TIDMDRX
RNS Number : 4455J
Drax Group PLC
27 April 2022
27 April 2022
Drax Group plc
("Drax" or the "Group"; Symbol: DRX)
Trading Update - Strong performance in Q1 2022
Continuing to play an important role in energy security and
global decarbonisation
Trading and Operational Highlights
-- Strong system support performance during the first three months of 2022
-- Increase in value of contracted power prices 2022 - 2024
-- >99% of generation from renewables - sustainable biomass, hydro and pumped storage
-- 400Kt of new biomass pellet production capacity commissioned in US southeast
Financial Highlights
-- 2022 Adjusted EBITDA (1) - around the top end of current range of analyst expectations (2)
-- Expect to be significantly below 2x net debt to Adjusted EBITDA by the end of 2022
-- Final dividend of 11.3 pence to be paid subject to shareholder approval at today's AGM
-- Total dividend for 2021 - 18.8 pence per share (2020: 17.1 pence per share)
Drax CEO Will Gardiner said: "In the first quarter of 2022 we
delivered a strong system support performance as our reliable,
renewable electricity continued to support UK energy security and
helped to keep the lights on for millions of British homes and
businesses.
"We advanced our strategy to increase biomass pellet production,
with another 400Kt of capacity commissioned from two new pellet
plants in the US. We also progressed the engineering design work
for our UK BECCS project, which will deliver negative emissions for
the UK and pioneer BECCS technology at scale. BECCS is a vital
carbon removals technology that the UN's IPCC says is needed
globally to achieve net zero.
"With the right government support, Drax is ready to invest
GBP3bn this decade in delivering vital renewable energy
technologies including BECCS, a carbon removal technology that is
cost-effective but also the only one that generates reliable,
renewable electricity while removing millions of tonnes of CO(2)
from the atmosphere."
Pellet Production
In April 2022, the Group completed the commissioning of its
360Kt plant at Demopolis, Alabama and its 40Kt satellite plant in
Leola, Arkansas. The Group is also currently constructing a second
40Kt satellite plant at Russellville, Arkansas, allowing greater
utilisation of lower cost sawmill residues whilst leveraging on
existing infrastructure in the US southeast.
Once at full capacity these developments, alongside incremental
capacity expansions at existing sites, will increase nameplate
production capacity to around 5Mt p.a. Over 2Mt p.a. of production
is contracted to high-quality third-parties under long-term
contracts, with the balance available to Drax to fulfil its own-use
requirements.
Strong demand for forest products in construction and
manufacturing markets continues to support good fibre residue
availability with no material change in fibre cost. Drax notes an
incremental increase in transportation costs in North America
principally related to truck driver shortages and haulage
costs.
The Group continues to target a Final Investment Decision (FID)
on up to 1Mt of new capacity in 2022 as part of its plans to
increase total pellet production capacity to 8Mt by 2030.
Generation
In the UK, the Group's biomass, hydro and pumped storage assets
have continued to play an important role in security of supply,
providing stability to the UK power system at a time when higher
gas prices and interconnector availability have placed the system
under increased pressure.
To maximise renewable output at times of high demand, the Group
is continuing to optimise biomass generation across all four
biomass units at Drax Power Station, contributing to an increase in
average achieved power prices.
The current power price environment increases the importance of
appropriate investment to ensure good operational performance and
availability, and, in March and April 2022, two biomass units
underwent planned maintenance outages. The unit's contracted
positions in this period were bought back and the generation
reprofiled, with no net change in output over the ROC compliance
period.
Drax's two legacy coal units were called into the Balancing
Mechanism by the system operator in January for limited operations
to support security of supply. These short-term measures helped to
stabilise the power system during periods of system stress and did
not result in any material increase in the Group's total carbon
emissions.
Drax continues to expect to formally close these two legacy coal
units following the fulfilment of their Capacity Market obligations
in September 2022 but remains committed to supporting security of
supply in the UK. Drax has recently been asked by the UK Government
to consider options for a limited extension of its coal operations
and this remains under review.
Generation contracted power sales
The Group has continued to add to its forward power sales book.
As at 22 April 2022, Drax had 22.2TWh of power hedged between 2022
and 2024 on its ROC and hydro generation assets at an average price
of GBP78.1/MWh.
A further 1.8TWh equivalent of gas hedges have been contracted
in 2023 and 2024 for the purpose of accessing additional liquidity
for forward power sales from the ROC units. These contracts are
highly correlated to forward power prices.
