Strong power sales at Drax as it benefits from rising demand for renewables
Power station operator, Drax, expects its full year adjusted EBITDA for 2022 will be slightly above the top of the range of analyst expectations of £668m, subject to continued good operational performance and logistics for the remainder of the year.
In a trading update today, the business has reported strong contracted power sales for 2022-24, adding that from January to November it generated 20% of UK renewable energy at peak demand and 11% in total.
CEO, Will Gardiner, said: “Drax plays a critical role in supporting the UK energy system, generating more renewable power by output than any other company.
“During the difficult winter ahead, we will continue to optimise our biomass operations to ensure more renewable power is available, when the country needs it most.
“As governments around the world increasingly look to introduce supportive policies for carbon removals, Drax is considering more exciting global opportunities for deployment of bioenergy with carbon capture and storage (BECCS) advancing our ambition to be a leader in this critical technology.”
Drax burns wood pellet biomass to generate electricity. As outlined in the company’s half year results, in July 2022, there has been an incremental increase in biomass production costs in North America, primarily in transportation and utility costs.
These cost increases have continued in the second half of 2022 and taken together with costs incurred in providing supply-side flexibility, production costs for the business are expected to be higher in 2022 and 2023.
Drax adds it remains focused on opportunities to reduce the cost of biomass fuel, but will balance this against the need to optimise its supply chain to deliver value for the Group.
Over the past 12 months, the business also notes the cost of biomass in the European spot market has increased significantly, with cargoes trading at over three times their historic average.
Drax says it has taken a Final Investment Decision to invest in two new biomass pellet production projects – a 450kt new-build pellet plant at Longview (Washington State), including the development of a new port facility at this location, and a 130kt expansion of its Aliceville site (Alabama).
The combined investment in these three projects is expected to be in the region of $300m.
