Drax bids for bankrupt US pellet plants

Drax aims to self-supply 20 to 30 per cent of the pellets burned at its Yorkshire plant

Drax Group has entered bids to buy two bankrupt biomass pellet plants in the US.

The purchases would help the company to meet its target to self-supply 20 to 30 per cent of the compressed wood pellets which it burns at its coal and biomass plant in Yorkshire. 

Drax has submitted initial cash bids for the operating assets of Texas Pellets and Louisiana Pellets, both of which are going through the “chapter 11” bankruptcy process.

Although the bids are binding and could be accepted by the sellers, it is expected that the successful buyer will be determined through auctions due to be held on 1 and 2 March.

As of the end of 2016, Texas Pellets had gross assets valued by the company at $301.5 million (£242.7 million) including a pellet manufacturing plant at Woodville and a storage facility at Port Arthur, both in Texas. Lousiana Pellets had gross assets which it valued at $504.7 million (£406.2 million) including a pellet manufacturing plant at Urania in Louisiana.

Drax already owns three biomass supply facilities in the US: Morehouse Bioenergy, a pellet plant in near Bastrop in Louisiana which produces 450,000 tonnes of fuel each year; Amite Bioenergy, a pellet plant near Gloster in Mississippi which produces another 450,000 tonnes of fuel annually; and Baton Rouge Transit, a shipping facility on the Mississippi River at Baton Rouge in Louisiana with an annual capacity of two million tonnes.

Towards the end of 2016, Drax finished converting one of its six units to run entirely biomass after a contract for difference awarded in 2014 was given state aid approval by the European Commission. The unit had been co-firing biomass and coal since July 2015, supported by the renewables obligation (RO). Two other units were already running entirely on biomass – again subsidised by the RO – meaning the plant’s capacity is now split 50:50 between coal and biomass.

Last week a report by Chatham House called for wood-fuelled biomass power to be given a lower level of government support than other forms of renewable generation on the basis that it is often more carbon intensive than fossil fuels, depending on how the fuel is sourced.

Earlier this month Drax completed its acquisition of Opus Energy for £340 million. A few days later it reported a sharp decline profits in 2016 due to low power prices and the ending of an exemption from climate change levies for renewable generation.