Government backs biomass plans for Drax plant

The group has agreed a £75m amortising loan facility with Friends Life which matures in June 2018, underpinned by a guarantee from the Treasury.

The loan replaces £50m of a £100m loan agreed with the Green Investment Bank in December 2012.

Analyst Peter Atherton, at Liberum Capital, said: “The interesting element of this is that the new loan is to be guaranteed by the Government’s Infrastructure UK Guarantee Scheme.

“This scheme has been established to reduce the cost of funding for infrastructure projects. Drax reports that this has reduced the cost of borrowing from just below six per cent (the Green Investment Bank loan) to below four per cent in the new loan.

“Given this differential we can certainly expect other power and utility companies to take advantage of HMT’s guarantees.”

Drax said the new facility enhances the financing structure put in place last year by providing additional liquidity and securing treasury support for its environmentally friendly plans.

The group’s funding will now come from five different streams. These are the £190m proceeds from the equity placing last October, a £100m amortising term loan facility agreed with the Prudential/ M&G UK Companies Financing Fund last July, the reduced £50m amortising term loan facility with the UK Green Investment Bank, the new £75m facility with Friends Life and a £400m revolving credit facility which matures in April 2016.

Tony Quinlan, finance director of Drax, said: “This further strengthens our balance sheet, as we progress our project to transform the largest coal-fired power station in the UK into an electricity generator fuelled predominantly by sustainable biomass.

“The benefits are multiple, from securing jobs at Drax and across the UK in the supply chain to providing low-carbon, cost-effective and reliable renewable power for the consumer.

“We are delighted to secure the support of Friends Life and Infrastructure UK.”