Will Gardiner, CEO of Drax Group, said:

Will Gardiner, Drax Group CEO

“Drax has delivered a strong operational performance, playing an important role supporting the UK energy system with dispatchable, renewable power, keeping the lights on for millions of homes and businesses, while supporting thousands of jobs throughout our supply chain.

“As well as celebrating 50 years of operations in 2024, we are excited about the opportunities for Drax Power Station, including bioenergy with carbon capture and storage (BECCS). Both the National Grid ESO and the UK’s Climate Change Committee have recently reiterated that BECCS is important for the UK to achieve its decarbonisation goals.

“We look forward to working with the new UK Government to help grow the economy and take steps urgently to deliver a net zero electricity system by 2030. We believe that Drax and our partners across the Humber and Scotland can accelerate growth, create thousands of new jobs and channel billions in private investment into carbon capture and green energy projects, subject to the right government policies to support regional development plans.

“Outside of the UK, through our plans for global BECCS, we are continuing to develop opportunities to provide long-term, large-scale carbon removals and attractive opportunities for growth as part of a potentially trillion-dollar market.”

Financial highlights – strong operational and financial performance

• Adj. EBITDA growth driven by renewable generation, pellet production and Industrial & Commercial (I&C)
• Strong liquidity and balance sheet
  • £515 million of cash and committed facilities at 30 June 2024
  • £682 million of new facilities maturing 2027-2029 and repayment of £949 million⁽⁵⁾ of shorter dated maturities
• Sustainable and growing dividend – expected full year dividend up 12.6% to 26.0 p/share (2023: 23.1 p/share)
  • Interim dividend of 10.4 p/share (H1 2023: 9.2 p/share) – 40% of full year expectation
• Up to £300 million two-year share buyback to commence in Q3 2024

Financial outlook

• Full year 2024 expectations for Adj. EBITDA around the top end of analysts’ consensus estimates⁽⁶⁾
• Outlook for 2025 Adj. EBITDA underpinned by a strong hedge book – fully hedged on RO units

Progress in H1 towards >£500 million EBITDA post 2027 from FlexGen & Energy Solutions and Pellet Production

• FlexGen & Energy Solutions – targeting post 2027 recurring Adj. EBITDA of >£250 million
  • Continued development of three new OCGTs (c.900MW)
  • Sale of non-core SME customer meters
• Pellet Production – targeting post 2027 recurring Adj. EBITDA >£250 million
  • Increased production, including Aliceville expansion
  • Pipeline of opportunities for sales in existing and new markets, including sustainable aviation fuel (SAF)

Biomass generation – Drax Power Station

• Biomass generation – 2.6GW of flexible 24/7 renewable generation – important role in UK energy security
  • >£1 billion of est. post-tax operating cash flow (Jan 2024 to Mar 2027) underpinned by forward power hedges
  • Expect long-term value from bridging mechanism, BECCS and other opportunities
  • Bridging mechanism – targeting clarity in 2024, ongoing discussions with UK Government

Attractive opportunities to invest for long-term growth linked to energy transition and security of supply

• Options for c.£4 billion of growth investment by 2030, with additional investment through 2030s
  • UK BECCS – targeting first unit (4Mt pa) by 2030 in line with UK ambition, with second unit (4Mt pa) to follow
  • Global BECCS – first potential site shortlisted, targeting operations from 2030
  • Pumped Storage – targeting 600MW expansion of Cruachan Power Station, FID 2026, operational by 2030

Capital returns

• In line with our capital allocation policy and reflecting (a) a strong balance sheet, (b) investment requirements and (c) the mitigation of equity dilution expected to arise from share schemes, Drax will commence a share buyback programme for the purchase of up to £300 million of Drax shares over a two-year period, expected to begin in Q3 2024
• Drax remains committed to its current capital allocation policy, which remains unchanged and will continue to assess its capital requirements in line with the current policy

Operational and financial review

Pellet Production – supporting UK generation and sales to third parties

• Improved operational and financial performance versus H1 2023
  • 2.0Mt of pellets produced (H1 2023: 1.9Mt) and improved margin
• Development of new capacity
  • Aliceville expansion commissioned H1 2024 (130kt)
  • Longview pellet plant (450kt)

Generation – energy security with dispatchable renewable generation and system support services

• Pumped storage and hydro – performance supportive of post 2027 Adj. EBITDA target
  • Strong system support earnings with lower forward power sales, as expected, compared to H1 2023
  • Progressing c.£80 million refurbishment and upgrade (40MW) of Cruachan underpinned by 15-year Capacity Market agreement (>£220 million)
• Biomass generation – increased level of renewable generation and continuing system support role
  • 7.0TWh – c.32% increase on H1 2023 (5.3TWh)
  • Single major planned outage on track, expected to complete August 2024
• Strong contracted power and renewables position
  • As at 22 July 2024 c.£3.1 billion of forward power sales between 2024 and 2026 on RO biomass, pumped storage and hydro generation assets – 25.8TWh at an average price of £120.7/MWh^(8/9)
  • RO generation – fully hedged in 2024 and 2025, with >£1 billion of associated ROCs
  • A further 4.7TWh of CfD generation contracted for 2024/25

Energy Solutions (Customers) – renewable power sales and energy services

• Strong underlying I&C performance
  • Increase in achieved margin offsetting small reduction in power sales – 7.6TWh (H1 2023: 8.0TWh)
  • Growing value from 100% renewable power products
  • Development of Energy Solutions business including system support services via demand response, and electric vehicle services following acquisition of BMM (August 2023)
• SME business (Opus Energy)
  • Asset sale of majority of Opus Energy’s meter points (c.90,000) (expected to complete Q3 2024), reflecting focus on core I&C business
  • Employee consultation process underway to reflect reduced customer base

