Drax buys £702m ScottishPower assets from Iberdrola

Selby, North Yorkshire-based power company Drax said it agreed to acquire Scottish Power’s portfolio of pumped storage, hydro and gas-fired generation for £702 million in cash from Iberdrola, subject to Drax shareholder approval.

Shares of Drax, which also gave a positive trading update, rose about 6%.

The portfolio consists of Cruachan pumped storage hydro (440MW), run-of-river hydro locations at Galloway and Lanark (126MW), four CCGT stations: Damhead Creek (805MW), Rye House (715MW), Shoreham (420MW) and Blackburn Mill (60MW), and a biomass-from-waste facility (Daldowie).

Drax CEO Will Gardiner said: “I am excited by the opportunity to acquire this unique and complementary portfolio of flexible, low-carbon and renewable generation assets.

“It’s a critical time in the UK power sector. As the system transitions towards renewable technologies, the demand for flexible, secure energy sources is set to grow.

“We believe there is a compelling logic in our move to add further flexible sources of power to our offering, accelerating our strategic vision to deliver a lower-carbon, lower-cost energy future for the UK.

“This acquisition makes great financial and strategic sense, delivering material value to our shareholders through long-term earnings and attractive returns.”

Drax said the portfolio is expected based on recent power and commodity prices, to generate EBITDA in a range of £90 million-£110 million, from gross profits of £155 million to £175 million.

Drax added: “The acquisition strengthens the group’s ability to pay a growing and sustainable dividend.

“Drax remains committed to its capital allocation policy and to its current £50 million share buy-back programme, with £32 million of shares purchased to date.”

The acquisition is expected to complete on December 31, 2018, and is conditional on approval by Drax’s shareholders and clearance by UK Competition and Markets Authority.

Drax also gave an update on its trading and operational performance.

It said: “Since publishing its half year results on 24 July 2018 Drax has commenced operation of a fourth biomass unit at Drax Power Station, which is performing in line with plan, and availability across biomass units has been good.

Taking these factors into account, alongside a strong 2018 hedged position and assuming good operational availability for the remainder of the year, Drax’s EBITDA expectations for the full year remain unchanged, with net debt to EBITDA now expected to be around 1.5x for the full year, excluding the impact of the acquisition.”