Drax Group (LON:DRX) has strengthened its position in the UK energy market with significant wins in the latest Capacity Market auctions. The company secured an estimated £24 million in additional revenue for its hydro and pumped storage assets for FY28 and FY29, further cementing its role as a key player in sustainable energy solutions.
Strong Performance in the T-4 Capacity Market
Drax successfully secured a 434MW agreement from its pumped storage and hydro assets at a rate of £60/kW/year. Under the market’s de-rating rules, this is adjusted to 402MW, yet remains significantly advantageous. Notably, pumped storage assets are only de-rated by 7%, compared to a steep 79% de-rating for two-hour battery storage. This highlights the superior efficiency and long-term value of pumped storage over shorter-duration battery solutions.
The agreement, covering October 2028 to September 2029, is projected to bring in an estimated £24 million in revenue, demonstrating the company’s ability to capitalise on capacity market opportunities.
Investment in Glenlee Hydro Refurbishment
In addition to the T-4 agreement, Drax has also secured a 24MW (derated to 22MW) agreement for the refurbishment of its Glenlee hydro project in the Galloway scheme. This long-term contract will run from October 2028 to September 2043, with a similar pricing structure of £60/kW/year. Over the contract period, this project is expected to generate £20 million in revenue, reinforcing Drax’s commitment to investing in and extending the lifespan of its renewable assets.
Shifting Focus to Hydro and Pumped Storage
Drax continues to adapt its business strategy, rebalancing towards hydro and pumped storage while moderating expectations for biomass generation revenues. Despite these adjustments, Longspur Research maintains its EBITDA forecast and central valuation at 988p per share.
A Resilient and Strategic Future
Drax Group’s recent wins reflect a strategic focus on long-duration storage and hydro power, positioning the company well for future energy demands. The successful auctions demonstrate its ability to generate strong and stable revenues while contributing to the UK’s transition to a secure, low-carbon energy future.
Adam Forsyth, Analyst at Longspur Research, noted:
“Drax’s success in the T-4 auction and hydro refurbishment agreement underscores the company’s ability to capitalise on capacity market opportunities while securing long-term revenue streams.”
Final Thoughts
Drax Group’s latest achievements reaffirm its role as a leader in the UK’s renewable energy sector. By securing long-term agreements for hydro and pumped storage, the company is ensuring financial stability while driving forward a sustainable and resilient energy future.
