Drax Group plc Annual report and accounts 2023
Committed to the
world’s energy transition

Strategic report
At a glance 2
Market context 4
Business model 6
Chair’s Statement 8
CEO’s Review 10
Carbon removals 16
Sustainable biomass 18
Energy security 20
Financial Review 22
Remuneration at a glance 28
Key Performance Indicators 30
Stakeholder engagement 32
Section 172 Statement 32
Sustainable Development 42
Climate Positive 50
Nature Positive 56
People Positive 62
Biomass sourcing 72
Taskforce on Climate Related
Financial Disclosures (TCFD) 78
Verification statements 91
Viab ilit y Sta tement 92
Principal risks and uncertainties 94
Governance
Letter from the Chair 110
Board of Directors 114
Corporate Governance report 118
Nomination Committee report 127
Audit Committee report 132
Remuneration Committee report 144
Directors’ report 161
Directors’ responsibilities statement 165
Financial statements
Financial statements contents 166
Independent Auditor’s report to the
members of Drax Group plc 168
Shareholder information
Shareholder information 282
Alternative performance
measures glossary 285
Glossary 287
Company information 289
An electricity generator produces dispatchable power when the power can be
rampedup and down, orswitched on or off, at short notice to provide a exible
responseto changes in electricity demand. Biomass,pumped storage, coal, oil, and
gaselectricity generation can meet these criteria and hence can be Dispatchable
Powersources. Nuclear can be dispatched against an agreed schedule but is not exible.
Windand solar electricity cannot be scheduled and hence are not Dispatchable. An
electricity system requires sufficient Dispatchable Power to operate and remain safe.
Renewable power is derived from natural sources that are replenished at a higher rate
than they are consumed.
Total revenue Adjusted EBITDA (excluding EGL)
(1) (3)
Total basic earnings per share
£8 ,125m
(2022: £7,775m)
£1,214m
(2022: £731m)
142.8 pence
(2022: 21.3 pence)
Total operating profit Dividend per share Cash generated from operations
£908m
(2022: £146m)
23.1 pence
(2022: 21.0 pence)
£1,111m
(2022: £320m)
Percentage of total UK renewable
electricity generated
Net debt
(1) (2)
Total recordable incident rate
8%
(2022: 11%)
£1,084m
(2022: £1,206m)
0.38
(2022: 0.44)
Group carbon intensity Group carbon emissions Scope 1 and 2
(location-based)
Group carbon emissions Scope 3
39 tCO
2
e/GWh
2022: 49 tCO
2
e/GWh)
486 ktCO
2
e
(2022: 669 ktCO
2
e)
3,534 ktCO
2
e
(2022: 3,123 ktCO
2
e)
Wood pellets produced Employee engagement score
(1) Adjusted financial performance measures
aredescribed on page 206
(2) Net debt is described in Alternative
performancemeasures on page 209
(3) Electricity Generator Levy (EGL) of £205m
3.8Mt
(2022: 3.9Mt)
79%
(2022: 79%)
Financial/ESG highlights
Content
Delivering dispatchable, renewable power
Strategic report
Read more at drax.com
Contents

Through our strategic pillars, that are aligned to net zero targets,
we are delivering on our promise. This is how we are creating impact:
Our purpose
is to enable a zero
carbon, lower cost
energy future
To be a UK leader in
dispatchable, renewable
generation
Strategic pillarPage 20
To be a global leader in
sustainable biomass pellets
To be a global leader
in carbon removals
Strategic pillarPage 18 Strategic pillarPage 16
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Contents

Our integrated exible and renewable value chain
Employees
892
Adjusted EBITDA
£72m
(2022: £26m)
Pellet Production
Sustainably sourced biomass is a renewable,
low-carbon source of energy and a key
element in the road to net zero. This is at
the heart of our purpose. The material we
use to make pellets includes sawmill and
other wood industry residues and forest
residuals (which includes low grade
roundwood, thinnings, branches and tops).
They provide a sustainable, low-carbon fuel
source that can be safely and efficiently
delivered through our global supply chain.
The forests from which we source our
biomass are managed in accordance with
standards designed to support the health
and growth of these forests over the
longterm. Based in the US South and in
Western Canada, we have 18 operational
and development sites with nameplate
capacity of around 5.4Mt once expansions
are complete.
We have US$3.7 billion of long-term
contracted sales to third parties across
Asia and Europe. Our Generation business
also uses sustainably sourced pellets
fromour Pellet Production sites to make
exible, renewable electricity for the UK.
We are committed to sourcing sustainable
biomass that achieves both decarbonisation
and positive forest outcomes. You can
read more about this in the Sustainable
Development section on page 44.
Generation
Our portfolio of exible, low-carbon and
renewable UK power assets – biomass,
hydro, and pumped storage generation –
provides dispatchable, renewable power
and system support services to the
electricity grid.
Our dispatchable power assets – which
can be turned up or down, or switched
onor off, at short notice to provide (or
dispatch) a exible response to changes
inelectricity demand – have an important
role to play in enabling the transition to
more renewable energy and a more
exible energy system: generating
renewable electricity when the sun
doesn’t shine and the wind doesn’t blow.
We are the UK’s largest source of
renewable power by output, and Drax
Power Station is the UK’s largest single
source of renewable electricity by output.
Our portfolio provides long-term
earnings stability and opportunities
tooptimise returns from the transition
toalow-carbon economy.
We are developing options for BECCS
at Drax Power Station in the UK and
exploring options for global BECCS.
Customers
Our Customers business sells renewable
electricity to industrial and commercial
customers in the UK.
The business also offers non-generation
system support and energy management
services to help customers cut costs and
reduce their emissions.
This includes the provision of
decarbonisation services, suchas vehicle
eet electrification, implementing a
charging infrastructure, or optimising
electric assets. It also helps customers to
sell any renewable power they generate.
Opus Energy sells renewable electricity
and gas, powering a portfolio of mainly
small and medium-sized enterprise (SME)
customers, as well as some larger
corporate businesses, across the UK. The
provision of renewable sourced electricity
as standard supports customers with the
achievement of their sustainability goals.
We are committed to enabling a zero carbon, lower cost energy future. Our
strategic aims are to be a global leader in both sustainable biomass pellets and
carbon removals, and to be a UK leader in dispatchable, renewable generation.
Drax is the second largest producer of sustainable biomass globally, and the UK’s
largest source of renewable power byoutput. We are progressing options for
carbon removals using bioenergy with carbon capture and storage (BECCS).
Employees
781
Adjusted EBITDA
£89m
(2022: £134m)
Pellets produced
3.8Mt
(2022: 3.9Mt)
Employees
675
Adjusted EBITDA (excluding EGL)
£1,138 m
(2022: £696m)
Percentage of total UK
renewableelectricity generated
8%
(2022: 11%)
At a glance
Drax Group plc
Annual report and accounts 2023
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Strategic report
Contents

Where we operate
18 operational and development sites,
with nameplate capacity of around
5.4Mt once expansions are complete.
Five deep water ports, including one
indevelopment, accessing Asian and
European markets.
Ports
Developments
Operational plants
Corporate offices
Dispatchable, renewable power generation –
biomass, hydro, and pumped storage –
and supply to UK industry.
Pumped storage hydro generation
Biomass from waste
Hydro-electric generation
Biomass generation
Customers business – sales and energy management services
Corporate offices
Canada
UK Japan
FLORIDA
MARYLAND
CALIFORNIA
CONNECTICUT
DELAWARE
ARKANSAS
GEORGIA
IDAH
O
IOWA
KANSAS
KENTUCKY
MAIN
E
MASSACHUSETTS
MICHIGA
N
MINNES
OTA
MISSISSIPPI
MISSOURI
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW
YORK
NORTH
CAROLINA
NORTH
DAKOTA
OKLAHOMA
OREGON
PENNSYLVANI
A
RHODE ISLAND
SOUTH DAKOTA
LOUISIANA
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON D.C.
WISCONSIN
WYOMIN
G
ILLINOI
S
ARIZONA
ALABAMA
SOUTH
CAROLINA
TENNESSEE
WASHINGTON
ALBERTA
BRITISH
COLUMBIA
NEW
BRUNSWICK
NEWFOUNDLAND
PRINCE
EDWARD
IS.
MANITOBA
NW TERRITORIES
NOVA SCOTIA
ONTARIO
QUEBEC
SASKATCHEWAN
PANAMA
COSTA RICA
NICARAGUA
HONDURAS
EL SALVADOR
BELIZE
GUATEMALA
COLOMBIA
VENEZUELA
BRAZIL
DOMINICAN
REPUBLIC
MEXICO
ICELAND
CUBA
JAMAICA
GREENLAND
BERMUDA
BAHAMAS
HAITI
PUERTO
RICO
Vancouver
Westview
(Prince
Rupert)
Smithers
Prince George
High Level
Entwistle
Houston
Burns Lake
Meadowbank
Williams Lake
Armstrong
Lavington
Princeton
Longview
Los
Angeles
San
Francisco
San
Diego
Phoenix
Bosto
n
New
York
Harrisbur
g
Ciudad
Juárez
Toront
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Detroi
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n
Montre
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Ottaw
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St.
Paul
Baton Rouge
LaSalle
Houston
Monroe
Aliceville
Morehouse
Demopolis
Leola
Russellville
Mobile
Monterre
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Guadalajar
a
Haban
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Guatemal
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Kingston
Port-Au-Princ
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Santo
Domingo
San José
Managu
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Cali
Maracaib
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Caracas
Medellín
Bogotá
Panama
Las Vegas
Acapulc
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Cheyenne
Lincoln
Salt Lake City
Carson
City
Sacramento
August
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Hartfor
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Providenc
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Tegucigalp
a
Hermosillo
Torreón
Leon
Mexico City
Tampico
Mérida
Thunder Bay
Moosonee
Igaluit
Reykjavik
Goose Bay
St. John’s
Amite
FLORIDA
MARYLAND
CALIFORNIA
CONNECTICUT
DELAWARE
ARKANSAS
GEORGIA
IDAH
O
IOWA
KANSAS
KENTUCKY
MAIN
E
MASSACHUSETTS
MICHIGA
N
MINNESOTA
MISSISSIPPI
MISSOURI
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW
YORK
NORTH
CAROLINA
NORTH
DAKOTA
OKLAHOMA
OREGON
PENNSYLVANI
A
RHODE ISLAND
SOUTH DAKOTA
LOUISIANA
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON D.C.
WISCONSIN
WYOMIN
G
ILLINOI
S
ARIZONA
ALABAMA
SOUTH
CAROLINA
TENNESSEE
WASHINGTON
ALBERTA
BRITISH
COLUMBIA
NEW
BRUNSWICK
NEWFOUNDLAND
PRINCE
EDWARD
IS.
MANITOBA
NW TERRITORIES
NOVA SCOTIA
ONTARIO
QUEBEC
SASKATCHEWAN
PANAMA
COSTA RICA
NICARAGUA
HONDURAS
EL SALVADOR
BELIZE
GUATEMALA
COLOMBIA
VENEZUELA
BRAZIL
DOMINICAN
REPUBLIC
MEXICO
ICELAND
CUBA
JAMAICA
GREENLAND
BERMUDA
BAHAMAS
HAITI
PUERTO
RICO
Vancouver
Westview
(Prince
Rupert)
Smithers
Prince George
High Level
Entwistle
Houston
Burns Lake
Meadowbank
Williams Lake
Armstrong
Lavington
Princeton
Longview
Los
Angeles
San
Francisco
San
Diego
Phoenix
Bosto
n
New
York
Harrisbur
g
Ciudad
Juárez
Toront
o
Detroi
t
Madiso
n
Montre
al
Ottaw
a
St.
Paul
Baton Rouge
LaSalle
Houston
Monroe
Aliceville
Morehouse
Demopolis
Leola
Russellville
Mobile
Monterre
y
Guadalajar
a
Haban
a
Guatemal
a
Kingston
Port-Au-Princ
e
Santo
Domingo
San José
Managu
a
Cali
Maracaib
o
Caracas
Medellín
Bogotá
Panama
Las Vegas
Acapulc
o
Boise
Cheyenne
Lincoln
Salt Lake City
Carson
City
Sacramento
August
a
Lansin
g
Alban
y
Dove
r
Annapoli
s
Des
Moines
Hartfor
d
Trento
n
Concor
d
Montpeli
er
Providenc
e
Tegucigalp
a
Hermosillo
Torreón
Leon
Mexico City
Tampico
Mérida
Thunder Bay
Moosonee
Igaluit
Reykjavik
Goose Bay
St. John’s
Amite
Tokyo
US
Cruachan Power Station
Drax Power Station
Northampton
Ipswich
London
Lanark Hydro Scheme
Galloway Hydro Scheme
Daldowie Fuel Plant
Glasgow
Drax Group plc
Annual report and accounts 2023
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Market context
Our role in energy security,
tackling climatechange,
andaJust Transition
The world is navigating a complex
interplay of technological, geopolitical,
environmental, and social factors, requiring
global co-operation and innovative
solutions. Trade tensions, technological
competition, and ideological differences
contribute to a delicate balance of power
that inuences international politics and
economics. As societies grapple with
thechallenges, the pursuit of sustainable
andinclusive development must remain
ashared goal. This is summarised as
theenergy trilemma – how to maximise
decarbonisation and ensure energy
security, whilst minimising the cost
(maximising the benefit) to society.
Energy security
In the two years since the Ukraine-Russia
war started, energy security has become
increasingly important, with countries and
organisations facing a tough balancing act
between emissions cuts and energy
security. During this time, Drax has
continued to play an important role in
preserving the UK’s energy security. In
2023 across its pumped storage, hydro
and biomass assets, Drax provided 8% of
the UK’s renewable power and Drax Power
Station in North Yorkshire was the largest
single source of renewable power by
output in the UK, whilst also supporting
thousands of jobs across the country both
directly and through our supply chain.
With the growth in the electrification
ofheating and transport likely to lead to
asignificant increase in the demand for
electricity, there is a clear need for the
development of new capacity. This will
likely come from wind and will drive a need
for a more exible power system. This is at
the heart of our exible, renewable model.
Drax helps to keep the lights on when the
wind doesn’t blow and the sun doesn’t
shine. Unlike wind or solar, our sites
provide secure, dispatchable, renewable
power whatever the weather – supporting
grid stability.
The global commitment to address climate
change is reected in initiatives like the
Paris Agreement and the agreement to
transition away from fossil fuels reached
atCOP28 in Dubai, but the implementation
of sustainable practices and the transition
to renewable energy sources have faced
increasing challenges from wider economic
pressures, such as higher interest rates
and in some regions political hesitancy.
8%
In 2023 across its pumped storage,
hydroand biomass assets, Drax
provided8% of the UK’s renewablepower
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The Global Role of BECCS
and Carbon Dioxide
Removals (CDRs)
Leading scientists agree that reducing
emissions alone isn’t enough to achieve
global climate goals, and that carbon
capture and storage (CCS) will be crucial
inglobal efforts towards reaching net zero.
BECCS is currently the only credible
large-scale technology that could
generate renewable power and deliver
carbon removals.
The Intergovernmental Panel on Climate
Change (IPCC) is the world’s leading
authority on climate science. It states that
carbon dioxide removal (CDR) methods,
including BECCS, are needed to mitigate
residual emissions and keep the world
onapathway to limit warming to 1.5°C.
A Just Transition
The global energy market continued to
seea transition to cleaner and more
sustainable energy sources, advancements
in technology, and a growing emphasis on
digitalisation. Environmental concerns,
enhancing energy security, and meeting
the evolving demands of a changing world
remain high priorities for governments
across the world.
Socially, conversations about diversity,
equity, and inclusion are gaining
prominence, inuencing corporate policies,
public discourse, and political agendas.
Movements advocating for social justice
and equality continue to reshape cultural
norms and challenge systemic inequalities.
Against this backdrop policymakers
needto address all three elements of the
energytrilemma in order to minimise the
cost, maximise the benefits, and deliver
aJust Transition.
The illustrative mitigation pathways
assessed in the IPCC’s latest report use
significant volumes of CDRs, including
BECCS, as a tool for mitigating climate
change. IPCC modelling shows that
between 0.5 and 9.5 billion tonnes of
CDRs, via BECCS, could be required
annually by 2050 to reach global net zero
targets. The UN-backed Principles for
Responsible Investment estimate that the
CDR market could be worth over a trillion
dollars by 2050. More supply is required
tomeet the scale of the challenge, and
theIPCC estimates a requirement for
80Mt of BECCS by 2030 (IPCC’s median
case) compared to just 20Mt of projects
indevelopment for 2030.
The UK sits in an advantageous position
torealise the potential of CCS. Not only
does it possess 25% of Europe’s geological
storage opportunity for carbon, it also
holds an infrastructure, skills, and
engineering advantage due to the legacy
associated with the oil and gas industry.
Totake advantage of this position, the UK
must act fast, requiring action by the
Government, business, and the investment
community. This includes finalising CCS
business and financial models, confirming
the role of the UK Emissions Trading
Scheme (UK ETS) scheme and voluntary
carbon markets in supporting investment
in CCS, and providing a near-term
incentive for prospective storage
operators to appraise storage locations
building on recent North Sea Transition
Authority licensing rounds.
The international environment for BECCS
continued to develop favourably in 2023.
A growing number of governments and
key stakeholders around the world
recognise that deploying BECCS at scale
will be critical to delivering on climate
targets. In the US and Canada, policies
tosupport deployment of renewables and
carbon capture technologies are under
development and Drax continues to
engage with policymakers at the federal,
state/provincial, and local level to ensure
our sustainability and supply chains are
well understood, and to educate on how
biomass and BECCS can contribute to
gridstability, economic development,
andemissions targets.
The EU carbon removal certification
framework aims to scale up carbon
removal activities and whilst still going
through the legislative process, it
classifiesBECCS as a permanent solution.
The Industrial Carbon Management
consultation outcome, published in
November 2023, demonstrated a high
level of support for carbon removals (71%)
and BECCS in particular as the highest-
ranked technology (76%). Several
governments have announced carbon
management strategies, research and
development funding schemes or grants.
On biomass, two pieces of legislation
published in 2023 – the Renewable Energy
Directive (RED III) and the EU Regulation
on Deforestation-free products – could
impact our supply chains and impose
additional requirements relating to the
trade of wood pellets into and from the
EU. We remain engaged on these as the
EU works on implementation, to help
ensure the rules are practical and
implementable and that trade into and
from the EU can continue.
We expect the momentum behind BECCS
to continue in 2024. This could include
thedevelopment of detailed roadmaps to
deliver net zero targets and international
negotiations on carbon markets.
9.5bn
Up to 9.5bn tonnes of carbon dioxide
removals, via BECCS, could be
required annually by 2050.
Drax Group plc
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People
Supportive, diverse and inclusive
culture where colleagues feel
they belong
Resilient supply chain
Geographically diversified
biomass supply chain
Innovation
Developing options for large-
scale carbon removal
technologies
Financial strength
Clear capital allocation policy
to support the strategy
Customer services
Decarbonisation services to
high-quality business customers
Power generation
11.5TWh
Biomass generation
0.8TWh
Hydro generation
Our assets
Driven by our purpose
Our purpose is to enable a zero
carbon, lower cost energy future
Sustainability underpins what we do
Helping to ensure we have a positive impact
on the climate, nature, and people
A leading UK-based renewable
energy company with global
growth opportunities aligned
to net zero targets.
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Sustainable
pellet production
Dispatchable
renewable
power
generation
Sale of
renewable
energy
to business
customers
Our purpose
Sustainability
Business model
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Contents

