Drax Group Plc · LSE:DRX
Drax — Investor Day (November 2019)
23 slides from Drax's investor day presentation, Nov 19, 2019
Slide 1: Drax Group Capital Markets Day
Drax Group Capital Markets Day 19 November 2019
Slide 2: Agenda
Agenda Strategy Update and Biomass Opportunities – Will Gardiner, CEO Biomass Sustainability – Dr Rebecca Heaton, Head of Climate Change Q&A Biomass Operations and Cost Reduction Initiatives – Andrew Koss, CEO Generation Finance Update – Andy Skelton, CFO Q&A 19 November 2019 2
Slide 3: Strategy Update and Biomass Opportunities
Strategy Update and Biomass Opportunities Will Gardiner, CEO 19 November 2019
Slide 4: Introduction
Introduction Drax has a clear purpose: to enable a zero carbon, lower cost energy future Drax has a clear strategy – To be the leading provider of power system stability – To give our customers control of their energy – To build a long-term future for sustainable biomass Over the last four years, Dr
Slide 5: The Imperative for Decarbonisation is Increasing
The Imperative for Decarbonisation is Increasing UK is the first country to legislate to achieve net zero carbon emissions by 2050 (July 2019) The UK decision was taken following: The UK has officially declared a climate – Visit to Parliament by teenage activist Greta Thunberg (April 2019) ‘emergenc
Slide 6: UK Net Zero Carbon Emissions
UK Net Zero Carbon Emissions A challenging but clear route to net zero by 2050 Power Committee on Climate Change Report – Wind, solar, biomass, gas and ultimately hydrogen (May 2019) “We have assumed overall bio resource available to Transport the UK of around 200 TWh… – Electrification, limited bio
Slide 7: The Future UK Generation Mix
The Future UK Generation Mix Increase in intermittent renewables, retirement of current thermal fleet and increased electricity demand Generation mix to 2050 net zero (TWh) Drax areas of focus (TWh) Pumped Storage, DSR Other CCS Biomass BECCS Biomass has a long-term role to play Pumped storage and h
Slide 8: Bioenergy Carbon Capture and Storage
Bioenergy Carbon Capture and Storage A low-cost Negative Emissions Technology “NETS” Drax will capture CO2 from biomass Net Zero Humber Cluster and pump that into a pipeline along the Humber out to storage under the North Sea for long-term storage Drax is also exploring the potential to create hydro
Slide 9: Our Purpose Our Strategy
Our Purpose Our Strategy We will be the leading provider of power system stability – A portfolio of dispatchable flexible assets to support the energy systems growing use intermittent renewable energy Enabling a We will give all our customers control of their energy zero carbon, – Through insight an
Slide 10: Drax Group Today
Drax Group Today Enabling a zero carbon, lower cost energy future Multi-site, multi-technology portfolio 6.5GW capacity – 2.6GW biomass – 1.3GW coal – 0.4GW pumped storage – 0.1GW hydro – 2.1GW CCGT Customers Leading challenger brands – Haven Power / Opus Energy US Gulf operations 1.5Mt pellet capac
Slide 11: Increasing Cost of System Support
Increasing Cost of System Support Balancing Services Use of System (BSUoS) – a measure of the cost of managing the system Total BSUoS Costs (£m) 1,200 BSUoS cost includes a range of system support services 1,000 – Frequency response, reactive power, voltage control, inertia, blackstart, constraint m
Slide 12: System Support Underpins Our Investment in Pumped Storage and Gas Generation
System Support Underpins Our Investment in Pumped Storage and Gas Generation Assets performing strongly 2.6GW of pumped storage, hydro and gas acquired December 2018 Attractive financial attributes unchanged – EBITDA £90-£110m, inclusive of capacity payments – Returns significantly in excess of WACC
Slide 13: Development Options for Gas Generations
Development Options for Gas Generations New gas generation will be required to support greater deployment of renewables and hydrogen Six attractive permitted development options 4 x 0.3GW OCGT sites – Fast response assets for system support services 2 x 1.8GW CCGT sites – Power generation and system
Slide 14: Customers
Customers A core part of our strategy Giving customers control of their energy Enabling customers to provide system flexibility The leading B2B-only Delivering renewable Meeting our customers supplier solutions evolving needs ✓ Focus growth on profitable segments ✓ Biggest B2B supplier of renewable
Slide 15: Why Biomass Has an Important Role to Play
Why Biomass Has an Important Role to Play Supports forest growth and health Our Biomass Strategy: – Commercially managed forestry consumes more CO2 than unmanaged Ensure the long-term – Supports long-term investment in forest stocks future of biomass power generation Growing demand for flexible, low
Slide 16: Global Wood Pellet Market Outlook
Global Wood Pellet Market Outlook Stable global growth of industrial and heating markets Global demand (mt) 57 51 34 Key drivers of price pressure – Asian demand (1) 2018 2023 2028 – Pellet capacity Europe North America Asia Source: Hawkins Wright – The Outlook for Wood Pellets (2019) / Drax 19 Nove
Slide 17: The Global Wood Pellet Market is Dominated by a Small Number of Larger Producers
The Global Wood Pellet Market is Dominated by a Small Number of Larger Producers Growing global demand for biomass Largest industrial wood pellet producers (kt) Drax position in global market Enviva – 4th largest pellet producer Graanul Invest Pinnacle Renewable Energy – Offtake agreements with othe
Slide 18: Our Biomass Strategy
Our Biomass Strategy Ensure the long-term future of biomass power generation through world leading safety and sustainability, ongoing cost reduction and the delivery of negative emissions Increase self-supply to 5m tonnes pa – 1.5mt (currently) Creating the world’s – 0.35mt expansion of existing sit
Slide 19: Targeting Five Million Tonnes of Self-supply Capacity
Targeting Five Million Tonnes of Self-supply Capacity Investment case Development route – Reduce cost – Existing US Gulf plants (1.85mt) – Supports post 2027 operations – Expansion, including US Gulf satellite plants – Fast pay back, returns significantly in excess of – Alternative viable fuels WACC
Slide 20: Cost Reduction Route
Cost Reduction Route Backward integration of supply chain to reduce overall cost of biomass generation to c.£50/MWh Self-supply Biomass merit order Time Initiatives mix 2027 £/MWh 100 2019 Opportunities from existing self-supply business 90 Forestry and harvesting; logistics; operations Merchant cos
Slide 21: Fuel Envelope Expansion – Viable Fuels
Fuel Envelope Expansion – Viable Fuels Other non-wood biomass products The potential to deliver 2-3mt of new sustainable biomass volumes by 2027 Viable fuels is appraising and developing a portfolio of projects that Origination & prioritisation expand the existing fuel envelope in terms of fuel type
Slide 22: Trading & Optimisation
Trading & Optimisation Capture value and manage risk Internal trading benefits – Management of volume risk – Portfolio optimisation – Displace higher cost with lower cost fuels via cost reduction initiatives – Adaptive to post 2027 environment – higher or lower demand – Adaptive to development of BE
Slide 23: Summary
Summary Drax has a clear purpose: to enable a zero carbon, lower cost energy future Drax has a clear strategy – To be the leading provider of power system stability – To give our customers control of their energy – To build a long-term future for sustainable biomass Over the last four years, Drax ha