Drax to sell 180 million euro shares to fund biomass conversion
Drax, the U.K.'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 announced.
Drax 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.
The company is now looking to secure capital funding for the conversion, which the company estimates 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.
"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," said Lucy Hopwood, head of biomass and biogas at NNFCC. "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."
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.
"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 U.K. into a power plant fuelled predominantly with sustainable biomass," said Dorothy Thompson, CEO of Drax. "The placing is one of the key building blocks in this transformation"
The benefits are multiple, Thompson said, and include securing jobs at Drax and across the U.K. in the supply chain, providing reliable cost effective renewable power for the consumer in line with government's policy. She added that Drax is confident this will deliver attractive returns for Drax hareholders when the transformation is complete.