Stakeholders
Workforce
SeePage 33
Shareholders
and investors
SeePage 33
Communities
SeePage 34
Government, political
bodies and regulators
SeePage 35
Customers and suppliers
SeePage 36
How we add value
Supporting the
UK’s energy security
– stable, resilient
energy supply
No.1
UK’s largest source
of renewable power
by output (8%)
No.2
Second largest
supplier of sustainable
biomass globally
Supporting the energy
transition – secure,
renewable, dispatchable
UKpower generation
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People and values
Since joining the Board, I have already
spent time with many colleagues across
the Group. I have visited several sites, and
Ilook forward to visiting more during 2024
as I continue to learn about Drax.
I have been impressed with the
commitment and enthusiasm of colleagues
I have met, and the strong sense of pride in
what we are doing. This extends to making
sure we do what is right in the way we
work, that we support one another, and
that we actively engage with stakeholders.
Sustainability is at the heart of the Group,
and we believe that achieving a positive
economic, social, and environmental
impact helps us create sustainable
long-term value. We welcome healthy
discussion and challenge about what
wedo, and we acknowledge that there is
always room for continued improvement.
The Board remains committed to building
a supportive, diverse, and inclusive
working environment where all colleagues
feel comfortable contributing to healthy
debate to achieve the best results. In our
latest colleague engagement (My Voice)
survey we received positive outcomes
onmeasures, such as inclusion and safety,
with an overall engagement score of 79%
(2022: 79%). You can read more about
thison page 64. I am also pleased to report
that as at 1 January 2024, 56% ofthe
Boardwere women.
On a personal note, I am grateful to Philip
Cox for his support during my introduction
to the Company and I would like to thank
him on behalf of the Board for his nine
years of service to the Group, as a
Non-Executive Director and Chair.
During his stewardship, the business
hascompleted its transition from coal to
biomass power generation, our Pellet
Production business has grown, and we
have progressed opportunities for BECCS.
These actions have been driven by the
Group’s continuing commitment to deliver
our purpose and contribute to the fight
against climate change.
Chair’s statement
I am pleased to present my first Chair’s
statement for the Group. I joined the Drax
Board in August 2023 and assumed the
role of Chair in January 2024.
I have spent most of my executive career
working in power generation, primarily
inNorth and South America. What drew
me to Drax, among other things, was
theGroup’s strong sense of purpose
inenabling a zero carbon, lower cost
energyfuture.
Over the last 15 years Drax has
transitioned from a UK-based coal-fired
power generator to an international
renewable energy company. With the
development of carbon removal
opportunities utilising BECCS technology,
Ibelieve that Drax is at the forefront of
theenergy transition, and I am excited
tobe a part of that.
Andrea Bertone,Chair
Enabling a secure and
sustainable future, together
with you.
Drax Group plc
Annual report and accounts 2023
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Results and dividend
Adjusted
(1)
EBITDA (excluding the
Electricity Generator Levy (EGL)) in 2023
was £1,214 million. This is significantly
higher than 2022 (£731 million), reecting
a strong power generation and system
support performance in the UK. The
balance sheet also remains strong, with
Net debt of £1,084 million (2022:
£1,206 million), which is significantly
below our target ratio of around 2times
Net debt to Adjusted EBITDA.
At the 2023 Half Year Results, we
confirmed an interim dividend of
£36 million (9.2 pence per share). The
Board proposes to pay a final dividend in
respect of 2023 of £53 million, equivalent
to 13.9 pence per share. This will make
thefull year 2023 dividend £89 million
(23.1 pence per share) (2022: £84 million,
21.0 pence per share).
This represents a 10% increase on the
dividend per share paid in respect of 2022.
It is also consistent with our policy to pay
adividend that is sustainable and expected
to rise as the strategy delivers stable
earnings, cash ows and opportunities
forgrowth.
The Group has a clear capital allocation
policy. In determining the rate of growth
individends from one year to the next, the
Board will take account of cash ows from
contracted income, the less predictable
cash ows from the Group’s commodity-
linked revenue streams, and future
investment opportunities. If there is a
build-up of capital, the Board will consider
the most appropriate mechanism to return
this to shareholders. In line with this policy,
between May 2023 and September 2023
the Group conducted a £150 million share
buyback programme, purchasing over
26 million shares.
Summary
I would like to thank all colleagues for
theirhard work, dedication, and expertise
in helping us deliver our purpose and our
financial results.
In 2023, we used our generation assets
and our supply chain to provide reliable
and exible power; weenhanced security
of supply in the UK; and we continued
todeliver strong financial performance,
which resulted ingrowing dividends to
ourshareholders.
At the same time, we have made good
progress with our strategic objectives.
Ourbiomass growth strategy is clear
andunderpins our plans for biomass sales,
opportunities for BECCS, and renewable
power generation.
Through these complementary
opportunities, we believe we can deliver
sustainable long-term value to our
stakeholders as we realise our purpose of
enabling a zero carbon, lower cost energy
future and become a carbon negative
company, removing more carbon from the
atmosphere than we produce across our
direct operations.
Andrea Bertone,
Chair
28 February 2024
Board composition (women)
(as at 1 January 2024)
56%
Dividend increase
10%
I believe that Drax is at the forefront of the energy
transition, and I am excited to be a part of that.
(1) Adjusted financial performance measures
aredescribed on page 206.
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CEO’s Review
Crucially, we also need carbon removal
technologies, like BECCS, to remove
carbon from the atmosphere.
We believe that the use of sustainable
biomass and BECCS, alongside exible,
renewable generation and energy systems
can make an important contribution –
decarbonising and protecting energy
security, whilst stimulating economies
andminimising the cost.
These benefits will only be possible with
the right biomass – biomass that is
sourced sustainably. At Drax we are
committed to using biomass that can
deliver positive outcomes for the climate,
nature, and people. We continue to put in
place policies, procedures, and controls
tosupport this, and we are committed to
working in partnership with stakeholders in
the communities where we operate, as well
as with industry, scientists, and civil society
organisations to achieve our ambitions.
Against this backdrop we are continuing to
execute our strategy for carbon removals
from BECCS in the US and UK by 2030.
Inaddition we are planning to expand
ourpumped storage hydro business,
andbiomass supply chain.
Through our strategy we are creating
opportunities for growth and attractive
returns while aligning to global
decarbonisation efforts. Investments
remain subject to the right frameworks
from governments and regulators,
underpinned by high-quality earnings and
cash ows from our core business. We are
delivering for shareholders today, paying
asustainable and growing dividend and
additional returns via a £150 million share
buyback programme conducted in 2023,
in line with our capital allocation policy.
Safety
Safety remains a primary focus and, in
2023, we achieved an improvement in
performance with our Total Recordable
Incident Rate of 0.38 (2022: 0.44). As
weexplained in our 2022 Annual Report,
we widened the scope of reporting to
include contractor incidents and saw
improvements in the recording of incidents
in our pellet operations.
We are committed to a strong safety
culture across the Group and remain
focused on improving performance.
Wecontinued to implement Health, Safety
and Environmental (HSE) improvement
plans across our businesses in 2023,
including investment in training, human
resource, and capital projects. We also
strengthened our HSE reporting culture
byencouraging all colleagues to provide
feedback when they identified any
hazards or near misses. From this,
wewereable to implement action plans
toprevent reoccurrence. OurSee it, Stop
it, Report it campaign wasrun Group-wide.
The global geopolitical environment
continued to be challenging in 2023,
withthe ongoing warin Ukraine, as well
asthe conict in the Middle East.
Nevertheless, markets stabilised and
prices came down for many commodities,
as Europe, in particular, adapted to the
new reality and limits on imports of gas
from Russia. Despite these challenges,
theworld continues to drive towards
decarbonisation, with an agreement
atCOP28 to commit to transition away
from burning fossil fuels.
These trends also apply to the UK, where
gas and power prices have come down
significantly. Energy security continues
tobe a key focus and, despite all the
challenges, the UK looks to continue
delivering its net zero targets.
As many countries seek to decarbonise in
a cost-effective manner, while protecting
energy security and delivering a Just
Transition, our purpose – to enable a zero
carbon, lower cost energy future – iswell
aligned with these competing priorities.
The world must act now to address the
climate crisis if we are to limit global
warming to 1.5°C above pre-industrial
levels. We need more renewable energy,
and more exible energy systems to make
thebest use of intermittent renewables.
Will Gardiner,CEO
We are creating opportunities
for growth and attractive
returns aligned to global
decarbonisation efforts.
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Against the backdrop of a more challenging
operational and market environment, we
believe that this was a robust performance,
with opportunities to improve profitability
in our Pellets business.
We also continued to progress
development opportunities with the
expansion of Aliceville (Alabama) and
anew-build pellet plant at Longview
(Washington State) that includes the
development of a new co-located
portfacility.
Taken together, existing operations and
developments will give Drax a network of
18 pellet plants (around 5.4Mt of capacity),
with access to five deep-water ports in
theUS South and West Coast of
NorthAmerica.
The pellet supply market experienced
achallenging year but, as a vertically
integrated producer, user, buyer, and seller
of biomass, we operate a differentiated
biomass model from our peers and see
thecurrent global biomass market as
representing a favourable balance of
risksand opportunities for the Group.
In the short term, we are focused on
managing risks to our supply chain, while
at the same time remaining alert to the
opportunities this may create. Longer
term, we are fundamentally positive on the
outlook for biomass demand and expect
this to grow, as sustainable woody biomass
is increasingly used for BECCS and carbon
removals, as well as for next-generation
sustainable aviation fuel (SAF).
The Group currently has over 17 million
tonnes of long-term biomass sales
contracted to third parties in Asia and
Europe extending to the mid-2030s.
In November 2023, we commenced supply
of a new 0.5Mt five-year contract with a
Japanese customer, and in November we
also agreed a Letter of Intent for the sale
of up to 1Mt of biomass to a major
European utility, including a biofuel project
which is targeting a final investment
decision during 2025.
Chair
At the start of 2024 Andrea Bertone
became the new Chair of the Drax Board.
With her extensive experience of the
energy sector inthe Americas, Andrea’s
stewardship will be valuable as we develop
our growing global business.
Andrea replaces Philip Cox, who dedicated
nine years of service as a Non-Executive
Director and Chair. Philip was Chair
throughout my time at Drax and I am
grateful for his calm and assured
stewardship of the business during a
period of significant change and growth.
Thank you, Philip.
Summary of 2023
In 2023 we delivered a strong financial and
operational performance. We did so while
continuing to play an important role
supporting energy security in the UK
through the provision of dispatchable,
renewable generation for millions of
homes and businesses.
Adjusted
(1)
EBITDA (excluding EGL) of
£1,214 million, represents a 66% increase
on 2022 (£731 million). This reects a
verystrong system support and renewable
power generation performance across
theportfolio as well as growth in our
Customers business.
Biomass operations in Generation and
Pellet Production remain at the heart
ofthe Group, with combined Adjusted
EBITDA (excluding EGL) of £974 million
in2023 (2022: £659 million).
Flexible generation and energy supply
(pumped storage, hydro and Customers)
delivered Adjusted EBITDA (excluding
EGL) of £325 million (2022: £197 million).
In addition, capital projects, innovation,
and other costs give Consolidated
Adjusted EBITDA (excluding EGL) of
£1,214 million (2022: £731 million).
Our balance sheet is strong, with total
cash and committed facilities of
£639 million and Net debt of
£1,084 million. This means that Net debt
to Adjusted EBITDA (excluding EGL) was
less than 1 times – significantly below
theGroup’s target of around 2 times.
In line with our policy to pay a sustainable
and growing dividend, the Group plans to
pay a total dividend for 2023 of 23.1 pence
per share. This is an increase of 10% on
2022 (21.0 pence per share), which in
addition to the £150 million share buyback
programme represents total returns to
shareholders of £236 million.
The Group’s capital allocation policy
remains unchanged and Drax continues
toassess options for capital investment,
further returns to shareholders, and the
repurchase or retirement of debt.
Electricity Generator Levy
As a consequence of higher gas prices,
theUK Government introduced the EGL,
alevy on renewable generation. The
charge incurred in 2023 was £205 million.
Ofgem and the National Audit Office
In May 2023, Ofgem (via its audit
contractor, Black & Veatch), completed
anannual assessment of Drax Power
Limited’s compliance with the Renewables
Obligation (RO) scheme, with Drax
receiving a “Good” rating (the highest
offour available ratings).
Separately, also in May 2023, Ofgem
announced the opening of an investigation
into Drax Power Limited’s annual biomass
profiling reporting under the RO scheme.
In its opening statement, Ofgem
confirmed that it had not established
anynon-compliance that would affect
theissuance of Renewables Obligation
Certificates (ROCs). Drax awaits the
conclusion of this investigation.
In September 2023, the National Audit
Office (NAO) announced a review of the
UK Government’s biomass strategy. In
January 2024, the NAO concluded its
process, acknowledging the important role
that sustainably sourced biomass has to
play in the UK Government’s plans for net
zero, and recognising the importance of
sustainability reporting and criteria being
robust and fit for purpose.
Operational performance
Pellet Production
Adjusted EBITDA of £89 million (2022:
£134 million) reects lower levels of
production, an increased proportion
ofsales to third parties under legacy
contracts, and higher operating
expenditure due to maintenance costs
arising from unplanned outages and
increased staff costs.
We need more renewable energy, and more
exible energy systems to make the best use of
intermittent renewables. Crucially, we also need
carbon removal technologies, like BECCS, to
remove carbon from the atmosphere.
(1) Adjusted financial performance measures
aredescribed on page 206.
Drax Group plc
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CEO’s Review continued
Conversely, our Opus business declined
because of the exit from gas supply and
lower customer numbers.
Over the past three years, we have
restructured the Customers business,
streamlining operations. These changes
have supported the development of
ourcore I&C supply operations, which
represents the majority of earnings
inourCustomers business.
Setting aside one-off benefits, 2023
wasastrong underlying performance
reecting the high-quality customer base
and increased value of renewable power
underpinned by Renewable Energy
Guarantee of Origin (REGO) certificates.
With a growing demand for 100%
renewable power supply to customers,
prices for these certificates have
increased and our Customers business
provides a means to realise greater value
from our large scale renewable generation
– a benefit of our integrated value chain.
Alongside supplying renewable energy,
wesee an important role in supporting
thedecarbonisation of I&C businesses
through the provision of additional
products – including asset optimisation,
electric vehicle (EV) services, and carbon
offset certificates – which we believe
could evolve in the future to the provision
of Drax carbon removals. Reecting this
potential, in August 2023 Drax Energy
Solutions acquired BMM Energy Solutions
(BMM), an installer of EV charge points.
The acquisition enhances our end-to-end
EV charging proposition, as part of the
Group’s commitment to support customers
inachieving their net zero ambitions.
Strategy
Through 2023 we continued to progress
our strategy, which is designed to realise
our purpose of enabling a zero carbon,
lower cost energy future and our ambition
to be a carbon negative company. It
includes three complementary strategic
pillars, closely aligned with global energy
policies: (1) to be a global leader in carbon
removals; (2) to be a global leader in
sustainable biomass pellets; and (3) to be
aUK leader in dispatchable, renewable
generation.
We believe that these developments
demonstrate the growing demand for
biomass pellets in Asia and Europe and its
wider application in the energy transition.
Generation
Adjusted EBITDA (excluding EGL) of
£1,13 8 million was an increase of 64%
on2022 (£696 million). This reects a
strong system support and renewable
power generation performance across
theportfolio – providing high levels of
dispatchable renewable and low-carbon
power, and system support services –
offsetting incrementally higher
biomasscosts.
Our portfolio generated over 4% of the
UK’s electricity between October 2022
and September 2023 (the most recent
period for which data is available). We also
generated 8% of the UK’s renewable
electricity over the same period, making
Drax the largest renewable generator by
output. In addition, during 2023 our assets
produced on average 16% of the UK’s
renewables at times of peak demand and
up to 67% on certain days. This underlines
the important role that Drax plays in
security of supply in the UK.
The current operating environment
highlights the importance of continued
investment to ensure good operational
performance and availability. As a part of
this investment programme, we completed
two major planned outages at Drax Power
Station in July and November 2023.
Biomass
The Group has a robust and diversified
global supply chain. It consists of both
third-party suppliers and around 5Mt of
owned production capacity across the
Group’s operational facilities in the US
andCanada. This diversification provides
ahigh level of operational redundancy
designed to mitigate potential disruptions
at supplier level.
In the UK, Drax utilises dedicated port
facilities at Hull, Immingham, Tyne and
Liverpool, with annual throughput
capacity and biomass rail sets providing
supply chain capacity significantly in
excess of the Group’s typical annual
biomass usage.
Drax Power Station has around 300,000
tonnes of onsite biomass storage capacity.
Taken together with volumes throughout
the supply chain, the Group currently has
visibility of around one million tonnes of
biomass in inventories. This adds to the
resilience and security of the UK power
market over the winter period. Around
30% of the UK’s gas storage sites are
required to produce the equivalent
amount of electricity that the Drax
inventory supports.
Most of the biomass we use is under
long-term contracts. However, as we
previously reported during 2022, upstream
inationary pressures in certain aspects
ofour supply chain led to some cost
increases in 2023, in addition to an
increase in labour costs at Drax Power
Station adding to the fixedcost base
ofthe plant.
Pumped Storage and Hydro
Cruachan pumped storage and the Lanark
and Galloway hydro schemes delivered
avery strong performance in 2023.
Adjusted EBITDA (excluding EGL) of
£253 million is significantly above 2022
(£171 million) and historical levels of
Adjusted EBITDA since acquisition, which
have been in the region of £70 million.
The primary driver of this strong
performance was a high level of activity
atCruachan. The plant delivered system
support services via the short-term
balancing mechanism, ancillary services
and peak off-peak power generation. As
forward power prices have reduced, we
expect a lower level of Adjusted EBITDA
in2024, although well above the historical
performance. Cruachan and elements
ofour run-of-river hydro schemes also
operate in the Capacity Market.
While power prices are unpredictable,
webelieve that increased reliance on
intermittent renewables in the UK
systemwill continue to drive further
demand for dispatchable power and
system support services. This creates
long-term enduring earnings opportunities
for assets like Cruachan.
You can read more about these assets, and
how they have performed in the five years
since Drax purchased them, on page 15.
Coal
At the request of the UK Government,
during the winter contract period of
2022-2023 we kept the remaining two
coal units at Drax Power Station available
to provide a “winter contingency” to
support the UK power system. At the
endof March 2023 we closed these units
and decommissioning is underway.
Customers
Our Customers business performed well in
2023 with Adjusted EBITDA of £72 million
(2022: £26 million). This headline
performance benefited from a reduction
inthe volatility seen in the previous period,
which we do not expect to recur to the
same extent in 2024. The Industrial and
Commercial (I&C) business performance
was underpinned by stable margins on
higher contracted power prices and
elevated value from renewable products.
Adjusted EBITDA (excluding EGL)
£1,214m
UK’s renewable electricity generation
8%
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These assets are highly exible and able
toprovide the grid with a range of
services, which we believe will become
increasingly important as the UK energy
system becomes progressively more
reliant on wind. Whilst gas is not
renewable, we expect the units to operate
on a limited basis at times of system stress,
resulting ina low-carbon footprint.
We also continue to assess options for
these assets, including their potential sale.
A global leader in carbon removals
Our ambition is to develop carbon removals
globally, and to deploy BECCS in the UK
and US by 2030. The Intergovernmental
Panel on Climate Change (IPCC) is the
world-leading authority on climate science.
Its research states that Carbon Dioxide
Removal (CDR) methods, including BECCS,
are needed to mitigate residual emissions
and keep the world on a pathway to limit
global warming to 1.5°C.
The illustrative mitigation pathways
assessed by the IPCC use significant
volumes of carbon removals, including
BECCS, as a key tool for mitigating climate
change. The IPCC has assessed that
globally up to 9.5 billion tonnes of CDRs
from BECCS could be required per year
by2050.
The Group is developing a pipeline of
projects that could contribute towards this
total, with our ambition for 20Mt of carbon
removals. We are progressing plans to
develop 7Mt of carbon removals through
BECCS by 2030. Of this, 3Mt would be in
the US and 4Mt in the UK.
US BECCS
The US represents an attractive
investment environment for large-scale
carbon removals. It combines good access
to fibre and carbon storage – thereby
shortening our supply chain, in addition to
a supportive investment horizon provided
by the Ination Reduction Act and
associated schemes.
We have a first site selected and
progressing through pre-FEED (front-end
engineering design). The site, located in
the US South, would be a new-build
BECCS power plant capable of producing
around 2TWh per annum of renewable
electricity from sustainable biomass and
capturing around 3Mt of carbon dioxide
per annum. Total investment is estimated
to be in the region of $2 billion with a
target final investment decision (FID) in
2026 and commercial operation by 2030.
Additional projects could be brought
onstream through the 2030s.
A UK leader in dispatchable,
renewable generation
The UK’s plans to achieve net zero by
2050 will require the electrification of
sectors such as heating and transport
systems, resulting in a significant increase
in demand for electricity. We believe that
intermittent renewable and inexible
low-carbon energy sources – wind, solar
and nuclear – could help meet this
demand. However, this will only be
possible if other power sources can
provide the dispatchable power and
non-generation system support services
required to ensure security of supply and
to limit the cost to the consumer.
With demand for these services growing,
and with fewer assets capable of doing
this as older thermal plants are retired,
thisis a challenge for the power system
but also an opportunity for the Group.
Biomass, pumped storage and hydro all
have an important role to play and we
arelooking at ways to supplement the
portfolio and create long-term value for
the Group and our shareholders.
We are continuing to develop options for
Cruachan, including a 600MW expansion.
The location, exibility and range of
services Cruachan can provide makes it
strategically important to the UK power
system and an enduring source of
long-term earnings and cash ows linked
to the UK’s energy transition. In July 2023,
the Scottish Government awarded
planning consent for the expansion and,
subject to the right investment framework,
we are targeting a final investment
decision to be taken in 2025.
In this regard, in January 2024 the UK
Government launched a consultation on
an investment mechanism to support the
development of new long-duration storage
projects, like pumped storage, with a
“minded to” preference for a “cap and
oor” mechanism. We continue to target
commercial operations by 2030.
We are continuing to construct three
new-build Open Cycle Gas Turbine (OCGT)
projects at two sites in England and one
inWales, targeting commissioning during
2024. The three plants will provide
combined capacity of around 900MW and
be remunerated under 15-year Capacity
Market agreements (2024-2039), in
addition to peak power generation and
system support services. The units are
expected to enter service in the second
half of 2024.
The capital cost of the project reects
theconstruction of new-build power
generation capacity as well as carbon
capture and storage (CCS) systems.
The design of the plant enables a wider
choice of sustainable biomass materials,
including non-pelletised material, such as
woodchips. Drax aims to locate new plants
in regions that are closer to sources of
sustainable biomass and carbon
transportation and storage systems. This
isexpected to significantly reduce the
operating cost of a new-build BECCS plant
compared to a retrofit, as well as reducing
carbon emissions in the supply chain.
However, we may need to source from
further afield to ensure consistent access
to the volumes and quality of fibre required.
Investment in the first new-build BECCS
site and subsequent developments
through the 2030s will be subject to
long-term CDR offtake agreements with
corporate counterparties, and power
purchase agreements for 24/7 renewable
power, with discussions with prospective
counterparties underway.
We are allocating resources across all of
these opportunities and in August 2023
we opened a new Global BECCS
headquarters in Houston, Texas. We now
have over 100 employees working on our
Global BECCS programme in the UK and
North America.
We are also continuing to assess options
for BECCS projects using existing
non-Drax assets, in addition to screening
other regions for BECCS potential,
including Europe and Australasia.
UK BECCS
We continue to develop an option for
BECCS at Drax Power Station, with plans
to add post-combustion carbon capture to
two of the existing biomass units that use
sustainable biomass and technology from
our technology partner, Mitsubishi Heavy
Industries (MHI). The captured carbon will
be transported and stored under the
NorthSea.
In August 2023, the UK Government
published a Biomass Strategy which set
out its position on the use of biomass in
the UK’s plans for delivering net zero.
Thisoutlined the potential “extraordinary”
role that biomass can play across the
economy in power, heating and transport.
This includes a priority role for BECCS,
which isseen as critical for meeting net
zero plans due to its ability to provide
large-scale CDRs.
Drax Group plc
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We are a supporter of the Task Force
onClimate-related Financial Disclosures
(TCFD). We are also a Taskforce on
Nature-related Financial Disclosures
(TNFD) adopter, and in 2023 we
participated in a TNFD pilot project for
ourpumped storage and hydro assets.
Weare also a signatory to the UN Global
Compact (UNGC) and we are committed
to promoting the UNGC principles
concerning respect for human rights,
labour rights, the environment, and
anti-corruption.
Outlook
We are continuing to play an important
role in supporting energy security in the
UK. We are using our supply chain and
dispatchable, renewable generation
portfolio to provide large volumes of
reliable renewable power and system
support services. In this context the
strategic importance of our portfolio and
its contribution to the UK power system is
clear. We believe we will have a long-term
role to play as the UK manages the need
todecarbonise whilst maintaining
energysecurity.
Our long-term focus remains on
progressing our strategy and our ambition
is to become a carbon negative company,
underpinned by the development of
BECCS. The potential for the growth
inCDRs, and the opportunity thiscould
afford BECCS in the UK and ourplans
forNorth America, are both significant.
We anticipate making further progress
onthese options during 2024.
Through these strategic objectives,
weexpect to create opportunities for
long-term international growth,
underpinned by strong cash generation
and attractive returns for shareholders,
and to deliver value for our stakeholders.
Will Gardiner,
CEO
28 February 2024
In December 2023, the UK Government
confirmed further policy support for the
development of carbon capture and
storage in the UK, including an update
onthe Track-1 expansion and Track-2
processes, having previously set out an
indicative timetable for selection of
successful projects during 2024, moving
onto bilateral discussions regarding the
level of Government support. This support
is expected to take the form of a 15-year
Contract for Difference (CfD) with a
dualpayment mechanism linked to
bothlow-carbon electricity and
negativeemissions.
Both options are potentially available to
Drax and the timing for their deployment
isconsistent with our expectations. This
could see us take a FID on a first Drax
Power Station BECCS unit in 2026 and
commence BECCS operations by 2030.
InJanuary 2024, the project received
planning approval which represents
another milestone in the development
ofthe project.
Bridging mechanism
In January 2024, the UK Government
launched a consultation on a bridging
mechanism to support large-scale biomass
generators transitioning from their
existing renewable schemes to BECCS.
We participated in the consultation and
we now await Government’s response.
We believe that a bridging mechanism
offers the most effective way to build
