Drax Group (LSE:DRX)’s plan to incorporate carbon capture and storage into its bioenergy plant faces hurdles, leaving CitiGroup analysts cautious about the FTSE 250 firm.
“The whole equity story of Drax is hinged on development of bioenergy with carbon capture and storage,” the bank said in a note.
However, the technology’s prospects continue to be mixed, analysts continued.
This is given high capital requirements to retrofit the plant, but also for the wooden pellets to power it, adjacent lower power costs from other means of generation, debates around the efficiency of using BECCs and scrutiny of bioenergy itself.
Such “questions around biomass sustainability make this a political decision for post-election,” Citi pointed out.
Drax gained approval to retrofit its North Yorkshire plant with the technology earlier this year, but is yet to secure government funding to push ahead with the plans.
Given the likes of environmental concerns over bioenergy, including over where Drax sources fuel for the plant, Citi argued public backing was by no means certain.
“A look at Drax's track record in delivering strategic goals and financial targets set in the past have yielded very mixed [results],” the bank added, highlighting a targeted £500 million in pre-tax earnings by 2027.
A ‘sell’ rating was reiterated as a result, with Citi also marginally reducing Drax’s share price target to 434p.
Drax shares dipped 1.6% to 485.20p on Wednesday.