Drax Group Plc · LSE:DRX
Drax — Investor Day (December 2021)
86 slides from Drax's investor day presentation, Dec 1, 2021
Slide 1: Drax Group Capital Markets Day 2021
Drax Group Capital Markets Day 2021 1 December 2021
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation may contain certain statements, expectations, statistics, projections and other information that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial
Slide 3: Presenters
Presenters Will Gardiner: Andy Skelton: Chief Executive Officer Chief Financial Officer Dr Alan Knight: Jason Shipstone: Director of Sustainability Chief Innovation Officer 1 December 2021 3 1 December 2021
Slide 4: Strategy Update
Strategy Update Will Gardiner: CEO 1 December 2021
Slide 5: Our Purpose and Our Ambition
Our Purpose Enabling a zero carbon, lower cost energy future Our Ambition To be a carbon negative company by 2030 1 December 2021 5
Slide 6: Our Last CMD – November 2019
Our Last CMD – November 2019 Drax updated on plans for biomass and role in negative emissions Expand self-supply to 5Mt Reduce the cost of biomass from by 2027 $166/t(1) to $100/t(1) (£50/MWh)(2) by 2027 Primary objective to establish a long-term model for power generation and develop emerging oppor
Slide 7: Significant Progress Over Last Two Years
Significant Progress Over Last Two Years Drax – now a leading UK renewable energy company with global growth opportunities aligned with net zero targets – sustainable biomass supply, negative emissions and dispatchable, renewable generation Second largest biomass producer globally - 4Mt of productio
Slide 8: Increased Action on Climate Policy and Investment
Increased Action on Climate Policy and Investment Aligning national economic recovery plans to decarbonisation Updated Nationally Determined Contributions (NDCs) suggest improved COP26 emissions reductions trajectories by 2030 - 90% of countries have net zero targets, 30% before COP26 UK committed t
Slide 9: Global Policies to Address Climate Change
“biomass will have to be a part of our Global Policies to Address Climate Change energy portfolio if we are to remove our dependency on fossil fuels” Sustainable biomass and negative emissions have a key role to play Frans Timmermans – EC Commissioner for Green Deal (November 2021) - Accelerated coa
Slide 10: UK Energy Policy
UK Energy Policy NG Future Energy Scenarios – Negative Emissions - Scenarios consistent with net zero assume To date the UK has been a leader in renewables and the decarbonisation of power large-scale negative emissions Clear Government commitments to negative emissions, biomass and BECCS Consumer T
Slide 11: Drax Strategic Objectives
Drax Strategic Objectives Positioning Drax for growth opportunities linked to global renewable energy and decarbonisation initiatives Objective 1: to be a global leader in sustainable biomass pellets Pellet Production - Pellet sales, own-use, cost reduction, fibre sourcing and technology Objective 2
Slide 12: A Global Leader in Sustainable Biomass Pellets
A Global Leader in Sustainable Biomass Pellets Significant increase in demand for biomass in industrial wood pellet markets Expansion of biomass supply chain to maximise value of biomass use across three strategies - Sales to third parties - BECCS - Generation Targets - Double sales to third parties
Slide 13: Global Industrial and Heating Pellet Demand
Global Industrial and Heating Pellet Demand Robust demand with potential to double by 2030 through policy developments, BECCS and other biomass vectors Global industrial and heating wood pellet market demand growth (Mt) FutureMetrics and Hawkins Wright 90 - Third-party analysis supports growth outlo
Slide 14: The Global Wood Pellet Market Today
The Global Wood Pellet Market Today Drax is the 2nd largest global supplier of wood pellets and the leading producer and user of biomass Vertically integrated Drax producer & consumer International Enviva suppliers Graanul Invest An Việt Phát Fram Renewable Fuels Regional suppliers ULK Pacific BioEn
Slide 15: Today Drax is a Major Producer and Supplier of Biomass to Customers Globally
Today Drax is a Major Producer and Supplier of Biomass to Customers Globally An enlarged and geographically diversified supply chain 4Mt current capacity – 13 operational pellet plants plus developments across 3 major fibre baskets and 4 deep water ports Canada United States NW Territories South Bri
Slide 16: Attractive Third-Party Supply Business with Opportunities for Growth
