Drax has dropped plans to develop any new gas plants, including its plans to build Europe's biggest CCGT plant as it moves to turn its back on fossil fuels.
In the company’s full year results for 2020, it set out its plans for carbon neutrality, committing to no new gas generation and the end of commercial coal in March 2021.
“Our focus is on renewable power,” said Will Gardiner, CEO of Drax Group. “Our carbon intensity is one of the lowest of all European power generators. We aim to be carbon negative by 2030 and are continuing to make progress. We are announcing today that we will not develop new gas fired power at Drax. This builds on our decision to end commercial coal generation and the recent sale of our existing gas power stations.”
Drax sold four of its CCGTs to VPI Holdings in December as part of its sale of Drax Generation Enterprise for £193.3 million. The company retained its pumped storage and hydro assets, stating it was to focus on flexible and renewable power.
Since it was first announced in 2017, there have been continued protests against the company’s plans for a 3.6GW plant in north Yorkshire, including a legal challenge from ClientEarth. Sam Hunter Jones, a lawyer with the company, said the decision to scrap the development was a “massive win for the UK and the climate".
“In opposing this controversial project since its inception, we warned that it risked the UK’s net zero target and risked locking in huge long-term subsidies. And the government’s planning authority agreed when it recommended refusing planning consent.
“Just as the coal era is long gone, what Drax’s statement today makes clear is that time is up for building any new large scale gas power plants in the UK.”
Instead Drax will focus on progressing its biomass strategy, including its proposed acquisition of biomass pellet manufacturer Pinnacle Renewable Energy. It is also expecting to invest £190-210 million in 2021 to expand its LaSalle and Amite pellet plants, and continue development of bioenergy with carbon capture and storage.
“The proposed acquisition of Pinnacle Renewable Energy will position Drax as the world’s leading sustainable biomass generation and supply business, paving the way for us to develop bioenergy with carbon capture and storage (BECCS) – taking us even further in our decarbonisation,” added Gardiner.
Drax made an operating loss of £156 million in 2020, with obsolescence charges racking up to £239. This was principally made up of coal charges, but also includes £13 million associated with deciding not to develop the North Yorkshire asset.
Coal closure cost £34 million through redundancy, pension and site reparation payments, however the run-rate saving once Drax’s two units are closed next month is expected to be c.£30-35 million it noted. The company announced it would shutter the units in February 2020, with generation to stop a full four years ahead of the government’s deadline and the units to be formally closed in September 2022 when their existing Capacity Market obligations end.
Drax’s net debt continued to be high, at £776 million including cash and cash equivalents of £290 million. This is a small drop from its 2019 results, which saw debt jump significantly to £841 million.
Its adjusted EBITDA loss was £39 million, compared to £17 million in profit the year before. This was largely driven by the impact of COVID-19, causing a £60 million loss from reduced demand and increased bad debt.
“Drax has supported its customers, communities and employees throughout the COVID-19 pandemic and I want to thank colleagues across the Group for their commitment and hard work over the last year,” finished Gardiner. “We have delivered strong results, a growing dividend for shareholders and excellent progress against our business strategy.”