Drax Group (LON:DRX) is stepping up its flexibility in the UK power market with a major acquisition of battery energy storage systems (BESS), according to the latest research note from Longspur Research. The company is acquiring a 260MW portfolio of BESS assets from developer Apatura, a move that Longspur views as both timely and well-priced.
The portfolio comprises three short-duration projects across Scotland and northern England, each with two-hour durations totalling 520MWh of energy storage. The deal includes an upfront consideration of £157.2 million, to be paid in stages as construction milestones are reached between 2025 and 2028. Operational rollout begins in 2027.
Crucially, Drax also secured an option over an additional eight sites with a further 289MW of capacity, allowing for potential expansion at favourable terms.
According to Research Analyst Adam Forsyth, “Drax’s acquisition of three short duration energy storage projects makes a good fit with the existing flexible generation assets in our view.” He added that the deal “allows it trading opportunities in [a] market we see as becoming more volatile over the next few years.”
Longspur Research notes the purchase price of £605 per kW is significantly below recent comparable transactions, with the Harmony Energy sale coming in at £859 per kW and the Statera Energy deal at £1,674 per kW. The average price across five sales since 2020 is £683 per kW, suggesting Drax has secured a solid deal.
The note highlights that Drax’s trading team is well-positioned to integrate these new assets into its broader flexible generation strategy. The acquisition aligns with Drax’s evolution as a major provider of low-carbon and flexible energy solutions.
Full Year Financial Highlights (FY 2023)
- Sales: £7,842 million
- EBITDA: £1,009 million
- Pre-tax Profit: £665 million
- EPS: 119.6p
- Dividend: 23.1p
- Net Debt: £1,183 million
Despite a forecast decline in revenue over the next few years, Longspur expects profitability to remain intact. Dividend payments are set to increase steadily, reaching 38.2p by 2028. Moreover, Drax’s capital investment in biomass, storage, and BECCS (bioenergy with carbon capture and storage) underscores its commitment to the UK’s net zero goals.
The company owns over 6GW of grid-connected power capacity and has developed a vertically integrated model, including biomass supply, retail energy services, and hydroelectric capabilities. It also maintains options for global expansion via its biomass supply chain and BECCS technologies.
Longspur’s valuation range for Drax reflects this strategic potential, with a central case estimate of 1,063p per share, rising to 1,269p in a high-case scenario that includes CCS investment and expansion of the Cruachan storage facility.
On a Final Note
Drax’s latest move into energy storage demonstrates its proactive approach to navigating an increasingly complex and volatile power market. By strengthening its position in the flexible generation space, it is not only hedging against future market shifts but also reinforcing its role in delivering reliable, low-carbon energy solutions. As Adam Forsyth succinctly puts it, the acquisition “makes a good fit” for Drax’s evolving portfolio.
