30th Mar 2023 14:40
(Alliance News) - Drax Group PLC is likely to shift its focus to biomass opportunities in the US, analysts said on Thursday, after the UK government rejected Drax's BECCS project.
Shares in the Yorkshire, England-based power generator staged a substantial turnaround on Thursday in London. They were up 5.1% to 603.50 pence in afternoon trade, having been down around 12% soon after the market open.
The Department for Energy Security & Net Zero said that Drax's power bioenergy with carbon capture and storage submission, alongside one by Lynemouth Power Ltd, had met the minimum criteria for deliverability by 2027, but would not be one of eight projects selected as its Track-1 carbon-capture and storage clusters.
Liberum analyst Sam Wahab said the decision was a significant setback for biomass generation in the UK, adding: "I think it is now likely that Drax will refocus its strategy towards the US where subsidies are more favourable to biomass to power generation."
Longspur analysts Adam Forsyth and Max Campbell added: "While the Track-1 decision creates some uncertainty for Drax, the growing opportunity in the US following the 'inflation reduction act' now makes development here a key area of focus for the company.
"Drax's leading sector experience in biomass management and generation means it should have an advantage in taking projects to fruition in what now appears a more supportive environment."
The UK government noted that it will continue to engage with Drax's project, adding that "track-1 is not the extent of our ambition". It will provide Drax with further feedback on its decision.
Drax said the government has invited it to enter formal bilateral discussions to "move the project forward and ensure the government is able to fulfil its restated commitment to achieving [five million tonnes per annum] of engineered greenhouse gas removals by 2030."
Drax said it believes BECCS at Drax Power Station is the "only project that can enable the government to achieve this goal".
Longspur's analysts agreed, commenting that they see the UK government's ambition "as nearly impossible without a BECCS solution."
Drax added that its BECCS project is eligible for both the expansion of Track-1 - set to take place during 2023 - and for Track-2, which was launched on Thursday.
Chief Executive Officer Will Gardiner said: "We note confirmation that our project has met the government's deliverability criteria and government remains committed to achieve 5Mtpa of engineered greenhouse gas removals by 2030 - a goal that cannot be achieved without BECCS at Drax Power Station.
"With the right engagement from government and swift decision-making, Drax stands ready to progress our GBP2 billion investment programme and deliver this critical project for the UK by 2030."
Thursday's decision "does not mean that the government has walked away from supporting Drax's UK BECCS ambitions. Support will continue to be assessed under a separate process," Longspur's Campbell and Forsyth commented.
By Harvey Dorset, Alliance News reporter
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