Other financial information

Capital investment

• Capital investment of £147 million (H1 2023: £210 million)
• 2024 FY expected capital investment of c.£360-400 million – growth, maintenance and other
  • Growth – c.£270 million, primarily the development of a new pellet plant (Longview), three new OCGTs (continuing to evaluate options for these projects) and refurbishment of Cruachan units 3 and 4
  • Maintenance – c.£100 million, including major planned outage at Drax Power Station

Cash and balance sheet

• Cash generated from operations £400 million (H1 2023: £404 million)
• Net working capital outflow (£93 million) inclusive of an increase in renewable certificate assets
• Net debt at 30 June 2024 of £1,035 million (31 December 2023: £1,084 million), including cash and cash equivalents of £263 million (31 December 2023: £380 million)
• £682 million of new loan facilities maturing 2027-2029 and repayment of £949 million⁽⁵⁾ of shorter dated maturities
  • New c.£383 million term-loan facilities, maturing 2027-2029
  • New €350 million Eurobond, maturing 2029
  • Repaid £347 million of infrastructure facilities, maturing 2025-2026
  • Repaid $500 million US bond, maturing 2025
  • Repaid €106 million of €250 million Eurobond through tender offer, bond maturing 2025
  • Repaid £120 million collateral facility in July 2024

Notes:

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Decarbonising our economy is critical to fighting climate change and meeting net zero by 2050.

In the UK, we have made strong progress in creating a greener electricity grid. We have gone further and faster than any other G7 country to transition to lower carbon power generation. That is a record we can be extremely proud of.

At Drax, we have played a key role in this journey by converting Drax Power Station from being the largest coal-fired electricity generator in the UK to the country’s biggest single source of renewable power.

By using sustainable biomass to generate electricity the carbon emissions of the North Yorkshire site have dropped by 99%. Drax Power Station is now in its 50^th year of operation and contributes to UK energy security.

Our four generating units can provide up to 2.6GW of dispatchable, secure, renewable power to the country’s grid, at the times the country needs it most, such as when the wind doesn’t blow and the sun doesn’t shine.

But we are not stopping here.

We plan to help accelerate the decarbonisation of the UK’s electricity system by adding the carbon removals technology, bioenergy with carbon capture and storage (BECCS), to Drax Power Station. BECCS is the only technology which can generate renewable power while removing carbon dioxide from the atmosphere.

The International Energy Agency, the UK’s Committee on Climate Change and National Grid ESO all say that BECCS will have to play an important role in delivering net zero and ensuring the UK can reach its legally binding fifth and sixth carbon budgets. ​

Adding BECCS to the power station would also ensure that we can support the major political parties’ plans for grid decarbonisation and for delivering largescale engineered carbon removals.

The two BECCS units we want to deliver could remove 8 million tonnes of carbon dioxide from the atmosphere per year. In carbon terms that is equivalent to taking 3 million cars off the UK’s roads or stopping all departing flights from Heathrow.

Analysis from economic consultancy Baringa has shown that with BECCS at Drax Power Station it will cost £15bn less to reach net zero by 2050 compared to other more complex measures to meet the target.

However, to deliver the project we will need to secure the right support from the next Government, including a bridging mechanism from the end of current renewable schemes in 2027 to BECCS operations starting in 2030.

With this in place we could invest billions in delivering BECCS, creating up to 10,000 jobs during construction. We also intend to source 80% of the materials for the project from British suppliers helping support economic growth across Yorkshire and the Humber and nationally.

Delivering BECCS at Drax Power Station will be a further milestone in the UK’s decarbonisation providing long-term energy security, carbon removals and economic development in the heart of Yorkshire and the Humber.

Learn more about BECCS at Drax here.

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Drax Power Station has kept Britain’s lights on for 50 years. As well as playing a key role in the country’s energy security, providing enough power for 4 million homes, we have been a long-term source of high-quality well-paid jobs, too.

The site I manage in Selby is one of the largest employers locally and combined with our regional supply chains we contribute £358m per year to the economy of Yorkshire and the Humber. There won’t be a single constituency within the region where we don’t have some form of economic impact.

As the Plant Director, I am proud of this role that we play in supporting regional prosperity. We employ around 1,000 people directly at Drax Power Station and through maintenance, logistics and other activities hundreds of contractor colleagues can also be on site during any one week – increasing over a thousand during a planned outage.

However, our impact doesn’t end at the borders of Yorkshire and the Humber either. We are one of the largest users of rail freight in the UK and our biomass wagons take pellets from the Ports of Tyne, Liverpool, Hull and Immingham. This element of our supply chain also supports 2,500 jobs across the country.

Analysis from Oxford Economics shows that in 2021 the economic activity created by Drax Power Station contributed £735m to the UK economy and supported 7,130 jobs.

For some time, we have also been investing heavily in the workforce of the future. Since 2003, we have trained over 150 apprentices at the power station. We work in partnership with Selby College and the University of Sheffield to give the next generation the skills they need for long-term, rewarding careers in renewable power and delivering net zero.

We know it is important to get young people engaged in green skills early and that is why, through the Drax Foundation, we work closely with local authorities, schools and social enterprises to support STEM education and training on energy efficiency. We’re also behind an initiative to install LED lightbulbs and solar panels in schools to manage their energy costs and get young people interested in our industry.

The future of Drax Power Station will involve us continuing to generate renewable power from biomass but also adding carbon capture and storage and creating the world’s largest BECCS facility. We are planning to invest billions in this critically important carbon removal technology and up to 10,000 jobs could be created and supported during construction.

BECCS is vital because it provides reliable, renewable power to support energy security, while removing millions of tonnes of carbon dioxide from the atmosphere and making a significant contribution towards addressing the climate crisis – no other technology does both.

Drax Power Station has played an important role both regionally and nationally through our contribution to energy security, jobs and economic growth for the last 50 years. And with the successful delivery of our BECCS project, I very much hope that we will continue to do so for the next 50.

