Drax makes good progress following ScottishPower deal

Power producer Drax said it is making good progress towards becoming a zero carbon, lower cost energy generator following the acquisition of renewable hydro and gas generation assets from ScottishPower, which was completed in December.

Drax Generation's CEO Andy Koss

The Selby-based power generator said integration is progressing well and it is pleased with the performance of these assets, which it expects to deliver high quality earnings and financial returns significantly ahead of the group's cost of capital.

Drax Generation's CEO Andy Koss said: "There's a lot of work to bring all the assets together and what we want to do is to run everything as a portfolio so Drax Power Station and all of the assets across the UK will be run to optimise value across the portfolio rather than individually.

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"We have a central trading team so all of the assets are managed by them and they are giving instructions as to how to run them.

"There's quite a lot of work going on there, but we are really pleased with the people and the assets. There's a really great safety culture, they are very commercial and very much aligned with the Drax culture."

Drax, which has the capacity to provide electricity for around 13 million homes, said adjusted earnings for the first half of 2019 rose 35 per cent to £138m, including £36m from the new ScottishPower assets. Drax bought these power generation assets from Iberdrola’s ScottishPower in a £702m deal.

Drax plans to build new gas-fired power plants and earlier this year it won approval to build a nearly 300 megawatt "peaking plant" which means it only fires up for operation during times of peak demand.

The firm said the plant could be generating electricity by 2022, but this would be subject to it securing a capacity market subsidy.

Drax has achieved a 52 per cent reduction in reported carbon emissions and its ultimate goal is to exit coal completely.

Mr Koss said: "The main contributor was the fourth conversion of coal to biomass which happened in the middle of last year. We've now got a fourth unit running on biomass rather than a coal unit. That's been a big help.

"We are seeing decreasing coal usage on the system. For the first half of this year 94 per cent of our output was from sustainable biomass and only 6 per cent was from coal so it very much is a declining market. Coal is used very sparingly now on cold winter days.

"Our aim is to get off coal as quickly as possible. We've said if the coal to gas conversions on units 5 and 6 go ahead in 2023, that will be the end of coal as far as we're concerned."

Drax said the US Gulf experienced high levels of rainfall in early 2019, leading to lower levels of wood pellet production.

This led to lower levels of UK biomass generation in the first six months of 2019 on units earning Renewable Obligation Certificates (ROCs).

It expects to partially offset this by producing higher levels of generation across the three ROC units in the second half of 2019.

It said the flexibility provided by the ROC scheme allows it to maximise biomass generation, within an annual cap, in the periods where it sees best value. This allows it to produce a greater amount of renewable power at times of high demand, which are typically periods of higher carbon intensity.

The group expects to announce a £63m dividend for the 2019 financial year, a 12.5 per cent increase on 2018.

Drax said its aim to deliver a zero carbon, lower cost energy future is strongly aligned with the UK's objective of net zero carbon emissions by 2050.

The firm said its expectations for 2019 remain unchanged and it is making good progress to deliver its strategy.