Attractive Third-Party Supply Business with Opportunities for Growth Geographic diversity supports strong logistics into Asia and Europe, operational flexibility and security of supply Global supply chain meeting third-party and own-use demand Attractive third-party supply business >US$4bn of contra
Slide 17: Putting in Place Infrastructure to Support Growth in Biomass Sales
Putting in Place Infrastructure to Support Growth in Biomass Sales Establishment of international business development teams and expansion of international affairs team 2022 Milestones Establishment of Asian business development team and Tokyo field office - Regional responsibility with focus on Jap
Slide 18: Meeting Pellet Demand Growth Requires Development of New Capacity
Meeting Pellet Demand Growth Requires Development of New Capacity Opportunities to maximise value across third-party biomass sales, BECCS and generation Demand/Supply Sources Current 2030 Sales to third-parties 2Mt 4Mt Demand Own-use UK BECCS (2 units) - 5Mt Own-use generation 7Mt 1-2Mt 9Mt 10-11Mt
Slide 19: Biomass Supply Chain Development
Biomass Supply Chain Development Build on existing capabilities to develop new-build opportunities for large plants and satellite developments Strong progress in 2021 2022 milestones Acquisition of Pinnacle doubled production capacity Final investment decision on 0.5-1Mt of new capacity - 4Mt of pro
Slide 20: Biomass Cost Reduction
Biomass Cost Reduction Through its large and geographically diverse supply chain, Drax is well placed to reduce its biomass production costs Range of production costs across the portfolio, with some plants producing below $130/t(1) Opportunity to apply learnings and cost savings across portfolio Con
Slide 21: Integrated Supply Chain and Use Supports Wider Range of Cost Reduction Opportunities
Integrated Supply Chain and Use Supports Wider Range of Cost Reduction Opportunities 15% reduction in production cost in 2.5 years, with opportunities to deliver a further 30% reduction $/t(1) 170 Operational efficiencies, improvements, expansion and acquisition - Increased use of sawmill residues D
Slide 22: A Global Leader in Negative Emissions
A Global Leader in Negative Emissions Global net zero and 1.5oC strategies will require negative emissions technologies - BECCS, DACS and afforestation - Intergovernmental Panel on Climate Change, Coalition for Negative Emissions and UK Government all identify a clear role for BECCS Targeting 8Mt pa
Slide 23: Negative Emissions – A Trillion Dollar Market Opportunity
Negative Emissions – A Trillion Dollar Market Opportunity Negative emissions are a critical part of the 1.5⁰C climate pathway and BECCS has an essential role Only a portfolio that includes BECCS can meet the negative emissions need The world is starting to value negative emissions, paving the way to
Slide 24: Development of UK BECCS
Development of UK BECCS Drax Power Station – targeting 8Mt pa of negative emissions from BECCS by 2030 Good progress in 2021 2022 milestones Technology Technology - Successful completion of solvent trials - Selection of engineering/construction partner and - Selection of technology partner – Mitsubi
Slide 25: Development of New-build BECCS
Development of New-build BECCS Targeting 4Mt pa of negative emissions from new-build BECCS outside UK by 2030 Good progress in 2021 2022 milestones - Appointed Bechtel to support technical evaluation of - Program of government engagement new-build BECCS outside UK - Site location filtering - Global
Slide 26: A UK Leader in Dispatchable, Renewable Power
A UK Leader in Dispatchable, Renewable Power Significant increase in demand for power - Electrification of heating and transport - Increasing dependence on intermittent renewables Increasing long-term role for dispatchable, renewable power - Biomass and pump storage - Targeting option for 600MW of n
Slide 27: 90% of Future Generation Mix from Non-dispatchable Sources By 2050
90% of Future Generation Mix from Non-dispatchable Sources By 2050 Increase in power demand from electrification, increase in intermittent renewables and increase in peak demand Dispatchable biomass and pumped storage has an important long-term role to play in supporting the system Power demand and
Slide 28: Biomass and Long-duration Storage Provide Both Security of Supply and Decarbonisation