alink between the end of the current
renewable schemes in 2027 and BECCS
operations. This could provide multi-year
certainty allowing Drax to secure long-
term biomass supplies and continue to
support energy security via exible and
reliable renewable biomass operations
inadvance of BECCS.
Innovation
We continue to invest in innovation in
biomass and BECCS. In 2023, we
commissioned a small sugar extraction
plant and we remain an equity shareholder
in C-Capture Limited, which isdeveloping
a solvent technology that could be used
for BECCS and other applications.
A global leader in sustainable
biomass pellets
We believe that the global market for
sustainable biomass will grow significantly,
creating international opportunities. These
will include sales to third parties, BECCS,
generation and other long-term uses of
biomass, including SAF. Reecting that
growth, we are developing a pipeline of
new contracts for biomass supply into
new markets and uses to supplement
ourexisting long-term third-party
supplyarrangements.
To support this expected growth in
demand for biomass products, we are
targeting 8Mt of pellet production
capacity. This will require over 2Mt of
newbiomass pellet production capacity
tosupplement existing capacity and
developments.
Drax is differentiated as a major producer,
supplier and user of biomass, active in all
areas of the supply chain, with long-term
relationships and over 20 years of
experience inbiomass operations. We can
deploy the Group’s innovation in coal-to-
biomass engineering, together with the
development of a leading position in
carbon removals, alongside our large,
reliable and sustainable supply chain.
Indoing so, we will form long-term
partnerships to support customers
withtheir decarbonisation journeys.
Sustainability
As a purpose-led organisation, as we grow,
positive outcomes for climate, nature and
people should grow too. We believe the
more we do, the more atmospheric carbon
could be reduced and removed. Our
operations could help sustain more
working forests, and provide more jobs
and opportunities in communities where
we source and operate.
We must continue to meet all sustainability
expectations of us, promote continuous
improvement, and be seen to do so.
Working in partnership with industry,
communities, scientists, and civil society
organisations will be vital to achieving
ourambitions. We will look to work
constructively with them to help us
deliverimprovements and perpetuate
positive outcomes for the climate, nature,
and people.
Engaging with stakeholders is an
important element. In 2022, we
commissioned Jonathon Porritt CBE
(aleading environmental campaigner
andco-founder of Forum for the Future)
to convene a High-Level Panel to conduct
anindependent inquiry into how to
implement BECCS in a way that delivers
positive outcomes for the climate, nature
and people. The Panel reported back
inNovember 2022, setting out the
conditions for BECCS to be done well, and
in July 2023 we published our response.
In 2023 the Science Based Targets
initiative (SBTi) also validated that our
carbon reduction targets are in line with
the actions required to follow a 1.5°C
pathway. This adds further rigour to
ourplans to continue to reduce carbon
emissions within the Group.
CEO’s Review continued
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Pumped
Storage
and Hydro
Generation
The UK’s plans to achieve net zero by
2050 will require the electrification of
sectors such as heating and transport
systems, resulting in a significant
increase in demand for electricity. We
believe that intermittent renewable and
inexible low-carbon energy sources
– wind, solar and nuclear – could help
meet this demand. However, this will
only be possible if the remaining power
sources can provide the dispatchable
power and non-generation system
support services required to ensure
security of supply and to limit the cost
tothe consumer.
Our portfolio of pumped storage hydro
andrun-of-river assets (comprised of
Cruachan Pumped Storage Power
Station and the Lanark and Galloway
hydro schemes, all in Western Scotland),
provide over 560MW of exible
generation capacity. The portfolio’s
ability to support across all four areas
ofthe UK power market – power
generation, renewables, system support
services and capacity – provides a stable
long-term earnings base with potential
benefits from power prices and volatility.
The assets (in addition to four Combined
Cycle Gas Turbines (CCGT)) were
purchased from Scottish Power on
2January 2019 for £702 million. The
CCGT’s were sold by Drax in December
2020 for a total consideration of up to
£193 million.
The Board’s assessment was that the
acquisition would create significant value
for shareholders, strengthen Drax’s ability
to pay a growing and sustainable dividend,
and deliver returns significantly in excess
of Drax’s weighted average cost of capital.
The performance of the pumped storage
and hydro assets in the past five years of
ownership has successfully delivered on
these expectations.
The ability of Cruachan to not only
generate power at scale for up to 15 hours
but also store it makes it an important
source of long-duration storage, ideally
situated to support the high levels of
intermittent wind power produced
inScotland.
The Group is actively considering
further capital allocation into exible
generation and long-duration storage.
The role that Cruachan plays today,
butalso in the future, informs the
development of anoption for a 600MW
expansion of Cruachan, targeting
commercial operations by 2030. You
can read more about our plans for the
expansion of Cruachan on page 38.
Most recently, in February 2024 Drax
accepted a 15-year Capacity Market
agreement for a 40MW expansion of
Cruachan, worth around £221 million
between October 2027 and September
2042, providing additional capacity,
power, and system support capability.
The capital cost of this expansion is
approximately £80 million.
Cruachan
440MW
capacity
Lanark
17MW
capacity
Galloway
109MW
capacity
0
50
100
150
200
250
300
P
umped Storage and Hydro EBITDA (£m)
2019
72
73
68
171
253
2020 2021 2022 2023
Case study
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Bioenergy with carbon capture and storage, or BECCS, is a
scalable carbon removal technology with the potential to
removelarge quantities of CO
2
from the atmosphere and store it
permanently underground. It is also currently the only technology
to combine carbon removal technology with the generation of
dispatchable, renewable electricity.
Deploying BECCS at Drax
Our ambition is to remove and store 20MtCO
2
globally each year,
andto have one UK and one US BECCS plant operational by 2030.
In2023 we opened our new BECCS headquarters in Houston, Texas,
for our teams focused on bringing these important projects to
fruition throughout North America.
Developments in many country’s policies demonstrates the
growing recognition of the need for investment in carbon removal
technologies like BECCS. We continue to develop options for
BECCS at Drax Power Station, subject to the right regulatory
andinvestment environment, which could provide dispatchable,
renewable power and deliver high integrity permanent carbon
removals. This could create and support thousands of green jobs,
Our strategic pillar:
To be a global leader
incarbon removals
Leading scientists agree that reducing
emissions alone isn’t enough to achieve
global climate goals. Carbon removals
will be a critical tool to help combat
theclimate crisis.
Tackling
climate
change
is at the heart
of our purpose
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both at Drax and in the supply chain, and could put Drax atthe
forefront of a climate solution to help decarbonise communities
and economies, and help support energy security on a global scale.
High integrity carbon removals
At Drax, we hold our operations to high standards to deliver
positive benefits for nature, climate, and people. We recognise
that scaling up BECCS must be done responsibly and, in an
emerging market, robust standards are vital to ensure we are
investing in trustworthy, reliable solutions. That’s why Drax has
developed a BECCS Methodology that sets out how we are
working to deliver high integrity carbon removals.
The BECCS Methodology aims to give stakeholders, such as
communities, customers and investors, the confidence that
ourBECCS investments and operations can deliver measurable
climate benefits and bring permanent positive change. The
BECCS Methodology also contains robust criteria on the
sustainable sourcing of biomass. These criteria include sourcing
from regions with stable or increasing carbon stock, sustainable
management of forests and maintenance of biodiversity.
Our principles for high integrity
carbonremovals
Permanent
The CO
2
we capture will be stored in geological formations
forthousands of years, with a very low risk of reversal.
Sustainable development
Our ambitious projects will create positive outcomes
for the climate, nature, and people.
Robust quantification
Every tonne of CO
2
removed will be measured, basedon
conservative approaches and sound scientificmethods.
Additionality
Our BECCS projects could deliver additional climate benefit
thatwould not have happened otherwise.
Well-governed
Reliable tracking, transparent reporting, and independent
validation will underpin all our removals.
BECCS Done Well
Drax has also been working with stakeholders to ensure
BECCS is “done well”. You can read more about this on page 37.
BECCS done well could deliver
highintegrity carbon removals,
taking large quantities of CO
2
fromthe atmosphere and storing
itpermanently underground.
Read more about BECCS onPage 13
Read more about our BECCS Methodology
here www.drax.com/BECCS-Methodology
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Our strategic pillar:
To be a global leader in
sustainable biomass pellets
Biomass, when sustainably sourced,
supports well-managed forestry and
provides a renewable, low-carbon
source of energy.
Our commitment to sustainability sits at the heart of what we do,
and Drax is committed to ensuring the biomass we use delivers
positive outcomes for the climate, nature, and people.
Our biomass sourcing requirements
Our Responsible Sourcing Policy for biomass supplied to Drax
Power Station outlines our forest biomass sustainability
commitments. Our sustainability requirements and Supplier Code
of Conduct outline our requirements for material sourced for Drax
Power Station. This supports maintaining our compliance with
UKsustainability rules. The biomass used at Drax Power Station
complies with the standards set out in law, regulations, and the
requirements of the renewable support schemes under which we
operate. This includes the Land Criteria and the Greenhouse Gas
(GHG) Criteria.
Our Commitment to Sustainable Forestry sets out the
requirements associated with our certification programme in the
US. It outlines our commitment to comply with applicable federal,
state and local laws and regulations, and promotes the Principles
of Sustainable Forest Management.
our biomass
Sustainably
sourcing
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How Drax evidences compliance
with our sourcing requirements
Third-party certification is a key part of our due diligence process.
Our primary certification scheme is the Sustainable Biomass
Program (SBP). In 2023, 97% of biomass received at Drax Power
Station was SBP Compliant (2022: 97%). At our North American
Pellet Production operations, 95% of pellets produced were sold
with SBP Compliant claims.
For material received at Drax Power Station, monthly reports are
submitted to the UK regulators, demonstrating compliance with
the Land Criteria and reporting on the supply chain emissions of
the biomass used. For each compliance year, this reporting is
independently assessed in a limited assurance engagement using
the ISAE 3000 standard.
We utilise additional control measures, such as post-harvest
evaluations and Catchment Area Analyses (CAAs) to provide
another layer of assurance. This is further to any jurisdictional
systems or requirements, which vary by region of operation.
Our North American Pellet
Productionassets include:
Northern Operations: 10 pellet plants, 0.45Mt capacity
indevelopment, and access to three ports, including one
indevelopment.
Southern Operations: seven pellet plants, 0.13Mt capacity
indevelopment, and access to two ports.
In 2023, Drax produced 3.8Mt of wood pellets for use for
generation at Drax Power Station and for contracted sales
tothird parties in Asia and Europe. In addition, Drax traded
0.9Mt pellets from third parties.
Our North American pellet plants are SBP certified
Our pellet plants are subject annually to an external audit
forSBP certification. This assesses their sourcing and
management systems against the sustainability requirements
of the SBP Standards. Pellet plants can apply an SBP-
Compliant claim to the pellets they produce, where it can be
demonstrated that sourcing has fully complied with the SBP
Standards. The certification status of wood pellets produced
atDrax pellet plants varies by customer requirement.
A process undertaken within the scope of SBP certification
isthe Supply Base Evaluation (or Regional Risk Assessment
forcertain regions). Where this identifies a specified risk in the
area from which we source (Supply Base), we will either avoid
those areas or implement mitigation measures to manage
those risks. During the annual SBP audit, the auditor evaluates
the efficacy of the implemented mitigation measures,
including visits to the forest of origin.
Our US pellet plants are Sustainable Forestry Initiative (SFI®)
and Forest Stewardship Council® (FSC® C123692), Chain of
Custody certified and both US and Canadian pellet plants are
PEFC Chain of Custody certified. Certificates are available
onthe Drax website.
Sustainably sourced biomass can
play an important role in tackling
climate change and displacing
fossilfuels.
Read more about sustainable biomass onPage 72
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Our strategic pillar:
To be a UK leader
indispatchable,
renewablegeneration
Making sure the UK has a secure
andsustainable energy supply.
Moving away from fossil fuels and towards
using more renewable energy is critical in
helping the world tackle climate change.
Our dispatchable, renewable power assets have an important
roleto play in enabling this transition to more renewable energy.
Thisis because they allow us to generate renewable electricity
attimes of low sunlight or low wind levels. Being dispatchable
means we can turn them up and down, or on or off, at short
notice. In doing so, we provide (or dispatch) a exible response
tochanges in electricity demand and uctuations in wind and
solar energy generation. Our exible sources of generation help
to reinforce the UK’s renewable energy mix, to support the UK’s
energy security, and help to keep the lights on.
lights on
Helping to
keep the
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How Drax supports the UK energy system
Keeping the lights on requires not just electricity generation,
butalso a range of non-generation activities. These help provide
the stability, exibility, and reliability that keeps the electricity
grid operating and running at the right frequency, while also
reducing the risk of power cuts. Historically, large coal- and
gas-fired power stations were able to deliver these system
support services as a by-product of producing reliable baseload
electricity. Coal and gas plants are closing as the UK decarbonises
and are being replaced by intermittent renewable energy sources,
principally wind. However wind, by its nature, is intermittent and
generally unable to provide these vital system support services.
Our dispatchable, exible, andrenewable assets can react quickly
to help balance the energy system and help keep the lights on,
supporting the UK’s energysecurity.
Our UK assets include:
Drax Power Station: The power station uses compressed wood
pellets, a form of sustainably sourced biomass. It has acapacity
of 2.6GW capable of generating enough renewable electricity
a year to power the equivalent of over eight million homes.
Cruachan pumped storage hydro power station: Based in
Scotland, our pumped storage hydro plant helps to produce
electricity using the force of gravity, a reservoir and a
mountain. When there is excess power on the grid (for
example, from wind or solar), and demand for electricity is low,
the plant uses this excess electricity to pump water fromthe
lower reservoir up to a higher one where it is stored. When
electricity demand increases, water is released from the upper
reservoir, ows through a turbine and into the lower reservoir.
The ow of water rotates the turbine which in turn powers
agenerator to produce renewable electricity quickly and
reliably. Able to reach full load in as little as 30seconds, it can
react quickly to help balance the energy system and resolve
intermittency issues at times of low sunlight or low wind levels.
Cruachan can produce 440MW ofrenewable electricity –
enough to power the equivalent ofover 1.4 million homes.
Hydro-electric schemes: Generating power for nearly a
century, the Lanark and Galloway hydropower schemes
inScotland have a combined capacity of 126MW – enough
topower the equivalent of around 400,000 homes. These
schemes use the country’s plentiful water sources to provide
areliable and sustainable source of renewable electricity.
Our dispatchable, renewable
powerassets have an important
role to play in enabling the transition
to more renewable energy.
Read about Cruachan expansion plans Page 38
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Net debt: Adjusted
EBITDA including EGL
is significantly below
the Group’s long-term
target ofaround
2 times.
Financial Review
Adjusted EBITDA (excluding the Electricity Generator Levy
(1)
(EGL)) of £1,214 million was an increase of 66% compared to
theprior year (2022: £731 million). Including EGL of £205 million,
Adjusted EBITDA rose by 38%. The EGL was implemented with
effect from 1 January 2023 and all arose inthe Generation
segment. For Consolidated results and Generation we state
whether Adjusted EBITDA includes EGL or not, for other
segments we do not, as EGL is not applicable to them.
Cash generated from operations of £1,111 million has risen
by247% (2022: £320 million). Operating cash ows before
movements in working capital were around 100% of Adjusted
EBITDA including EGL in 2023 and 2022. For more details of
movements in working capital please see note 4.3. Net debt was
£1,084 million (31 December 2022: £1,206 million), with a ratio
ofNet debt: Adjusted EBITDA excluding EGL of 0.9 times
(31December 2022: 1.6 times) – significantly below the Group’s
long-term target of around 2 times.
Total operating profit of £908 million represents a significant
increase on 2022 (2022: £146 million). An increase in Total gross
profit of £931 million was partially offset by an increase of
£169 million inoperating and administrative expenses, of which
£45 million is attributable to staff costs, as we continue to invest
infuture growth. Maintenance costs also increased as there were
two major planned outages at Drax Power Station, and the Pellet
Production business incurred costs, as described in the Financial
performance section.
Total capital investment was £519 million (2022: £255 million).
Ofthis, £332 million related to growth expenditure, £143 million
maintenance projects and £44 million health, safety, environment
and IT. The £332 million of growth expenditure (2022:
£127 million) includes £189 million in respect of development of
three Open Cycle Gas Turbines (OCGTs) and £45 million in respect
of our Longview pellet plant development.
The proposed cumulative ordinary dividend for 2023 of
23.1 pence per share represents a 10% increase on 2022.
TheGroup is committed topaying a sustainable and growing
dividend in line with its long-standing capital allocation policy.
On15 September 2023 the Group completed a £150 million share
buyback, purchasing 26.5 million shares for anet £149 million
between 18 May and 15September 2023.
Financial performance
Adjusted EBITDA and EGL by segment
Pellet Production’s Adjusted EBITDA of £89 million represents
a34% reduction on 2022 (£134 million). The Pellet Production
business produced 3.8Mt (2022: 3.9Mt) and shipped 4.6Mt (2022:
4.7Mt) of pellets. Of the 4.6Mt shipped, 2.5Mt were to Drax Power
Station (2022: 2.2Mt) to support UK security ofenergy supply.
Sales to third parties are typically at a lower grossmargin than
internal shipments as contract pricing was established prior to the
impacts of recent inationary trends, suchas an increase in staff
costs, whereas internal transfer pricing is updated annually to
incorporate such changes. We would expect pricing to improve as
we start to supply a greater proportion of newer sales contracts.
In addition to the impact of the sales mix, the business incurred
higher repairs and maintenance costs due to both planned
outages and a higher than expected level of unplanned outages.
These unplanned outages contributed to the lower than
expected level of production, in addition to the impacts of
wildfires in Canada, weather damage to our port facility in
BatonRouge and industrial action at the ports of Vancouver
andPrinceRupert, BC.
Notwithstanding cost increases in 2023, the Group sees
opportunities to reduce costs and improve profitability in
PelletProduction.
Andy Skelton,Chief Financial Officer
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Financial highlights
Year end 31 December
2023 2022
Financial performance (£m) Total gross profit 1,954 1,023
Operating expenses (712) (543)
Impairment losses on financial assets (33) (48)
Depreciation and amortisation (225) (239)
Impairment of non-current assets (71) (42)
Other losses (5) (6)
Total operating profit 908 146
Exceptional costs and certain remeasurements (127) 323
Adjusted operating profit 782 469
Adjusted depreciation, amortisation, asset obsolescence
chargesand losses on disposal of fixed assets
228 261
Adjusted EBITDA including EGL 1,009 731
EGL charge 205 –
Adjusted EBITDA excluding EGL 1,214 731
Capital expenditure (£m) Capital expenditure for the year 519 255
Cash and net debt
(£m unless otherwise stated)
Cash generated from operations 1,111 320
Net debt 1,084 1,206
Net debt to Adjusted EBITDA excluding EGL (times) 0.9 1.6
Cash and committed facilities 639 698
Earnings (pence per share) Adjusted basic 119.6 85.1
Total basic 142.8 21.3
Distributions (pence per share) Interim dividend 9.2 8.4
Proposed final dividend 13.9 12.6
Total dividend 23.1 21.0
We calculate Adjusted financial performance measures, which exclude income statement volatility from derivative financial instruments and the impact of exceptional items.
This allows management and stakeholders to better compare the performance of the Group between the current and previous year without the effects of this volatility and
one off or non-operational items. Alternative performance measures are described more fully on page 181, with a reconciliation to their statutory equivalents in note 2.7
tothe Consolidated financial statements on page 208. Throughout this document we distinguish between Adjusted measures and Total measures, which are calculated
inaccordance with International Financial Reporting Standards (IFRS). Tables in this financial review may not add down/across due to rounding. All references to notes within
this report refer to the notes to the Consolidated financial statements.
(1) In December 2022, the UK Government confirmed the details of the EGL, which applies to the Group’s biomass units operating under the Renewables Obligation (RO)
scheme and run-of-river hydro assets, but not the CfD unit at Drax Power Station or Cruachan. The legislation bringing this levy into force was enacted during July 2023
andextends to March 2028. EGL is payable at 45% on revenues above an index-linked benchmark level, after deducting an allowance for increased fuel costs. As EGL
hasbeen assessed as a levy for accounting purposes, rather than a tax, it is recognised within Adjusted results within gross profit.
Adjusted EBITDA
excludingEGL
£1,214m
(2022: £731m)
Adjusted operating profit
£782m
(2022: £469m)
Total operating profit
£908m
(2022: £146m)
Cash generated
fromoperations
£1,111m
(2022: £320m)
Adjusted basic earnings
pershare
1 19.6 pence
(2022: 85.1 pence)
Total basic earnings
per share
142.8 pence
(2022: 21.3 pence)
Net debt to Adjusted EBITDA
excluding EGL
0.9 times
(2022: 1.6 times)
Total dividend
per share
23.1 pence
(2022: 21.0 pence)
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Generation’s Adjusted EBITDA (excluding
EGL) of £1,138 million isa 64% increase
on2022 (£696 million). Including EGL,
Adjusted EBITDA rose by 34% to
£933 million. This reects a strong system
support and renewable power generation
performance across the portfolio –
providing high levels of dispatchable,
renewable and low-carbon power and
system support services – offsetting
incrementally higher biomass costs and an
increased allocation of Innovation, capital
projects and other costs.
Our Cruachan pumped storage power
station, as well as the run-of-river hydro
assets at Lanark and Galloway, continued
to perform strongly. Combined with the
Daldowie energy from waste plant they
contributed Adjusted EBITDA (excluding
EGL) of £253 million (2022: £171 million)
and £230 million of Adjusted EBITDA
including EGL. This was achieved through
higher levels of generation and achieved
power prices, in addition to the provision
ofsupport services via the short-term
balancing mechanism, ancillary services
and participation in the Capacity Market.
During 2023 a review of the mechanism
for corporate recharges was performed,
leading to an increase in the amount of
Innovation, capital projects and other
costs recharged to the reportable
segments, with the largest increase seen
in Generation. Following this change the
remaining Innovation, capital projects and
other costs constitute development
expenditure on projects which have not
yet hit the capitalisation criteria and
intra-group eliminations. Global BECCS
isan example of such a development cost,
with an increase in costs of £43 million
in2023. Further information on the
mechanism is included in note 2.1.
Our Customers business generated
£72 million of Adjusted EBITDA (2022:
£26 million). This increase reects a strong
performance in the I&C business and was
driven by increased contracted power
prices with consistent margin percentages
and increased value from renewable
products, as well as benefits from
reductions in market prices and volatility
during 2023, which are not expected to
recur going forwards.
A non-cash impairment of £69 million was
recognised related to the Opus Energy
part of our Customers business, as the exit
from gas supply and changing customer
behaviours led to a reduction in forecast
cash ows for this element of the Group.
Further details are provided in the Total
operating profit section below.
losses in the period were £9 million
(2022:£11 million gain). The remaining
increase is attributable to levels of
utilisation and interest on new facilities.
The effective Adjusted tax rate of 29%
(2022: 17%) is above the standard rate
ofcorporation tax in the UK. The impact
ofEGL costs, which are not allowable for
corporation tax deductions, increased the
effective rate by 7%. This is partially offset
by UK incentives such as the UK patent
box scheme and R&D tax credits. This
figure includes the impact of tax rates
prevailing in overseas jurisdictions. The
extension of the full expensing of capital
expenditure, as announced in theUK
Government’s 2023 Autumn Statement,
makes permanent the cash taxtiming
benefit for capital spend.
Adjusted basic earnings per share was
119.6 pence (2022: 85.1 pence) and Total
basic earnings per share was 142.8 pence
(2022: 21.3 pence). The average number of
shares used in deriving these calculations
is 393.8 million, with the closing number
outstanding being 384.7 million.
Capital expenditure
Major components of the £519 million
capitalised during 2023 were the Group’s
strategic developments of three OCGT
projects (£189 million), and Pellet Plant
expansion projects at Longview and
Aliceville (£76 million). Further information
on expected commissioning dates for
these projects can be seen in the CEO’s
Review. Capitalised spend on UK BECCS
was £18 million (2022: £19 million).
Expenditure is being minimised as the
Group awaits clarity from the UK
Government on support for BECCS
atDraxPower Station.
Cash and Net debt
Net cash movements
Operating cashows before movements
inworking capital of £1,013 million were
an increase of 38% (2022: £734 million),
reecting increases in Adjusted EBITDA.
Both years represented around 100%
ofAdjusted EBITDA including EGL. Cash
generated from operations in 2023,
inclusive of movements in working capital,
was £1,111 million (2022: £320 million).
Working capital was an inow of
£108 million (2022: £403 million outow),
details of the movements can be seen in
note 4.3. The key movements being the
return of collateral payments (£155 million
inow, 2022: £407 million outow)
associated with the maturity of power
contracts sold via exchanges and lower
spot prices, and lower receivables
(£71 million inow, 2022: £379 million
outow). Both of these movements were
attributable to increased power prices
in2022. These were partially offset by
Bad debt charges, net of credits, reduced
to £33 million (2022: £48 million). Before
recognition of credits, the bad debt charge
represents 1.0% of Customers revenues
(2022: 1.4%), the reduction being because
of revenue mix moving towards higher
credit quality customers.
Innovation, capital projects and other
costs of £85 million, inclusive of intra-
group eliminations, shows a 31% decrease
on 2022 (£124 million). However, before
the change in methodology for recharges
described previously, costs increased by
49%. The increase predominantly reects
higher development expenditure on major
projects which have not yet reached the
stage of capitalisation, including Global
BECCS and Cruachan II. Appropriate UK
BECCS costs continue to be capitalised,
asdescribed in the ‘Capital expenditure’
section.
Total operating profit
Total operating profit of £908 million
isanincrease of £762 million on 2022
(£146 million), with the increase in Total
gross profit of £931 million offset by
anincrease in Total operating and
administrative expenses of £169 million
reecting the factors described above.
Total operating profit also includes an
additional benefit of £200 million from net
adjustments for certain remeasurements
(2022: £298 million net loss) that are not
included in Adjusted EBITDA.
The main drivers behind the certain
remeasurements credit was an increased
value of gas-for-power trades because of
falling gas prices and a reduction in carbon
prices during the year. Net exceptional
costs of £74 million were recognised
during 2023 (2022: £25 million). Of this, a
£69 million debit related to the impairment
of non-current assets related to the Opus
Energy business within Customers, the
largest proportion being an impairment of
customer-related assets of £31 million and
goodwill of £15 million. There was also a
credit of £14 million related to an agreed
settlement with a vendor in relation to
abilling system where development was
halted in a previous period. Finally, a cost
of £18 million was recognised with respect
to contingent consideration on the
historical CCGT disposal. Further detail on
these transactions can be seen in note 2.7.
Depreciation and amortisation decreased
by 6% to £225 million (2022: £239 million),
with the main decrease being in the Pellet
Production business.
Profit after tax and Earnings per share
Net finance costs for 2023 were
£112 million (2022: £68 million). Changes
ininterest rates led to an increase in the
interest charge of £24 million. This was
partially offset by a £9 million increase
ininterest receivable. Foreign exchange
Financial Review continued
Strategic report
Drax Group plc
Annual report and accounts 2023
24
Contents

