If it goes ahead, the takeover will add 2.9 million tonnes of biomass production capacity, and offer Drax increased global reach and presence in third-party markets.

Will Gardiner, chief executive officer of Drax, said: “I am excited about this deal which positions Drax as the world’s leading sustainable biomass generation and supply business, progressing our strategy to increase self-supply, reduce our biomass production cost and create a long-term future for sustainable biomass.

We expect to benefit greatly from Pinnacle’s operational and commercial expertise, and I am looking forward to what we can achieve together.”

“It will pave the way for our plans to use BECCS, and become a carbon negative company by 2030 – permanently removing millions of tonnes of carbon dioxide from the atmosphere each year.

“Negative emissions from BECCS are vital if we are to address the global climate emergency whilst also providing renewable electricity needed in a net zero economy.”

Duncan Davies, chief executive officer of Pinnacle, said: “Pinnacle’s board of directors has unanimously determined that the transaction represents the best course of action for the company and its shareholders. 

“On closing, the transaction will deliver immediate, significant and certain cash value to our shareholders. 

“At the same time, the combination of Pinnacle and Drax will create a global leader in sustainable biomass with the vision, technical expertise and financial strength to help meet the growing demand for renewable energy products, which is exciting for our employees, customers and others around the world.”

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