Drax releases 2018 results, discusses plans to reduce pellet cost

By Erin Voegele | February 26, 2019

U.K.-based Drax Group plc has released fourth quarter 2018 results, reporting strong financial performance and highlighting the recent conversion of its fourth power generation unit to biomass and the successful start-up of a third pellet plant in the U.S.

“Drax is now one of the leading generators of flexible, low carbon and renewable electricity in the U.K.,” said Will Gardiner, chief executive of Drax. “As the grid decarbonizes, our ability to support intermittent renewables will become increasingly important as we strive to deliver our purpose of enabling a zero carbon, lower cost energy future.”

Drax Biomass’s LaSalle Bioenergy wood pellet plant in Urania, Louisiana, was commissioned and became fully operational last year. According to Drax, the 500,000-ton-per-year facility is performing well. Overall, Drax’s pellet operations reported a 65 percent increase in production last year, reaching 1.351 million metric tons, up from 822,000 metric tons in 2017.

The pellet division also achieved a 10 percent reduction in cost per ton, which the company attributed to increased volumes, operational improvements and a continuing focus on cost. While this represents good progress, Drax indicated there are additional opportunities for cost reduction, including using a greater proportion of the cheapest wood residues and expanding the use of sustainably sourced low-cost materials.

According to Drax, early progress with this cost reduction strategy includes the signing of a co-location agreement with Hunt Forest Products, a sawmill operator that plans to build and operate a sawmill next to the LaSalle plant. The company said the co-location agreement with enable the pellet plant to use a greater proportion of lower cost sawmill residues, reducing transportation and the number of steps in the production process, thereby reducing the cost.

Drax also said it has built a new rail spur linking the LaSalle plant to the regional rail network and the company’s port facility at Baton Rouge, Louisiana. The new rail spur will increase transportation efficiency, provide economies of scale, and reduce costs and the carbon footprint.

Regarding future plans for the pellet division, Drax said it will continue to evaluate opportunities to acquire new pellet capacity and expand its existing facilities.

Within its power generation division, Drax said biomass earnings benefited from the conversion of a fourth unit and insurance proceeds on historic outages. The division also reported strong biomass availability of 91 percent, up from 79 percent in 2017. Drax said reduced biomass generation in the first quarter was offset by strong unit availability for the remainder of the year.

Notwithstanding outages, Drax said its biomass units produced 12 percent of the U.K.’s renewable power last year—enough to power 4 million homes.

The company also discussed the biomass carbon capture and storage (BECCS) pilot project currently underway at its power station. While the pilot is currently at an early stage, the company said the scheme in capturing carbon and offers the potential for biomass to deliver carbon negative generation in the future.

According to Drax, the pellet division reported adjusted EBITDA of £21 million ($27.83 million) for 2018, up from £6 million in 2017. The company’s power generation unit reported adjusted EBITDA of £232 million, down slightly from £238 million in 2017.

Overall, Drax reported group adjusted EBITDA of £250 million, up 9 percent when compared to 2017. Profit before tax was £37 million last year, up from £5 million in 2007. Basic earnings per share was 10.4 pence, up from 0.7 pence in 2017.