anincrease in ROC assets leading to a
£104 million cash outow (2022:
£114 million inow). At 31 December 2023
the Group had accelerated £298 million
ofcash ows using standard renewable
certificate sales (2022: £331 million).
Payables showed anoutow of £31 million
as commodity prices stabilised, after a
£432 million inow in 2022.
The Group has access to a receivables
monetisation facility within the Customers
I&C business, totalling £400 million.
At31December 2023 £400 million
wasdrawn under this facility (2022:
£400 million). The term of this facility
wasextended during the year to 2025,
reducing to £300 million thereafter. The
facility grew from £200 million at the start
of 2022 to £400 million by year end, as
power prices and therefore trade
receivables rose. The increase helps
tooffset the associated working capital
requirements and will reduce as contracted
positions unwind and power prices fall. This
is a non-recourse facility, with a sale of the
underlying receivable asset, accelerating
cash receipt. At the point of sale, Drax
transfers substantially all the risks and
rewards of ownership through the
non-recourse nature of the transaction.
Noobligations are created from the
transfer and no liability is recognised.
Cash ows associated with capital
expenditure on the three OCGT projects
are lower than the accounting additions
recorded because of the use of deferred
letters of credit to extend payment terms.
These provide a working capital benefit
tothe Group through extending payment
terms by a period of less than twelve
months, to more closely align the cash
outows on the construction of the assets
with the cash inows from the
commencement of their operation. As set
out in note 2.7, these balances are not
included within the Group’s definition of
Net debt. Of the total amount outstanding
under deferred letter of credit and similar
facilities at 31 December 2023 of
£225 million (2022: £215 million) the capital
expenditure proportion was £155 million
(31 December 2022: £134 million). The
impact of this facility reduced the cash
outow in the purchases of property, plant,
and equipment and payables lines in the
Consolidated cash ow statement.
Net interest payments of £95 million
(2022: £74 million) increased in line with
the increased interest charge in the
Consolidated income statement.
Corporation tax payments totalled
£180 million (2022: £39 million). The
primary driver of the increase was the
increase in taxable profits arising in UK
entities leading to higher payments on
account. Separately, the cash outow
onEGL, which is a levy administered
within the corporation tax framework,
was£196 million.
Returns to shareholders totalled
£236 million, comprising £149 million of
share buy back payments (2022: £nil) and
£86 million of dividend payments (2022:
£79 million). More details on the share
buyback programme can be seen in
note2.11.
Net debt and Net debt: Adjusted EBITDA
Both ratios of Net debt: Adjusted EBITDA
including and excluding EGL are
significantly below the Group’s long-term
target of around 2 times.
Liquidity
In November 2023, Drax repaid
C$100 million of its C$300 million ESG
term-loan and extended the maturity of
the remaining C$200 million from 2024 to
2026. This facility includes an embedded
ESG component which adjusts the margin
payable based on Drax’s carbon intensity
measured against an annual benchmark.
Cash and committed facilities of
£639 million at 31 December 2023
provides substantial headroom over
ourshort-term liquidity requirements.
Inaddition to cash-on-hand, the Group
hasaccess to a £300 million ESG-linked
Revolving Credit Facility (RCF) and a
C$10 million RCF. The C$10 million RCF
was allowed to expire in January 2024.
Also in January 2024, the £300 million
ESG-linked RCF was extended by a year
with an expiry now in January 2026.
Net debt and Net debt: Adjusted EBITDA
Year ended 31 December
2023
£m
2022
£m
Cash and cash equivalents 380 238
Current borrowings (264) (44)
Non-current borrowings (1,161) (1,397)
Impact of hedging instruments (38) (2)
Net debt (1,084) (1,206)
Collateral posted 79 234
Net debt excluding collateral (1,005) (972)
Adjusted EBITDA excluding EGL 1,214 731
Adjusted EBITDA including EGL 1,009 731
Net debt: Adjusted EBITDA excluding EGL (times) 0.9 1.6
Net debt: Adjusted EBITDA including EGL (times) 1.1 1.6
Liquidity
Year ended 31 December
2023
£m
2022
£m
Cash and cash equivalents 380 238
RCF available but not utilised 260 260
Short-term liquidity facility – 200
Cash and committed facilities 639 698
Strategic report
Drax Group plc
Annual report and accounts 2023
25
Contents

