Greater clarity from the UK Government on funding for carbon capture and storage (CCS) is welcome for Drax. We expect the deployment of CCS to allow the company to continue operating its biomass units profitably beyond 2027 when current support mechanisms end. This initial guidance for simple CCS suggests that CCS costs can be covered and a marginal positive valuation impact from running ahead of unabated plant is possible. However by delivering biomass and CCS (BECCS), Drax offers a fully negative emissions solution. We expect stronger support for this, potentially allowing baseload running. Drax remains one of the very few opportunities for investors in negative emission solutions.
