Drax Group's (LSE:DRX) plan to invest £7bn to convert the existing North Yorkshire biomass power plant and build two new facilities in America lacks “fundamentals”, according to CitiGroup.
“The opportunities Drax outline are largely a nice-to-have wish list with very little in the way of fundamentals to support the opportunity,” analysts from the bank said.
Citi also expressed doubt over Drax’s claim that returns from the new and converted facilities would be “significantly” higher than the costs.
Drax announced on Tuesday that two sites had been selected in the southern United States for new bio-energy plants with carbon capture and storage (BECCS), set to cost £2bn each.
The FTSE 250-listed generator also updated on £3bn plans to incorporate carbon capture into the existing North Yorkshire biomass plant, where wood pellets are burnt to produce power.
Investors were told by Drax that it could fund the £7bn investment, planned for between 2024 and 2030, through its own operations.
However, Citi analysts were less optimistic, noting: “We especially question the credibility of £7bn capital expenditure which the company aims to fund off its own cashflows.”
Shares in Drax fell 2% to 622p on Wednesday.