No cash has been drawn under this RCF
since its inception in 2020, but £46 million
was drawn at 31 December 2023 for
letters ofcredit (31 December 2022:
£46 million drawn for letters of credit).
Theshort-term £200 million liquidity
facility, entered into during December
2022 to cover collateral requirements
predominantly for that winter, was allowed
to expire in December 2023. During 2023,
an uncommitted £200 million facility was
entered into with the main purpose of
supporting cash collateral requirements.
At 31 December 2023 £120 million was
drawn under this facility, maturing in July
2024. During February 2024 a new
£258 million term loan was entered into,
with maturities in 2027 and 2029.
At 31 December 2023 the Group had
netcash collateral posted of £79 million
(31December 2022: £234 million) which
will be returned to the Group as the
associated contracts mature. Depending
on market movements collateral may need
to be posted in future by the Group.
During 2023, the Group’s Issuer Credit
Ratings were affirmed as ‘BB+’ by Fitch
and S&P and as ‘BBB (low)’ by DBRS,
witha Stable Outlook in each case.
Derivatives
We use derivatives to hedge commodity
price and foreign exchange risk.
Decreases in pricing in several of these
markets in 2023 led to a net £200 million
credit related to certain remeasurements,
which we continue to adjust for when
presenting Adjusted results. The gains
were predominantly driven by falling gas
prices impacting gas-for-power trades
andreductions in carbon prices.
Distributions
In line with our long-standing capital
allocation policy, the Group is committed to
paying a growing and sustainable dividend.
On 26 July 2023, the Board approved an
interim dividend for the six months ended
30 June 2023 of 9.2 pence per share. This
was paid on 3 October 2023 with a record
date of 25 August 2023.
At the Annual General Meeting on 25 April
2024, the Board will recommend to
shareholders a resolution to pay a final
dividend for the year ended 31 December
2023 of 13.9 pence per share. If approved,
the final dividend will be paid on 17 May
2024, with a record date of 19 April 2024.
Taken together with the interim dividend of
9.2 pence per share, this would give a total
dividend for 2023 of 23.1 pence per share,
a10% increase on 2022 and representing
asustainable increase in accordance with
our capital allocation policy.
In addition to the proposed dividend,
on26April 2023 the Group announced
ashare buyback programme totalling
£150 million. On 15 September 2023 the
Group completed this buyback, having
purchased 26 million shares for a net cost
of £149 million which are now held as
treasury shares.
When thinking about additional returns
toshareholders, the Group gives
consideration to the profile of future
capital investments, upcoming maturity
ofdebt, equity dilution associated with the
vesting of share schemes and any inow
from the sale of non-core assets.
Going concern and viability
The Group’s financial performance in
2023was strong, delivering improved
profitability and a decrease in Net debt to
Adjusted EBITDA. Our financing platform
is stable, with no major debt repayments
on core facilities due until November
2025and significant liquidity headroom
isavailable from both committed and
uncommitted facilities. Since 31 December
2023 the £300 million ESG linked RCF
hasbeen extended to 2026 and a new
£258 million term loan put in place,
withmaturities in 2027 and 2029.
The Group refreshes its business plan and
forecasts throughout the year, including
scenario modelling designed to test the
resilience of the Group’s financial position
and performance to several possible
downside cases. In addition, during 2023
areverse stress test was performed, and
the parameters required to cause a default
were found to be implausible. Based on
itsreview of the latest forecast, the Board
is satisfied that the Group has sufficient
headroom in its cash and committed
facilities, combined with available
mitigating actions, to be able to meet its
liabilities as they fall due across a range
ofscenarios.
The Directors therefore have a reasonable
expectation that the Group will be able
tocontinue in operation over the five-year
period of the viability assessment.
Consequently, the Directors also have
areasonable expectation that the Group
willcontinue in existence for a period of
atleast 12 months from the date of the
approval of the financial statements and
have therefore adopted the going concern
basis when preparing the Consolidated
financial statements.
Other information
BMM acquisition
In August 2023 the Customers business
completed the acquisition of BMM Energy
Solutions Limited, an electric vehicle
charge point installer, for consideration of
£9 million. This acquisition strengthens the
Group’s end-to-end charging proposition
in the UK and demonstrates the Group’s
commitment to helping customers achieve
their net zero ambitions. Please see note
5.1 for further information.
Pension scheme merger
In January 2023 the merger of the Group’s
two defined benefit pension schemes was
completed, reducing levels of
administrative expense and time taken
tomanage the two schemes. Please see
note 6.3 for further information.
Financial Review continued
Total declared dividends (£m equivalent)
Earnings per share (pence)
2
023
89
84
2
022
75
68
63
2
021
2
020
2
019
2
023
119.6
142.8
2
023
85.1
21.3
2
022
2
022
Adjusted EPS
Total EPS
Strategic report
Drax Group plc
Annual report and accounts 2023
26
Contents

Five year history
2019
£m
2020
£m
2021
£m
2022
£m
2023
£m
Adjusted Revenue 4,703 4,235 5,174 8,159 7,792
Adjusted EBITDA (including EGL) 410 412 398 731 1,009
Total Operating profit/(loss) 62 (156) 197 146 908
Total Profit/(loss) for the year attributable to equity
holders
1 (158) 80 85 562
Earnings per share pence pence pence pence pence
Adjusted basic 29.9 29.6 26.5 85.1 119.6
Statutory basic 0.1 (39.8) 20.0 21.3 142.8
Dividend per share 15.9 17.1 18.8 21.0 23.1
£m £m £m £m £m
Net debt (841) (776) (1,10 8) (1,206) (1,084)
Capital expenditure 172 200 238 255 519
Adjusted EBITDA (including EGL) (£m) Adjusted basic earnings per share (pence) Dividend per share declared (pence)
2
023
1,009
731
2
022
398
412
410
2
021
2
020
2
019
2
023
119.6
85.4
2
022
26.5
29.6
29.9
2
021
2
020
2
019
2
023
23.1
21.0
2
022
18.8
17.1
15.9
2
021
2
020
2
019
Strategic report
Drax Group plc
Annual report and accounts 2023
27
Contents

As noted in other sections of this Annual Report, our strategy
consists of three core aspects: to be a global leader in sustainable
biomass pellets; a global leader in carbon removals; and a leader
in UK dispatchable renewable generation. Drax is committed to
building a supportive, diverse and inclusive working environment,
and to delivering positive outcomes for the climate, nature,
andpeople.
The Board believes that management must deliver the right
combination of long-term value creation and a sustainable
business, underpinned by a strong culture and values which
isinformed by and responsive to our stakeholders. The
Remuneration Committee (Committee) ensures that the way
inwhich Executive Directors, senior management, and the wider
workforce are rewarded is aligned to the delivery of appropriately
balanced short-term and longer-term objectives.
A key part of the Committee’s activities is the design and
oversight of the Drax variable pay programmes for all colleagues
across the Group. Variable pay for the Executive Directors,
consisting of an annual bonus plan and equity based Long Term
Incentive Plan, is incorporated into the Directors’ Remuneration
Policy (Policy) which was approved by shareholders at the AGM
held in April 2023.
The majority of colleagues across the Group participate in the
annual bonus plan. For most colleagues, including the Executive
Directors, payment of a bonus is dependent on the delivery
ofperformance metrics which make up the Group’s annual
Scorecard (Group Scorecard).
The Committee gives thorough consideration each year to what
performance metrics should be included in the Group Scorecard,
making sure those elements provide an appropriate balance and
are reective of expectations of our shareholders and other key
stakeholders.
The delivery of financial performance is set with reference to the
Board’s financial plans. It is of paramount importance and makes
up the majority weighting of the 2024 Group Scorecard (55%).
Consistent with prior years, the delivery of our Group EBITDA
budget is the primary financial KPI. For 2024, Net Cash Flow has
replaced Leverage as the secondary financial KPI. The Committee
believed that a cash generation target was more aligned to the
Group’s strategy in 2024.
The delivery of critical strategic milestones is essential to Drax
making progress on each of the three core strategic objectives
and they have a 25% weighting in the Group Scorecard. The
strategic milestones in the Group Scorecard may change from
year to year, reecting specific priorities and the Group’s annual
plan. They are typically part of multi-year programmes, examples
include the development and implementation of BECCS, which
iskey to our objective of being a global leader incarbon removals,
and the expansion of our pumped storage power station at
Cruachan supporting our objective to be a leader in UK
dispatchable renewable generation.
Another core strategic objective for Drax is to be a global leader
in sustainable biomass pellets, and one of our aims is to sell 4Mt
per annum of biomass pellets to third parties by 2030. In support
of this, performance measures focused on pellet production goals
and pellet sales targets are also included in the Group Scorecard.
You can read more about sustainability at Drax in Sustainable
Development on page 44.
Nicola Hodson,Chair of the Remuneration Committee
The Remuneration Committee
ensures that our variable
payprogrammes are aligned
with long-term value creation
andappropriately reward
delivery of annual financial
performance, progress
againstour core strategic
objectives, and sustainable
business practices.
Remuneration
at a glance
Drax Group plc
Annual report and accounts 2023
28
Strategic report
Contents

