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Drax Group confirms £700mln UK power acquisition

“It's a critical time in the UK power sector," said Will Gardiner, Drax chief executive
power lines
It is picking up gas-fired and hydro power assets

Drax Group Plc (LON:DRX) is continuing its diversification away from coal with a £702mln cash deal to acquire Scottish Power’s UK power generation assets from Iberdrola.

The deal, which is described as having a ‘compelling strategic rationale’, sees Drax pick up pumped storage, hydro and gas-fired power assets.

"I am excited by the opportunity to acquire this unique and complementary portfolio of flexible, low-carbon and renewable generation assets,” said Will Gardiner, Drax chief executive.

READ: Drax posts lower first-half earnings after power outages

“It's a critical time in the UK power sector. As the system transitions towards renewable technologies, the demand for flexible, secure energy sources is set to grow.

“We believe there is a compelling logic in our move to add further flexible sources of power to our offering, accelerating our strategic vision to deliver a lower-carbon, lower-cost energy future for the UK.”

Gardiner added: "This acquisition makes great financial and strategic sense, delivering material value to our shareholders through long-term earnings and attractive returns.

"We are combining our existing operational expertise with the specialist technical skills of our new colleagues and I am looking forward to what we can achieve together."

The deal, specifically, adds the Cruachan hydropower station in Argyll and Bute, Scotland, along with two other hydro operations at Galloway and Lanark; gas-fired stations at Damhead Creek, Rye House, Shoreham and Blackburn Mill; plus a biomass plant at Daldowie.

Together the acquired assets represent some 2,566 megawatts of generation capacity, and, it is expected to generate between £90mln and £110mln of earnings (EBITDA) from £155mln to £175mln of gross profits.

Drax highlighted that the transaction strengthens its ability to pay a ‘growing and sustainable’ dividend to shareholders.

The cash deal is supported by a £725mln secured bridge finance facility.

 

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