HM Treasury published yesterday a supplementary technical note for the Electricity Generator Levy (EGL), alongside draft legislation. There are a number of changes, two of which we view as significant for Drax; (i) indexation of the benchmark price; and (ii) the method and criteria for recognition of a limited set of exceptional costs relating to the acquisition of generation fuel and feedstock, which can be set against exceptional receipts. In scope generation will be subject to a 45% tax charge on a measure of ‘Exceptional Generation Receipts’ calculated as Generation Receipts – Electricity Generation x Benchmark Price – Allowable Costs – Allowance. The benchmark price is set at £75/MWh from 2023 until 2024, and will be adjusted each year from April 2024 in line with the change in the Consumer Prices Index in the preceding calendar year. Generators will be able to reduce exceptional generation receipts by a measure of the amount by which generation costs exceed historic levels. To claim this relief, generators will be required to calculate a baseline fuel cost, which will be the lower of fuel costs/MWh over a period of least twelve months between 1st Jan 2017 and 1st March 2020, and £65/MWh. With Drax’s biomass costs at c.£75/MWh over this period, we conclude that Drax will be able to claim a deduction for biomass costs above £65/MWh. Over the period to 31st March 2028, we now estimate a total EGL for Drax of £544m vs. £1,239m in our previous estimates. This sees our EPS estimates rise by 59.9% in FY23E, by 46.1% in FY24E, and by 54.5% in FY25E. Our target price moves up to 1,110p. The changes are positive. BUY.