A summary of the performance metrics in the 2024 Group
Scorecard are provided in the table below.
Performance Measure Weighting
Group EBITDA
55%
Net Cash Flow
BECCS
25%
Cruachan 2
Pellet Production
Pellet Sales
Safety
20%
Environmental – Carbon Reduction
Social – DEI
Governance – Compliance
The Drax Long Term Incentive Plan (LTIP) rewards executives and
senior managers for the longer-term performance of the Group.
Vesting of LTIP awards is conditional on two performance
conditions – Total Shareholder Return relative to the FTSE 350
(TSR) and cumulative adjusted Earnings Per Share (EPS).
Including TSR ensures that a significant part of the reward is
aligned with the overall shareholder experience over the same
period. The EPS performance condition rewards for year-on-year
delivery of robust financial performance.
In addition, for Executive Directors vested awards are subject to a
further two-year post-vesting holding period, further aligning our
Executive Directors with the longer-term shareholder experience.
The 2024 LTIP award is scheduled to be granted in March 2024.
The weighting of the performance conditions is summarised
below and is outlined in more detail inthe Remuneration
Committee Report on page 159.
Performance Measure Weighting
Total Shareholder Return
(relative to FTSE 350) 50%
Cumulative Adjusted Earnings Per Share 50%
The Committee will continue to assess each year whether
variable pay programmes remain aligned to long-term strategy
and support the delivery of, and appropriately reward for, the
Group’s short-term and longer-term objectives. Where
appropriate the Committee will make changes, and seek
inputfrom key stakeholders, such as our shareholders.
Nicola Hodson
Chair of the Remuneration Committee
Safety and ESG performance have been a key part of the annual
bonus plan since 2022 and they have a 20% weighting. As part
ofthe Policy review in 2022, the Committee carefully considered
how ESG should most appropriately be included in annual
variablepay programmes, seeking input from the Committee’s
independent adviser and taking into account views from other
stakeholder groups. The Committee determined that the
annualbonus plan was still the most appropriate vehicle for
ESGmeasures. This is because the vast majority of colleagues
participate in the annual bonus, meaning the widest possible
group of colleagues are held to account for and (where
appropriate) are rewarded for ESG performance.
For the 2024 Group Scorecard, ESG is represented by three
performance measures. The first is a carbon reduction measure
comprising three distinct projects covering our operational
business areas. The delivery of these projects by the end of 2024
will support a reduction in our carbon footprint across Scopes 1, 2
and 3 and will contribute to our ambition to be a carbon negative
company. This performance measure is the “Environmental”
dimension of ESG inthe 2024 Group Scorecard.
The second ESG performance measure will focus on improving
diversity, equity and inclusion (DEI) across the organisation. This
will take the form of a DEI target, derived from an all-employee
opinion survey administered by Workday Peakon. It measures
colleague perceptions of Drax’s efforts to maintain a diverse
workforce and create an environment where every colleague
feels included and has an equitable experience. The DEI target
isthe “Social” dimension of ESG in the 2024 Group Scorecard
andit also aligns withour “People Positive” element of the
Group’s strategy.
The third ESG performance measure will focus on compliance
which is integral to the success of our business and that the Board
regard as a core part of our licence to operate. Compliance is the
“Governance” dimension of ESG in the 2024 Group Scorecard.
Safety performance is assessed against one leading indicator and
one lagging indicator. The leading indicator is the Near Miss and
Hazard Identification Rate (NMHIR) which is measured based
onthe number ofenvironmental, safety and process safety
observations across all operations and locations. It is intended
toembed the positive reporting culture that we have sought to
introduce across the Group. The lagging indicator in 2024
remains Total Recordable Incident Rate (TRIR). This is measured
at a Group levelwith theoverall target built up based on local
business areatargets.
Finally. underpinning the bonus plan is a modifier which can be
applied to reduce the overall formulaic bonus outcome, if the
Committee consider it appropriate. The Committee has discretion
to apply the modifier if any of the following events were to occur:
a major breach in safety; a major environmental, community or
biomass sourcing event; or a major compliance breach or failure.
Drax Group plc
Annual report and accounts 2023
29
Strategic report
Contents

To be a global
leader in carbon
removals
Our strategic pillars:
To be a UK leader
in dispatchable,
renewable generation
To be a global
leader in sustainable
biomass pellets
Key performance indicators
Measure: Definition/why it matters Performance Target Strategic link Link to risks Link to remuneration
Adjusted
EBITDA
(excluding
EGL)
(£million)
This is our principal financial performance metric,
combining theearnings of each business to give a
Group outcome.
The reconciliation of statutory earnings to Adjusted
EBITDA isonpage 209.
2
023
2
022
2
021
1,214
731
398
To grow the Adjusted
EBITDA of the Group to
support investment
in the strategy.
2
6
3
7
4
8
5
The Adjusted EBITDA performance measure
has a40% weighting on the bonus Scorecard.
Seepages 151 and 152
Adjusted
basic EPS
(pence)
This is an important measure of our profitability –
showing adjusted earnings on a per share basis.
The calculation of Adjusted basic EPS is on page 211.
2
023
2
022
119.6
85.1
26.5
2021
To grow Adjusted basic
EPS of the Group.
2
6
3
7
4
8
5
Cumulative Adjusted basic EPS is a performance
condition of the LTIP and has a 50% weighting
andismeasured over a three-year period.
Seepage 153
Average
Net debt
(£million)
This is a key measure of our liquidity and our ability
to manage ourcurrent obligations.
2
023
2
022
1,243
1,117
1,002
2021
Long-term target of
Net debt to EBITDA
ofaround 2.0 times.
3
8
4 5 6
The leverage (Average Net debt) performance
measure had a 20% weighting on the bonus
Scorecard.
Seepages 151 and 152
Total
recordable
incident rate
(TRIR)
Keeping our people safe is a core principle. TRIR is an industry
standard measure of fatalities, lost time injuries and medical
treatment injuries per 100,000 hours worked.
You can read more about health, safety, and wellbeing
in People Positive onpage 67.
2
023
2
022
2
021
0.38
0.44
0.22
TRIR of 0.20 per
100,000 hours worked.
1 9
The safety performance measure has a 6.7% weighting
inthe bonus Scorecard.
Seepages 151 and 152
Group carbon
emissions
Scope 1, 2
and3
(ktCO
2
e)
We are focused on reducing carbon emissions – as measured
byScope 1, 2 and 3 – which enables us to track progress
towards our carbon negative ambition. You can read more
aboutthis inClimate Positive on page 50.
2
023
2
022
2
021
Scope 1 and 2 Scope 3
669
486
1,255
3,534
3,121
3,123
Ambition to be carbon
negative by 2030 across
our direct business
(Scope 1 and 2)
operations globally.
2
6
3
8
4 5
The 2023 bonus Scorecard had a 16.7% weighting
onmeasures focused on reducing our carbon emissions,
including the development of BECCS.
Seepages 151 and 152
Pellets
produced
(Mt)
This measures a key part of our strategy – to increase
our pellet production capacity and output.
This represents the number of pellets produced in
millions oftonnes.
2
023
2
022
2021
3.8
3.9
3.1
8Mt pa of production
capacity by 2030.
3
8
4 5 6
Increasing the pellet production capacity is a key
component in growing reported Adjusted EBITDA results.
Delivery of pellet volume had a 5% weighting in the
bonusScorecard.
Seepages 151 and 152
Employee
engagement
score (%)
An engaged and motivated workforce is a critical component
indelivering our strategy. This is measured through our annual
engagement survey.
You can read more about employee engagement in
People Positive on page 64.
2
023
2
022
2021
79
79
79
Maintain employee
engagement
year-on-year.
1 9
The Inclusion Index, which is a subset of questions
of the employee engagement survey, and measures
how included colleagues feel about working at Drax,
was a measure with a 6.7% weighting in the
bonus Scorecard.
Seepages 151 and 152
Drax Group plc
Annual report and accounts 2023
30
Strategic report
Contents

Our Risks:
1
Environment, Health & Safety
2
Political & Regulatory
3
Strategic
Type:
Financial
Non-Financial
4
Biomass Acceptability
5
Plant Operations
6
Trading & Commodity
7
Information Systems & Security
8
Climate Change
9
People
Measure: Definition/why it matters Performance Target Strategic link Link to risks Link to remuneration
Adjusted
EBITDA
(excluding
EGL)
(£million)
This is our principal financial performance metric,
combining theearnings of each business to give a
Group outcome.
The reconciliation of statutory earnings to Adjusted
EBITDA isonpage 209.
2
023
2022
2021
1,214
731
398
To grow the Adjusted
EBITDA of the Group to
support investment
in the strategy.
2
6
3
7
4
8
5
The Adjusted EBITDA performance measure
has a40% weighting on the bonus Scorecard.
Seepages 151 and 152
Adjusted
basic EPS
(pence)
This is an important measure of our profitability –
showing adjusted earnings on a per share basis.
The calculation of Adjusted basic EPS is on page 211.
2
023
2022
119.6
85.1
26.5
2021
To grow Adjusted basic
EPS of the Group.
2
6
3
7
4
8
5
Cumulative Adjusted basic EPS is a performance
condition of the LTIP and has a 50% weighting
andismeasured over a three-year period.
Seepage 153
Average
Net debt
(£million)
This is a key measure of our liquidity and our ability
to manage ourcurrent obligations.
2
023
2022
1,243
1,117
1,002
2021
Long-term target of
Net debt to EBITDA
ofaround 2.0 times.
3
8
4 5 6
The leverage (Average Net debt) performance
measure had a 20% weighting on the bonus
Scorecard.
Seepages 151 and 152
Total
recordable
incident rate
(TRIR)
Keeping our people safe is a core principle. TRIR is an industry
standard measure of fatalities, lost time injuries and medical
treatment injuries per 100,000 hours worked.
You can read more about health, safety, and wellbeing
in People Positive onpage 67.
2
023
2022
2021
0.38
0.44
0.22
TRIR of 0.20 per
100,000 hours worked.
1 9
The safety performance measure has a 6.7% weighting
inthe bonus Scorecard.
Seepages 151 and 152
Group carbon
emissions
Scope 1, 2
and3
(ktCO
2
e)
We are focused on reducing carbon emissions – as measured
byScope 1, 2 and 3 – which enables us to track progress
towards our carbon negative ambition. You can read more
aboutthis inClimate Positive on page 50.
2
023
2022
2
021
Scope 1 and 2 Scope 3
669
486
1,255
3,534
3,121
3,123
Ambition to be carbon
negative by 2030 across
our direct business
(Scope 1 and 2)
operations globally.
2
6
3
8
4 5
The 2023 bonus Scorecard had a 16.7% weighting
onmeasures focused on reducing our carbon emissions,
including the development of BECCS.
Seepages 151 and 152
Pellets
produced
(Mt)
This measures a key part of our strategy – to increase
our pellet production capacity and output.
This represents the number of pellets produced in
millions oftonnes.
2
023
2022
2021
3.8
3.9
3.1
8Mt pa of production
capacity by 2030.
3
8
4 5 6
Increasing the pellet production capacity is a key
component in growing reported Adjusted EBITDA results.
Delivery of pellet volume had a 5% weighting in the
bonusScorecard.
Seepages 151 and 152
Employee
engagement
score (%)
An engaged and motivated workforce is a critical component
indelivering our strategy. This is measured through our annual
engagement survey.
You can read more about employee engagement in
People Positive on page 64.
2
023
2022
2021
79
79
79
Maintain employee
engagement
year-on-year.
1 9
The Inclusion Index, which is a subset of questions
of the employee engagement survey, and measures
how included colleagues feel about working at Drax,
was a measure with a 6.7% weighting in the
bonus Scorecard.
Seepages 151 and 152
Drax Group plc
Annual report and accounts 2023
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Stakeholder engagement
Achieving our purpose
– to enable a zero carbon,
lower cost energy future
– and supporting global
efforts to reduce carbon
emissions are long-term
projects. Building
sustainable relationships
with a diverse range
ofinterested parties
iscritical in helping
usachieve them.
Many of our strategic and investment
decisions have multi-year time horizons.
We recognise that these decisions can
have an impact far beyond our business
and well into the future. This is why we
seek to understand the needs and
perspectives of our stakeholders; and
webelieve that considering these
viewsimproves the quality of our
decision-making.
The following pages explain how the Board
considered those matters during 2023.
Section 172 Statement
Under Section 172(1) of the Companies
Act, the Directors have a duty to
promote the success of the Company,
having regard to a range of matters and
stakeholders. The Board is responsible
for ensuring effective engagement with
stakeholders: it recognises that decisions
taken today will have an impact upon
stakeholders, as well as shape the
longer-term performance of the
business. Appropriate consideration is
important in enabling Drax to deliver
positive outcomes for the climate, nature
and people, and to deliver sustainable
value creation.
During 2023 the Board’s discussions and
decision-making considered the matters
contained within Section 172, and acted
in good faith to promote the sustainable
long-term success of the Company.
Youcan read more about how the
Boardfulfilled its duties in the Corporate
Governance Report on pages 112,
118 to 119, and 123 to 124.
Section 172 matter How the Board considered
thosematters
a. The likely consequences of any decision
in the long term
• Business model (page 6)
• Carbon removals (page 16)
• Principal Risks (page 94)
• BECCS project developments in the UK
and globally (page 124)
b. The interests of the Company’s
employees
• Workforce engagement
(pages 33 and 124)
• Diversity and inclusion
(pages 65 and 129)
• Safety, health and wellbeing (page 67)
c. The need to foster the Company’s
business relationships with suppliers,
customers and others
• Engagement with customers (page 36)
• Engagement with suppliers (page 36)
• Supplier Code (page 70)
d. The impact of the Company’s operations
on the community and the environment
• Biomass Sourcing (page 72)
• Climate Positive (page 50)
• Nature Positive (page 56)
• People Positive (page 62)
• Taskforce on Climate-related Financial
Disclosures (TCFD) (page 78)
• Climate change risk (page 105)
• Engagement with communities, schools,
and colleges (page 34)
• Drax Foundation (page 40)
e. The desirability of the Company
maintaining a reputation for high
standards of business conduct
• Ethics and integrity (page 70)
• Culture and values (pages 63 and 113)
• Speak Up (Whistleblowing) (page 71)
• Corporate Governance Code (page 118)
f. The need to act fairly as between
members of the Company
• Shareholder engagement (page 33)
• Rights and obligations attaching to
shares (page 162)
Understanding the
needsofourstakeholders
isessential to our
long-term success
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Workforce
Key issues Engagement activities
• Health, safety and
wellbeing
• Cost-of-living crisis
• Diversity and inclusion
• Culture and values
• Engagement, recognition
We maintain regular dialogue through several
workforce engagement activities. These
include: MyVoice Forums (involving direct
dialogue between colleague representatives,
and the Chair of the Board and CEO);
colleague briefings run by our executive and
leaders; dialogue with unions; and our annual
engagement and ‘pulse’ surveys. The CEO also
emails a weekly update with a Q&A section
responding to colleague questions.
Our MyVoice Forums continue to be a key part
of our listening strategy, providing us with a
view of colleague sentiment and key topics
ofinterest. In 2023 our MyVoice survey was
delivered on a new platform with over 22,000
colleague comments received. We review the
survey results of the MyVoice surveys, inviting
input on key topics, such as development,
careers, and diversity and inclusion. Colleague
Resource Groups were established in 2023 to
provide a forum for discussion and feedback
about improvements to the way we operate
tosupport minority groups within Drax.
To learn more about the Forums and
Colleague Resource Groups, see pages 64
and 65 respectively.
In October 2023 the new Chair, Andrea
Bertone, recorded a video message
introducing herself to the whole business, in
which she talked about her background and
experience, why she joined Drax and hopes
for the future. In November 2023, Andrea
joined her first meeting with the MyVoice
Forum chairs. The CEO also recorded regular
video messages to the whole business with
updates on our strategy, BECCS, and the
Group’s participation in events such New York
Climate Week and COP28.
Principal Risks
• Safety, health
andwellbeing,
and environment
• People
Workforce
Key issues Engagement activities
• Strategy
• Financial and operational
performance
• Biomass sustainability
• BECCS delivery
• Environmental, Social
and Governance (ESG)
The Group has an active Investor Relations
(IR) programme through which it engages
with existing shareholders and potential
investors to inform on progress with the
Group’s performance, strategy, and
investment case. Key areas of discussion
arethe Group’s strategy, capital allocation,
operational and financial performance, policy
and regulation, and biomass sustainability.
In February and July 2023, management
metwith shareholders and investors as part of
full-and half-year results roadshows. Through
these sessions, attended by the CEO, CFO,
and Head of IR, we continued to make the
case for our strategy and the long-term
options this could provide, as well as
discussing current operational and financial
performance, and capital allocation.
In May 2023, Drax hosted a Capital Markets
Day with presentations from the CEO, CFO,
Chief Innovation Officer, and Director of
Sustainability. The meeting focused on the
development of options for Global BECCS
andplans for capital deployment. The event
was attended by around 100 investors,
analysts, and bankers, as well as around
300online participants.
The IR team continued to meet with
shareholders and investors during 2023
todiscuss the Group’s biomass strategy,
andBECCS remains a central theme for
discussion. Further activity included
attendance at industry conferences where
wehosted one-to-one and group investor
meetings as well as fireside chats.
Reflecting the increased focus on North
America and the opportunity there for BECCS,
the CFO and Head of IR undertook two
investor roadshows in the US and Canada,
meeting around 50 investors, primarily equity,
but also debt, to discuss the investment
proposition, with a key focus on BECCS.
During October 2023, the CFO hosted 20
institutional investors on a site visit to Drax
Power Station, providing further insight into
operations and BECCS, as well as discussing
the Group’s balance sheet and use of
workingcapital.
The IR team, working with our Director of
Sustainability, continued to meet with investors
and their governance teams to discuss key
issues around biomass sustainability and
carbon accounting, as part of an ongoing series
of engagement, including two webcasts
attended by around 250 investors.
The Chair (Philip Cox) and Senior Non-
Executive Director (SID) (David Nussbaum)
also met with shareholders to discuss the
Board’s approach to governance,
sustainability, and the wider business. In
addition, the Chair and SID participated in a
virtual meeting with investors hosted by the
Investor Forum – an institutional investor-led
group which aims tofacilitate engagement
with corporates andgood stewardship.
Principal Risks
• Strategic
• Biomass acceptability
• Political and regulatory
Shareholders and investors
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Stakeholder engagement continued
Key issues Engagement activities
• That Drax is a
responsible business
and good neighbour
• Tackling climate change
• Environmental justice
In 2023, we launched a new community
strategy combining Community Action and
Engagement Plans for our operating
countries, with strategic giving through the
Drax Foundation and a designated Community
Fund. This is managed by a global Community
team, with Community Managers in each of
our operating countries. Through the Drax
Foundation, we are providing grant funding
for non-profit organisations that improve
equitable access to science, technology,
engineering, and mathematics (STEM)
education, community green spaces, and
renewable energy.
In the US, we engaged with a wide range of
community stakeholders, with a particular
focus on Gloster, Mississippi. In Gloster and
the surrounding Amite County, we held
meetings with the Mayor and Aldermen to
understand some of the challenges and
opportunities facing the local community
anddiscussed how Drax can engage more
effectively to improve community relations.
We plan to hold follow-up focus group
conversations early in 2024, to ensure that we
are listening and responding to traditionally
under-represented voices within the
community. We have also met with the local
High School Principal and Careers Coach,
withthe objective of attracting, training, and
retaining more school leavers into a career
atthe Drax plant.
A second focus for 2023 was early community
engagement in our potential BECCS markets.
In Texas and Mississippi we met with
community leaders and grassroots civil
society groups to enhance our understanding
of how a new BECCS plant could impact a
wide range of community stakeholders. We
are now using this information to feed into
community engagement and benefit plans.
This work is being led by a US BECCS
Community Manager, who was appointed
in2023.
Elsewhere in the US, our Community Fund,
disbursed around £268,000 to 44 local
community initiatives. We also distributed
around £363,000 to larger State-wide STEM
and nature non-profit organisations through
the Drax Foundation.
In Canada, we hired a Canada Community
Manager who, during 2023, visited
communities in areas close to our sites to
improve understanding of local community
sentiment and how we can improve relations
and engagement. Engagement has ranged
from local mayors, school leaders, and
developing a wide range of relationships with
local non-profit organizations. We have also
recruited a new Director for Indigenous
Engagement and Partnerships, who has
developed a new Indigenous Peoples Policy.
During 2023, wegave approximately
£175,000 to local community projects and
programmes through our Community Fund.
We also distributed approximately £359,000
to larger national orstate-wide STEM and
nature non-profit organisations through the
Drax Foundation.
In the UK, we have active partnerships with
Engineering UK, Primary Engineers, and
Glasgow Science Centre. Each of these is
designed to inspire, educate and train the
nextgeneration to pursue careers in STEM
subjects. During 2023, we provided
educational tours of Drax Power Station
inSelby for around 1,500 school children.
Weopened our Skylark Centre to thousands
of people for community events. We also
delivered STEM sessions in a number of UK
schools. In Scotland we developed new
partnerships with Argyll and the Isles Coast
and Countryside Trust and Kirkcudbright Dark
Spaces Planetarium, to support our STEM
outreach and Nature Positive focus. We also
provided funding for the Loch Ken Trust, to
fund a local ranger, and to Embers Aquatics,
to deliver education on water safety in the
communities surrounding our hydro assets.
Through our Community Fund, we disbursed
around £244,000 to local projects and
programmes in the communities where we
operate. Through the Drax Foundation, we
also donated approximately £457,000 in larger
grants to support STEM and nature non-profit
organisations working in and around the
regions where Drax operates.
For more information about the Drax
Foundation and Community Fund,
please see page 40 and for more on our
community investment please see page 69
Principal Risks
• Climate change
• Biomass acceptability
• Strategic
Communities
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Key issues Engagement activities
• Energy security
• Energy costs
• Tackling climate change
• System stability and
flexible generation
• BECCS delivery
We engage with government bodies in the UK,
EU, North America, and Asia on topics
including: energy security; decarbonisation;
BECCS; and the need for system stability and
flexible generation. While Drax makes no
political donations, it is important that we
engage with politicians, political parties,
policymakers, and other stakeholders to
understand their views and explain our plans
and strategy.
In the UK, we engage with political
stakeholders at party conferences and
through All-Party Groups. We also engage
proactively and reactively with political
bodies, such as Parliamentary Select
Committees, over issues including biomass
acceptability. In addition, we engage with
relevant ministers and their teams ahead of
significant political proceedings, including
fiscal events. We routinely engage with
relevant teams at the UK regulator Ofgem, the
Department for Energy Security and Net Zero
(DESNZ), and National Grid. We also engage
with Energy UK and the Sustainable Biomass
Programme to promote best practice and
progressive reform in policy, licences, and
standards.
In the EU, we continue strategic engagement
to build support for biomass and BECCS. This
includes advocating for BECCS in the context
of the Carbon Removal Certification
Framework Proposal (CRCF), the upcoming
EU Industrial Carbon Management Strategy
and 2040 climate target initiative. Our
activities include meeting with MEPs, officials
from the European Commission, think tanks
and NGOs. The Industrial Carbon
Management consultation outcome,
published in November 2023, demonstrated
ahigh level of support for carbon removals
(71%) and BECCS in particular as the highest-
ranked technology (76%). Several EU Member
States continue developing programmes to
enable BECCS deployment and we engage
asappropriate. Several governments have
announced carbon management strategies,
research and development funding schemes,
or grants. Following publication of two pieces
of legislation in 2023 – the Renewable Energy
Directive (RED III) and the EU Deforestation-
free products Regulation – we are assessing
the potential impact on our supply chains.
Weremain engaged on these as the EU works
on implementation, to ensure the rules are
practical and implementable and that trade
into and from the EU can continue. We are
members of and engage with various trade
associations and partnerships with others
inthe forest sector concerning responsible
sourcing of sustainable biomass.
In Asia, we continue to showcase our coal-to-
biomass conversion expertise as a tool to
decarbonise the region whilst guaranteeing
energy security. We work closely with embassy
officials from the UK, Canada, and US, as well
as engage with government officials to discuss
logistics and trade, sustainable sourcing
policies, and our supply chains.
In the US and Canada, we engage with
policymakers at the federal, state/provincial,
and local levels to ensure that our
sustainability and supply chains are well
understood, and to discuss how biomass
andBECCS can contribute to grid stability,
economic development, and the realisation
ofemissions targets to combat the effects
ofclimate change. Policies to support
deployment of renewables and carbon
capture technologies are under development
in both countries.
It is important for Drax to participate in
conversations around topics such as carbon
capture, clean technologies, energy
permitting, and pipeline regulatory reform,
todiscuss sustainable biomass and BECCS as
a pathway to enable policy goals and net zero
targets. At the state level, we engage regularly
with state and local policymakers on the
opportunities we can provide for job creation
and economic development, particularly in
rural communities.
Principal Risks
• Climate change
• Biomass acceptability
• Political and regulatory
• Strategic
Government, political bodies and regulators
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Annual report and accounts 2023
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Stakeholder engagement continued
Key issues Engagement activities
• Energy costs
• Ethical business conduct
• Reducing environmental
impact
• Long-term partnerships
The cost of energy remained a critical issue
for our customers in 2023. We continued to
work with UK Government’s support package
for businesses, the Energy Bill Relief Scheme
(EBRS) which then transitioned into the
Energy Bill Discount Scheme (EBDS). We also
engaged with customers requiring additional
support with payment arrangements tailored
to their needs.
In 2023, we were pleased that our Trustpilot
score remained at 4.5 stars, which is above
the industry average of 3.9. This is a testament
tothe hard work of our colleagues. Where a
Trustpilot review has a rating for us of two
stars or lower, we assign one of our Energy
Relationship Specialists who engage with the
customer to identify the reasons behind the
rating and try to rectify any issues. We also
seek to ensure that such engagement involves
the creation of enduring solutions that can
improve the service experience overall.
Our internal Operational Excellence team
interacts directly with customers to gain
feedback about certain processes, to seek to
ensure our solutions meet customer needs.
Our large Industrial and Commercial (I&C)
customers, as well as the Third Party
Intermediaries (TPIs) we work with as
partners, have dedicated account managers
and service delivery managers.
Our relationships with relevant suppliers
aregoverned by contracts that include
compliance with relevant regulatory and legal
requirements, anti-bribery and corruption,
modern slavery and supplier code of conduct,
to which suppliers are expected to adhere.
These are regularly reviewed by our
Procurement, Legal, and Business Ethics
functions. Drax has also signed up to the
Prompt Payment Code, and monitors
performance to both continue to improve
payment performance and maintain positive
supplier relationships.
Engagement through our biomass supply
chain is a key focus for the Group. We engage
with suppliers to understand where they
source from, and our standard biomass
purchase agreements require suppliers to
mitigate environmental impacts resulting from
their activities.
You can read more about our biomass
sourcing in the Sustainable Development
section on page 72
Principal Risks
• Climate change
• Safety, health and
wellbeing, and
environment
• Biomass acceptability
Customers and Suppliers
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Case study
Effective engagement helps us to
fulfil our purpose, deliver our strategy,
and create lasting value and positive
outcomes for stakeholders.
BECCS Done Well
We welcome constructive input and
challenge on BECCS, and we want to
continue working with stakeholders to
ensure it is done well. As a responsible
BECCS developer, we have put
significant effort into investigating
towhat extent, and under which
conditions, BECCS can be scaled to make
a material contribution towards fighting
the global climate crisis whilst not having
unintended negative consequences.
In 2022 Jonathon Porritt, environmental
campaigner and co-founder of Forum
for the Future, convened a High Level
Panel to conduct an independent
inquiry into BECCS, with Forum for the
Future acting as Secretariat. The aim of
the six-month inquiry (which concluded
in November 2022) was to identify the
necessary conditions which, if met,
would satisfy thepanel of independent
sustainability experts, that BECCS from
woody biomass can deliver positive
outcomes for nature, climate, and
people. The panel spoke to experts
regarding the issues surrounding the
sustainable deployment of BECCS. As a
result of this input, the panel developed
30 conditions under which it considered
that BECCS could indeed be “done well”.
The conditions can be found here
www.drax.com/BECCS-Done-Well
(forumforthefuture.org).
We committed to formally respond to the
recommendations in the study and during
2023 a dedicated team worked on the
response. We also engaged with our
Independent Advisory Board (IAB) to
better understand the implications and
intended outcomes of the conditions, and
how we could deliver those outcomes.
Ourresponse was published
in July 2023 and can be found at
www.drax.com/Drax-Response-to-
BECCS-Done-Well.
In our response, we agreed in principle
with 24 of the 30 conditions. One
condition we did not agree with, with
reasons given. The remaining five
conditions require further consideration
before we can set out a meaningful
response. The responses are not an end
point in our work to make Drax a world-
leading company driven by sustainability.
Instead, this response marks the beginning
of a process that will result in a set of
sustainability commitments for BECCS
that we can operationalise and hold
ourselves to realising. Recognising the
importance of transparency, we used the
response to address common concerns
around BECCS as a carbon removal
solution and describe under which
conditions its scale-up meets the
highbaron environmental and
socioeconomic sustainability that
thepublic rightly expects.
Stakeholders, such as NGOs and
civilsociety, play an important role
inenabling companies such as Drax
todrive an equitable and inclusive
transition to net zero. We therefore
welcome the contribution of
stakeholders to help ensure good
practice and responsible actions are
taken. We expect to be challenged
inhow we are responding toour
commitments, recognising it is
important they evolve as science
andpolicy advance.
The commitments are also feeding
through to work we are doing to develop
industry-recognised, high-quality
methodologies for the issuance of CDR
credits from BECCS. This supports our
ambition to be aworld-leading,
sustainability-driven company, while
holding ourselves to strict sustainability,
socioeconomic, and environmental
standards. We may commission further
inquiries as our business develops and
scientific perspectives evolve.
With such high concentrations
of greenhouse gases already in the
atmosphere, the only sustainable
way of avoiding a cataclysmic
outcome for humankind will be to
draw down billions of tonnes of CO
2
back out of the atmosphere. Dealing
with overshoot means Carbon
Dioxide Removals – with billions
of tonnes of removals and storage
needed every year by 2050.
The High Level Panel on BECCS
Done Well, November 2022
We are all very impressed by
the in-depth consideration that
the Drax team has devoted to
fashioning this response. The level
of detail is comprehensive, and its
readiness to engage with each of
the proposed 30 Conditions in our
Report should be reassuring for
all those stakeholders involved in
this critical area of debate and
policymaking.
The High Level Panel on
BECCS Done Well, July 2023
Drax Group plc
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Stakeholder engagement in action
and UK Government ministers. We were
proud to host a visit from the First Minister
of Scotland to Cruachan to announce the
planning approval.
In 2023, we undertook further ground
investigation and pre-FEED works, and
appointed Studio Pietrangeli as Owners’
Engineer to progress design and
optimisation works. We engaged with
thelocal community and schools to
discuss the socioeconomic benefits of
theexpansion, and during the year we
welcomed around 28,000 visitors to our
visitor centre, including over 450 free
educational tours.
We aim to continue to engage with key
stakeholders in 2024 to secure the policy
mechanism to support the expansion,
while demonstrating the importance of
Cruachan for energy security, and the
benefits to the local community.
Engaging stakeholders
in the expansion of
Cruachan Power Station
During 2023, Drax engaged with the
Scottish Government, UK Government,
the local community, and a range of other
stakeholders, and we saw some important
milestones being reached.
The UK Government has recognised that
new long-duration, large-scale electricity
storage (LDES) projects can play a pivotal
role in delivering a exible energy system
to meet future needs and represent value
for consumers.
A key focus of engagement in 2023 was
todiscuss the new investment mechanism
tohelp enable investment in and promote
new LDES projects such as the extension
of Cruachan Power Station. We welcomed
the announcement in January 2024 that
the UK Government had launched a
consultation on an investment mechanism
to support the development of new LDES
projects, with an intention to develop a
“cap and oor” mechanism to help give
operators the confidence to progress with
project developments. This mechanism
would offer protection to consumers by
providing a “cap” on the revenue that
operators can earn, with some or all of
therevenue earned over the agreed cap
returned to the consumer, and also
provide revenue-certainty for operators
byproviding a guaranteed revenue should
returns from operating assets drop below
the agreed “oor”.
In July 2023, Drax received approval of
theSection 36 planning application by
Scottish Ministers. As part of the Section
36 process, Drax had engaged with a
variety of stakeholders including Scottish
Case study
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Case study
Matt White (Executive Vice President, Drax Biomass), Percy Guichon (Councillor, Ts

