Sale of four combined cycle gas turbine sites acquired just two years ago will allow Drax to slash emissions and enhance its focus on flexible and renewable power generation, company says
Drax has agreed to sell four UK combined cycle gas turbine (CCGT) power stations in a deal worth £193.3m with a holding company owned by Dutch energy trader Vitol, as the UK energy giant looks to double down on its renewables-focused strategy.
Announcing the deal today, Drax said it expected the transfer of the assets to VPI Holding Ltd to take place at the end of January, subject to antitrust approval and other closing conditions.
The deal would see Drax's subsidiary, Drax Generation Enterprise Ltd (DGEL), change hands along with its three CCGT plants in England's south-east, Damhead Creek, Shoreham and Rye House, and the Blackburn Mill plant in Lancashire.
The sale price includes £29m of contingent consideration associated with the option to develop a new CCGT at Damhead Creek, Drax said.
Drax stressed it was selling the assets it purchased just two years ago because they did not align with the firm's business strategy, which was now focused on "flexible and renewable" power generation. It insisted that the plants had "performed well" since their acquisition from Spanish energy company Iberdrola in December 2018.
"We greatly value the contribution that our colleagues in gas generation have made to the group over the last two years," said Drax Group chief executive Will Gardiner. "As we focus on a renewable and flexible portfolio, it is right that we divest these gas generation assets and in doing so create value for our shareholders."
Gardiner added that the sale would also allow the company, which has pledged to become 'carbon negative' by 2030 largely by rolling out innovative carbon capture and storage with biomass technology at its flagship power station in North Yorkshire, to reduce its carbon emissions and meet its climate goals.
"By focusing on our flexible and renewable generation activities in the UK we expect to deliver a further reduction in the Group's CO2 emissions, which should accelerate our ambition to become not just carbon neutral but carbon negative by 2030," he said.
DGEL also holds Drax Group's pumped storage and hydro assets and is the shareholder of SMW Ltd which owns the Daldowie plant near Glasgow, one of the largest sewage sludge drying centres in Europe. These assets, shares, and employees will be transferred out of DGEL prior to the deal's completion and will be retained by Drax after the sale, the company said.
VPI Holdings Ltd said the deal would bring the holding company's total CCGT capacity to 3.3GW and would allow it to play an essential role in providing "decarbonised" gas generation to the UK's electricity grid.
"VPI is committed to being part of the UK's pathway to net zero," said VPI manager David Brignall. "For the foreseeable future, renewables will need to be complemented by highly efficient gas generation. These assets, which both enable VPI to provide essential services to the grid across England and are developing their own carbon abatement programmes, will contribute to achieving net zero."