But to get there we need to secure the right policy support for BECCS from the next government. That includes rapidly launching the Track-1 expansion and Track-2 project selection processes for CCS and making urgent progress on the development of a business model for greenhouse gas removal technology. With these in place we can get BECCS operational by 2030, removing millions tonnes of carbon dioxide from the atmosphere per year while ensuring that local people can build their careers in skilled jobs at the heart of the green transition, for decades to come in Selby.

Learn more about Drax’s plans for BECCS here.

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Additionally, leading thinktank Public First’s research shows that in 2028 the UK is on course to hit an energy security “crunch point” – with peak demand predicted to exceed secure dispatchable and baseload capacity by 7.5GW.

This is due to delays in bringing new generation on to the system, anticipated increased demand for power, and aging assets, including coal, nuclear and gas, coming off the electricity grid.

That means to deliver energy security, meet rising demand for power and to reach binding net zero targets, including the 5^th and 6^th carbon budgets, the next government needs to go further and faster.

This year marks half a century that Drax has been powering the UK and contributing to security of supply. Today, the flexible, dispatchable power that our assets in North Yorkshire and Scotland produce keep the lights on when the wind doesn’t blow and the sun doesn’t shine.

Drax Power Station, the UK’s largest single-source of renewable electricity, powers 4 million homes. In Scotland, Cruachan Power Station and our other hydro power sites provide the grid flexibility, reduce the need for curtailment payments to wind farms and help meet the demand for energy.

In total our business delivers about 4% of the UK’s electricity and 8% of its renewable power.

Subject to getting the right policy support, we stand ready to invest billions to deliver carbon removals and renewable power using bioenergy with carbon capture and storage (BECCS) at Drax and more than double the pumped hydro storage capacity at Cruachan.

Completing these projects will mean we can play a vital long-term role in providing secure power to the country and supporting the next government in meeting the goal of a decarbonised grid by 2030 or 2035. Without Drax’s assets delivering these targets will be extremely challenging.

Our plans for BECCS and the expansion at Cruachan will also reduce the country’s exposure to commercially volatile and imported fossil fuels, enhance our national security and create and support thousands of jobs during construction.

But to realise this potential, the next government must prioritise and speed up implementing the support required to unlock the investment for these major infrastructure projects.

To deliver the first pumped storage hydro power stations in the UK for decades, including the Cruachan expansion, we need to see a cap and floor mechanism implemented. This would provide an investment framework to reduce risks for investors while at the same time encouraging operators of the new storage facilities to respond to system needs.

And all large-scale biomass generators planning to transition to BECCS need the certainty of a bridging mechanism to maintain their flexible, dispatchable renewable power between the end of the current renewable support and BECCS operations starting.

The carbon removals BECCS can deliver are recognised by the world’s leading climate scientists, including the UN’s IPCC and the UK’s CCC, as crucial to almost all pathways to reach net zero and fighting climate change. The carbon credits produced through BECCS can be purchased by companies with emissions that are hard or impossible to abate providing a pathway for them to permanently remove carbon from the atmosphere.

Energy security, jobs and skills and net zero should go hand in hand and we want to work with the next Government to swiftly implement these policies. Doing so will give new ministers the best chance possible to maintain progress on decarbonising the UK’s energy system while ensuring there is sufficient, secure capacity to meet the country’s energy needs without relying on foreign fossil fuels.

Learn more about how Drax supports the UK energy system here.

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Highlights

• Strong system support and generation performance during first three months of 2024
• Full year 2024 expectations for Adj. EBITDA⁽¹⁾ in line with analysts’ consensus estimates⁽²⁾
• New balance sheet facilities further extending maturity profile
  • £408 million⁽³⁾ of term-loans with three to five year maturities
  • €350 million five-year (2029) bond
• Repayment of 2025 bonds
  • Notice of redemption of $500 million 2025 bond issued
  • Tender process for repurchase of €250 million 2025 bond commenced
• Final dividend of 13.9 pence per share, subject to shareholder approval at today’s AGM
  • Total dividend for 2023 of 23.1 pence per share (2022: 21.0 pence per share)

Drax Group CEO, Will Gardiner said:

Drax Group CEO, Will Gardiner

“We continue to deliver a strong system support and generation performance, providing dispatchable, renewable power for millions of homes and businesses.

“We are excited about the opportunity to deliver BECCS at Drax Power Station, the country’s largest source of 24/7 renewable power by output. With a bridging mechanism and the right support from Government, our BECCS plans could help the UK meet its net zero targets and continue to support the country’s long-term energy security, while creating thousands of new jobs across the region.

“BECCS can also help deliver the global energy transition and, through our new global BECCS business, we are continuing to develop options for projects in North America. These could provide long-term, large-scale carbon removals and attractive opportunities for growth as part of a potential trillion-dollar global carbon removals market.”

Biomass Generation

Drax Power Station, the UK’s largest source of 24/7 renewable power by output – supported by its integrated global biomass supply chain – is performing well, supporting UK energy security with flexible and reliable renewable power generation and a wide range of system support services.

As the demand for power and flexibility grows, Drax believes the size, flexibility and location of the asset make it an integral long-term part of the UK energy transition.

Flexible Generation and Energy Solutions

The Group’s pumped storage and hydro business is performing well, providing flexible and renewable power generation and a wide range of system support services.

Drax believes that the retirement of dispatchable thermal assets and increased reliance on intermittent renewables in the UK system, as well as a long-term increase in demand, will drive a growing need for dispatchable power and system support services, creating long-term enduring earnings opportunities for these assets.

Construction of three new Open Cycle Gas Turbines with combined capacity of c.900MW continues, with commissioning expected to take place from September 2024.