ideldel First Nation), Will Gardiner (CEO, Drax Group plc).
Engaging with First
Nations in Canada
During 2023 Drax continued to work
withthe Ts

ideldel, one of the Ts

ilhqot’in
Nations living in British Columbia. The
Ts

ideldel focus on responsible stewardship
of the land and operating in a way that
provides benefits today and supports
future generations. Their forests provide
the resources for a modern economy,
including products such as timber, pulp
wood, and biomass.
Over the past four years, around
one million cubic metres of fibre has been
recovered, which would either have been
left behind, increasing the risk of
wildfires, or burned in slash piles.
The Ts

ideldel’s understanding of the
best ways to support and protect the
forests represents important learning
for other users, including Drax.
In 2023, Drax funded a series of films
tohelp explain and educate audiences
about the role the Ts

ideldel play in
delivering sustainable forestry and
biomass. In October 2023 the Drax
North American leadership team met
with the Ts

ideldel to discuss the issues
they are facing in the industry, including
old growth deferral, forest fire salvage,
and fire hazard abatement. As a result
of this engagement Drax supported
their work on the communications
materials presented to the British
Columbia Ministers at the gathering of
the British Columbian Cabinet and First
Nations Leaders in November 2023.
You can read more about our
engagement with indigenous peoples
on page 69
Engaging with experts
A key part of our engagement with
scientists and forestry experts is the IAB.
The IAB advises Drax on the science and
evidence surrounding the deployment of
BECCS and the BECCS value chain, with
aspecific focus on the responsible
sourcing of biomass.
The IAB provides independent scrutiny,
challenge, and advice. It makes
recommendations on how we can improve
various initiatives within our sustainability
strategy, including best practice on ensuring
that biomass is sourced sustainably.
In 2023, the IAB played an important role
in helping Drax respond to the BECCS
Done Well recommendations, as explained
on page 37, and in July 2023 the IAB Chair
and Vice Chair met the Drax Board to
discuss the work programme and key
topics on which the IAB had advised.
Feedback from 2023’s activities included
refining the scope of the sustainability
Evidence Book (see page 49) and how to
best present varying views of the scientific
community. More details can be found in
our half-yearly updates published on our
website.
You can read more about
the IAB on page 47
1 million
Around one million cubic metres of fibre
recovered over the past four years
Case study
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Corporate giving
Building stronger communities
for a net zero future
The Drax Foundation was established in 2023 to
provide grant funding for non-profit organisations
that share our commitment to improving equitable
access to STEM education, community green
spaces, and renewable energy. We prioritise
projects and programmes that support
underrepresented and underserved groups.
Renewable energy
& energy efficiency
STEM education &
skills development
Nature & community
green spaces
Stronger
communities
for a net zero
future
Drax Community Fund
Giving back in the communities where we operate
We recognise that each of our communities has unique challenges and opportunities.
That’s why we established a Community Fund to provide reactive funding for local
programmes, projects, and community events. This is part of our commitment to being
agood neighbour and building stronger communities.
Communities in Crisis Fund
Responding to humanitarian crises
We also operate a Crisis Fund that provides emergency relief for on-the-ground
humanitarian organisations in the aftermath of natural disasters and conict.
Contributing to the
Sustainable Development Goals
Across all our funding programmes, the Drax Foundation is committed to making a
measurable contribution to the United Nations Sustainable Development Goals (SDGs).
We have prioritised eight intersecting SDGs where we have the greatest impact.
Drax Community
team celebrating
Global Goals Week
with local non-profit
partners in Scotland
Organisations we supported
through the Drax Foundation
during 2023
In the UK
• Argyll & the
Isles Coast &
Countryside Trust
• CatZero
• Embers Aquatics
• Don Catchment
Rivers Trust
• Eden Rose
Coppice Trust
• Friends of Lower
Derwent Valley
• Glasgow Science
Centre
• HETA
• Kirkcudbright Dark
Space Planetarium
• NYBEP
• STEM Learning Ltd
• Speakers for Schools
• Teach First
• Toranj Tuition
In the US
• Boys and Girls Clubs
of America
• Center for Planning
Excellence
• Central Creativity
Foundation
• Galveston Bay
Foundation
• Gulf Coast Center
for Ecotourism &
Sustainability
• Houston Audubon
• Project Learning Tree
• Texas Alliance
for Minorities in
Engineering (TAME)
In Canada
• Actua
• Connected North
• Exploration Place
• Nature Trust for
British Columbia
• Scientists in Schools
• Society for Women
in Science and
Technology (SCWIST)
• Science World
• University of
British Columbia
• Williams Lake
First Nation
Drax is committed to being a good neighbour
in thecommunities where we operate. We
achieve thisbycombining active community
engagement withcorporate giving.
Drax Group plc
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Our impact across all giving
2023 at-a-glance
2023 funding by country 2023 funding by focus area
Lisa Anastasi, Chief Development and Public Affairs
Officer for Boys and Girls Clubs of America.
Boys and Girls Club of America Nature Trust of British Columbia. Canada HETA, Hull
Dr. Jasper Lament
CEO The Nature Trust of British Columbia
Joanne Rowlands, HETA Centre Manager, Hull
“Through our new partnership with the
Drax Foundation, we are excited to expand
the number of young people engaging in
high-quality STEM programs within select
Mississippi Clubs”
“Through the generous support of the
Drax Foundation, we will be able to
enhance approximately 20 hectares of
ingrown forest… improve wildlife and
biodiversity habitat values”
“Drax Foundation funding will enable us
to invest in the latest tools and equipment,
ensuring that our learners are well-versed
in the advancements shaping
their industries”
During 2023, we donated £2.7 million
to around 280 projects and programmes,
primarily in the countries and regions
where Drax operates.
Drax Foundation
The projects and programmes supported
by the Drax Foundation during 2023
contributed to the following outcomes
across our focus areas.
Community Fund
In 2023 Our Community Fund and
Communities in Crisis Fund benefited
more than 26,000 members of our
communities, and provided emergency
donations for crises in the US, Canada,
Libya, Morocco, and Gaza-Israel.
£432.4k
20,860
people with access
to community
green spaces
1,230
hectares protected
orrestored
Nature
£616.3k
240
schools with energy
analysis tool and
education
8
schools with
energy-efficient
LED lighting
Energy
efficiency
Our
communities
£893.4k
222
community projects
supported
26,628
community members
benefitting fromthese
programmes
£746.5k
70,300
children in STEM
education
637
adults in STEM
training
STEM
£671.3K
Other
UK
US
Canada
£125K
£1,316.7K
£575.5K
£746.5k
£432.4k
£687k
£616.3k
STEM
Energy efficiency
Nature
Communities
in Crisis Fund
Community Fund
£206.4k
Drax Group plc
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Contents
46 Introduction
50 Climate positive
56 Nature positive
62 People positive
72 Biomass sourcing
78 Taskforce on Climate-related
Financial Disclosures (TCFD)
91 Non-Financial and Sustainability
Information Statement (NFSI)
91 Assurance statements
92 Viability statement
94 Principal risks and uncertainties
Sustainable
Development
Leading climate organisations, such
as the Intergovernmental Panel on
Climate Change (IPCC) and the UK’s
Climate Change Committee, have
once again highlighted the integral
role of carbon removals if the world
is to meet its emissions targets and
keep global warming below 1.5°C.
For Drax, this represents a
significant commercial opportunity,
as we seek to develop and expand
our carbon removals offering. But it
is also vital that the removals we
aim to provide in the future are of
high quality, trusted, and recognised
internationally.
Miguel Veiga-Pestana, Chief Sustainability Officer
Drax Group plc
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A- (2022: B)
CDP Climate Change
In 2023, Drax Group plc received a score of A- (onascale
of F – A). CDP is a not-for-profit charity thatruns a global
disclosure system for investors, companies, cities, states
and regions to manage their environmental impacts.
Please see the CDP website for further details.
B (2022: B)
CDP Forests
In 2023, Drax Group plc received
a score of B (on a scale of F – A).
A (2022: AA)
MSCI
In 2023, Drax Group plc had a rating of A (on ascale
of AAA-CCC) in the MSCI ESG Ratings assessment
(1)
.
62 (2022: 62)
Moody’s Analytics
In 2023, Drax Group plc had an overall ESG score of
62 from Moody’s Analytics (on a scale of 0 to 100,
with 100 being the highest score).
23.5 (2022: 25.9)
Morningstar Sustainalytics
As of September 2023, Drax Group plc received a
Sustainalytics ESG Risk Rating of 23.5, medium risk
(2)
.
(1) The use by Drax Group plc of any MSCI ESG research LLC or its affiliates
(“MSCI”) data, and the use of MSCI logos, trademarks, service marks or
index names herein, do not constitute a sponsorship, endorsement,
recommendation, or promotion ofDrax Group plc by MSCI. MSCI services
and data are the property of MSCI or its information providers and are
provided ‘as-is’ and without warranty. MSCI names and logos are
trademarks or service marks of MSCI.
(2) Copyright ©2024 Morningstar Sustainalytics. All rights reserved. The
information, data, analyses and opinions contained herein: (1) includes
theproprietary information of Sustainalytics and/or its content providers;
(2) may not be copied or redistributed except as specifically authorized;
(3)do not constitute investment advice nor an endorsement of any product,
project, investment strategy or consideration of any particular
environmental, social or governance related issues as part of any
investment strategy; (4) are provided solely for informational purposes; and
(5) are not warranted to be complete, accurate or timely. TheESG-related
information, methodologies, tool, ratings, data, and opinions contained
orreected herein are not directed to or intended for use or distribution
toIndia-based clients or users and their distribution to Indian resident
individuals or entities is not permitted. Neither Morningstar Inc.,
Sustainalytics, nor their content providers accept any liability for the use
ofthe information, for actions of third parties in respect to the information,
nor are responsible for any trading decisions, damages or other losses
related to the information or its use. Theuse of the data is subject to
conditions available at https://www.sustainalytics.com/legal-disclaimers
B- prime (2022: B- prime)
ISS ESG
As at 21/02/2024, Drax Group plc had an ISS ESG Corporate
Rating of B- Prime (on a scale ofD-toA+). Corporate Rating
prime status is awarded to companies with an ESG
performance above the sector-specific Prime threshold.
ESG Ratings Summary
Drax Group plc
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Our strategic ambitions to become a global leader in both carbon
removals and sustainable biomass pellets have rightly placed
focus on the sustainability of the Group’s operations while also
confirming the complex issues faced by businesses and society
more widely in tackling climate change and cutting CO
2
emissions.
Drax acknowledges that in our role in seeking to address these
issues, we can do better at explaining what we do, in helping
toestablish and in meeting the right standards and in working
with stakeholders to allow shared concerns for the climate to
beproperly managed.
We have taken steps in a number of the areas, but more needs
tobe done. This report outlines actions we have been taking,
aswell as our plans for future initiatives.
Our Sustainable Development Framework (see page 46) is
designed to ensure our business model and commercial transition
produces positive outcomes for climate, nature, and people, in our
value chains and the locations in which we operate. This means
we are aligning the objectives of our business with the UN
Sustainable Development Goals (SDGs).
Leading climate organisations, such as the Intergovernmental
Panel on Climate Change (IPCC) and the UK’s Climate Change
Committee, continue to highlight the integral role of carbon
removals if the world is to meet its emissions targets and keep
global warming below 1.5°C. For Drax, this represents a
significant commercial opportunity, as we seek to develop and
expand our carbon removals offering. But it is also vital that the
removals we aim to provide in the future are of high quality,
trusted, and recognised internationally. That was a key reason
why, in 2022, we commissioned Jonathon Porritt CBE to convene
a High Level Panel to conduct an independent inquiry into how
toimplement BECCS in a way that delivers positive outcomes
forthe climate, nature and people.
I was pleased to take up the role of Chief Sustainability
OfficerinSeptember, at such a critical moment in the Group’s
transformational journey. I am a passionate advocate of our
corporate purpose to enable a zero carbon, lower cost
energyfuture.
Drax has the potential to play a significant role in tackling climate
change – and I am excited to shape and drive forward Drax’s
contribution. My focus is on embedding sustainability into the
overall core business strategy to facilitate the Group’s ambitions
while building and protecting its reputation.
Miguel Veiga-Pestana, Chief Sustainability Officer
My focus is on
embedding sustainability
into the overall core
business strategy to
facilitate the Group’s
ambitions while building
andprotecting its
reputation.
Sustainable Development
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You can read more about our engagement on ‘BECCS Done Well’
on page 37. The High Level Panel’s findings, and the Group’s
subsequent response, demonstrate the scientific grounding for
BECCS. We recognise that we must be informed by science and
that is why we are developing an Evidence Book. This will collate
the latest scientific evidence and highlight the gaps in our
understanding. We intend the Evidence Book to be updated as
that understanding evolves, supported by research and analysis
(see page 49).
In 2023 we established a ‘Sustainability Council’ that has been
augmented by a new Science and Evidence function, and the
introduction of Expert Hubs, including the Carbon Reduction Task
Force. Also in 2023, the Group’s annual bonus Scorecard included
a Safety and ESG element with a 20% weighting. This links
remuneration with our sustainability performance on KPIs for
safety, decarbonisation, and a colleague inclusion index measure
(read more on page 151). All this will serve to strengthen the
governance of sustainability across the business.
I also recognise the challenges faced by the business over the
lastyear. In May 2023, Ofgem announced their investigation
intoDrax Power Limited’s annual biomass profiling reporting
under the Renewable Obligations Scheme. As part of that
announcement Ofgem confirmed that it had not established any
non-compliance that would affect the issuance of Renewables
Obligation Certificates (ROCs). Throughout their investigation,
Drax has sought to co-operate and continues to engage with
Ofgem in support of their work. Drax awaits the conclusion
ofthisinvestigation.
Separate from the Ofgem investigation, Drax had already
commenced a detailed review of internal procedures supported
by an external consultant. This review did not highlight any issues
with the accuracy of underlying reporting. You can read more
about this on page 133 of the report of the Audit Committee.
Another area of focus has been operational challenges in the
USSouth. Following historical permit violations at our Amite
pellet plant in Gloster, Mississippi, we had previously engaged
with theMississippi Department of Environmental Quality
(MDEQ) andinstalled new technologies at the plant during 2021.
Afteridentifying and self-reporting air pollutant calculation
discrepancies at the Amite plant to the MDEQ, in 2023 we
received a corresponding notice of violation in respect of those
discrepancies. Drax received a second notice of violation in
respect of the Amite pellet plant in January 2024 alleging issues
with visual inspections and equipment testing. We remain in
dialogue with the MDEQ to address these issues. We have also
undertaken community engagement on this matter (read more
onpage 61).
Looking ahead, delivering our purpose and strategic aims will
necessitate a new set of guiding principles and commitments
across the business. We will publish more details in 2024, setting
out the vision, areas of focus and 2030 sustainability plan for
theCompany.
Miguel Veiga-Pestana,
Chief Sustainability Officer
28 February 2024
What’s inside
ESG Performance Report 2023
Our ESG Performance Report
provides additional environment,
social, and governance data.
See www.drax.com/sustainability
Policies
For publicly available policies referenced in this section,
see www.drax.com/about-us/corporate-governance/
compliance-and-policies/
Climate positive
Our ambition is to become carbon
negative by 2030.
Find out more on Page 50
Contents
Environment
2 Generation, Pellet Production
and Customers
3 Carbon and energy
5 Nature and environmental
management
5 Biomass
Social
6 Health and safety
7 Our people
7 Social value
Governance
8 Ethics and integrity
Assurance statements
9 Assurancestatements
Our ESG Performance
Report 2023 provides a
consolidated overview of
our ESG performance data
Drax Group plc
Drax ESG Performance
Report 2023
Policies and key documents
areavailable at
www.drax.com/about–us/
corporate–governance/
compliance–and–policies/
Nature positive
Our ambition is to implement the systems and
metrics across our operations and biomass value
chains to demonstrate a contribution to nature
positive outcomes.
Find out more on Page 56
People positive
We will only achieve our ambitions through
thetalents, skills and experience of our people.
Find out more on Page 62
Biomass sourcing
Sustainably sourced biomass is central to
realising our strategy and our climate positive,
naturepositive, and people positive outcomes.
Find out more on Page 72
Taskforce on Climate-related
Financial Disclosures
Find out more on Page 78
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Our Sustainable
Development Framework
Our Group-wide Sustainable Development
Framework (Framework) established the
principle that, as well as delivering positive
economic returns, the way we operate our
business should provide positive outcomes
for the climate, people and nature.
Essential to this is our commitment to
source biomass sustainably. We oversee
this by underpinning our business with a
robust environmental, social and
governance (ESG) framework, in addition
to being informed by laws, regulations
andstandards applicable to our business.
TheFramework is designed to support
ourthree strategic aims, as detailed below,
and our purpose: to enable a zero carbon,
lower cost energy future.
Governance of sustainability
The Board has ultimate accountability for
the Group’s sustainability performance.
Itapproves the Group’s purpose and three
strategic aims, which are underpinned by
acommitment to sustainability that
guidesbusiness operations and activities.
The CEO has overall responsibility for the
implementation of that strategy in
realising our purpose.
In 2023, Drax appointed Miguel Veiga-
Pestana, Chief Sustainability Officer (CSO).
A member of the Executive Committee,
the CSO brings the Sustainability and
Corporate Affairs functions into a combined
unit and leads Group implementation of
thesustainability programme.
The sustainability leadership team provide
regular sustainability updates for inclusion
within the CEO Report to the Board.
The Executive Committee conduct
Quarterly Business Reviews, designed
toensure effective execution of strategic
and operating plans. As part of this, the
sustainability leadership team provide
updates on progress and challenges
across our Sustainable Development
Framework.
Sustainability governance structure
During 2023, we established a new
Sustainability Council (Council). We are
working to embed the Council within
ourgovernance frameworks.
We also introduced the Biomass
Leadership Team forum to provide
cross-learning and co-ordination on
thesustainability of biomass sourcing
andsupply.
See Climate Governance,
page 79, formore information.
2023 highlights:
• External validation of our near-term
Science-Based Targets initiative (SBTi)
carbon reduction targets.
• Piloting the Taskforce on Nature-related
Financial Disclosures (TNFD) framework
on our Scottish hydro sites.
• Establishment of a Science and Evidence
function, with the remit to ensure that
properly gathered and reviewed
evidence proactively informs our
decision-making, for example on BECCS.
2024 priorities:
• Publish the first draft of the Evidence
Book and our final response to the
‘BECCS Done Well’ report (see page 49).
• Produce a formal Climate Transition Plan
in line with the Transition Plan Taskforce
(TPT) Disclosure Framework.
• Publish a Sustainability Policy
Framework outlining the policies and
governance underpinning our
Sustainable Development Framework.
• Publish and roll-out implementation
ofanew Group Nature Policy.
Introduction
Sustainable Development continued
Three strategic aims:
To be a global leader
in carbon removals
Sustainable Development Framework:
Biomass Sourcing Climate Positive Nature Positive People Positive
Underpinned by robust ESG
Sustainable Development Framework
To be a global leader
in sustainable
biomass pellets
To be a UK leader
in dispatchable,
renewable generation
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Drax Group plc Board sustainability oversight
Executive Committee
Sustainability Council
Co-ordinates sustainability-related policy andstrategy
development.
Biomass Leadership Team
Commercial implementation and accountability for policies
concerning biomass sourcing and supply.
Topic-specific Expert Hubs:
People Expert Hub
Reports periodically to the Sustainability
Council. Representatives from the HSE
Committee, Diversity, Equity, and
Inclusion (DEI) Steering Committee, and
the Drax Foundation provide updates.
Nature Expert Hub
Co-ordinates the operational
implementation of nature-related
projects.
See page 57
Carbon Reduction Task Force
Centrally co-ordinates the prioritisation
and delivery of decarbonisation projects.
See page 51 and page 80
The IPCC and the UK’s Climate Change Committee recognise that
sustainably sourced biomass can play an important role in meeting climate
change targets. It’s therefore vital that biomass is sourced sustainably and
takes into account the latest scientific thinking. We make recommendations
on Drax’s sustainable biomass approach and performance, how Drax can
optimise carbon benefits, and provide insight on societal expectations for
responsible and sustainable biomass.
Sir John Beddington, IAB Chair
The Independent Advisory Board (IAB)
forms a key part of our engagement and
governance regarding responsible
sourcing of biomass, providing scrutiny,
challenge, and advice. While their focus
is biomass sustainability, the IAB does
provide feedback on aspects of our
wider sustainability strategy.
The IAB membership comprises six
scientists and technical specialists
(member biographies are available on
the Drax website). The Chair is Professor
Sir John Beddington, former Chief
Scientific Adviser to the UK
Government. The Vice Chair is Lord
John Krebs, former member of the
Climate Change Committee. The IAB
Terms of Reference define the technical
competencies for membership
selection, and characteristics of
independence. In early 2024, Lord John
Krebs will become the new Chair of the
IAB and Sir John Beddington will step
down from his role as Chair. We
acknowledge and extend our gratitude for
his contribution over the past five years.
In 2023, the IAB met six times, continuing
to advise on the science and with a new
focus on the development of the Evidence
Book. Every six months, the IAB approves
a written report summarising its activities
and conclusions, and how Drax is
responding. These six-monthly updates
are published on the Drax website (www.
drax.com/sustainability).
The Drax sustainability team formally
updates the Executive Committee on the
work programme and key challenges and
opportunities discussed with the IAB.
TheIAB Chair and Vice Chair met the Drax
Board in July 2023, discussing the work
programme and key topics that the IAB
has advised on.
Key matters discussed and advised
on during the year included:
• The development of the Evidence
Book and proposed chapters and
topics.
• The strategy for Catchment Area
Analysis studies and underlying
methodology.
• The Drax response to the ‘BECCS
Done Well’ report by Jonathon Porritt
and the High Level Panel.
Feedback from 2023 activities included
refining the scope of the Evidence Book
and how to best present varying views
of the scientific community. More
details can be found in our half-yearly
updates published on our website.
Independent Advisory Board
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Sustainability topic groupings and sub-topics according to importance for Drax
Sustainable Development continued
Our sustainability priorities
Stakeholder priorities evolve over time,
and it is important that we regularly
reviewand respond to them, to address
expectations and effectively manage
risksand opportunities.
In 2023, we completed the first phase
of a materiality assessment exercise,
supported by a third party, Grant Thornton.
The exercise is designed to identify the
sustainability topics of importance to
stakeholders and their potential to have
animpact on the business.
The process during 2023 involved external
benchmarking to understand the current
and emerging topics relevant for Drax.
Benchmarking considered sustainability
topics in peer disclosures, sustainability
reporting frameworks, and three ESG
rating questionnaires.
Grant Thornton interviewed 30 internal
stakeholders, including our Executive
Committee members, to rate topics
according to the potential or actual impact
of our operations on people and the
environment. Further analysis was added
through a survey, issued to a sample of
colleagues, which asked them to rate
sustainability topics perceived as most
important for Drax.
The resulting list of 11 material topic
groupings is prioritised in order of
importance, based upon scoring of impact.
The 11 groupings consist of 24 material
sub-topics, amongst which Water and
Nature (biodiversity) were identified
asemerging topics for Drax.
The outputs inform our sustainability
disclosures and will be reected in
subsequent updates to our Sustainable
Development Framework. This helps
toensure Drax is continuing to meet
theexpectations of its stakeholders.
The next phase of this exercise will
incorporate external stakeholder
interviews and engagement, after which
we intend to update the material issue
listprioritisation.
Corresponding
topic grouping Topics
2 1. Responsible sourcing of biomass
1 2. Credible and transparent sustainability information
8 3. Climate action and GHG emissions
1 4. Science and evidence (based information)
6 5. Environmental pollution
7 6. Health and Safety
3 7. Corporate governance mechanisms
8 8. Biomass supply chain GHG emissions
3 9. Investor Relations and Government engagement
3 10. Responsible tax
4 11. Community relations
7 12. Human and labour rights
Eleven material topic groupings
1 Credible and transparent sustainability information
2 Responsible sourcing
3 Governance and organisational accountability
4 Community relations
5 Business ethics
6 Environmental impact
7 Labour practices and standards
8 Climate action and GHG emissions
9 Cyber and Information Security
10 Diversity, Equity and Inclusion in the workforce
11 Human capital development
Corresponding
topic grouping Topics
6 13. Biodiversity
5 14. Business ethics
7 15. Employee wellbeing
3 16. Remuneration of executives
9 17. Cyber and Information Security
10 18. Diversity, Equity and Inclusion in the workforce
7 19. Responsible products and customer relations
6 20. Water
2 21. Responsible sourcing of non-biomass
11 22. Training and development
8 23. Energy consumption
11 24. STEM and early career opportunities
Importance for Drax (internal) Importance for Drax (internal)
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BECCS Done Well
In 2022, Drax commissioned an
independent inquiry to assess the
conditions required to implement BECCS
in a way that ensures positive outcomes
for nature, climate, and people.
In November 2022, the inquiry’s panel and
its Chair, Jonathon Porritt, produced
“BECCS Done Well: Conditions for success
for Bioenergy with Carbon Capture and
Storage”. This report recommended 30
conditions to deliver sustainable outcomes
and you can read more about our
engagement with the inquiry, the
recommendations, and our subsequent
response, on page 37.
Since our July 2023 response, we grouped
the 30 conditions into six themes for
action and have considered ways we can
embed the conditions into our operations.
For example, we have incorporated some
of the relevant conditions into the
development of forthcoming policies
related to biomass sourcing and CCS.
We have committed to publishing a final
response to “BECCS Done Well” in the first
half of 2024. This will provide an update
for each of the 30 conditions, including
the five conditions requiring further
consideration, and will outline how we
plan to address them.
Evidence Book
Following our response to the “BECCS
Done Well” report, we committed to
compiling an Evidence Book. This will seek
to provide a thorough examination of the
scientific evidence and research pertinent
to the BECCS value chain. It will identify
areas of consensus, and comment on
potential further steps to support
assessment in areas where information
isinsufficient.
The Evidence Book will be publicly
available. It will be used to develop our
understanding of the steps required in
order to scale up BECCS sustainably,
collating the science underpinning our
plans for BECCS. It will contain relevant
scientific evidence and research on areas
such as net negativity, biomass availability,
and the readiness of both BECCS
technology and the carbon market.
It will also cover the socioeconomic and
environmental co-benefits of BECCS.
In compiling the Evidence Book, we are
working with external organisations, as
well as the IAB, to ensure a fair and
accurate reection of the science. In June
2023, the IAB provided initial feedback
onthe developing Evidence Book. The IAB
will, periodically, peer review chapters of
the Evidence Book.
As the science evolves, so too will the
Evidence Book, ensuring the topics
covered reect the latest findings and
research surrounding the BECCS value
chain. We intend to publish the first
topicsof the Evidence Book in the first
half of 2024.
High Level Panel publishes a report:
“BECCS Done Well”: Conditions for
Success for Bioenergy with Carbon
Capture and Storage
Drax publishes response
to “BECCS Done Well” and
commits to compiling an
Evidence Book
Drax to publish
its final response to
“BECCS Done Well”
Drax to publish
its Evidence Book
2024
November July H1
2022
2023
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Climate
positive
Our performance
Carbon and energy use data summary
For additional data see ESG Performance Report www.drax.com/sustainability
Our ambition:
To become carbon
negative by 2030.
Unit 2023 2022 2021 2020
Carbon emissions
Generation CO
2
e emissions
(1)
ktCO
2
e 141 310 525
(9)
1,687
Group total Scope 1
(2)
ktCO
2
e 255 336 932 1,693
Group total Scope 2 (location-based)
(3)
ktCO
2
e 231
(
7)
333 323 277
(7)
Group total Scope 2 (market-based)
(3)
ktCO
2
e 273 332 323 338
Group total Scope 1 and 2 (location-based) ktCO
2
e 486 669 1,255 1,970
Proportion of Group (Scope 1 and 2) emissions within the UK
% 34 51 78 87
Group total Scope 3
(4)
ktCO
2
e 3,534 3,12 3 3,121 3,538
Biogenic CO
2
emissions
(5)
ktCO
2
e 11,463 12,13 0 13,415 13,627
Carbon intensity
Generation emissions per GWh of electricity generation tCO
2
e/GWh 11 23 33
(9)
100
(9)
Group emissions per GWh of electricity generation
(6)
tCO
2
e/GWh 39 49 78 117
Group emissions per unit revenue
(6)
tCO
2
e/£million 62 – – –
Total energy consumption
Group total energy consumption GWh 34,113
38,341
(8)
4 4,113 44,491
Group total energy consumption within the UK GWh 30,125 33,789
(8)
4 0,112 41,008
Note: The work to update the 2020 “baseline” carbon emissions data set has now been completed, to the extent that all material updates have been made to the data set,
reecting the impact on our emissions footprint of acquisitions, divestments and disposals that have taken place between 2020 and the present day.
Note: Carbon emissions are reported against a criterion of operational control. Carbon emissions are reported in units of carbon dioxide equivalent (CO
2
e) and include all
greenhouse gases as required by the GHG Protocol.
This metric was subject to external independent limited assurance by PricewaterhouseCoopers LLP (‘PwC’) as part of their assurance over metrics in the ESG Performance
Report 2023. For the results of that assurance, refer to page 10 in the ESG Performance Report 2023 (www.drax.com/esg-performance-report-2023) and for the Reporting
Criteria refer to pages 12 to 46 in the ESG Databook (www.drax.com/esgdatabook2023).
(1) Generation emissions covers the total direct emissions from Scope 1 and indirect emissions from Scope 2 activities across our Generation sites.
(2) Group total Scope 1 covers all direct emissions from our own business operations, across all sites.
(3) Group total Scope 2 covers all indirect emissions associated with our electricity and heat consumption, across all sites.
(4) Group total Scope 3 excludes “downstream leased assets”; and categories “end of life treatment of sold products”, “franchises” and “investments” are not applicable.
(5) The biogenic CO
2
emissions across the Group are zero-rated under the GHG Protocol methodology and our SBTi targets. Biogenic CO
2
emissions are reported separately
as“outside of scope” in ESG reports or under “Memo items” of UK Emissions Trading Scheme (UK ETS).
(6) Group emissions are total Scope 1 and 2 (location-based) emissions as reported.
(7) For 2020 and 2023 we have updated the location-based methodology, where the Group is able to apply our own generation (currently UK REGOs) and apply a zero-carbon
factor for GB grid locations. Our updated methodology can be found on pages 21 to 25 in the Basis of Reporting. 2022 and 2021 have not been restated on the basis of it being
impractical without having to incur undue costs or effort.
(8) 2022 figures restated due to error in calculation in 2022.
(9) 2021 figure was based on the ETS value of Drax Power Station and Daldowie only.
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Understanding our carbon emissions
Upstream Direct emissions Indirect emissions
from electricity
Downstream
• Natural gas supply chain
• Biomass supply chain
• Supply chain for other fuels
• Supply of sludge to
Daldowie
• Biomass transport from
Pellet Production to Drax
Power Station
• Utilities as part of lease
contracts
• Emissions from operational
and capital purchases
• Business travel
• Hotel stays
• Employee commuting
• Methane and nitrogen
oxides emissions from
biomass generation
• Pellet plant operations
• Pellet port operations
• Large plant vehicles
• Flue gas desulphurisation
systems
• Company vehicles
• Fluorinated gases from
heating, ventilation, and air
conditioning systems
• Hydro electricity
consumption
• Cruachan electricity imports
• Generation electricity
consumption
• Pellet Production business
electricity consumption
• Office sites electricity
consumption
• Recycling, processing and
disposal of waste
• Reuse and reprocessing
ofash and by-products
• Transmission and
distribution
• Emissions from use of sold
electricity
• Emissions from use of sold
natural gas
• Emissions from transport
and use of sold pellets
• Emissions from use of
soldcoal
Our approach
Responding to the challenge of climate
change is central to our purpose, our
threestrategic aims, and our ambition
tobecome carbon negative by 2030.
The Group Climate Policy outlines our
approach in line with the Taskforce on
Climate-related Financial Disclosures
(TCFD) framework.
For information on climate-related
governance, see pages 79 and 80.
Carbon Reduction Task Force
The role of the Carbon Reduction Task
Force (CRTF) is to centrally co-ordinate
the prioritisation and delivery of
decarbonisation projects. It oversees
accountability for delivery, and monitors
and reports on progress through the
corporate governance structure,
includingregular briefings to the
ExecutiveCommittee.
The CRTF is led by the Head of
Decarbonisation and meets regularly.
Itincludes representatives from the
Commercial, Generation, and Pellet
Production business units. A key aspect
ofthe CRTF’s role is to evaluate projects
that help to realise the Group’s
decarbonisation objectives, including
ourcarbon reduction targets.
For each of the three main business units,
potential decarbonisation projects are
compiled into a long list of candidate
projects. Projects are ranked, by factors
including financial cost per tonne of
carbon reduced, time to deliver, and
technical feasibility of scaling project.
Theprojects are then costed using
ourinternal shadow price of carbon
(1)
.
TheCRTF evaluates which projects
represent the most scalable and viable
decarbonisation opportunities and then
develops the business case for funding
and implementation. These project lists
form the individual business units carbon
reduction plans, providing input both for
future Group Scorecard KPIs, and for
separate projects funded by individual
business unit budgets.
In 2023, the CRTF’s activities included
delivery of three decarbonisation projects,
that form part of the Group annual bonus
Scorecard (see page 52).
Internal shadow carbon price
We have embedded a shadow carbon
price within the capital expenditure
decision-making process. For more
information see pages 83 and 89.
Advocacy on climate policy
In 2023, Drax continued to advocate for
climate action through our engagement
inrelevant industry initiatives.
For more information, see page 90.
(1) Drax’s internal shadow price of carbon is used to
incorporate the potential future costs (or benefits)
of the corresponding increase (or decrease) in
carbon emissions on the Group’s total footprint, as
a specific result of the project under consideration.
This is calculated as an amendment to project Net
Present Value, where applicable.
Scope 3 Scope 1 Scope 2 Scope 3
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Decarbonisation Dashboard
2023 Group Scorecard targets
Delivery
Date/Year
Project
Outcome Result
Baseline
period
Hydro decarbonisation: 25% reduction in Hydro Asset
portfolio Scope 1 and 2 emissions by the end of 2023
2023 On target
96% decarbonisation of our hydro
assets, based on total emissions 2020
Opus Energy gas portfolio rundown: 50% reduction in Scope 3
emissions associated with the sale of fossil natural gas from the
Opus Energy business, by December 2023
Dec
2023
Ahead
of target
59% reduction in sold gas
(by volume) against a target
of a 50% reduction
Dec
2022
UK Electric Vehicle (EV) chargepoint expansion: Deploying EV chargers
across all UK Drax sites where we have sufficient property ownership rights.
Targeted 36 additional chargers across 10 locations by the end of 2023
Jan
2023
Ahead
of target A total of 36 chargers installed
Dec
2023
Progress against our SBTi targets is
shown opposite. In summary, we are
well ahead of target against our
Generation Scope 1 and 2 intensity
target and slightly behind on our Scope
3 target. Our Scope 3 target has been
impacted by a one-off addition of c. 630
ktCO
2
e as a result of the purchase of
coal on behalf of National Grid (see page
55). If this non-recurring impact is
discounted, we would otherwise be
making progress towards our 2030
SBTiScope 3 target.
Progress against our non-generation
Scope 1 and 2 target has been affected
by: (1) organic growth in self-supply
pellet volumes and the acquisition of
ourNorthern Operations, resulting in an
increase in emissions across our Pellets
business unit; and (2) a return to normal
activity levels in our plants, post our
COVID-impacted 2020 baseline year has
also had an effect. Achievement of this
target and our Scope 3 target is still
deemed feasible.
Sustainable Development continued
Climate positive
Ambition, targets
and progress
Our carbon negative ambition
In 2019, we first set out our ambition to
become carbon negative by 2030. At Drax,
“carbon negative” means we aim to remove
more carbon from the atmosphere than
weproduce across our direct operations
(Scope 1 and 2) globally, discounting those
Carbon Dioxide Removals (CDRs) that we
sell to third parties.
Drax aims to become a global leader in
carbon removals, aiming for 7Mt of
removals globally per annum by 2030
using bioenergy with carbon capture and
storage (BECCS). In 2023, we continued
todevelop options for BECCS, both at
Drax Power Station in the UK and globally,
including North America. Read more
intheCEO's Review on page 10.
Our near-term SBTi targets
As we pursue options for BECCS, we are
focused on finding opportunities to reduce
our absolute carbon emissions across
Scope 1, 2 and 3. In 2023, our near-term
absolute and emissions intensity carbon
reduction targets were externally validated
by the Science-Based Targets initiative
(SBTi). Since November 2023, we are
formally committed to the SBTi framework,
aligning ourselves to a 1.5°C pathway.
Our 2023 Scorecard carbon
reduction targets
Carbon reduction targets are an integral
part of key performance indicators (KPIs)
in our business. For the 2023 Group
Scorecard, a 6.7% weighting was allocated
to achievement of carbon reduction KPIs.
This was divided between three projects
(with corresponding targets):
• A 25% reduction in Hydro Asset
portfolio Scope 1 and 2 emissions by
2023 (against a 2020 baseline), covering
sites at Lanark, Galloway, and Cruachan
• A 50% reduction in Scope 3 emissions
associated with the sale of fossil natural
gas from Opus Energy by December
2023 (against a December 2022
baseline), via offboarding and run-down
of the customer gas sales book
• Deploying Electric Vehicle (EV) chargers
across all UK Drax sites where we have
sufficient property ownership rights
For further information on these projects
and wider decarbonisation initiatives, see
page 54. The decarbonisation dashboard
below outlines our current suite of targets
and our progress.
SBTi targets
Target
year
Base Year
2020
2022
% change against
2020 baseline
2023
% change against
2020 baseline
75.7% reduction in
Scope 1 and 2 emissions
from electricity generation
by2030 (kgCO
2
e/MWh)
2030
11
89% reduction77% reduction
23
100
75.7% reduction in
Scope 1, 2, and 3 emissions
from all sold electricity by
2030(kgCO
2
e/MWh)
2030
22
78% reduction67% reduction
34
103
42% reduction in
non-generation Scope 1
and 2 emissions by 2030
2030
345,051
22% increase27% increase
357,994
282,926
42% reduction in
Scope 3 emissions by 2030
2030
3,534,369
0.1% reduction12% decrease
3,123,388
3,537,561
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Our carbon reduction pathway
Our Strategy: Drax’s
carbon reduction pathway
We recognise that clearly defined actions
to achieve carbon reduction targets are
central to credible transition planning.
Thediagram below provides an overview
of current projects and several projects in
development, as we continue to progress
the carbon reduction plans for each of
ourbusiness units. In 2024, we will build
on this with the publication of a formal
Climate Transition Plan, in line with the
Transition Plan Taskforce (TPT) Disclosure
Framework.
Business unit
carbon reduction plans
Each business unit has a list of
candidate decarbonisation projects,
ranked against a set of defined criteria.
Projects include those in progress (such
as2024 Group Scorecard projects), those
with multi-year implementation timelines
(such as several engineering feasibility
studies), and conceptual projects
requiringfuture development or
commercialisation of new technologies.
Below we provide a snapshot of projects
that have been implemented, are in
progress, or are planned for the future.
Carbon negative by 2030: key
assumptions and dependencies
Drax recognises there are external
dependencies central to our
implementation of BECCS projects that
could have an impact on our ability to
achieve our carbon negative ambition
by 2030. Key dependencies include:
• Financing and Government policy:
Anappropriate fiscal and legislative
framework is required to support the
scale of the UK BECCS programme and
ourfuture investment decision. This
willbe key in attracting cost effective
investment and capital to the business.
• Technology: BECCS technology is
proven within the industry. Potential
uncertainties associated with
deployment of BECCS at scale, and
alternative, competing technologies
developing faster than expected.
Strategic risks, Principal
risks and uncertainties, page 94.
Pellet Production Generation Commercial
Pellets energy optimisation
programme (provisional 2024
Scorecard target): We have developed
aportfolio of connected energy
optimisation initiatives that target a
reduction in energy consumption (in
the form of electricity and natural gas)
of between 4% and 8%, across our
Northern and Southern Operations.
Natural gas feedstock dryers in
Northern Operations: We continue
toundertake limited engineering
feasibility studies to understand the
technical, environmental and cost
impacts of replacing our natural
gasburning dryers with electric
orbiomass-fuelled units.
Hydro assets: Reducing Scope 1 and 2
emissions by up to 95% (2023
Scorecard project) by using renewable-
backed power for our electricity
consumption at Cruachan (the primary
source of emissions).
Heavy fuel oil (HFO) alternatives:
Exploring technical options to use
alternative renewable fuel sources
toreplace HFO for start-up and boiler
stabilisation operations for the boilers
at Drax Power Station. Options under
consideration include renewable
liquidbiofuels.
Opus Energy gas portfolio rundown:
(2023 and provisional 2024 Scorecard
target): Reducing Scope 3 emissions
associated with the sale of fossil natural
gas from Opus Energy in the Customers
business, via the offboarding and
run-down of the customer book.
HVO fuel train project: (provisional
2024 Scorecard target): We are in
theprocess of agreeing terms on the
commercial supply of Hydrotreated
Vegetable Oil (HVO) to replace diesel in
our rail freight route from Immingham
to Drax Power Station (representing
two-thirds of our total rail-freighted
biomass supply).
Third party pellet procurement carbon
price trial: See page 55.
Absolute Emissions (MtCO
2
e)
SBTi Near Term 2030 Targets (Consolidated Across Scopes)
MtCO
2
e
5
4
3
2
1
0
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
4.0
3.8
4.4
5.5
3.5
0.3
1.7
3.1
0.3
0.9
3.1
0.3
0.3
3.5
0.2
0.3
2.6
Scope 1
Scope 2
Scope 3
Target
Reduction Targe
t
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Sustainable Development continued
Climate positive
In 2023, our Group Scorecard
incorporated a target to deploy EV
chargers across all UK Drax sites for
which we have sufficient property
ownership rights. All planned charging
points were installed on-time and under
budget, significantly enhancing the EV
infrastructure across our UK operations.
In conjunction with the EV charge point
roll-out, we have started a phased
conversion of the Generation vehicle
eet from internal combustion engine-
powered vehicles to EVs, and we believe
that the eet will be fully converted by
the end of 2025.
In June 2023, we also introduced the
Electric Vehicle Salary Sacrifice
Scheme. Open to all permanent
employees based in the UK, it provides
amore affordable way for colleagues
topurchase an electric vehicle. Since
the scheme’s launch, colleagues have
placed 140 orders.
36
new EV charge points installed across
10
locations in 2023
In 2023, our total Scope 1 and 2 carbon
emissions decreased by 27% compared
to2022. This was largely as a result of
afurther reduction in coal combustion
volumes (Scope 1). This reduction was
offset by an increase in emissions from
pellet making, as a result of increased
electricity usage and a change to our
reporting methodology.
At the end of March 2023, we closed the
remaining two coal units at Drax Power
Station and decommissioning is underway,
marking the end of coal-fired power
generation at Drax. This closure concludes
the transition from coal, which had been
used since Drax Power Station was first
commissioned in 1974. The transition
started in 2003 when Drax first undertook
evaluation of the feasibility of converting
from coal to sustainable biomass.
Our carbon emissions and
decarbonisation initiatives
Direct operations (Scope 1 and 2)
Carbon Dioxide Removals (CDRs)
The IPCC Sixth Assessment Report states
that Carbon Dioxide Removal (CDR)
methods, including BECCS, are necessary
elements in limiting global warming to
1.5°C. At Drax, as we continue to develop
options for BECCS, we recognise the
importance of standards that define
high-integrity removals that are quantified
and verified. We partnered with Stockholm
Exergi and EcoEngineers to develop a
methodology for BECCS CDR credits.
Themethodology, published externally
forfeedback in October 2023, proposes
criteria and approaches that project
developers shall adhere to in each step
ofdeveloping a credit generating project.
During 2023, Drax agreed a Memorandum
of Understanding (MoU) with C-Zero
Markets in relation to the sale of CDR
credits from Drax’s proposed US BECCS
facility. Under the terms of the MoU, Drax
and C-Zero will work together with a view
to C-Zero acquiring 2,000 tonnes of CDRs.
UK Electric Vehicle (EV) charge point
roll-out and salary sacrifice scheme
The following initiatives also
contributed to the overall reduction
in Scope 1 and 2 emissions:
• Hydro assets 2023 Scorecard target:
In2023, we targeted a 25% reduction
inScope 1 and 2 emissions at our Hydro
generation sites (Lanark, Galloway and
Cruachan), against a 2020 baseline. We
achieved this by reducing our Scope 2
emissions by sourcing renewable-
backed electricity.
• Mitigant project: Optimising use of
mitigant at Drax Power Station (5t/hr
in2020, reduced to c. 3t/hr in 2023).
Mitigant, such as pulverised fuel ash,
isused to protect boiler components
during biomass combustion.
• SF6 replacement switch gear:
Generation project to replace old switch
gear at Drax Power Station. Once the
project is completed by the end of 2025,
this will realise a total expected
reduction in SF6 release of around 80%.
Group total Scope 1 and 2
(location-based) emissions (ktCO
2
e)
2
023
486
669336 333
2
022
1,255323932
2
021
255 231
Scope 1
Scope 2
Group emissions intensity (tCO
2
e/GWh)
2023
39
49
2
022
78
2
021
Generation output by technology type
(% total output), 2023
Biomass 93.9
Hydro 2.7
Pumped Storage 3.3
Coa l <0 .1
* Includes pumped storage generation net of
imported and exported power.
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March 2023. Excluding this exceptional
item, our Scope 3 emissions would have
decreased by 7% overall. In addition, a c.
59% increase in capital expenditure and
operating expenses contributed 200
ktCO
2
e to our total Scope 3 emissions.
Gas sales in our Customer business
contributed 9% of total Scope 3 emissions
(2022: 16%). By offboarding and run-down
of the customer book in 2023, we
achieved a c.190 ktCO
2
e reduction in
emissions from sold gas.
Between 2021 and 2022, our Scope 1
emissions reduced by 64%. A key
contributor to this trend was a reduction
in coal generation, resulting in a
c.340,000tCO
2
e emissions reduction.
Biomass supply chain emissions
Biomass can only be considered a low
carbon, renewable energy solution when
certain evidence exists. The evidence
must show that savings of greenhouse
gas(GHG) emissions are delivered on a
lifecycle basis, compared to alternatives
such as fossil fuel generation. Therefore,
we collect fuel and energy data for each
step within the supply chain. This enables
us to calculate lifecycle GHG emissions for
our biomass and check we are compliant
with relevant regulatory requirements.
The UK Government has set a limit on
biomass supply chain GHG emissions
(currently 200 kgCO
2
e/MWh of electricity).
Generators must meet this limit to be
eligible for support under the Renewables
Obligation and Contract for Difference
schemes. In 2023, our average biomass
supply chain GHG emissions were 97
kgCO
2
e/MWh of electricity. This increase
from 2022 can be attributed to factors
including a reduction in use of secondary
residues and an increase in biomass
sourced from the US, rather than Europe.
Piloting a carbon price for
pelletprocurement
Activities associated with our use of
third-party pellets make up a significant
proportion (approximately 34%) of our
total Scope 3 emissions footprint. This
requires us to both reduce the carbon
intensity of our own pellet manufacturing
operations, while seeking to procure lower
intensity pellets from third parties.
In 2023, we completed a three-month trial
of a third-party pellet procurement GHG
model. The aim was to provide the
third-party biomass pellet procurement
team with the data required to assess
pellets by their carbon intensity, as well
asvia standard commercial economic
measures. The model modifies the price of
new pellet contracts based on kgCO
2
e per
tonne of pellets, imposing a financial
premium to the contract price where pellet
emission intensity takes us further away
from our internal target. We plan to work
with both the pellet procurement and IT
teams to embed this methodology into
ourpellet procurement processes in 2024.
The most significant contributor to our
Scope 3 emissions profile comes from fuel
and energy-related activities. This includes
emissions associated with the biomass
fuel supply chain. The second largest
contributor is purchased goods and
services, including the end use of gas
purchased and sold by Opus Energy (the
run-down of which is part of our 2023 and
2024 Scorecard targets).
In 2023, Group total Scope 3 emissions
increased by 13% compared with 2022.
Asignificant contributor (c. 630 ktCO
2
e)
was due to the sale of the remaining coal
we had procured on behalf of the UK
Government, under the Winter
contingency service agreement with the
National Grid. This concluded at the end of
Value chain (Scope 3)
We recognise the contribution that Scope 3 emissions make to our emissions profile,
andthe importance of focusing our efforts on decarbonisation in the value chain.
Note: Includes the biomass supply chain emissions associated with both the Group’s direct operations
(PelletProduction business) and third parties. This is an estimate based on the average carbon footprint
ofpelletsreceived at Drax Power Station for each stage in the biomass supply chain.
* Limited external assurance by Bureau Veritas using the assurance standard ISAE 3000. For assurance
statement see www.drax.com/sustainability
Drax Power Station average biomass supply chain GHG emissions
Unit 2023 2022 2021
Average biomass supply
chain GHG emissions
kgCO
2
e/
MWh 97* 96 100
Drax Power Station biomass supply chain GHG emissions in 2023 (%)
Processing
at origin
Feedstock
transport
Drying Pelleting Transport
to port
Shipping Rail to Drax Combustion
CH
4
& N
2
O
emissions
7%
3% 3%
6%
5%
7%
44%
25%
Scope 3 emissions breakdown by category (tCO
2
e)
Purchased goods and services 891,672tCO

