Following Drax’s trading update yesterday, we have updated our estimates to reflect Drax’s hedged positions across FY22-FY24, commentary regarding higher biomass costs, increased $/t capex on the pellet capacity expansion, and North American development expenditure. Although higher hedged prices across FY22-24 more than offset increased biomass costs, the Electricity Generator Levy, as it stands, applied to excess revenue, and not recognising costs, has a negative impact, and sees our FY23E EPS fall by c.22%, and FY24E fall by c.10%. Drax has been making a case that higher costs for biomass should be taken into account in setting the threshold for the EGL, and the technical guidance published by HMT in November holds open the possibility that exceptional costs could be considered. Drax anticipates an update from government “shortly”. By way of sensitivity, we estimate that a £10/MWh increase in the threshold would add c.13p to our FY23E and FY24E EPS respectively, with an upwards valuation impact of c.50p/share. We view a possible update from government as a potential catalyst, positive if an allowance is made. Our valuation approach remains unchanged, as do the strategic scenarios which we model. However, multiple moving parts, including higher biomass costs, no change to the EGL, and a lower WACC (6.8% vs. 8%) nudge our target price down to 955p. This still points to significant upside, and again we reiterate our view that Drax has an array of options that sit well with the net zero journey, with the balance sheet strength to deliver. We continue to believe that our ‘the country needs Drax’ thesis is very much intact. BUY