This article is more than 3 years old

This article is more than 3 years old

Britain’s largest coal power producer, Drax, is bidding to buy Opus Energy and four gas stations in a move away from its coal legacy that has been welcomed by investors.



Drax said it has made a £340m offer for business energy provider Opus Energy, an acquisition that will create Britain’s fifth-biggest business energy retailer in combination with Drax’s existing Haven Power customers.

Protesters criticise Drax over use of subsidies for coal and wood power Read more

Drax’s planned investments were welcomed by the City, with shares closing up 12% at 311p – the biggest riser of the day on the FTSE 250.

The Opus deal is subject to the European commission approving a UK government contract to support the conversion of one of its coal units to running on biomass.

Drax, whose huge power plant in Yorkshire was once Europe’s most polluting coal plant, has been converting its coal-fired station to biomass, but a government decision to cut subsidies for renewable energy has hampered this strategy. This triggered a strategic review last year and Tuesday’s announcements show the power producer will shift focus to supplying energy to end consumers and providing backup electricity to complement growing wind and solar power output.

Britain faces a supply crunch over the coming winters as nuclear reactors age and coal plants are forced to close by 2025. The government is trying to encourage new gas plants to be built to help plug the supply gap.

“These initiatives mark an important step in delivering our strategy ... through greater diversification of the businesses,” said the Drax chief executive, Dorothy Thompson, adding that five of its biggest shareholders supported the Opus acquisition.

Drax said it would also pay £18.5m to buy four open-cycle gas turbine (OCGT) projects with a capacity of about 1.2GW from Watt Power, a unit of Noble Group. The plants, which are yet to be built, will bid to supply backup electricity in 2020-21 in a government-led auction which started on Tuesday.

“We see today’s announcement as a clear positive which goes a long way to addressing some of the concerns that underpin our ‘underperform’ recommendation [on Drax shares],” said John Musk, managing director of European utilities research at RBC Capital Markets.

The company said it still expects full-year Ebitda to be around the bottom of the range of current market forecasts. Market forecasts in July were for £146m to £185m.