Drax Group plc (LON:DRX) continues to offer an interesting investment proposition, with its potential data centre development, expanding renewable energy portfolio and flexible power generation assets supporting the company’s longer-term prospects.
In the latest research note from Longspur Research, dated 7 October 2026, analysts Adam Forsyth and Anna Shevkunova maintain a positive assessment of Drax’s data centre ambitions despite reports that its Yorkshire power station site has not secured AI Growth Zone status.
The broker believes this development presents little immediate challenge to the proposed project, highlighting existing grid infrastructure and potentially attractive commercial economics.
Longspur’s central valuation estimate stands at 1,141p per share, compared with the 777p reference share price used in the research, representing approximately 47% potential upside.
Drax Data Centre Plans Remain Attractive Without Government Support
A recent report in The Times suggested that Drax had been unsuccessful in securing AI Growth Zone status for its proposed data centre development at the Drax Power Station site in Yorkshire.
However, Longspur believes the implications are limited.
The main advantage of AI Growth Zone status is prioritised access to electricity grid connections, something that Drax is already well positioned to address.
The company has an existing import grid connection for the initial 100MW data centre project, removing one of the principal infrastructure obstacles facing many potential developments.
Furthermore, a proposed second phase of 500MW could operate behind the meter, allowing electricity to be supplied directly from Drax Power Station rather than relying entirely on conventional grid arrangements.
The analysts explain:
“The support scheme while welcome is not an essential prerequisite for UK data centres and we see the Drax site as having specific benefits that outweigh the lack of support under this scheme.”
This distinction is important because securing reliable electricity supplies is a significant consideration for data centre operators, particularly as artificial intelligence increases demand for computing capacity.
Existing Infrastructure Provides a Competitive Advantage
Drax’s established power generation infrastructure could make its Yorkshire site particularly suitable for large-scale data centre development.
With an existing grid connection and the potential to supply power directly from the station, the company has assets that could support future development without relying entirely on additional government incentives.
Although AI Growth Zone status can also provide accelerated planning and financial support, Longspur notes that the proposed Drax development has not been scheduled outside the normal planning timetable.
The broker also believes that the project’s underlying economics remain attractive without additional financial assistance.
Based on representative data centre economics, Longspur estimates that the initial development phase could command a premium electricity price at current data centre colocation rates.
This creates an opportunity for Drax to diversify its income streams by supplying electricity to a sector experiencing increasing demand for reliable power.
Importantly, the data centre opportunity remains at the development stage, and the financial benefits will depend on commercial agreements, planning progress and successful delivery.
Longspur Values Drax Shares Between 937p and 1,395p
Longspur Research has assessed Drax using a discounted cash flow valuation model, applying a discount rate of 8.8%.
Its valuation scenarios reflect different assumptions about future electricity prices, renewable energy assets and potential data centre opportunities.
Longspur Research valuation estimates:
- Low-case valuation: 937p, approximately 21% above the 777p reference share price.
- Central valuation: 1,141p, representing approximately 47% potential upside.
- High-case valuation: 1,395p, suggesting approximately 80% potential upside.
The central valuation incorporates the operating portfolio acquired through Bluefield Solar Income Fund, together with assumptions about its longer-term value.
The higher valuation scenario includes additional renewable energy developments, comprising 545MW of solar photovoltaic capacity and 510MW of battery energy storage, alongside an additional 100MW of biomass generation supplied to a data centre.
These figures are scenario-based valuations rather than guaranteed outcomes or formal share price targets.
Nevertheless, the analysis suggests that Longspur sees value in Drax’s existing generation assets before accounting for the full potential of its development pipeline.
Drax Financial Results and Forecast Highlights
Drax remains a substantial participant in the British electricity market, with generation, energy storage and biomass operations providing several sources of revenue.
The latest Longspur research includes the following financial figures and forecasts.
FY2025 reported financial highlights:
- Revenue: £5.36 billion, compared with £6.08 billion in FY2024.
- EBITDA: £918 million, compared with £1.06 billion in the previous year.
- Underlying pre-tax profit: £623 million.
- Underlying earnings per share: 137.7p, compared with 128.4p in FY2024.
- Dividend per share: 29.0p, up from 26.0p.
