Drax Group (LSE:DRX) PLC issued a bullish trading update for 2021 alongside plans to invest £3bn in bioenergy growth opportunities in the period to 2030.
The power company forecast adjusted EBITDA for 2021 at the top end of the range of current analysts’ expectations, while net debt to adjusted EBITDA is expected to return to around 2x by the end of 2022.
In a trading statement, Drax said it expects its Customers business to return profit at the adjusted EBITDA level this year, even after including increased costs related to the failure of a number of energy supply businesses in the second half of 2021 as a result of the soaring gas prices.
The company said it has not benefited from the higher gas prices this year because of its strong forward sold position, but it has been able to increase forward hedged prices in 2022 and 2023.
Drax said the current supply chain constraints have not disrupted own-use or third-party pellet volumes. However, summer wildfires led to pellet export restrictions in Canada and recent heavy rainfall and flooding in British Columbia have disrupted rail transport and regional supply chains. Drax said it has been able to manage the impact of these events on biomass supply through its enlarged and diversified supply chain.
The rising price of ocean freight has been managed through the hedging of freight costs and there has been no material impact, Drax said.
In a separate statement issued ahead of its Capital Markets Day, Drax set new targets for pellet production and biomass sales and announced plans to increase bioenergy carbon capture and storage (BECCS).
It intends to invest £3bn between 2022 and 2030 to take advantage of growth opportunities in pellet production, BECCS and pumped storage.
It aims to double pellet production from 4 million tonnes (Mt) per year currently to 8 Mt by 2030 and increase biomass pellet sales to third parties to 4Mt from 2Mt at present.
It will target 12 Mt of carbon removals each year by 2030 by using BECCS, including negative emissions at Drax Power Station in the UK and potential new-build BECCS projects in North America and Europe.
"Drax has made excellent progress during 2021 providing a firm foundation for further growth,” said chief executive Will Gardiner.
"We believe Drax can deliver growth and become a global leader in sustainable biomass and negative emissions and a UK leader in dispatchable, renewable generation. We aim to double our sustainable biomass production capacity by 2030 - creating opportunities to double our sales to Asia and Europe, where demand for biomass is increasing as countries transition away from coal.”
Shares jumped 6.6% to 586.50p in midmorning trade.