Generation contracted power sales

As at 22 April, Drax had over £2.9 billion of contracted forward power sales between 2024 and 2026 on its ROC, pumped storage and hydro generation assets – 23.3TWh⁽⁴⁾ at an average price of £125.4/MWh⁽⁵⁾. Both 2024 and 2025 are effectively fully hedged.

The Group has a further 3.4TWh of CfD generation contracted for 2024 and 2025.

Pellet Production

The Group’s pellet production business has started the year well. The market remains challenging but, as a vertically integrated producer, user, buyer, and seller of biomass, Drax operates a differentiated model from its peers and sees the current global biomass market as representing a favourable balance of risks and opportunities for the Group.

Drax is positive on the outlook for biomass demand and expects this to grow, as sustainable woody biomass is increasingly used for BECCS, as well as for next-generation sustainable aviation fuels (SAF) and the Group continues to develop a pipeline of sales opportunities in these new markets.

Full Year Expectations

Drax continues to expect 2024 full year Adjusted EBITDA to be in line with analysts’ consensus estimates, subject to continued good operational performance.

Balance Sheet

Between February and April 2024, the Group completed c.£408 million of new term-loan facilities, which includes an optional uncommitted extension of £25 million.

These combined facilities have two tranches maturing in 2027⁽³⁾ and 2029⁽³⁾ and a margin referenced over SONIA (Sterling Overnight Index Average) for sterling loans and over EURIBOR (Euro Interbank Offered Rate) for euro loans.

In April 2024, the Group priced a new €350 million five-year (BBB-/BB+) bond issue with a rate of 5.875%.

Taken together these facilities provide proceeds of over £700 million, extending the Group’s maturity profile beyond 2027. The proceeds will be used for the repayment of 2025 maturities. As such, the Group has launched a tender offer process for its €250 million 2025 bond and also announced the full redemption of its $500 million 2025 bond, both of which are expected to complete in May 2024.

Ofgem

In May 2023, Ofgem announced the opening of an investigation into Drax Power Limited’s annual biomass profiling reporting under the Renewables Obligation scheme. In its opening statement, Ofgem confirmed that it had not established any non-compliance that would affect the issuance of ROCs. Drax awaits the conclusion of this investigation.

Bridging Mechanism and UK BECCS

In January 2024, the UK Government launched a consultation on a bridging mechanism to support large-scale biomass generators transitioning from their existing renewable schemes to BECCS. The consultation concluded in February 2024 and Drax awaits the Government’s response, which is expected shortly.

Over recent months Drax has continued to formally engage with the UK Government regarding a bridging mechanism and UK BECCS, and the outcome of the consultation is expected to be another stage in this process.

BECCS – Global

The Group is continuing to participate in the growing market for Carbon Dioxide Removals (CDRs), with incremental CDR sales at prices of up to $350/t. The certificates would be deliverable in 2030, in line with the Group’s plans for a first new-build BECCS plant in the US South.

BECCS Done Well

In 2022, Drax invited Jonathon Porritt, environmental campaigner and co-founder of Forum for the Future, to convene a High Level Panel (the Panel) to conduct an independent inquiry into BECCS, with Forum for the Future acting as Secretariat.

The Panel outlined 30 conditions that would demonstrate that BECCS from woody biomass can be “done well”, helping to deliver positive outcomes for nature, climate and people.

In July 2023 Drax published its initial response to the Panel’s recommendations and in April 2024 Drax published a second and final response. Further details are available via the link below.

‘BECCS Done Well’: Final response and commitments from Drax

Other

Drax will report its half year results on 26 July 2024.

Notes:

• Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements. Adjusted EBITDA includes the Electricity Generator Levy (EGL).
• As of 22 April 2024, analyst consensus for 2024 Adj. EBITDA (incl. EGL) was £968 million, with a range of £881 – 1,097 million. The details of this company collected consensus are displayed on the Group’s website.

https://www.drax.com/investors/consensus/

• 2027 term-loan: €135 million and £145 million, 2029 term-loan: €50 million and £80 million, with an optional uncommitted extension of £25 million.
• Includes 3.5TWh of structured power sales in 2025 and 2026 (forward gas sales as a proxy for forward power), transacted for the purpose of accessing additional liquidity for forward sales from RO units and highly correlated to forward power prices.
• Presented net of cost of closing out gas positions at maturity and replacing with forward power sales.

Enquiries:

Drax Investor Relations: Mark Strafford
mark.strafford@drax.com
+44 (0) 7730 763 949

Media:

Drax External Communications: Andy Low
andy.low@drax.com
+44 (0) 7841 068 415

Website: www.Drax.com

Forward Looking Statements

This announcement may contain certain statements, expectations, statistics, projections and other information that are, or may be, forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans, beliefs, and objectives for the management of future operations of Drax Group plc (“Drax”) and its subsidiaries (the “Group”), are not warranted or guaranteed. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Although Drax believes that the statements, expectations, statistics and projections and other information reflected in such statements are reasonable, they reflect Drax’s current view and no assurance can be given that they will prove to be correct. Such events and statements involve risks and uncertainties. Actual results and outcomes may differ materially from those expressed or implied by those forward-looking statements. There are a number of factors, many of which are beyond the control of the Group, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These include, but are not limited to, factors such as: future revenues being lower than expected; increasing competitive pressures in the industry; uncertainty as to future investment and support achieved in enabling the realisation of strategic aims and objectives; and/or general economic conditions or conditions affecting the relevant industry, both domestically and internationally, being less favourable than expected, including the impact of prevailing economic and political uncertainty, the impact of strikes, the impact of adverse weather conditions or events such as wildfires. We do not intend to publicly update or revise these projections or other forward-looking statements to reflect events or circumstances after the date hereof, and we do not assume any responsibility for doing so.

END

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The UK may no longer be part of the European Union, but the decisions taken by its institutions still impact British businesses and consumers.

What happens in Brussels matters, even if Britain no longer has a seat at the decision table. You may not notice the link to the EU at first, but often technological changes have their roots in the decisions made by the organisation’s institutions.

