Drax Group Plc · LSE:DRX
Drax — Investor Day (May 2023)
76 slides from Drax's investor day presentation, May 2023
Slide 1: Drax Group Capital Markets Day
Drax Group Capital Markets Day May 2023
Slide 2: Presenters
Presenters Will Gardiner: Andy Skelton: Chief Executive Officer Chief Financial Officer Dr Alan Knight: Jason Shipstone: Director of Sustainability Chief Innovation Officer 2
Slide 3: Strategy Update
Strategy Update Will Gardiner: CEO
Slide 4: Our Purpose, Our People, Our Ambition
Our Purpose Enabling a zero carbon, lower cost energy future Our People Are valued members of a winning team with a worthwhile mission Our Ambition To be a carbon negative company by 2030 4
Slide 5: The Three Pillars of Our Strategy
The Three Pillars of Our Strategy Carbon Removals Objective 1: to be a global leader in carbon removals Pellet Production Objective 2: to be a global leader in sustainable biomass pellets Dispatchable, Renewable Power Objective 3: to be a UK leader in dispatchable, renewable generation Underpinned b
Slide 6: Drax Group Today
Drax Group Today A sustainable long-term business model leveraging on our biomass expertise and objectives aligned with climate solutions, net zero and energy security Strategic asset base closely aligned with system needs • Dispatchable, renewable electricity • Security of supply • A route to carbo
Slide 7: Strategic Asset Base Closely Aligned With System Needs – UK
Strategic Asset Base Closely Aligned With System Needs – UK Significant increase in demand – peaks (TWh) Drax is UK’s largest source of renewable energy by output • 4% of total annual power generation 100 • 11% of total annual renewable generation • Up to 70% of in-day peak renewable generation 50 2
Slide 8: A Differentiated Supply Chain Model
A Differentiated Supply Chain Model As a producer, user and supplier of biomass, Drax has multiple sales channels for the biomass in its integrated supply chain, leading to value creation, growth and innovation opportunities, protecting margins and maximising value from biomass Growing global demand
Slide 9: Proven Financial Performance
Proven Financial Performance Adjusted EBITDA(1) Growth (£m) 11% average annual increase in dividend per share since 2017 (p/share) 800 25 700 20 600 500 15 400 10 300 200 5 100 0 - 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022 £2.3bn of cash generated from operations 2017 – 2022 c.£600
Slide 10: Attractive Opportunities to Invest For Long-term Growth
Attractive Opportunities to Invest For Long-term Growth Strategic investments aligned with climate solutions, net zero and energy security Attractive opportunities for long-term growth and positive climate, nature and people outcomes Ambition for >20Mt of carbon removals via BECCS – 14Mt pa by 2030
Slide 11: A Clear Capital Allocation Policy
A 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 11
Slide 12: A global leader in carbon removals
A global leader in carbon removals Global net zero and 1.5°C strategies will require carbon removal technologies BECCS, DACS and afforestation Drax is developing a pipeline of project options in North America and the UK to provide long-term, large-scale carbon removals and create attractive investme
Slide 13: Global Need for Action to Address Climate Change
Global Need for Action to Address Climate Change Over 190 countries have confirmed their commitment to a 1.5°C pathway, to avoid the disproportionate impacts of a 2°C world Countries / parties committed1 to Paris agreement Examples of impact of 2°C vs. 1.5°C 56% 50% Probability of permanent irrevers
Slide 14: Scientific Support
Scientific Support Reputable scientific and industry groups agree that significant levels of removals are required All pathways that limit warming to 1.5°C or 2°C involve substantial levels of carbon removal (Carbon Dioxide Removal – CDR) between 2020 and 2100, ranging from 450 to 1,100bn tonnes of
Slide 15: Government Support for Carbon Removals is Increasing