Biomass and Long-duration Storage Provide Both Security of Supply and Decarbonisation Drax is UK leader in provision of dispatchable and renewable power (by output) TWh dispatchable and renewable Long-duration power output 2020/21 67 – 100% Gas storage High OCGT Gas Biomass Gas CCS (Pumped storage)
Slide 29: Pumped Storage Hydro – a Natural Extension of Drax Portfolio
Pumped Storage Hydro – a Natural Extension of Drax Portfolio Dispatchable power and long-duration storage aligned with system needs - System requires dispatchable plant and long-duration storage to Strategic manage increase in intermittent renewables - Limited site options for new developments - Par
Slide 30: Near-term Timetable for Development of Cruachan II
Near-term Timetable for Development of Cruachan II - Submission of planning application to Scottish Government 2022 - Consultation on investment support mechanism - Connection agreement secured from National Grid - Planning consent issued by Scottish Government 2023 - Legislation passed to enact inv
Slide 31: Summary
Summary Drax strategic objectives closely aligned with net zero policies, providing attractive opportunities for growth UK and international policies increasingly support the use of biomass, BECCS and the role of dispatchable generation - Targeting 4Mt pa of third-party pellet sales by 2030 Pellet P
Slide 32: Sustainable Development
Sustainable Development Dr Alan Knight OBE: Director of Sustainability 1 December 2021
Slide 33: Sustainable Development is More Than Just CO2
Sustainable Development The inventory is MoreisThan of raw materials finite Just CO2 Resources to create modern lives are finite Currently – 7 billion quality lives requires 3 planets of resources! 1 December 2021 33
Slide 34: The United Nations Sustainable Development Goals
The United Nations Sustainable Development Goals 1 December 2021 34
Slide 35: Drax Sustainable Development Framework
Drax Sustainable Development Framework Ensuring Drax is addressing the risks and opportunities from sustainability trends An outcome approach…. Climate Nature People Positive Positive Positive 1 December 2021 35
Slide 36: Climate Positive
Climate Positive 90% reduction in generation CO2 since 1990 Industry leading CO2 intensity reduction (tCO2e/GWh) - Drax is the UK’s largest source of renewables – 12%(1) 1,000 - Dispatchable power – biomass and pumped storage supports greater deployment of intermittent renewable 800 and inflexible l
Slide 37: Mapping of Emissions
Mapping of Emissions Forensic assessment, monitoring, audit and reporting of supply chain emissions will lead to targeted reductions Scope 3 – upstream Scope 1 – direct Scope 2 – indirect Scope 3 – downstream - Fuel source supply chains - Coal power generation - Hydro electricity - Recycling, proces
Slide 38: Climate Positive by Being Carbon Negative
Climate Positive by Being Carbon Negative Drax CO2 intensity reduction (tCO2e/GWh) 1,000 800 600 400 Drax targeting 200 carbon negative by 0 2030 (200) 2012 2013 2014 2015 2016 2017 2018 2019 2020 H1-21 Source: Bloomberg/company data 8Mt of negative emissions pa at Drax Power Station by 2030 - Being
Slide 39: Nature Positive
Nature Positive Well-established science and policy underpins biomass sustainability Frans Timmermans, EU Clear scientific principles underpin the use of sustainable biomass Climate Chief - Scientific consensus though the Intergovernmental Panel on Climate Change (IPCC) (25,000 scientists) which rec
Slide 40: Sources of Biomass Supply
Sources of Biomass Supply Drax uses what other industries cannot Drax Power Station sources of fibre by location – H1-21 Sawmill Branches, Low grade Thinnings Agri. residues Total residues tops and bark round wood USA 20% 4% 15% 26% 1% 66% Canada 11% 1% <1% 3% - 15% Latvia 1% - <1% 6% - 8% Estonia 1
Slide 41: Forestry Economics Support Sustainable Sourcing
Forestry Economics Support Sustainable Sourcing Cutting down trees purely for biomass is not economiciple Branches and tops - Low-grade wood Sawlogs are the primary economic driver for commercial forestry - Low-value residual - Premium product for use in construction and manufacturing - Used in biom
Slide 42: Forest Management – We Only Source From Forests That Are Well Regulated
Forest Management – We Only Source From Forests That Are Well Regulated. We only choose forests that are well regulated to ensure positive people, nature and climate outcomes Sustaining and Protection of growing carbon Healthy managed forests delivers sustained ecological, economic and sensitive sit
