Drax to raise capital for biomass conversion plan
October 25, 2012, York, UK – Drax, the UK's largest power station, is planning to raise £180 million through a new share placing to support its transformation into a predominantly biomass-fueled power generator, the company have announced.
The company plans to convert three of its six units to biomass, turning the North Yorkshire coal-fired power station into one of the largest renewable energy plants in Europe.
Drax is now looking to secure capital funding for the conversion, which the company estimate will cost between £650 and £700 million. Drax today confirmed it will take on £100 million in new debt and increase its existing credit facility from £310 million to £400 million.
The remainder of the funds required by Drax will come from a share placing, which will help the company raise an additional £180 million towards the costs of the conversion. Drax plan to release more than 36 million new shares worth 11 pence each, which will represent around 10 per cent of the company.
Lucy Hopwood, Head of Biomass and Biogas at NNFCC, said: "This is a significant move by Drax and one which is likely to go a long way towards meeting the UK's renewable energy obligations."
"By converting to biomass, Drax will prolong the lifespan of the existing power station, ensuring the UK maintains baseload energy capacity beyond 2015 when many coal-fired power plants are expected to close in order to meet the requirements of the large combustion plant directive," she added.
The company's biomass plans come despite recent changes to the support for biomass in the banding review of the Renewables Obligation; shares in Drax tumbled more than 15 per cent in one day in July after the government announced smaller than expected subsidies for co-firing biomass.
The Government's decision prompted to Drax to change its focus from co-firing to conversion. Drax said conversion to biomass would deliver attractive returns for investors, thanks to significantly higher margins compared to a coal only business. Following today's announcement shares in Drax rose by 13.50 pence (1200 GMT) to 533.50, valuing the company at around £2 billion.
Dorothy Thompson, Chief Executive of Drax, said: "We now have the mandate, means and expertise to become a large renewable electricity generator. We will do this by transforming the largest coal plant in the UK into a power plant fueled predominantly with sustainable biomass. The placing is one of the key building blocks in this transformation."
"The benefits are multiple – securing jobs at Drax and across the UK in the supply chain, providing reliable cost effective renewable power for the consumer in line with government's policy and with our confident belief that this will deliver attractive returns for our shareholders when the transformation is complete," she added.