Government Support for Carbon Removals is Increasing Inflation Reduction Act (IRA) and Bipartisan Infrastructure Bill – $369bn funding package for climate and green energy policies • 45Q tax credit valued at $85/t of CO2 captured through BECCS • Other tax credits aimed at renewable power generation,
Slide 16: Intergovernmental Panel on Climate Change
Intergovernmental Panel on Climate Change Up to 9.5bn billion tonnes of carbon removals per year Global annual CDR volumes range in 2050 (billion tonnes) from BECCS by 2050 required to maintain a 1.5°C pathway 10 • Reaching net zero requires reductions in CO2, methane, and 9.5 other GHG emissions, a
Slide 17: BECCS is Happening Now But More Supply is Required
BECCS is Happening Now But More Supply is Required to Meet Climate Need IPCC – annual median BECCS requirement of 80Mt by 2030 Over 20Mt of global BECCS capacity in development for 2030 • Rising to 2,750Mt by 2050 • Including 14Mt from Drax IPCC annual median BECCS requirements vs. projects in devel
Slide 18: Need for High-quality, Permanent Removals Should Support Robust Pricing
Need for High-quality, Permanent Removals Should Support Robust Pricing Public prices of high-quality, permanent Characteristics of permanent engineered CDRs engineered CDRs are significantly higher support robust pricing than Natural Climate Solutions • Additional, permanent, quantifiable and susta
Slide 19: Drax Current Ambition for >20Mt pa of Carbon Removals
Drax Current Ambition for >20Mt pa of Carbon Removals 2023 2024 2025 2026 2027 2028 2029-31 Mt pa CCS on a Pre-FEED/ FEED/ FID/ pellet plant (US) FEED FID construction Commissioning Operation c.0.1Mt Development Two new-build plants (US) of site Pre-FEED FEED FID Construction Construction Operations
Slide 20: Status of UK BECCS
Status of UK BECCS UK Government Drax Supportive of deployment of Power-BECCS by 2030 Committed to deployment of two BECCS units at Drax Power Station between 2027 and 2030 5MtCO2 of carbon removals by 2030 (and 23MtCO2 in 2035) • Business model to support Power-BECCS under development Targeting cla
Slide 21: Carbon Dioxide Removals
Carbon Dioxide Removals Jason Shipstone: Chief Innovation Officer & Global BECCS Program Director
Slide 22: Compelling science-led case on the need for carbon removals now
Compelling science-led case on the need for carbon removals now IPCC and other science-led organisations informing policy and the investment case
Slide 23: Carbon Reduction vs. Carbon Removal
Carbon Reduction vs. Carbon Removal Early deployment of CO2 removals required to achieve net zero by 2050 Carbon reduction Carbon removal 23
Slide 24: Why BECCS is a Source of Carbon Removal
Why BECCS is a Source of Carbon Removal CO2 is absorbed from the atmosphere as tree grows The BECCS process separates and permanently stores CO2 underground A healthy, managed forest is an active carbon absorber 24/7 dispatchable, renewable power Sustainable sourcing is key • Responsible sourcing po
Slide 25: Technologies for Carbon Removals
Technologies for Carbon Removals Achieving net zero will require the deployment of a full range of technologies • Medium cost • Lowest cost • Biodiversity benefits • Highest cost • Bio-diversity protection • Generates dispatchable, • Consumes energy • Questions over scale renewable power • Permanent
Slide 26: Benefits of BECCS
Benefits of BECCS Permanent Impact Scalable Cost-competitive Tech-ready Green co-products Permanently stores CO2 Efficient removal of CO2 Gigatonne scalability Lower cost versus other Proven technology Meet demand for in geological sites Active management Sustainable biomass engineered solutions Pro
Slide 27: How BECCS Works
How BECCS Works Post-combustion capture on existing biomass generation units and solvent treatment of CO2 27
Slide 28: Carbon Removals, Renewable Electricity and System Support Services