Take for instance something as innocuous as your mobile phone charger. In recent years USB-C charging ports have increasingly become the standard across Apple and Android devices. This is no accident, an EU directive to mandate all devices for sale on the continent must have a universal USB-C charge port by the end of this year.

This European decision has made the world’s biggest tech companies reconfigure its global designs and supply chains.

If Brussels can influence how the world charges its mobile phones, you won’t be surprised to learn its decisions on climate change policy carry significant influence too.

Nearly all the UN IPCC’s pathways to net zero by 2050 require a significant scale-up of engineered carbon removals. Their importance has led the EU to begin significant policy development in this area.

The opening months of 2024 has seen developments in the space gather at pace. In February, the EU Commission set out its proposals to reduce emissions by 90% by 2040 compared to levels in 1990. To achieve this, the Commission expects to scale-up industrial carbon removals like BECCS and DACCS alongside land-based techniques such as afforestation to 400 million tonnes of removals annually by 2040.

Released alongside the proposed target was the Industrial Carbon Management Strategy providing a roadmap for the removal and storage of millions of tonnes of CO₂ within the Union in the next three decades. This stressed the need to develop further policy options and support mechanisms for BECCS and DACCS.

With the need for large-scale carbon removals made clear, attention is now turning to how to certify and ensure credibility of removal projects. The EU institutions recently reached an agreement on the Carbon Removal Certification Framework (CRCF) which will likely become a blueprint for global for carbon dioxide removals (CDR) frameworks. This framework will create a critical foundation for scaling the voluntary market for CDRs in the EU, including BECCS.

Carbon removal companies like Drax want transparent and robust rules in the sector. It is vital that only high-quality removals, and removals that would not otherwise have taken place, are credited. The regulator also must prevent the same activity from being certified twice or using the same certificate twice. This is what the EU’s proposals aim to do, and it could be a blueprint for the UK and governments around the world. However, there remains room for improvement as the CRCF framework only covers removals within the EU’s borders, which means the international nature of the voluntary carbon removals market has not been considered.

Demand for CDRs is continuing to grow, with several high-profile international deals already announced. One example is our own memorandum of understanding with Respira which would enable the firm to buy up to 2 million metric tonnes of CDR certificates.

While progress is being made by Brussels, more policy development is needed in financially incentivising carbon removals through enhanced business models. Developments could include integrating carbon removals into compliance markets like the EU’s Emissions Trading Scheme and introducing support schemes such as a Carbon Contracts for Difference. As the sector’s costs decrease through learning and economies of scale, the support frameworks could be tapered in the long-term ensuring value for money for consumers and governments.

While it can feel daunting standing at the foot of the hill staring at the summit, we know that the climate, our communities, and businesses across the continent are worth the sharp ascent.

Around 93% of emissions take place outside of the confines of the EU, but by acting swiftly Europe can lead the world on the development of a vibrant carbon removals industry.

At Drax, our aim is to become a global leader in carbon removals. We are currently progressing plans to deliver two BECCS projects – one in the UK and one in the US – by 2030, with both projects able to permanently remove a combined volume of 7 million tonnes of carbon dioxide from the atmosphere each year.

We want to eventually be able to geologically sequester 20 million tonnes of carbon each year. Successful trials at our North Yorkshire power station in the UK enabled Drax to become the first company in the world to successfully capture carbon dioxide from the combustion of a 100% biomass feedstock.

BECCS will provide durable, high-integrity carbon removal credits and gigatonne scalability, and is the only technology that generates reliable, renewable power while removing carbon from the atmosphere.

With many Member States continuing to rely on fossil fuels to power their grids, biomass and BECCS conversions could be a vital role in making the EU’s ambition climate targets a reality. It is critical that the EU institutions continues to develop policy at pace to ensure businesses can have confidence to invest in carbon removal projects and the credits which come from them.

The EU has a remarkable opportunity to lead the world on this important area of climate policy, and it is one I hope they seize.

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At Drax, we’re committed to making a positive difference in the communities we operate in. During 2023, we strengthened our approach to supporting our communities with the launch of the Drax Foundation – a key part of our new global community strategy which encompasses active community engagement and local stakeholder relations, as well as a refreshed approach to philanthropic giving and social investment.

The Drax Foundation provides grant funding for non-profit organisations that share our commitment to improving equitable access to STEM education and skills development, nature and community green spaces, and support for energy efficiency measures. We seek to form multi-year partnerships with impactful non-profits so that we can address these issues at scale.

Each of our communities is unique. That’s why we have also established a new Community Fund to drive meaningful change through grassroots funding in each of our communities.

Through both of these Funds, we are committed to making a measurable contribution to the United Nations Sustainable Development Goals (SDGs). We have prioritised eight intersecting SDGs and will report annually on the progress and contributions we are making to achieve them.

The Drax Foundation’s impact so far

During 2023, we operated a wide range of community programming and corporate giving in the communities and regions where we operate, including the UK, US and Canada. In total, the Drax Foundation and Community Fund gave £2.7 million to support our communities throughout 2023 – this includes £1.3 million in the UK, £671,000 in the US and £576,000 in Canada.

In 2023, the Drax Foundation:

• Funded STEM education and training for 70,300 children and 637 adults globally.
• Helped 20,860 people with access to community green spaces and provided money to restore or protect 1,230 hectares of land.
• Funded energy analysis tools and climate education at over 200 UK schools.
• Installed LED lighting in 8 pilot schools to help UK schools to improve their energy efficiency.

