Drax Group plc (LON:DRX) has confirmed that it has signed an agreement with the LCCC for a low-carbon dispatchable CfD to cover all four biomass units at DPS over the period April 2027 to March 2031, with a strike price of £109.90/MWh (2012, real). The terms are substantively as announced in the Heads of Terms (February 2025).
· Contract signed with UK Government (Low Carbon Contracts Company – LCCC) for operation of Drax Power Station (DPS) post March 2027 subject to usual CfD conditions precedent
· No significant changes from Heads of Terms agreed in February 2025
– Contract period April 2027 to March 2031
– CfD scheme with a strike price of £109.90/MWh (2012, real) applied to all four biomass units
– c.6TWh pa generation collar with flexible operation to support high and low demand periods
– Opportunity for unrestricted merchant generation above collar
The strike price has reduced from the price referenced in the Heads of Terms, to reflect favourable movements in exchange rates which are expected to reduce the overall cost of biomass, resulting in no material impact on expectations for Adj. EBITDA, which remain unchanged.
Drax Group CEO, Will Gardiner, said: “We are pleased to have agreed this new contract with the UK Government, which will support UK energy security into the 2030s and deliver a net saving for consumers compared to alternative sources of dispatchable generation.
“The agreement will support the rollout of intermittent renewable generation across the UK and provides options to ensure Drax Power Station continues to play a long-term role in the regional economy and UK energy system.
“Independent analysis by Baringa estimates savings of up to £3.1 billion over the four-year term, all while ensuring Drax Power Station keeps the lights on for millions of homes and businesses, no matter the weather.”
Details of the low-carbon dispatchable CfD
Under the agreement DPS will sell c.6TWh of power annually against a season ahead reference price (as per the current CfD scheme) and then seek to maximise generation from its four units at times of high demand and reduce generation at times of low demand, using the station’s flexibility to support UK energy security and capture higher prices (similar to their operation under the Renewable Obligation Certificate scheme). The agreement allows for additional merchant generation above 6TWh, system support and ancillary services, where Drax continues to play an active role.
The agreement includes enhanced biomass sustainability requirements, including that all biomass used at Drax Power Station is sustainably sourced and verified through monitoring, reporting, and verification requirements, including enhanced auditing of the biomass supply chain. Drax welcomes these enhancements to its existing procedures, which demonstrate the Group’s commitment to delivering climate, nature and people positive outcomes.