Carbon Removals, Renewable Electricity and System Support Services BECCS is the only non-fossil technology to offer the full suite of system services – enabling the integration of intermittent renewables while dispatchable fossil plant diminishes SYSTEM SERVICES BECCS GAS CCS NUCLEAR WIND SOLAR BATT
Slide 29: Technology Risks
Technology Risks Proven technologies and a biomass supply chain demonstrated over c.20 years Bioenergy (BE) • Use of biomass for generation since 2004 • Operator of world’s largest biomass power station • Operator of world’s second largest pellet production business • New-build BECCS can simplify su
Slide 30: Common Questions
Common Questions Is BECCS an efficient capture process? • BECCS is one of the most efficient technologies for large scale carbon removals • Advanced amine technology – capture rate of around 95% Retrofitting BECCS means the loss of thermal efficiency? • The energy consumed in a BECCS plant is used f
Slide 31: Development of BECCS at Drax Power Station
Development of BECCS at Drax Power Station Targeting 8Mt pa of carbon removals by 2030 • Retrofit of BECCS on two generation units at Drax Power Station Proven and scaleable technology • Mitsubishi Heavy Industries selected as solvent technology partner Required to achieve UK Government target for 5
Slide 32: CCS on a pellet plant
CCS on a pellet plant Early deployment on BECCS technology on existing supply chain assets to demonstrate technology at smaller scale, stimulate CDR market and reduce supply chain emissions Targeting FID in 2024/25 and commissioning in 2026
Slide 33: Carbon Capture & Storage on a Pellet Plant
Carbon Capture & Storage on a Pellet Plant Drax is pursuing a project to capture and permanently store the CO2 produced from an existing pellet plant Why install CCS on a pellet plant? • Early deployment and demonstration of CCS with biomass • Access to early CDR to help stimulate the market • Utili
Slide 34: Carbon Capture & Storage on a Pellet Plant – How it Works and Timetable
Carbon Capture & Storage on a Pellet Plant – How it Works and Timetable The key components of the CO2 capture plant include CO2 capture, liquefaction, water management, offloading and transport, balance of plant, and pellet plant brownfield components Operational process Phase 2: FEED and Phase 3: P
Slide 35: Development of Global BECCS
Development of Global BECCS Drax is developing a pipeline of project options in North America to provide long- term, large-scale carbon removals opportunities and create attractive investment opportunities US Inflation Reduction Act is creating an enlarged investment opportunity for BECCS Developing
Slide 36: Global BECCS Concept
Global BECCS Concept Multiple options for deployment New-build BECCS Coal-to-biomass-to-BECCS Co-located or integrated BECCS • Site the plant near the fibre • Retrofit of existing plants • Use BECCS knowhow to basket and Transportation & • Likely to use wood pellets integrate into other Storage proc
Slide 37: Key Considerations
Key Considerations Transportation and storage Sited on or next to suitable CO2 storage, reducing distance transported Proximity to fibre baskets reduces transportation Fibre Potential for lower fuel cost and wider fuel diet Bottom-up design for biomass, not coal-to-biomass conversion Operations Effi
Slide 38: North America is a Key Focus – Making Good Progress in the US
North America is a Key Focus – Making Good Progress in the US 2 sites selected and progressing to option in US South, targeting c.6Mt by 2030 Project Pipeline Evaluating 9 additional sites in US for greenfield and brownfield BECCS Development of option for CCS on a pellet plant – targeting FID in 20
Slide 39: North America is a Key Focus – Making Good Progress in the US
North America is a Key Focus – Making Good Progress in the US US: targeting carbon-free power grid by 2035; net zero target by 2050; long-term strategy recognises the need for biomass Political support for BECCS and biomass Inflation Reduction Act provides incentives for CCS Canada: coal phase-out b
Slide 40: Where Are We Looking in the USA?
