Back to newsroom

Insider Media: Drax to raise £180m to fuel biomass conversion


By Laurence Kilgannon, Yorkshire Correspondent


Drax has revealed it will use the £180m it expects from a placing to support its transformation into a predominantly biomass-fuelled electricity generator.


The energy giant, which is also in advanced talks about other huge finance packages, said the path was now clear to turn Drax from the largest coal generator in the UK into one of the largest renewable power plants in Europe.


Drax said it has a high level of confidence in its ability to convert generating units to biomass at attractive rates of efficiency and output, to secure the necessary sustainable biomass supplies and to conclude the financing arrangements for the conversion of three units. It added that there was good government support for this transformation.


Investment costs for biomass conversion were described as much lower than for other forms of renewable energy. As the biomass share of Drax's output grows, the company expects the transformation to deliver attractive returns for investors through significantly higher margins compared to a coal only business. It will also provide the UK consumer with reliable, flexible and cost effective renewable electricity.


The proposed placing is an integral part of the funding required for the previously announced £650m to £700m capital investment required for the biomass transformation and to secure the long term future.


Drax is well advanced with the other components of its funding work. In addition to the £100m amortising term loan facility agreed with the Prudential / M&G UK Companies Financing Fund in July 2012, Drax is in advanced negotiations to secure further new debt facilities of approximately £100m.


Drax will also shortly launch a refinancing of its existing £310m revolving credit facility to increase its size to approximately £400m and extend the maturity to April 2016.


"This is a hugely exciting time for Drax and our shareholders," said chief executive Dorothy Thompson. "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 fuelled 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.


"We are pleased that Invesco Asset Management Limited and Schroder Investment Management Limited, as well as a number of other large shareholders, have indicated that they will take up full pro rata allocations in the Placing, and we thank them for their support."


In an interim management statement, Drax said trading conditions in the commodity markets in which it operates had improved since its interim results in July, except for domestic coal, where some of our suppliers continue to face challenges.