Could Drax Group (LSE:DRX) be the world’s largest carbon removal companies, Barclays pondered, despite doubts that its biomass-burning and carbon capture business plans are carbon-neutral or will lead to 'negative emissions' as it says.
Following a briefing from the company, the bank now estimates that by 2031 the coal- and biomass-burning power company could be removing 14mln tonnes of CO2 from the atmosphere each year, possibly rising to 20mln from carbon capture.
This is exactly in line with the company’s May capital markets day investor presentation on bioenergy with carbon capture and storage (BECCS), where among other things it reiterated its three aims: to be a global leader in carbon removals and sustainable biomass pellets, and a UK leader in “dispatchable, renewable generation”.
By 2031, Barclays estimated that 60% of Drax’s underlying profits (EBITDA) will be coming from sales of carbon dioxide reduction certificates (CDRs), with power generation becoming a “secondary revenue stream”.
Drax, which in March said it would press pause on its plans for £2bn investment in BECCS in the UK until it receives more government support, has set out plans to invest in expanding pumped hydroelectric generation and securing biomass pellets, and building and then expanding its BECCS capabilities, notably in the US.
Barclays values these investments at circa 450p per share to reach its £12 per share price target.
On an unrisked net present value basis, these “could be worth £11bn”, analysts said.
Drax reported 310,000 tonnes of carbon equivalent emissions from power generation for 2022, down from 525kt in 2021 and 2,682kt in 2020.
Scope 1 emissions were 336kt, covering direct emissions from its operations, and Scope 2 was 333kt, covering all indirect emissions associated with our electricity and heat consumption across all sites, with the combined total down to 669kt from 1,255kt the year before.
One of the criticisms of BECCS is that it is not carbon neutral, as while carbon capture and storage capture emissions released from burning biomass, emissions are released along the whole production chain.
UK energy regulator Ofgem has been investigating the biomass fuel burnt by Drax to see if it complies with sustainability rules, with its own scientific advisers questioning whether it should even be calling biomass 'carbon neutral'.