Where Are We Looking in the USA? Focus on regions with a sustainable supply of biomass and favourable geology for CO2 storage Preferred sustainable biomass supply location Suitable sustainable supply biomass location Suitable geology for potential CO2 storage 40
Slide 41: Project Development Milestone Process
Project Development Milestone Process Targeting FID on first two projects in 2026 and commercial operations by 2030 Regional Screening Development Prospect Site Definition Build Operate 1 2 3 FID Description Prioritised global hotspots are Top regions are further analysed Top sites complete pre-FEED
Slide 42: Project Funnelling
Project Funnelling North American funnelling Stopped Complete In progress Deprioritised Global Hotspot Regional Screening Identification Development Prospect Site Definition, incl. pre-FEED and FEED 1 2 FID BECCS Region Sub- 3 region Site Proj. Prioritised regions Explored regions Explored sub-regio
Slide 43: New–build BECCS Illustrative Site Layout
New–build BECCS Illustrative Site Layout Feasibility studies conducted with Bechtel and Worley – optimal size identified for new-build BECCS facility Healthy forests: Generation capacity: c.270MW net Carbon dioxide captured: c.3Mt c.3Mt green tonnes of low-grade fibre c.400MW gross of carbon sequest
Slide 44: Progress on Commercial Arrangements and Enablers
Progress on Commercial Arrangements and Enablers Flexible technology Fibre sourcing Transportation and deployment – CDR sales storage BECCS as a service • MoU for sale of 2Mt of • MOUs in place with three • MoUs in place with T&S • Open to bespoke CDR with Respira leading forestry providers solution
Slide 45: Global BECCS
Global BECCS Developing options for BECCS beyond North America and UK North America and UK well covered by strategy Currently screening development leads in Europe and Australasia Apply same development filters • Proximity to fibre and CO2 storage • The right political support or progress towards it
Slide 46: Summary
Summary Ambition for >20Mt pa of carbon removals via BECCS – 14Mt pa by 2030 North America • 2 sites selected and moving to option in US South – targeting FID in 2026 and operation by 2030, c.6Mt pa of carbon removals • Pipeline of options for potential future development – screening 9 additional si
Slide 47: Sustainable Business
Sustainable Business Alan Knight: Director of Sustainability
Slide 48: Coupling Growth With Sustainability
Coupling Growth With Sustainability Financial, climate, nature and people positive outcomes Countries, businesses and individuals are increasingly conscious of sustainability • But behavioural changes are being offset by growth and new consumption Drax – long-term financial performance with positive
Slide 49: Led by the Science
Led by the Science Our business is based on what the scientific consensus is telling us Independent Advisory Board continues to scrutinise our use of science Creation of a central science function • Enhance use of existing science • New research • Share thinking with stakeholders Development of BECC
Slide 50: Responsive to Stakeholders
Responsive to Stakeholders ‘BECCS Done Well’ report – Forum for the Future (November 2022) • Independent report commissioned by Drax • Panel of four experts – Jonathon Porritt chair • Seventy-plus expert stakeholders interviewed • Supportive of BECCS • Thirty conditions to ensure BECCS is done well
Slide 51: Biomass sustainability and standards
Biomass sustainability and standards 51
Slide 52: Our Biomass Story Starts With Timber
Our Biomass Story Starts With Timber The world needs more timber for construction, manufacturing and more • Timber creates sawdust and shavings • Harvesting forests creates thinnings, branches, unusable logs • Good forest management includes removal of material • Reduce the risk and intensity of for
Slide 53: Forest Management
Forest Management Protection of Forest Fire protection sensitive sites and Restoration from disease We source from forests that are well regulated to ensure positive people, nature and climate outcomes • Working forests are well managed • Healthy managed forests deliver sustained ecological, economi
Slide 54: Minimising Wastefulness in Working Forests
Minimising Wastefulness in Working Forests Historically, commercial uses for residues were limited… particularly in British Columbia… …..where burning of residues was undertaken Biomass provides a better alternative and supports long-term investment in good forest management 54
Slide 55: Fibre Sources (2022)
Fibre Sources (2022) c.60% of Drax Group fibre comes from USA Drax Group sources of fibre • Working forests harvested by landowners for Sawmill Low- and other Arbori timber and pulp Branches grade wood Thinnings and agri. Waste Total and tops round industry residues • Stable / growing carbon stocks
Slide 56: Carbon Stocks in Forests
Carbon Stocks in Forests Catchment Area Analysis • Tracking of carbon storage and sequestration in regions where we source • Applied to own-use fibre and third-party suppliers Catchment Area Analysis considerations • Amount of carbon stored on landscape (growing stock) • Sequestration rate of carbon
Slide 57: Independent Sustainability Standards and Checks
Independent Sustainability Standards and Checks Highlight on: Multiple regulations and audits of biomass sources • In-country forestry regulations for timber sector Sustainable Biomass Program (SBP) • Independent, multi-stakeholder forest standards bodies SBP is a certification system designed for w
Slide 58: Leading the Sector
Leading the Sector Drax – a leading role in the Glasgow Declaration Lead the industry in setting sustainability standards for biomass Clear principles Forum for users and producers, with others stakeholders to agree a common approach to sustainability Working with World Bioenergy Association and oth
Slide 59: 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 Voluntary Sourcing policy, forestry mean we regions where certification supported by our take low-grade forest regulations schemes compliance material are tight procedures UK regulations Post
Slide 60: Towards BECCS and what next?
