Drax: Biomass power generation, pellet production up in H1

By Erin Voegele | July 29, 2020

Drax Group plc on July 29 released financial results for the first half of 2020, reporting that biomass power generation was up 16 percent and pellet production was up 15 percent while achieving a 9 percent reduction in cost.

Drax’s U.S. pellet pants produced 750,000 metric tons of wood pellets during the first half of the year, up 15 percent when compared to the 650,000 metric tons produced during the same period of last year. The cost of wood pellet production fell to $154 per ton, down 9 percent when compared to the cost of $170 per ton reported for the first half of 2019. The company also achieved a reduction in fines in each cargo.

“I am very pleased with our pellet business. Quality is excellent, as good as any of our suppliers, costs are coming down in line with our plan, and volume is also excellent,” said Will Gardiner, CEO of Drax Group, during an earnings call. He also confirmed that Drax has authorized a $40 million investment in three 40,000-ton-per-year satellite plants in the U.S. “We expect that to have a significantly lower cost of production than our current plants,” he continued. The company said commissioning could start on those facilities in 2021 and noted that the use of Drax infrastructure and sawmill residues is expected to result in a 20 percent reduction in pellet costs when compared to current costs.

Drax has set a goal to have 5 million metric tons of pellet production capacity in place by 2027. In addition to the new satellite facilities, Drax is expanding capacity by 350,000 metric tons per year at its existing pellet plants located in LaSalle, Louisiana; Morehouse, Louisiana; and Amite, Mississippi.  The company is also increasing its use of low-cost fiber, working to improve logistics and make other operational enhancements to the facilities.

The overall cost reduction for pellet production is targeting $64 million in annual savings on 1.85 million metric tons of production by 2022 when compared to a 2018 base. That would translate in to a cost savings of $35 per ton.

At Drax Power Station in the U.K., the company reported biomass generation reached 7.4 terawatt hours (TWh) during the first half of 2020, up 16 percent when compared to the same period of last year. According to the report, Drax supplied 11 percent of the U.K.’s renewable electricity during the first half of 2020.

Drax reported £25 million in adjusted EBITDA for its pellet production operations during the first half of the year, up 213 percent when compared to the same period of 2019. Adjusted EBITDA was up 45 percent for its power generation business, reaching £214 million.

Overall, the company reported £179 million in adjusted EBITDA, up from £138 million during the first half of 2019. Cash generated from operations was £226 million, down slightly from £229 million. Net debt was £792 million, down from £924 million. Interim dividend was 6.8 pence per share, up from 6.4 pence per share for the same period of last year. Adjusted basic earnings per share was 10.8 pence, up from 2 pence.