Biomass target moves closer as Drax raises £180m on market

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DRAX has raised £180m through a share placing, setting the Selby-based company on the road to becoming one of the largest renewable power plants in Europe.

The group will use the cash to help it switch from burning coal, which is a huge pollutant, to burning biomass, which is far more environmentally friendly.

Drax’s finance director Tony Quinlan welcomed the market’s positive response to the share placing.

“The most important thing is we’ve got the green light to transform Drax and become one of the largest renewable generators in Europe,” he said.

“It’s incredibly exciting. Our investors have been incredibly loyal and supportive of what Drax is doing. It’s a massive transformation in the long term.”

Drax was backed by its two biggest shareholders; Invesco, which has a 30 per cent stake, and Schroder, which has a 10 per cent stake.

The company placed 36.47 million shares and also took on £100m in new debt.

Drax estimates the conversion from coal to biomass will require a capital investment of between £650m and £700m.

Mr Quinlan said that half of this amount will be spent on converting the three units at the plant to burn 90 per cent biomass – a massive move towards green energy production.

The other half of the £650m to £700m will be spent on pelleting facilities in the US and making sure that Drax can meet the new emissions standards, which are due out in 2016 under the ‘Industrial Emissions Directive’.

Drax is converting to biomass fuel as rising coal prices squeeze its profits.

Earlier this year, the Government raised its energy from renewable sources targets to reach EU standards by 2020.

The new shares issued will represent up to 9.99 per cent of the new company.

Drax said that trading conditions since the beginning of July improved in all of its commodity markets except domestic coal, where some suppliers are still facing challenges.

This has helped Drax in terms of lower coal prices, but Mr Quinley said that Drax is fully behind its Yorkshire coal producers and will support them as much as it can.

Drax estimates that the switch to biomass will safeguard or create about 4,000 jobs.

Drax will convert into a mainly biomass-fuelled generator after the Department of Energy and Climate Change (DECC) confirmed support for the plant-based fuel through so-called Renewables Obligation Certificates (ROCs).

Drax, Britain’s biggest single emitter of carbon dioxide, wants to burn more fuel such as wood chips and straw pellets as large power generators come under pressure to clean up emissions.

Enhanced co-firing of biomass with coal – where a unit burns both coal and biomass – will earn subsidies ranging from 0.6 to 0.9 ROCs, a level Drax said is “not attractive” for most plants.

Drax expects converting the three of its six units to take five years, with the first of its 660 megawatt units completed in the second quarter of 2013.

Biomass is a generic term which covers the huge range of organic, plant-based materials which are burnt to create useful heat and power.

Drax will need seven to eight million tonnes of biomass annually, replacing about five million tonnes of coal.

Drax’s chief executive Dorothy Thompson said she is “completely confident” Drax will be able to source the biomass.

“We’ve got eight years’ biomass experience. There’s no question that there’s enough biomass,” she said.

She said the challenge is “availability of the supply chain to get that fibre from wherever it is to Drax’s gates”.

ros.snowdon@ypn.co.uk