Drax CEO: Increasing volatility will boost value of flexibility

Drax power station: Creative Commons/Paul Glazzard

The value of flexible power assets will increase, according to Drax CEO Will Gardiner.

“Given the structural shift in UK generation towards intermittent renewables we expect greater power price volatility, a growing need for system support services and increasing value from flexibility,” he said.

However, the company thinks market and regulatory change is required so that generators get paid more for providing power when it is needed.

Drax made £79m from flexibility in 2018. That figure is set to increase significantly in 2019 with the acquisition of Scottish Power’s gas and hydro assets.

That assumes the Capacity Market (CM) will recommence, with Drax expecting £68 million of capacity payment revenues in 2019.

Capacity market

Drax CEO Will Gardiner

“Our view that the Capacity Market will be re-established on the same or similar terms is consistent with the position expressed by the UK government. We expect the issue to be resolved during 2019 and we reflect this in our expectations for the year,” said Gardiner.

Nevertheless, Drax hedged against a longer hiatus or permanent suspension in the deal it struck with Scottish Power owner Iberdrola: if less than 100% of CM contracted revenue materialises, and the portfolio’s gross profit is lower than expected, Drax will receive a payment from Iberdrola of up to £26m. However, if the portfolio performs better than expected, Iberdrola can earn up to £26m in upside from Drax, even if 100% of the CM payments are not received.

More gas

If the CM is reinstated and prices increase, Drax may look at building a new 1.8GW combined cycle gas turbine (CCGT) plant at Damhead Creek, an option acquired as part of the Scottish Power acquisition.

More immediately it is “making progress” in developing options for four 300MW open cycle gas turbines (OCGTs) and up to 3.6GW of coal to gas repowering at Drax Power Station. Those projects would require Capacity Market support, said Gardiner.

More money

While the company sees increasing value in flexibility, it also states that “many ancillary services require policy, regulatory and market change to ensure generators are suitably compensated for these services”.

Adjusted revenue for 2018 of £4,237 million up £552 million on 2017. Adjusted gross profit for 2018 of £601 million (2017: £545 million)

The company posted a total profit before tax of £14m.

Related stories:

Drax completes Scottish Power deal

Drax and Iberdrola agree CM risk share to get deal done

Bad debt hits returns at Opus and Haven

Capacity Market: Ofgem rejects plan to collect payments during suspension

EMR delivery body confirms all capacity payments suspended, auctions shelved

Decc “confident” of beating Tempus legal challenge

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