Drax sells £193m gas stations to energy trader Vitol

North Yorkshire-based power company Drax Group said on Tuesday it agreed to sell Drax Generation Enterprise Limited (DGEL), which runs four Combined Cycle Gas Turbine (CCGT) power stations, to VPI Holding Limited (VPI) for £193.3 million.

VPI Holding is a subsidiary of energy trader Vitol.

The CCGT stations are Damhead Creek, Rye House and Shoreham in the south-east of England and Blackburn Mill in Lancashire.

Drax acquired the CCGTs from Iberdrola in December 2018 as part of a portfolio of pumped storage, hydro and gas generation. 

“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,” said Drax.

“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.”

Drax Group CEO Will Gardiner 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.”

Drax also published a trading update, saying: “Since publishing its half year results on 29 July 2020 the trading and operational performance of the group has remained robust. 

“In the USA, the group’s pellet production business is commissioning 100,000 tonnes of new production capacity at its Morehouse facility in Louisiana as part of its previously announced plans to add 350,000 tonnes across its three existing production sites by 2022.

“The project is part of the group’s plan to expand its sustainable biomass supply chain and reduce costs.

“The generation business has continued to perform well in the provision of system support services, responding to both the low and high demand needs of the UK electricity system.

“In addition to the successful completion of a major planned outage and upgrade of a biomass unit at Drax Power Station, the group has progressed its earlier stage development work on BECCS.

“Alongside the commencement of a solvent trial with MHI, Drax has awarded pre-FEED (Front End Engineering Design) contracts and expects to incur incremental operating costs associated with the development of a full FEED study during 2021.

“At its half year results in July 2020 Drax noted that further lockdown measures in the UK in the second half of 2020 could create a small downside risk on the performance of the customers business, principally in the SME market.

“Drax is continuing to assess operational and strategic options for this part of the group.

“The group’s expectations for 2020 adjusted EBITDA remain in line with market expectations, inclusive of the impact of Covid-19, principally in relation to its customers business.

“Full year expectations for the group remain underpinned by good operational availability for the remainder of 2020.”