Examples of  grantees include Texas Alliance for Minorities in Engineering (TAME), who we provided two rounds of funding for in 2023 to help deliver STEM programmes for around 2,000 students, of which a minimum of 82% are girls or black, indigenous or people of colour. Speaking about the funding, Andrea Herrera Moreno, Executive Director of TAME, said: “TAME welcomes the Drax Foundation into our alliance as we continue to prioritise cross-sector partnerships that improve access to engineering pathways for Texas students. This support enables us to amplify our impact by investing in our programmes and capacity, and we’re very excited to engineer this new partnership.”

In the UK, we also provided funding to STEM Learning, helping them to deliver STEM education to 8,500 school children in areas of low social mobility. “We are delighted with the generous funding awarded by the Drax Foundation.” said Gill Collinson, Director of Strategy and Partnerships at STEM Learning. “The partnership will help STEM Learning’s mission to change the lives of thousands of young people by supporting teachers and introducing young people to inspiring role models and raising their aspirations.”

Plus, in Canada we’ve helped to promote nature-based experiences for youth with the University of British Columbia’s Wild & Immersive programme. “We are honoured to be awarded a grant from the Drax Foundation that will extend our trail system to enable more community members to connect and enjoy the outdoors in the natural environment around Williams Lake,” said Stephanie Ewen, Manager at Alex Fraser Research Forest.

In 2023, we were also proud to support 222 community projects via our Community Fund, reaching over 26,600 community members. This includes our annual donations to foodbanks in the run up to the December festive season, where we donated £110k to 33 foodbanks last year.

The third pillar of our corporate giving is our Communities in Crisis Fund, which was established to provide emergency aid in response to natural disasters, conflict and other humanitarian crises. In 2023, our Crisis Fund donated over £200k to seven different causes in the US, Canada, Morocco, Libya and Gaza-Israel.

Looking ahead

This year, we will be continuing our giving via the Drax Foundation and Community fund, placing greater emphasis on outreach and community engagement. For example, we recently announced the latest round of funding from our UK Community Fund, which will see over £35,000 donated to 33 organisations across the UK. Additionally, we will be expanding our community engagement across our operations with more community ‘listening’ sessions and focus group meetings to ensure that we understand community concerns and priorities.  

A key focus area for us will also be our new BECCS plant in the US, where we will deliver a full Community Benefit Plan to ensure we make a positive different in the community.

In supporting renewable energy and energy efficiency, we will also continue to roll out LED lighting, and solar panels in up to 45 schools in and around our operating communities to maximise energy efficiency and cost savings. Our LED pilot in 2023 is projected to save each school on average £8,600 per year on their energy bills, money that can be reinvested back into the children’s education.  

We are proud of all that has been achieved so far and are excited to accelerate our efforts in the year ahead to ensure we continue to be a good neighbour in our communities.

You can learn more via the Drax Foundation Annual Review 2023 here: https://www.drax.com/wp-content/uploads/2024/04/Drax-Foundation-Annual-Review_2023.pdf

The post Building stronger communities for a Net Zero future through the Drax Foundation appeared first on Drax Global.

In July 2023, Drax received development consent from the Scottish Government to build a new 600MW underground pumped storage hydro plant at its existing Cruachan facility in Argyll, which will more than double its electricity generating capacity.

Whilst a major milestone for the Cruachan expansion project, the right support is still needed from the UK Government to facilitate its development and we’re pleased to see some positive progress has recently been made.

During a visit to Cruachan Power Station following last year’s announcement of development consent, Scotland’s First Minister, Humza Yousaf, called on the UK Government to “provide an appropriate market mechanism” for projects including Cruachan’s expansion. Mr Yousaf also wrote to the Prime Minister urging him to take action so developers can have the certainty required to build a new generation of pumped storage hydro plants.

In order to incentivise investment for new-build pumped storage hydro plants, new financial mechanisms are needed to enable investors to back capital-intensive, long-length construction projects that will save consumers and the grid millions. The current lack of these frameworks is a key reason why no new pumped storage hydro plants have been built in the UK since 1984.

Growing the UK’s pumped storage hydro capacity is crucial to integrating more wind and solar power onto the energy grid, enhancing the nation’s energy security while tackling climate change. Pumped storage plants act like giant water batteries by using reversible turbines to pump water from a lower reservoir to an upper reservoir which stores excess power from sources such as wind farms when supply outstrips demand. These same turbines are then reversed to bring the stored water back through the plant to generate power when the country needs it.

At the start of this year, the UK Government announced that it has selected a cap and floor regime as its preferred investment framework for new large-scale, long-duration electricity storage projects, which is a huge step towards making a new generation of pumped storage hydro plants a reality.

What is a ‘cap and floor’ mechanism?

A cap and floor mechanism works by setting an upper and lower revenue limit an operator participating in the mechanism can earn from a particular asset. The lower revenue limit, or ‘floor’, is the guaranteed minimum amount of revenue that a generation asset can earn. If a generation asset does not generate enough revenue from its operations, this gets topped up to reach that floor level from the system operator using an allocated budget. At the other end of the limit, the ‘cap’ is the maximum amount of revenue the operator can earn from the asset. In cases where an asset’s revenue exceeds the cap, a proportion of the funds earned above the cap threshold are paid back to the system operator and used to reduce the cost of using the system for customers.

The cap and floor mechanism enables private investors in long-duration electricity storage projects, such as Drax’s planned expansion of Cruachan, to have a better degree of confidence by alleviating a significant amount of risk and uncertainty around whether they can recover their costs. Having a predictable revenue stream makes it more likely investors and lenders will support projects with high upfront capital costs. As well as de-risking investment and providing better value for money to customers, a cap and floor mechanism also rewards availability and efficiency, as operators are still exposed to opportunities between the cap and the floor. This includes participating in a number of different markets like the ancillary services markets, where Cruachan is able to earn revenue by providing critical inertia and stability to the grid, ensuring the safe and stable operation of the electricity system. Similarly, wholesale market arbitrage allows Cruachan to respond to price signals both in times of low/high generation and peak demand. These market opportunities incentivise operators to optimise their operations to generate revenue towards the highest end of the cap thresholds, driving innovation and efficiency in the sector. This efficiency is not only beneficial for the operators but also for the overall National Grid, bolstering the stability and reliability of the UK’s electricity supply. This enables projects to benefit from competitive market opportunities and provide services in response to price changes and benefit the consumer by providing critical services that the system needs at a competitive price.

