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UK's Drax completes acquisition of Canadian wood pellet company Pinnacle

Highlights

Deal triples Drax's wood pellet capacity

Aiming for GBP50/MWh biomass cost

Drax has completed the acquisition of Canadian wood pellet manufacturer Pinnacle Renewable Energy, tripling the UK company's annual capacity from 2022, Drax said April 13.

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The acquisition, proposed in February, increases Drax's annual operational capacity to 4.9 million mt of biomass pellets from 2022, at 17 plants in locations across Western Canada and the US South, up from 1.6 million mt at present.

"As well as making Drax an international supplier of sustainable biomass, this deal advances our strategy to increase self-supply, reduce our own biomass production cost and create a long-term future for sustainable bioenergy," said Drax chief executive Will Gardiner.

On Feb. 8, Drax's proposed acquisition of Pinnacle valued the company at C$385 million ($306 million), with an implied enterprise value of C$741 million, including C$356 million of net debt.

Drax's main power station site in Selby, North Yorkshire, hosts four wood pellet-fired units totaling 2,595 MW, producing 14.1 TWh in 2020 -- Europe's largest renewable energy generation site.

Of the expected increased pellet supply from the acquisition, 2.9 million mt would be available for Drax's own needs from 2022, it said.

The deal also gave Drax access to four deepwater ports -- Vancouver, Prince Rupert, Mobile and Baton Rouge -- and three major wood fiber baskets -- Alberta, British Columbia and the US South -- company spokeswoman Ali Lewis told S&P Global Platts.

This transformed the company into an international business trading bioenergy from the North America continent to Europe and Asia, "with the market for biomass pellets for renewable generation in Europe and Asia expected to grow significantly," Drax said.

Postsubsidy strategy

A key part of Drax's strategy is to bring down the costs of biomass by a third to GBP50/MWh ($69/MWh) by 2027, when UK subsidies for biomass come to an end, Lewis said.

Drax expected the deal to accelerate these cost reductions, she said.

"We have already made good progress (pellet costs down 5% to $153/t 2020 v $161/t 2019) through a number of interventions including reducing the costs of transportation, reducing the costs of the material used in the pellets by co-locating sawmills with our pellet plants (LaSalle and Hunt Forest products) and commissioning of 0.4Mt low-cost pellet expansion," Lewis said.

Supporting BECCS

Increased self-supply and reduced biomass production costs would also support Drax's plans to deliver Bioenergy with Carbon Capture and Storage, or BECCS, at its Selby site, removing CO2 from the generation process.

As biomass power generation is already defined as carbon-neutral, removing CO2 from the combustion process would allow Drax to become carbon negative. This it aims to achieve by 2030.

"BECCS will provide a significant share of the renewable electricity needed in a net zero economy, support green jobs and drive growth in a post-COVID recovery," Gardiner said.

Drax is involved in the Zero Carbon Humber Partnership, which in March was awarded GBP21 million in government funding to advance plans to capture and store CO2 from industrial sites and power stations across the Humber.

The UK is to invest GBP1 billion in carbon capture, utilization and storage across four industrial clusters, creating "SuperPlaces" in areas such as the North East, the Humber, Scotland and Wales.

In a February consultation, the government set out provisional plans for supporting two clusters for deployment in the mid-2020s, with project sequencing beginning in April and concluding in October 2021.

A second phase, beginning in August 2021, is to determine which individual projects would receive CCUS program support.

In 2019, Drax's BECCS pilot began capturing CO2 from a 100% biomass feedstock using C-Capture technology. Last year, a second Drax capture pilot began with Mitsubishi Heavy Industries.

The longer-term plan is to have BECCS technology installed on at least one biomass generating unit at Drax by 2027, and all four by 2035.