Drax’s share price shows signs of recovery as biomass audit looms
Drax’s share price showed signs of recovery in Monday’s trading on the London Stock Exchange, following a spooked investor sell-off last week when the National Audit Office (NAO) announced it would issue its own report on the government’s biomass strategy.
The FTSE 250 company closed trading up 3.8 per cent, priced at 516.4p per share after a 10.2 per cent drop on Friday – suggesting a calmer outlook from investors now that the dust has settled.
While there is no confirmed date for the report’s publication, the NAO pledges to look into how government support for the strategy has been implemented and funded – alongside whether Downing Street has successfully identified risks in further developments.
The government’s biomass strategy has backed continued taxpayer funding and development of operations, provided they are counterbalanced with carbon capture facilities, which Drax is looking to establish at its own facilities.
Drax operates the UK’s largest power station, with four biomass terminals, which make up 12 per cent of the country’s renewable mix.
Its burning of imported wood pellets is controversial – as it produces high emissions of carbon dioxide per unit of energy, rivalling fossil fuels.
Drax’s biomass plant is the single largest CO2 emitting power plant in the UK, responsible for 12.1 metric tonnes of CO2 according to climate analyst Ember.
However, it is regarded as renewable by the government, as new trees are planted to replace old ones used in sourcing wood – which are expected to recapture the carbon emitted by burning the pellets.
When used in high-efficiency wood pellet stoves and boilers, biomass pellets can offer combustion efficiency as high as 85 per cent – making it highly prolific as an energy source.
Wood pellet generation from Drax also helped stave off blackouts last winter.
On this basis, Investec considers the shareholder sell-off to be a “significant overreaction”, with any potential rejection of biomass’s renewable role in the UK supply mix not part of NAO’s remit.
Martin Young, senior analyst at Investec, said: “Checks and balances are hugely important, but in a country with a clear net zero ambition, we need to crack on, and if this means prioritising pace over perfection, then so be it.”
Investec expects the report will contrast with the headline coverage and will instead be a fact-based analysis of the strategy, rather than suggesting policies.
“It would therefore be helpful to all stakeholders if the NAO could expand on its intentions, additionally
explaining why it has taken over a month post publication of the Biomass Strategy to announce the intention to produce a report,” Young added.