LONDON: Drax Group has reached agreement for the sale of Drax Generation Enterprise Limited (DGEL), which holds four Combined Cycle Gas Turbine (CCGT) power stations, to VPI Holding Limited (“VPI”) for consideration of £193.3 million, subject to customary adjustments.
This includes £29.0 million of contingent consideration associated with the option to develop a new CCGT at Damhead Creek.
The transaction is subject to certain customary closing conditions, including anti-trust approval, with completion to take place by 31 January 2021.
The CCGTs have performed well since acquisition by Drax in December 2018, but do not form part of the Group’s core flexible and renewable generation strategy. Drax expects to realise a premium on sale, use the proceeds to develop its biomass supply chain and accelerate its ambition to become a carbon negative business by 2030.
DGEL also holds the Group’s pumped storage and hydro assets and is the shareholder of SMW Limited (the owner of the Daldowie fuel plant). These assets, shares and employees are to be transferred out of DGEL prior to completion and will be retained by Drax.
Will Gardiner, Drax Group CEO, said: “By focusing on our flexible and renewable generation activities in the UK we expect to deliver a further reduction in the Group’s CO2 emissions, which should accelerate our ambition to become not just carbon neutral but carbon negative by 2030.
“By using carbon capture and storage with biomass (BECCS) at the power station in North Yorkshire to underpin the decarbonisation of the wider Humber region, we believe we would be creating and supporting around 50,000 new jobs and delivering a green economic recovery in the North.
“We greatly value the contribution that our colleagues in gas generation have made to the Group over the last two years. As we focus on a renewable and flexible portfolio, it is right that we divest these gas generation assets and in doing so create value for our shareholders.”
Between 2012 and 2019, through investment in sustainable biomass and hydro, Drax has reduced its carbon emissions by over 85% and become the largest source of renewable electricity in the UK(1).
In December 2019 Drax announced an ambition to become a carbon negative company by 2030. The negative emissions provided by BECCS will offset carbon emissions within the Group’s supply chain and help to offset emissions in harder to abate sectors of the economy, such as aviation and agriculture.
In February 2020 Drax announced an end to commercial coal generation in 2021 and now, by divesting its existing gas generation assets, Drax will further reduce its carbon emissions.
Drax will continue to provide system support services alongside its decarbonisation strategy through its renewable generation portfolio, other development opportunities and demand-side response within its Customers business. These activities provide renewable electricity and a fully flexible generation and supply portfolio, which can support the UK power system as it becomes increasingly reliant on intermittent and inflexible generation sources.
About the assets and transitional arrangements
Damhead Creek (812MW, commissioned in 2001), Rye House (715MW, commissioned in 1993) and Shoreham (420MW, commissioned in 2001) are located in the South-east of England and Blackburn Mill (60MW, commissioned in 2002) in Lancashire, England.
Drax acquired the CCGTs from Iberdrola in December 2018 as part of a portfolio of pumped storage, hydro and gas generation. The majority of the value in the acquisition was ascribed to the pumped storage and hydro assets, which in the first six months of 2020 provided £35 million of Adjusted EBITDA(3). In the same period the CCGTs provided £18 million of Adjusted EBITDA. Group Adjusted EBITDA for the first six months of 2020 was £179 million.
As at 30 June 2020 the gross fixed assets for the CCGTs were £182 million. The CCGTs also have £89 million of Capacity Market income between 2021 and 2024(4) which will remain with DGEL on completion.
The CCGT business currently employs 121 people in operational roles who will transfer with DGEL on completion.
Drax has agreed a series of transitional services to support the transition through 2021.
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