23 April 2014
DRAX GROUP PLC
(Symbol: DRX)
UNIT ELIGIBILITY UPDATE FOR EARLY CFDs
In December 2013, the Government advised that two generating units at Drax Power Station - the "second" and "third" unit conversions - were eligible for Investment Contracts under the early Contracts for Difference ("CfDs") mechanism, to support the conversion from coal to sustainable biomass. Both units were also provisionally ranked equal first of all the qualifying projects and deemed affordable.
The Government has advised that Drax will today be offered an Investment Contract for the third unit conversion.
However, Drax has also been notified that the Government believes the second unit conversion is no longer eligible for an Investment Contract, but support for conversion instead is available under the existing Renewables Obligation ("RO") regime, where eligibility has been confirmed. Support may also be available under the enduring CfD mechanism.
Drax has taken legal advice over the decision to exclude this second unit from the award of an Investment Contract. The advice confirms Drax has a good foundation to challenge this decision by the Government. Proceedings have therefore been initiated.
Commenting on today's developments, Dorothy Thompson, Chief Executive of Drax, said:
"Whilst we are pleased to have been offered an Investment Contract for our third unit conversion, we are disappointed by today's decision on the ineligibility of our second unit. Nothing has changed, as far as our plans are concerned, between being deemed eligible in December and now. We have, therefore, commenced legal proceedings to challenge the decision.
"Sustainable biomass provides a very reliable, flexible and cost effective renewable power source for the UK consumer. The performance of our first converted unit, which was converted last year to burn sustainable biomass in place of coal, continues to be strong.
"I am proud of what we have achieved to date and we remain fully committed to our strategy of transforming Drax into a predominantly biomass fuelled generator, initially through the conversion of three of our six generating units, with a fourth unit conversion under evaluation."
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Analyst Call:
There will be a conference call for analysts and investors held today at 08:30 BST, hosted by Dorothy Thompson, Chief Executive of Drax and Tony Quinlan, Finance Director of Drax.
The dial in details are:
International Dial-In: +44 (0) 1452 555566
Conference ID: 34405347
A playback of the conference call will be available afterwards, accessed using the following dial in details.
International Dial-In: +44 (0)1452 550000
Conference ID: 34405347
Notes:
1. The Government is introducing Contracts for Difference ("CfDs"), which are long-term contracts, to support the development of low carbon electricity generation.
2. To avoid an investment hiatus in the renewables sector before the 'enduring' CfDs become available, the Government introduced a scheme for Investment Contracts under the Final Investment Decision Enabling ("FID Enabling") mechanism. These are 'early' CfDs intended to provide greater confidence for investors in advance of the enduring CfD.
3. The final strike price on which the early CfDs will be based is £105/MWh for biomass conversion (in 2012 prices). The strike price for enduring CfDs has not yet been determined. Both early and enduring CfDs are subject to EU State Aid clearance and are expected to become effective from April 2015.
4. Drax applied for early CfDs for its planned second and third unit conversions to biomass.
Enquiries:
Drax Investor Relations: Michael Scott / Mark Strafford
+44 (0) 1757 612 230 / +44 (0) 1757 612 491
Media:
Drax External Communications: Melanie Wedgbury
+44 (0) 1757 612 438
Brunswick: Richard Jacques / Nina Coad
+44 (0) 207 404 5959
Website: www.drax.com
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