Drax to Buy U.K. Hydro and Gas Plants from Iberdrola in Coal Shift

by Lars Paulsson, Bloomberg

Drax Group Plc agreed to buy some of Iberdrola SA’s power plants for 702 million pounds ($923 million), boosting its clean energy assets in a further shift away from burning coal.

The acquisition involves pumped storage, renewable hydro and gas-fired power assets and will increase the utility’s generation capacity by more than 60 percent to about 6.6 gigawatts, Chief Executive officer Will Gardiner said by phone on Tuesday. Once the deal is completed it will also help to boost the company’s already growing dividend by a further 8 percent, or a similar rate, he said.

Drax has already rebuilt its facility in north Yorkshire, England, to fuel four of its six coal units with biomass. While coal is still the world’s most widely used power plant fuel, governments and utilities in western Europe are giving the mineral the cold shoulder. Britain will cease to generate power from coal by the middle of the next decade. The power plant has been a mainstay of U.K. power generation since 1974.

“It’s a very exciting acquisition,” Gardiner said. “This is a critical time for the U.K. power sector” and there’s a great need for flexible generation to complement the increasing share of solar and wind, he said.

The portfolio of plants is expected to generate earnings before interest, taxes, depreciation and amortization of 90 million to 110 million pounds next year, from gross profits of 155 million to 175 million pounds, according to a company statement.

Assuming good availability and smooth running of its power plants, Drax’s ebitda expectations for the rest of the year remains unchanged, it said.

2023 Coal Exit?

The company is also planning to convert the remaining two coal units to a 3.6-gigawatt natural gas plant. The facility would be the biggest of its kind in Britain and its completion isn’t impacted by the acquisition of Iberdrola’s plants, a spokeswoman said. The company could be off coal completely as early as 2023 subject to all relevant planning approvals and a winning a capacity auction contract, she said.

Drax has entered into a fully underwritten 725 million-pound bridge facility to finance the transaction.

Drax shares advanced 1.6 percent to 372 pence at 8:03 a.m. in London. They’re up 38 percent this year, helped by a rally in electricity prices across Europe.

Iberdrola said that the sale is part of its asset rotation plan announced earlier.

Some of the plants included in the Iberdrola deal:

1,940 megawatts of CCGTs at Damhead Creek, Rye House and Shoreham 440 megawatt Cruachan Pumped Storage Hydro 126 megawatt Galloway and Lanark Run-of-River Hydro

A session about Retirement Planning for Power Plants will be presented at POWER-GEN International in Orlando, Florida in December, 2018. 

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