Slide 43: Voluntary International Forestry Standards
Voluntary International Forestry Standards Standards created through consensus process, with audits to check compliance FSC® – Forest Stewardship Council® PEFC – Programme for the Endorsement of Forest Certification SFI – Sustainable Forestry Initiative SBP – Sustainable Biomass Program 1 December 2
Slide 44: Drax Responsible Sourcing Policy and Compliance Process
Drax Responsible Sourcing Policy and Compliance Process Comprehensive process of checks and audits to ensure compliance Drax sustainability audit process UK regulation and Renewables Obligation (RO) - Fully compliant with stringent standards set out in UK and EU laws - Biomass sustainability and car
Slide 45: The Evidence on the Ground – US Southeast
The Evidence on the Ground – US Southeast Carbon stocks increased >90% since 1950 Region has vast resources of sustainable forestry - Forest growing annually since 1950s - >35% of the landmass and 25% of global industrial wood production Well-established commercial forestry industry and infrastructu
Slide 46: Principles for Sustainable Biomass
Principles for Sustainable Biomass Working across the sector towards a gold standard Glasgow Declaration on Sustainable Biomass - 16 principles defining sustainable biomass - >80% of sector are signatories, including Drax, Enviva, Graanul, Renewable Energy Association, US Industrial Pellet Associati
Slide 47: Multiple Controls and Processes in Place to Ensure Sustainable Biomass Sourcing
Multiple Controls and Processes in Place to Ensure Sustainable Biomass Sourcing The economics of We buy from regions We meet UK regulations We have our own sourcing forestry mean we take where forest and compliance is audited policy, backed up by our low-grade material regulations are tight complian
Slide 48: Stakeholder Engagement
Stakeholder Engagement Ongoing activity to inform stakeholders about biomass and counter inaccurate claims Stakeholder outreach on biomass acceptability These messages are being heard - NGO engagement – roundtables, bilateral meetings and events - UK Government Net Zero Strategy, Biomass Policy Stat
Slide 49: UK Energy Crops
UK Energy Crops Innovation and partnerships Opportunities to source a proportion of BECCS feedstock from energy crops Partnership with the National Farmers Union to kick start a “year of engagement” with key stakeholders Research underway to understand the opportunities and risks of domestic sourcin
Slide 50: People Positive
People Positive A regional development partner - UK BECCS supply chain ambition to domestically source 80% of construction materials and services for the project A good neighbour - Laptops for Learners initiative donated 1,200 laptops with internet access to around 80 schools and colleges - Schools
Slide 51: Summary
Summary Creating a business model where financial performance, value creation and sustainability outcomes are aligned Positive Dispatchable outcomes for renewable nature and power people Negative carbon emissions 1 December 2021 51
Slide 52: Negative Emissions
Negative Emissions Jason Shipstone: Chief Innovation Officer 1 December 2021
Slide 53: A History of Biomass Innovation
A History of Biomass Innovation Long-term investment in biomass innovation – a platform for negative emissions growth 2008: launch of biomass sustainability programme 2019-20: BECCS pilot studies 2003: small scale biomass co-firing 2014: early assessment of CCS 2027: first BECCS unit 2009: investmen
Slide 54: Global Need for Biomass and BECCS
Global Need for Biomass and BECCS Intergovernmental Panel on Climate Change analysis shows potential for 7bn tonnes of negative emissions pa from BECCS by 2030 Intergovernmental Panel on Climate Change (IPCC) Coalition for Negative Emissions Report (CNE) 1.5°C pathway requires negative emissions Cur
Slide 55: Technologies for Negative Emissions
Technologies for Negative Emissions Achieving net zero will require a range of technologies Bioenergy Carbon Direct Air Capture Natural Climate Capture and Storage and Storage Solutions 1 December 2021 55
Slide 56: Technology Costs
Technology Costs Opportunities for scale and cost reduction High Low BECCS Direct Air Capture and Storage (DACS) Natural Climate Solutions (NCS) Total sustainable 2030 2050 2030 2050 2030 2050 potential, Bn tonnes pa 2-4 2-4 4+ 4+ 1-3 2-5 900 Effective cost of negative emissions1, £/t 225 270 145 12
Slide 57: Why BECCS?
