Energy company Drax (DRX) said its power generation business had seen a good operating performance in the first quarter of 2021 driven by a volatile power market. The shares drifted 0.8% lower to 417.2p.
Intermittent power supplied by renewable energy creates a more volatile energy market which benefits the company’s pumped storage project Cruachan.
Adam Forsyth, analyst at Longspur Research, referenced a trade report which estimated that actions by National Grid (NG.) to balance the market under difficult conditions will have resulted in Drax achieving a price of £387 Mega watts per hour in January, roughly doubling revenues on the same period last year.
INCREASING SELF SUPPLY
The 13 April purchase of Canadian pellet producer Pinnacle will more than double sustainable biomass production capacity which significantly reduces its cost of production.
The enlarged supply chain will give the group access to 4.9 million tonnes from 2022 of which 2.9 million tonnes are available for Drax’s own supply, increasing to 3.4 million tonnes in 2027.
Acquiring Pinnacle makes Drax the world’s leading sustainable biomass generation and supply business and move the company towards its goal of becoming a carbon negative company by 2030, by using bioenergy carbon capture and storage.
The company said this would make a ‘significant contribution’ to the UK reaching its new target to cut emissions by 78% by 2035.
STRONG BALANCE SHEET
At 31 March 2021 Drax had cash and total committed banking facilities of £801 million. The company continues to expect its net debt to EBITDA (earnings before interest, taxes, depreciation and amortisation) ratio to return to its long-term target of around two times by the end of 2022.
The 2020 full-year dividend was increased 7.5% to 17.1 pence per share.