What does this mean for Drax’s Cruachan expansion project and what are the next steps?

The UK Government’s consultation on designing a policy framework to enable investment in long-duration electricity storage ran from 9 January to 5 March 2024, and is now closed.

The consultation proposal of a cap and floor is very positive news for Drax’s planned Cruachan expansion, as it will provide the project with a route to market once the mechanism is in place. Without it, the significant upfront capital expenditure and revenue uncertainty would remain a barrier to investing in the project.

One of the most immediate benefits of pumped storage hydro is that it provides extremely quick back-up during periods of peak demand. For example, when deployed alongside intermittent renewables like wind or solar power, Cruachan can step in to store excess energy and provide it back to the grid when the wind doesn’t blow and the sun doesn’t shine. This reduces the waste and cost to customers associated with renewable curtailment.

With the Government’s ambition to deliver 50GW of offshore wind by 2030 as part of its Net Zero targets, it is in the interest of both Government and the grid to ensure enough storage is available by this point to manage the inherent intermittency of this technology. Pumped storage hydro projects have long construction times, over 5 years in the case of the planned Cruachan expansion. This means that delivery of the mechanism in the near-term is critical to ensuring that it’s available to support the electricity system in the early 2030s and beyond.

What are the benefits of pumped storage hydro for the UK?

A report by Scottish Renewables and BiGGAR Economics recently found that six projects currently under development in Scotland, including the Cruachan expansion project, will:

• More than double the UK’s pumped storage hydro capacity to 7.7GW.
• Create almost 15,000 jobs.
• Generate up to £5.8 billion for the UK economy by 2035.

During its construction phase, the Cruachan expansion is projected to provide up to £73m GVA and over 150 jobs in Argyll and Bute. Across Scotland this increases up to £260m GVA and over 500 jobs, which is a total possible UK benefit of over £470m GVA added to the economy and over 1,100 jobs supported amongst the wider supply chain and indirect local area support.

Pumped storage hydro can also provide a number of extra balancing and ancillary services outside of energy storage and generation, across multiple different markets. These markets play a critical role in ensuring the safe and stable operation of the electricity system by providing grid inertia, voltage control frequency response and restoration services, alongside quick flexible response to price signals both in times of low and peak demand. Being able to support wider services in this manner means pumped storage hydro offers better value for money to both investors and consumers, with an Imperial College study finding that it could help to reduce total system costs like these by between £44m and £316m per annum by 2050.

We look forward to working constructively with the UK Government and other stakeholders to help deliver a policy environment which secures investment, strengthens our energy security, and delivers for consumers. We’re ready to move mountains to tackle climate change.

Find out more about Cruachan’s plans for expansion here: drax.com/cruachan2

The post Expanding pumped storage hydro to support the UK’s transition to Net Zero appeared first on Drax Global.

We all know that action is needed to tackle the global climate emergency. If we get these changes right, they will ultimately be beneficial to economies and society.

Industries of all kinds will need to reduce their CO₂ emissions. While reducing greenhouse gas (GHG) emissions is vital, it is becoming clear that reductions alone are unlikely to be enough: it will also be necessary to remove GHGs from the atmosphere to limit the global temperature increase to 1.5C. Any residual emissions in hard-to-abate sectors like aviation or agriculture will require carbon removals at scale, in both a combination of nature and technology-based carbon removal solutions.

This vision of the future doesn’t have to mean low-growth economies or scarce energy supply. Instead, we can build and adapt our energy systems for a sustainable future that enables prosperous economies and thriving societies.

Today, energy systems are some of the world’s most emission-intensive sectors, though many are rapidly decarbonising. The UK has made excellent progress in delivering this, ahead of many other countries, with around 60% of its power now coming from low-carbon sources.

The continued evolution of the energy industry is also intrinsically connected to delivering carbon removals at scale.

The two primary engineered carbon removals technologies are BECCS and Direct Air Capture and Storage (DACS). DACS can remove CO₂ from ambient air and then store it underground. To do so, DACS requires a low carbon source of power. BECCS, by contrast, generates power using renewable biomass that absorbs CO₂ as it grows. The CO₂ is then captured and stored safely and permanently underground.

Done right, they both remove more CO₂ than they emit – delivering carbon removals. But BECCS’ unique capability to deliver carbon removals while generating 24/7 baseload power means it can support energy security while helping to tackle climate change.

Delivering energy security in a net zero future

As society electrifies to meet net zero, the demand for power will substantially increase. Meeting these increases will require governments to work with the private sector to deploy a range of technologies. Increasing deployment of renewables like wind and solar around the world will be vital. But these intermittent sources will need complementary technologies like short and long-term energy storage, as well as baseload power generation that can ensure energy systems remain secure and stable.

BECCS is the only renewable energy and carbon removal technology that offers the full suite of system support services. This includes a reliable, stable source of power integrated with other intermittent renewables, something that will only become more important as energy systems decarbonise.

One example of the role biomass can play in global energy solutions comes from research we commissioned from Baringa, which finds that peak demand for UK energy will increase by up to 7GW by 2027. The closure of coal, older gas, and nuclear power stations, however, will also remove up to 7GW of secure capacity from the grid. This could be further exacerbated by ongoing costly delays in new power plants such as Hinkley Point C, which is not expected to be completed until 2031. This means the percentage of ‘secure’ capacity needed to cover peak demand in the UK is projected to decrease

Recent independent analysis by Public First, reaffirms that the UK will hit an energy security “crunch point” in 2028, and the UK’s demand for power is set to exceed secure dispatchable and baseload capacity by 7.5GW. This shortfall would leave the UK more dependent on intermittent domestic and international generation.