- Year-end net debt: £775 million, down from £937 million.
Longspur financial forecasts:
- FY2026 revenue: £4.40 billion.
- FY2026 EBITDA: £710 million.
- FY2026 dividend per share: 32.2p.
- FY2027 EBITDA: £628 million.
- FY2027 dividend per share: 35.4p.
- FY2028 EBITDA: £768 million.
- FY2028 dividend per share: 38.9p.
- FY2029 EBITDA: £827 million.
- FY2029 dividend per share: 42.8p.
The forecasts reflect changing electricity pricing arrangements and a transition in the group’s earnings mix.
Longspur expects revenue to decline through FY2028 before recovering modestly in FY2029, while EBITDA is forecast to recover from its FY2027 low as flexible generation and renewable energy assets make an increasing contribution.
The broker also anticipates that dividends will remain covered throughout the forecast period.
Renewable Energy and Storage Portfolio Supports Future Growth
Beyond the data centre opportunity, Drax has been expanding its presence across Britain’s electricity generation and storage markets.
The group owns more than 6GW of grid-connected power capacity, including its established biomass operations at Drax Power Station.
Its portfolio also includes the 440MW Cruachan pumped storage facility in Scotland, run-of-river hydroelectric assets, flexible gas generation and battery energy storage systems.
The acquisition of more than 800MW of wind and solar assets through Bluefield Solar Income Fund further strengthens the company’s renewable energy presence.
These different technologies provide Drax with exposure to both electricity generation and the flexibility services required to balance supply and demand.
As wind and solar generation expands, the electricity system increasingly needs storage and flexible generation capable of responding when renewable output changes.
Longspur identifies this flexibility as an important part of Drax’s investment case.
The research also highlights the potential for additional solar and battery storage projects to contribute to future growth.
Debt Reduction and Dividend Growth Remain Important
Drax is undertaking a significant investment programme, which Longspur expects to increase net debt during FY2026.
The broker forecasts net debt of approximately £1.81 billion at the end of 2026, compared with £775 million at the end of 2025.
This increase reflects capital expenditure and investment activity, including the Bluefield acquisition.
However, Longspur expects net debt to decline subsequently as cash generation improves, reaching approximately £968 million by the end of FY2029.
Dividend forecasts also indicate progressive growth over the period, with annual payments projected to rise from 29.0p in FY2025 to 42.8p by FY2029.
While these projections remain dependent on operational performance and cash generation, they demonstrate the broker’s expectation that Drax can continue investing while delivering shareholder returns.
What Are the Risks Facing Drax?
Despite its positive valuation assessment, Longspur acknowledges that Drax remains exposed to several important risks.
Government energy policy and regulatory changes could affect future revenues, particularly given the role of biomass generation and policy-supported electricity arrangements.
Wholesale electricity prices also remain volatile, while the development of new solar, storage and data centre projects carries execution and timing risks.
The company’s planned investment programme and higher forecast near-term borrowing are additional considerations for shareholders.
Longspur’s research is commissioned and paid for by Drax and is classified as non-independent research, an important distinction when considering its valuation estimates.
Final Thoughts
Drax Group’s potential entry into the data centre market offers an additional dimension to an already diversified electricity generation and storage business.
While the reported lack of AI Growth Zone status initially appears disappointing, Longspur Research believes that Drax’s existing infrastructure substantially reduces the importance of securing government support through the scheme.
With a grid connection already available for the proposed initial 100MW development and the possibility of supplying a further 500MW directly from the power station, the Yorkshire site retains features that could appeal to future data centre operators.
Alongside this opportunity, the expanding renewable energy and storage portfolio provides additional sources of potential growth as Britain continues adapting its electricity system.
Longspur’s 1,141p central valuation, compared with the report’s 777p reference share price, highlights the value the broker sees in Drax’s assets and future opportunities.
Although regulatory uncertainty, changing electricity prices and project delivery risks remain important, Drax’s combination of established power generation infrastructure, flexible energy assets and potential data centre development gives investors several areas of progress to monitor.
For shareholders, the next developments in the data centre project, renewable energy portfolio and debt reduction programme will be particularly important in determining whether the company can realise the value identified by Longspur Research.
