Drax Power has halted investment in a project to fit carbon capture and storage (CCS) to units burning biomass at its Yorkshire powersite and instead said in a trading update that it will return £150 million to shareholders.
The decision comes after the government decided not to name the biomass/CCS project in its ‘Track 1’ list of projects set to receive more governmemt support.
Drax said its plan for investment in UK biomass with CCS (Beccs) “was based on a first Beccs unit commissioning in 2027 and a second by 2030. Since Power BECCS is not currently in the Track 1 process and Government’s aim is to support Beccs by 2030, Drax has paused further investment in its UK eccs project in 2023 and will revise its UK Beccs investment schedule subject to further clarity on support for Beccs at Drax Power Station”.
The company said that returning cash was in line with its capital allocation policy and reflected a strong debt to earnings ratio, the revised timing of UK Beccs investment and the mitigation of equity dilution associated with the vesting of share schemes. The cash will be returned via a share buyback programme expected to commence in Q2 2023 and be completed by the end of 2023.
Drax Group chief executive,Will Gardiner said, “We remain excited about the opportunity to do Beccs in the UK. Whilst the project is not currently in the Track 1 process, we have commenced formal discussions with the Government to facilitate the transition to Beccs at Drax Power Station by 2030”.
The end of March also marked the end of coal generation at Drax. Following the completion of a “winter contingency” service agreement with National Grid ESO, between October 2022 and March 2023, Drax has commenced the decommissioning of its two coal units. There was no coal generation during the agreement period.