Towards BECCS and what next? 60
Slide 61: Modelling of Potential Sources of Biomass at a Global Level
Modelling of Potential Sources of Biomass at a Global Level Geospatial models with sustainability filters… …exploring three main types of biomass Modelled current and potential future biomass production 11 geospatial datasets, 7 scientific references and high-resolution data Criteria No high conserv
Slide 62: A Wide Range of Views on the Level of Sustainable Biomass Sources Globally
A Wide Range of Views on the Level of Sustainable Biomass Sources Globally Theoretical maximum of CO2 that could be captured by BECCS based on global sustainable biomass supply, billion tonnes of CO2 pa Drax conservatively estimates this could 30 support >2bn tonnes of CO2 pa from BECCS 24 19 19 12
Slide 63: Carbon Reduction
Carbon Reduction 99% reduction in Generation scope 1 and 2 CO2 intensity (tCO2e/GWh) since 2012 1,000 900 800 Coal reduction saw scope 1 emissions fall 700 600 Targets to reduce remaining Group scope 1, 2 and 3 emissions 500 400 Targeting net zero by 2030 300 200 100 0 2012 2013 2014 2015 2016 2017
Slide 64: Creating a Nature Positive Company
Creating a Nature Positive Company Well-established science and policies underpins biomass sustainability Mapping our impact and dependencies on the natural environment to enable us to have a positive impact • Working with World Business Council for Sustainable Development (WBCSD) and others to esta
Slide 65: People Positive – Drax Giving: Investing in Our Communities
People Positive – Drax Giving: Investing in Our Communities c.£1million investment in 2023 in projects and programmes that support our communities 65
Slide 66: Development of Governance, Reporting and Disclosure
Development of Governance, Reporting and Disclosure Strengthening governance across the company through a new governance model and ESG reporting • Sustainability Council • New executive role for sustainability • Expert hubs – Climate, Forests, Carbon Reduction, Nature, Biomass • ESG reporting 66
Slide 67: Summary
Summary A business model that links positive long-term financial, climate, nature and people outcomes Underpinned by the science and strong governance 67
Slide 68: Finance Update
Finance Update Andy Skelton: CFO
Slide 69: Investment Case
Investment Case High-quality, strategic asset • UK – 2.6GW of biomass and 0.5GW of pumped storage / hydro generation base aligned with climate • North America – 5Mt of capacity across 18 operational and development plants with access to 5 deep-water solutions, net zero and energy ports. Sourcing of
Slide 70: Sources and Uses of Cash to 2031
Sources and Uses of Cash to 2031 Strong cash generation from existing assets underpins investment for growth Net debt to Adjusted EBITDA below 2x in 2031 c.£7bn of strategic investments • 14Mt of BECCS, pellet plants and pumped storage >£3bn • Investment high point 2026-2029, de-lever quickly therea
Slide 71: Strategic Capital Investments
Strategic Capital Investments Strategic objectives closely aligned with climate solutions, net zero and energy security c.£7bn of attractive opportunities for long-term growth and value creation for stakeholders Capital Description Risk/Return investment 14 Mt of carbon removals by 2030 Higher • 2 s
Slide 72: US vs UK BECCS Business Model
US vs UK BECCS Business Model New-build BECCS – US BECCS in the UK – Drax Power Station Renewable power generated: Carbon captured: Renewable power generated: Carbon dioxide captured: c.2TWh c.3Mt c.4TWh c.4Mt of 24/7 renewable baseload power of carbon sequestered pa of 24/7 renewable baseload power
Slide 73: Capital Allocation Policy
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 73
Slide 74: Summary
Summary A sustainable long-term business model leveraging on our biomass expertise and objectives aligned with climate solutions, net zero and energy security A purpose led company Carbon Removals A strategy delivering for shareholders as well as climate, Objective 1: to be a global leader in carbon
Slide 75: Drax Group Capital Markets Day
Drax Group Capital Markets Day May 2023
Slide 76: Forward Looking Statement
Forward Looking Statement 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