UK's Drax Inks Deal to Curb Coal

Northern England coal-fired power generator Drax announced plans December 6 to raise its exposure to gas and renewables by acquiring four power projects for an initial £18.5mn from Watt Power and buying the UK energy retailer Opus Energy for £340mn.

Of the four ‘Open Cycle Gas Turbine’ (OCGT) developments each of 299 MW, two are near Swansea in Wales and two are in southeast England. Final consideration could stretch up to £90.5mn for each, depending on whether they secure a UK long-term Contract for Difference (CFD). On top of that, Drax expects to invest £80mn-£100mn for each successful project.

Opus Energy was the UK's sixth largest non-domestic electricity supplier (by meters) as at end-April 2016, supplying 2.1 terawatt-hours power and 1.7 TWh gas annually. One fifth of Opus’ power is sourced from small renewable electricity generators (wind, solar, hydro and anaerobic digestion). Acquisition of Opus would be subject to the approval by the EU Commission of a CFD to Opus, but Drax said it was confident this would be granted.

Drax CEO Dorothy Thompson (Photo credit: Drax)

Drax said it would fund the acquisition on the back of a new debt facility of up to £375mn. CEO Dorothy Thompson also hoped to convert more of Drax’s units to biomass in place of coal, claiming it was “the fastest and most reliable way to support the UK's decarbonisation targets.”

The Norwegian government’s oil pension fund, now worth $860bn, excluded Drax and over 50 other firms worldwide in April 2016 from its investments saying they had done too little to cut coal use.

Mark Smedley