Drax has agreed continued support for the biomass units at the Drax Power Station. This will allow these flexible units to continue to provide essential support to the market as demand for flexibility rises and bridges the period before Drax can add carbon capture to create a negative emission solution, essential to delivering the UK’s decarbonisation goals. While the agreed strike price is attractive, the volume is capped and collared between 5TWh and 6TWh, less than the c.14TWh currently generated. However, the units can sell merchant power above this subject to a gain sharing agreement and Drax expects the units to generate an EBITDA of between £100m and £200m. Our central case valuation is trimmed to 988p from 1,023p to reflect the units achieving £167m in FY 28 based on strong pricing in a tight market.