Petra Nova CCS site in Texas, USA, up to 1.4Mt of CO2 pa Why BECCS? Proven and innovative technical solutions Lowest cost option for largescale greenhouse gas removal Uniquely provides three public goods - Negative emissions - Renewable electricity - Power system support 1 December 2021 57
Slide 58: UK BECCS – Benefits
UK BECCS – Benefits Baringa study shows value of BECCS at Drax Power Station in achieving net zero Without early deployment of BECCS at Drax Power Station the cost to the UK of reaching net zero would be significantly higher - £26bn of whole system cost savings in achieving net zero by early deploym
Slide 59: Why BECCS is Carbon Negative
Why BECCS is Carbon Negative Sustainably sourced biomass is renewable and low carbon CO2 from burning biomass is absorbed by new forest growth Removing this CO2 creates negative emissions Underpinned by well-established UN scientific principles Sustainable sourcing is key Drax has leading-edge susta
Slide 60: How BECCS Works
How BECCS Works Post-combustion capture on existing biomass generation units and solvent treatment of CO2 T&S system Existing Power Station (Drax) New BECCS systems (Drax) operator CO2 depleted flue gas 1 December 2021 60
Slide 61: Development of CCS and GGR in the UK
Development of Carbon Capture and Storage (CCS) and Greenhouse Gas Removal (GGR) in the UK 1 December 2021 61
Slide 62: Process for Development of CCS and GGR in UK
Process for Development of CCS and GGR in UK Selection of regional carbon capture and storage clusters and projects Government objective - Deploy CCS technology in all industrial clusters - Clusters and projects sequenced into two ‘Tracks’ with Track-1 focusing on projects capable of deployment by 2
Slide 63: Drax
Re ~ “Sed ooe Northern ee) Endurance EAST CO,AST Enews, CLUSTER PS © = L ~ ap Sy, ENDURANCE = WY MIDDLESBROUGH @ DARLINGTON @ PROJECTS IN TEESSIDE INCLUDING Yes Net Zero OX Teesside PROJECTS IN THE HUMBER INCLUDING ZEROCARBON HUMBER TEESSIDE UPTO 10 MTCO,E CAPTURED @ LEEDS ‘Ber Qvetocys @ SHEFFIELD
Slide 64: Development of Commercial Models for BECCS
Development of Commercial Models for BECCS Expect model development to progress in 2022 Government study to identify a business model for a First of a Kind BECCS plant (October 2021) Power CfD with negative emissions payment identified as most deliverable - Revenue certainty for power and negative e
Slide 65: Development of BECCS at Drax Power Station
Development of BECCS at Drax Power Station Targeting 8Mt pa of negative emissions by 2030 - Retrofit of BECCS at Drax Power Station would be world’s first negative carbon plant at scale - First mover advantage in the deployment of negative emissions - Development of model for further BECCS retrofit
Slide 66: Development of BECCS at Drax Power Station
Development of BECCS at Drax Power Station 1 December 2021 66
Slide 67: Timetable for Development of BECCS at Drax Power Station
Timetable for Development of BECCS at Drax Power Station - Front End Engineering and Design (FEED) study partner selected, commencement of study 2022 - Planning application (DCO) submitted - Completion of FEED study 2023 - - Financial model and support for BECCS confirmed Demolition of coal-related
Slide 68: Development of New-Build BECCS
Development of New-Build BECCS 1 December 2021 68
Slide 69: Development of New-build BECCS
Development of New-build BECCS Targeting 4Mt pa of negative emissions from new-build BECCS outside UK by 2030 - Development of models for North America and Europe - Evaluating biomass availability, infrastructure, demand and political conditions Evaluating opportunities to turn first mover advantage
Slide 70: Key Considerations in New-build BECCS
Key Considerations in New-build BECCS Range of development opportunities, potential for significant cost reduction Proximity to storage - Sited on or next to CO2 storage, reducing distance transported Proximity to fibre - Proximity to fibre baskets reduces transportation Capital cost - Higher capita
Slide 71: Biomass Fuel Innovation
Biomass Fuel Innovation 1 December 2021 71
