Drax to stop use of coal, implement new biomass strategy

Drax Group plc announced on Feb. 27 that the company will stop burning coal by March 2021, far ahead of the U.K. government’s 2025 deadline. Drax also released full year 2019 financial results on Feb. 27 and provided an update of its biomass strategy.

The company said the decision to stop using coal at Drax Power Station came after a comprehensive review of operations. Drax does not expect to use coal after March 2021, but said it will ensure its two remaining coal units remain available until September 2022 in line with its existing capacity market agreements.

“Ending the use of coal at Drax is a landmark in our continued efforts to transform the business and become a world-leading carbon negative company by 2030,” said Will Gardiner, CEO of Drax. “Drax’s journey away from coal began some years ago and I’m proud to say we’re going to finish the job well ahead of the Government’s 2025 deadline.”

Drax Power Station first started generating electricity using coal in the 1970s. The facility was expanded in the 1980s and became the largest power station in the U.K., with capacity to generate electricity for 6 million households. During the last decade, Drax has converted four of the station’s six generating units to biomass.

“By using sustainable biomass we have not only continued generating the secure power millions of homes and businesses rely on, we have also played a significant role in enabling the U.K.’s power system to decarbonize faster than any other in the world,” Gardiner said.

In its 2019 financial report, Drax reported that biomass power output fell to 13.4 terawatt hours (TWh), down 3 percent from 2018. During the first half of the year, Drax said renewable obligation certificate (ROC) generation re-profiled to reflect weather-affected U.S. biomass supplies. Record biomass output in November and December reflected excellent operational availability.

Drax’s pellet production operations reported adjusted EBITDA of £32 million for 2019, up 52 percent. Pellet production increased by 4 percent and reached 1.41 million metric tons. The cost of production fell by 3 percent to $161 per ton, down from $166 per ton in 2018. During an earnings presentation, Gardiner noted that the $5-per-ton reduction was achieved through the use of more sawmill residues and improved logistics. Those initiatives were implemented over the course of the full year. For 2020, the improvements should deliver a cost reduction of $17 per ton.

Gardiner said Drax is implementing a new biomass strategy over the next seven years that aims to increase self-supply of biomass from the current 1.5 million tons to 5 million tons. The strategy also aims to reduce the cost of biomass generation to £50 per megawatt hour (MWh), down from approximately £75 per MWh today.

According to Gardiner, Drax is already in the process of expanding production at its three existing plants by 350,000 tons. Those improvements and expansion projects are expected boost capacity to 1.85 million tons by 2022 while reducing costs by $35 per ton, equating to £13 per MWh of cost savings. Second, Drax is looking to expand self-supply of wood pellets by up to 500,000 metric tons of capacity through the development of satellite plants. Third, the company is looking at other attractive investment opportunities. Fourth, Gardiner said Drax is looking at the expansion of its fuel envelope to include other types of fuel, such as bagasse. “Finally we are investigating a series of innovations that we can potentially apply across the supply chain to reduce costs, whether that be changes to fuel or changes to logistics,” Gardiner said.

Drax reported adjusted EBITDA of £410 million for 2019, up from £250 million in 2018. Net cash from operating activities reached £413 million, up from £311 million. Net debt also increased, reaching £841 million, compared to £319 million in 2018. Total dividends reached 15.9 pence per share, up from 14.1 pence per share in 2018. Adjusted basic earnings per share reached 29.9 pence, up from 10.4 pence. Operating profit for 2019 reached £62 million, up from £60 million in 2018. Profit after tax was £1 million, down from £20 million. Basic earnings per share for 2019 were 0.1 pence, compared to 5 pence in 2018.

Source: Biomass Magazine