Therefore, existing assets like Drax Power Station will be even more critical to energy security. Bridging support for Drax Power Station from 2027 until BECCS is online will reduce the risk of energy shortages and reduce dependency on overseas sources, supporting energy security and decarbonisation through the crunch.

The Government’s Powering Up Britain strategy aims to set the course for delivering the UK’s net zero and energy security ambitions. A key part of this programme is carbon removals and the development and deployment of large-scale Power BECCS by 2030.

We’ve shown at our North Yorkshire site how BECCS is ready to work within the current energy ecosystem. It’s an opportunity to utilise existing infrastructure, convert coal power stations and adapt to an energy secure, net zero future.

In January 2024, the Secretary of State for Energy Security and Net Zero, Claire Coutinho, approved the Development Consent Order (DCO) for our plans to convert two biomass units at Drax Power Station to BECCS.

Providing the coming months see real progress in our discussions and there is swift decision making, we stand ready to invest billions to develop what will become world’s largest engineered carbon removals project at Drax Power Station.

Our plans for Power BECCS in North Yorkshire would enable us to remove up to eight million tonnes of CO₂ from the atmosphere per year, while still generating secure, dispatchable, renewable power for millions of homes and businesses.

Without BECCS at Drax, the UK’s target of five million tonnes of carbon removals by 2030 would be difficult to achieve. The pioneering project would build on Yorkshire’s proud industrial heritage, as well as potentially delivering more than 10,000 jobs at the height of construction and position the county and the UK as leaders in the race to create and scale a technology required to capture greenhouse gas emissions.

The DCO approval is another milestone in the development of our BECCS plans and demonstrates both the continued role that Drax Power Station has in delivering UK energy security and the critical role it could have in delivering large-scale carbon dioxide removals to meet net zero targets.

It offers a model for energy security globally. While ensuring the phase-out of fossil fuels around the world, biomass offers a renewable, flexible alternative to reduce our dependency on forms of power such as coal. With BECCS, we can go further by transforming existing coal power stations from carbon emitters into carbon removers.

Decarbonisation across industries

Carbon dioxide removal technologies, like BECCS and DACS, can neutralise hard-to-abate and residual emissions across whole industrial clusters.

Furthermore, carbon removal hubs or clusters, with shared decarbonisation goals, technology, and infrastructure, offer locations where BECCS and DACS can help emissions-intensive industries decarbonise. Sharing infrastructure, like pipelines and storage locations can reduce the cost of deploying carbon removals by creating economies of scale.

Major industries like steel, cement, and chemicals, that employ millions of people around the world may only be viable in a net zero future with connections to carbon removals technologies. BECCS also offers these industries, that depend on energy-intensive processes, an alternative source of power from fossil fuels.

Baringa’s analysis found that Drax’s proposals for BECCS at Drax Power Station could save the UK up to £15bn in whole economy costs in meeting the country’s net zero goals between 2030 and 2050. It also demonstrates that without BECCS at Drax, meeting carbon reduction targets is more complicated and expensive and carbon savings would be needed in other sectors.

Research by the Intergovernmental Panel on Climate Change, the world’s leading authority on climate science, also states that to tackle climate change, up to 9.5 billion tonnes of carbon removals via BECCS will be required globally per year by 2050. So as the world enters the pivotal decades to act on the climate crisis, governments around the world must take action. One idea of a decarbonisation hub is included in the U.S. Inflation Reduction Act, which commits $3.5 billion to developing four regional Direct Air Capture Hubs.

The Inflation Reduction Act’s total $369 billion funding package focused on energy security and climate change contains a host of potential opportunities for BECCS deployment across renewable power generation, sustainable aviation fuel and hydrogen.

These include a $40 billion loan fund for projects which utilise innovative technology to reduce, avoid or sequester carbon, and $140 million to create a competitive purchasing programme for carbon removals.

Furthermore, the act increases the availability of the 45Q tax credit for carbon capture and storage projects, increasing their value from $50 a tonne of carbon removals to $85 per tonne. These are all promising steps to creating the market and environment needed to deploy technologies like BECCS and DACS.

We recently announced that we’re launching a new business focused on becoming the global leader in large-scale carbon removals, which will oversee the development and construction of our new-build BECCS plants in the US. These projects, through the investment they attract and the jobs they generate, can become key economic drivers in a given region.

The global opportunity for BECCS is clear. The market for carbon removals is growing. And we want to ensure BECCS offers a high-integrity form of carbon removals that delivers permanent carbon sequestration.

Ensuring high quality carbon markets

As pioneers in the field, we’re setting the bar for carbon removal standards, ensuring quality is intrinsic to Drax’s offering. To help achieve this, we’ve partnered with Stockholm Exergi and EcoEngineers to develop a world-leading methodology to ensure the integrity of BECCS carbon removals. Our paper, ‘Corporate climate claims: The case for including permanent carbon removals’ also looks at resetting the standard on corporate claims for carbon removals. Tackling climate change while advancing sustainability is at the heart of our purpose and we’re committed to supporting organisations – especially those with hard-to-abate emissions – work towards decarbonising and reaching climate targets.

From the biomass used to fuel BECCS, to capture and transport processes, it’s imperative the carbon removed is always greater than any carbon emitted throughout the process.

Building from a sustainable base, with a high set of standards can make BECCS a transformational technology in powering the future and delivering carbon removals. No other technology can do both. BECCS can generate renewable power. BECCS can remove emissions. BECCS can deliver a prosperous, net zero future for the world.

To find out more about BECCS and how carbon removals can support your company’s decarbonisation journey, visit draxcarbonremovals.com

The post A prosperous future needs energy security and carbon removals – BECCS delivers both appeared first on Drax Global.