Slide 72: Biomass Fuel Innovation
Biomass Fuel Innovation Progressing opportunities from lower cost sustainable biomass and expanded range of biomass materials Development cycle Over 100 fuels assessed － Broad and continual feedstock identification 10 large-scale fuel trials Identification - new fuels, new forms & new geographies -
Slide 73: Financial Update
Financial Update Andy Skelton: CFO 1 December 2021
Slide 74: Investment Case
Investment Case A leading UK renewable energy pioneer with attractive global growth opportunities aligned with net zero targets – sustainable biomass supply, negative emissions and dispatchable, renewable generation - Country-level climate policies support long-term investment frameworks and demand
Slide 75: Strategic Capital Investments
Strategic Capital Investments Investment characteristics - 8Mt pa of pellet production capacity by 2030 to support UK BECCS and expansion of sales to third parties - c.3Mt of new capacity, c.£600m capital investment Pellet Plants - - Targeting low double-digit returns or higher Investment schedule:
Slide 76: Biomass Models
Biomass Models Three models for growth underpinned by biomass supply chain expansion and continued production cost reduction Third-party sales Market prices for all Biomass supply chain biomass sales - Targeting up to 8Mt pa - Long-term contracted volumes to high credit-quality partners in Asia and
Slide 77: Investment Opportunity – Sources and Uses of Cash to 2030
Investment Opportunity – Sources and Uses of Cash to 2030 Investment for growth funded by existing cash generation and EBITDA growth consistent with long-term target of 2x net debt Strategic capital investments Sources (2022-2030) - Pellet plants, UK BECCS, Cruachan II Investment and funding - Inves
Slide 78: Clear Capital Allocation Policy
Clear Capital Allocation Policy Implemented in 2017, designed to support strategy 1. Maintain credit rating 2. Invest in core business 4. Return surplus capital 3. Sustainable and growing beyond investment dividend requirements 1 December 2021 78
Slide 79: Summary
Summary Strategic objectives closely aligned with net zero policies, providing attractive opportunities for growth UK and international policies increasingly support the use of biomass, BECCS and the role of dispatchable generation - Targeting 4Mt pa of third-party pellet sales by 2030 Pellet Produc
Slide 80: Q&A
Q&A 1 December 2021
Slide 81: Drax Group Capital Markets Day 2021
Drax Group Capital Markets Day 2021 1 December 2021
Slide 82: Appendix 1: Summary of 2022 Milestones
Appendix 1: Summary of 2022 Milestones Activity 2022 Milestones Biomass pellet production - Expect to take final investment decision on 0.5-1Mt of new capacity Biomass pellet sales - Establishment of Tokyo field office - Establishment of European business development - Expansion of international aff
Slide 83: Appendix 2: Pellet Plant Economics and Opportunities
Appendix 2: Pellet Plant Economics and Opportunities Multi-stage immature self-supply chain provides significant opportunities for savings Continuous innovation, proximity to fibre and logistics, increased capacity, operational synergies, lower cost fibres and other biomass materials PELLET PRODUCTI
Slide 84: Appendix 3: US$/t FOB to £/MWh Generation – Cost Mapping
Appendix 3: US$/t FOB(1) to £/MWh Generation – Cost Mapping FOB(1) (US$/t) Illustrative ocean freight and UK Fully Delivered Cost to Drax Power Fully Delivered Cost to Drax Power port and rail (US$/t) Station (US$/t) Station £/MWh(1/2/3) 180 40 220 80 160 40 200 73 140 40 180 65 120 40 160 58 100 40
Slide 85: Appendix 4: Drax Pellet Production Portfolio
Appendix 4: Drax Pellet Production Portfolio Plant Location Status Commissioning Date Capacity (Mt pa) % ownership Williams Lake BC, Canada Operational 2004 0.2 100% Houston BC, Canada Operational 2006 0.2 30% Armstrong BC, Canada Operational 2007 0.1 100% Meadowbank BC, Canada Operational 2008 0.2
Slide 86: Drax Group Capital Markets Day 2021
Drax Group Capital Markets Day 2021 1 December 2021