Drax plans expansion of pumped hydro and biomass as profits soar

Drax has announced plans to expand its pumped storage hydro business, and biomass supply chain, after reporting a surge in profits.

It comes as the company announced a pre-tax profit of £796 million for the 12 months ended 31 December 2023, up from £78 million in 2022.

Adjusted EBITDA also increased to £1.21 billion from £731 million the previous year.

Of that, the company’s biomass generation business contributed £703 million and its pumped hydro operations accounted for £230 million. (See full breakdown below).

Writing in the accounts’ foreword Will Gardiner, chief executive of Drax Group, said: “We believe that the use of sustainable biomass and BECCS, alongside flexible, renewable generation and energy systems can make an important contribution – decarbonising and protecting energy security, whilst stimulating economies and minimising the cost. […] Against this backdrop we are continuing to execute our strategy for carbon removals from BECCS in the US and UK by 2030. In addition we are planning to expand our pumped storage hydro business, and biomass supply chain.”

The company has also confirmed a full year dividend of £89 million (23.1 pence per share). This represents a 10% increase on the dividend per share paid in respect of 2022.

It is also consistent with its policy to pay a dividend that is sustainable and expected to rise as the strategy delivers stable earnings, cash flows and opportunities for growth.

EBITDA breakdown:

Gardiner added: “We have created a business which plays an essential role in supporting energy security, providing dispatchable, renewable power for millions of homes and businesses, particularly during periods of peak demand when there is low wind and solar power.

“Policy support for our UK BECCS project continues to progress and we remain in formal discussions with the UK government to ensure Drax Power Station can play a long-term role in UK energy security, creating thousands of jobs during construction and helping the country reach net zero.

“We have made further progress in our ambition to be a world leader in carbon removals and have visibility of high-quality, long-term earnings to 2042 and a strong balance sheet which supports returns to shareholders and investment in growth, both in the UK and internationally.”

Last month, Drax was granted consent for its £2 billion plan to equip two of the biomass units at its power station in North Yorkshire with CCS.

The government is also consulting on proposals to extend the support for biomass generation provided through the Contracts for Difference and Renewables Obligation schemes beyond the current end of the subsidies in 2027.

However, analysis released by the Green Alliance this week concludes that ministers should “avoid locking in large scale BECCS too early”, placing a time limit on any further subsidies to allow for a proper assessment on whether the technology is “the right option for the UK”.

In response to the analysis, a Drax spokesperson said: “This analysis fails to account for the fact that Power BECCS delivers both renewable power and carbon removals. BECCS is widely recognised to be an affordable and scalable solution that can be deployed in a timeframe that meets Government’s greenhouse gas removal target.

“Credible expert bodies, including the UN’s IPCC and the UK’s Climate Change Committee, agree BECCS is needed to address the climate crisis. The research does not spell out the cost of replacing the energy security Drax Power Station provides during a period when 7GW of secure generation is due to come off the system.”