Due to the optimisation of biomass generation in 2022, to
support increased generation at times of high demand, CfD output
will be lower than historic average, with ROC unit output
higher.
Contracted power sales 22 April 2022 2023 2024
2022
------------------------------------------ -------- -------- -------
ROC (TWh) (3) 11.1 7.7 3.1
- Average achieved GBP per MWh 74.9 79.0 84.0
Hydro (TWh) 0.2 0.1 -
- Average achieved GBP per MWh 107.0 173.1 -
Gas hedges (TWh equivalent) (4) - 0.5 1.3
-Pence per therm - 108.4 118.5
CfD (3/5) typical annual output c.5TWh and current strike price
GBP126.4/MWh
Since the Group's last update on 24 February 2022, incremental
power sales from the ROC units total 1.8TWh across 2022, 2023 and
2024.
War in Ukraine
Drax previously sourced a small volume of Russian and
Belarussian biomass, which it has now removed from its supply
chain. The biomass that Drax uses comes from stable, sustainable
markets in North America and Europe and is sourced under long-term
fixed formula contracts.
The removal of Russian biomass cargoes from European supply
chains has led to higher prices and lower availability in the small
European spot market, adding incremental costs and limiting the
potential to source additional cargoes to support incrementally
higher levels of generation in 2022.
Full year expectations
Reflecting these factors, the Group now expects that full year
Adjusted EBITDA for 2022 will be around the top of the range of
analyst expectations, subject to continued good operational
performance.
Reflecting the improved outlook for Adjusted EBITDA the Group
expects net debt to Adjusted EBITDA to be significantly below 2x by
the end of 2022.
Bioenergy Carbon Capture and Storage (BECCS)
During 2022 Drax is investing incremental capital expenditure
and development expenditure into BECCS, including continuing a
Front-End Engineering Design study at Drax Power Station.
Drax continues to expect to take a FID in 2024 and expects the
UK Government to set out the process for selection and support for
individual BECCS projects, such as BECCS at Drax Power Station,
during 2022.
The development of BECCS in the UK is supported by the Group's
plans to invest in the expansion of its biomass pellet production
to deliver security of supply for the biomass volumes required for
BECCS, which are expected to be underpinned by long-term contracts
reflecting the market price of biomass.
The Group is also continuing to develop options to deliver 4Mt
of negative CO(2) emissions each year from new-build BECCS outside
of the UK by 2030 and is currently developing models for North
American and European markets.
Other
The Group is continuing to assess operational and strategic
solutions to support the development of its SME(6) supply
business.
In March 2022, Drax signed a development agreement with EPC
contractor Mytilineos for the development of three Open Cycle Gas
Turbine (OCGT) developments.
At the full year results in February 2022 Drax noted it would
invest up to GBP100 million in 2022 to fulfil obligations under the
Capacity Market agreements, but was continuing to evaluate options
for its OCGT developments, including their sale. Drax expects that
any capital invested in 2022 will be recovered in the event of a
sale.
Notes :
(1) Earnings before interest, tax, depreciation, amortisation,
excluding the impact of exceptional items and certain
remeasurements.
(2) As of 22 April 2022, analyst consensus for 2022 Adjusted
EBITDA was GBP571 million, with a range of GBP540-GBP606 million.
The details of this company collected consensus are displayed on
the Group's website.
https://www.drax.com/wp-content/uploads/2022/04/Company-Collected-Consensus-April-2022.pdf
(3) Typical estimated annual biomass generation from ROC and CfD
units c.15TWh in aggregate based on estimated biomass
availability.
(4) Structured power sales in 2023 and 2024 (forward gas sales
as a proxy for forward power), transacted for the purpose of
accessing additional liquidity for forward sales from ROC units and
highly correlated to forward power prices.
(5) The CfD biomass unit typically operates as a baseload unit,
with power sold forward against a season ahead reference price. The
CfD counterparty pays the difference between the season ahead
reference price and the strike price. The contracted position
therefore only includes CfD volumes and prices for the front six
months.
(6) Small and Medium-sized Enterprise.
Enquiries:
Drax Investor Relations: Mark Strafford
+44 (0) 7730 763 949
Media:
Drax External Communications: Ali Lewis
+44 (0) 7712 670 888
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 the Company'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; and/or general economic conditions or
conditions affecting the relevant industry, both domestically and
internationally, being less favourable than expected. 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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END
TSTPPUWACUPPGRQ
(END) Dow Jones Newswires
April 27, 2022 02:01 ET (06:01 GMT)
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