Roads to Resilience

Case study: Drax Group

Introduction

The Drax Group is a business based around a traditionally coal-fired power station – the largest, cleanest and most efficient in the UK. However, Drax is currently transforming itself into a predominantly biomass-fuelled generator through burning sustainable biomass in place of coal. This transformation will see the UK’s single largest source of carbon dioxide emissions become one of the largest renewable generators in Europe with the aim of providing low carbon, low cost and reliable renewable power well into the future. In addition to selling to the wholesale market, Drax moved into B2B retail through the acquisition of Haven Power 1 in March 2009 and retail sales have grown significantly in the intervening years. Now, to reduce its carbon footprint, Drax is moving into biomass. Biomass is a term that covers many different types of organic, plant-based materials, which can be combusted to generate energy, in a sustainable way. It is generally known as the fourth main energy source, after oil, coal and gas. So the Drax Group manages three very different but interrelated businesses, each with different risks and challenges. stage added another three generating units in 1986 2 . Each coal-fired generation unit has a nameplate capacity of 660MW, meaning that the Drax Power Station has a total capacity of almost 4,000MW. To put this in perspective, the power station typically supplies seven to eight per cent of the UK’s electricity requirements. In the mid-1990s, new technologies such as flue gas desulphurisation (FGD) were commissioned to help reduce emissions, namely sulphur dioxide, and make Drax as clean as possible. The energy sector changed significantly in 1989 when the UK Government passed an act to privatise the industry. As part of that privatisation, Drax Power Station became part of National Power, one of three generating companies that were created. In 1999, National Power was obliged to divest some of its generating capacity and Drax Power Station was sold to an American company, which operated it from 1999-2003. At the time the whole sector was under intense pressure, with electricity prices hitting an all-time low in 2002-3, due to over-capacity, new electricity trading arrangements and increasing competition. Consequently, the offtake agreement with a major electricity supplier faltered which meant that Drax was not paid for the power it generated and so it was unable to service its debt and went into a series of standstill agreements with its lenders. As a result, Drax went through a restructuring and in 2003 the lenders took over its ownership. In December 2005, Drax underwent further refinancing and Drax Group plc was listed on the London Stock Exchange. Drax Group today employs over 1,100 staff and had an annual turnover of £1,779 million in 2012. The two newer businesses to the Group are Haven Power and Drax Biomass International. Haven Power, launched in 2006 and acquired by Drax in 2009, serves a specific niche: providing electricity initially to small and medium- sized businesses (SMEs) because previously, “ nobody differentiated the SME Key events The first stage of the Drax Power Station was built by the Central Electricity Generating Board (CEGB) in 1974 (three generation units) and the second

1 See: http://www.havenpower.com/about-us 2 See: http://www.draxpower.com/aboutus/history

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Roads to Resilience: Building dynamic approaches to risk to achieve future success