e
Capital goods 381,352tCO

e
Fuel and energy related activities 1,215,553tCO

e
Upstream transportation & distribution 32,666tCO

e
Waste generated in operations 1,477tCO

e
Business travel 4,045tCO

e
Employee commuting 4,183tCO

e
Upstream leased assets 174tCO

e
Downstream transportation & distribution 186,909tCO

e
Processing of sold products 668tCO

e
Use of sold products 815,668tCO
2
e
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Nature
positive
Our performance
Nature and environment data summary
TNFD
Indicates aspects that are aligned with the Taskforce on Nature-related Financial
Disclosures (TNFD) core global metrics, as defined in the Recommendations of the
Taskforce on Nature-related Financial Disclosures, September 2023.
For additional data see ESG data supplement www.drax.com/sustainability
Our ambition:
By 2027 Drax aims to have
implemented the systems and
metrics across our operations
and biomass value chains to
demonstrate a contribution
tonature positive outcomes
inthose regions.
Unit 2023 2022
TNFD indicator Other emissions to air
Total non-GHG air
pollutants by type
Nitrogen oxides – Generation t 5,831 5,979
Sulphur dioxide – Generation t 849 403
Particulates – Generation t 313 376
Sulphur hexafluoride – Generation t 0.1 –
Nitrogen oxides – Pellet Production t 621 836
Volatile Organic Compounds (VOCs) – Pellet Production t 741 854
Particulates – Pellet Production t 1,457 1,354
Carbon monoxide – Pellet Production t 1,128 –
Water withdrawal
and consumption
from areas of water
stress
Water use
Total water abstracted – Drax Power Station m
3
45,058,529 51,899,818
Total water returned – Drax Power Station m
3
41,223,516 47,187,916
Total water abstracted and returned – Hydro Generation
(1)
m
3
3,515,581,216 3,389,452,345
Total water abstracted from reservoir – Pumped Storage
(2)
m
3
465,042,239 361,145,5 8 2
Total water abstracted from Loch Awe – Pumped Storage
(2)
m
3
451,360,634 325,844,996
Water withdrawn/abstracted from areas of water stress
(3)
m
3
– –
Water consumed from areas of water stress
(3)
m
3
347 –
Total amount of
hazardous waste
generated
Waste
Total waste generated
(4)
t 47, 32 2 –
Total hazardous waste generated
(4)
t 3,281 –
Quantity of high-
risk
(5)
natural
commodities, and
proportion sourced
under a certification
programme
Use of natural commodities
Total volume of woody biomass consumed at Drax Power
Station
(excluding non-woody agricultural residues)
Mt 5.8 6.4
Total volume of woody biomass produced –
Pellet Production
(6)
Mt 3.8 3.9
Proportion of woody biomass consumed at Drax Power Station
with an SBP Compliant claim
% 97 97
Proportion of woody biomass pellets produced and sold with
an SBP Compliant claim – Pellet Production
(7)
% 95 –
“Total water abstracted” covers water data reported to the Environment Agency (EA) and Scottish Environment Protection Agency (SEPA) as abstraction.
This metric was subject to external independent limited assurance by PricewaterhouseCoopers LLP (‘PwC’) as part of their assurance over metrics in the ESG Performance
Report 2023. For the results of that assurance, refer to page 10 in the ESG Performance Report 2023 (www.drax.com/esg-performance-report-2023) and for the Reporting
Criteria refer to page(s) 12 to 46 in the ESG Databook (www.drax.com/esgdatabook2023).
(1) Hydro generation covers Galloway and Lanark Hydro scheme.
(2) Pumped storage covers Cruachan Power Station, and excludes volume of water collected via the aqueduct system.
(3) Total volume of water from areas of “high” water stress, as classified by the WRI Aqueduct Water Risk Atlas (Aqueduct 4.0), baseline “water stress” indicator.
(4) Waste data has been collected from our owned sites and the waste has been listed as hazardous/non-hazardous according to local regulator approach. If data has not been
available, assumptions have been made based on European Waste Codes and volumes for comparable sites.
(5) “High-risk natural commodities” include “timber” as per the TNFD Recommendations, which refer to the SBTN High Impact Commodity List (HICL).
(6) Reects pellets produced at Drax Pellet Production operations in the US and Canada; excludes traded quantity (third-party to third-party).
(7) Reported figure reects pellets produced and sold with an SBP Compliant claim. The remaining volume was produced and sold with an SBP Controlled claim.
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Our approach to
Nature positive
The loss of nature and biodiversity globally
poses a significant risk to the stability of
economies and the wellbeing of society.
Organisations have direct and indirect
impacts and dependencies onnatural
resources, and it has been estimated that
around half of global GDP is moderately
orhighly dependent on nature.
At Drax, being “nature positive“ means
going beyond avoiding or minimising our
impacts and finding ways to restore and
enhance ecosystems.
Governance for nature
The Chief Sustainability Officer (CSO)
isresponsible for implementation of
theGroup’s sustainable development
framework, including nature positive.
TheExecutive Committee and the Board
receive regular sustainability updates,
including nature, through the respective
reporting mechanisms (see page 46).
OurIndependent Advisory Board provides
external advice on the science and
evidence underpinning practices to protect
nature and support nature recovery.
In June 2023, we established a Nature
Expert Hub responsible forcoordinating
the operational implementation of
nature-related projects across the
business. The Hub meet regularly, and the
Senior Scientific Officer provides updates,
as required, to the Sustainability Council.
In addition, our North American Pellet
Production operations established a
Nature Positive Project board in 2023
todrive nature positive outcomes.
See nature initiatives, page 58 to 60.
We progressed development of a Group
Nature Policy in 2023, which will extend
our commitment from managing,
monitoring and reducing our
environmental impact, to actions which
encourage the restoration of nature.
Weexpect to receive approval of the
Nature Policy in 2024. Until the new
policybecomes effective, the Group
Environment Policy outlines our
commitment to minimise adverse impacts
of our operations on the environment.
Strategy for nature
By 2027, we aim to have implemented the
systems and metrics across our operations
and biomass value chains to demonstrate
a contribution to nature positive outcomes
in those regions
(1)
. To understand our
baseline and inform the development
ofaGroup-wide nature strategy, we
arefocused on completing nature
assessments where needed across our
assets. We are carrying out materiality
assessments to understand our impacts
and dependencies on nature, recognising
that nature’s diversity is geographically
specific. We will identify our risks and
opportunities, and embed metrics and
systems to contribute to nature positive
outcomes. For further information on
ourprogress in 2023, see page 58.
Building an approach for risk
andimpact management
Our operations rely on natural resources
and are consequently subject to nature-
related risks and dependencies.
As we carry out nature assessments for
our assets, we can see that many of our
nature-related impacts and risks are
already recognised under our
environmental management programme.
Over the course of 2024, we will be
building a nature-related risk register
andwe intend to retain the connection to
our environmental management systems,
which for UK Generation are certified to
ISO 14001:2015. The nature-related risk
register will be governed within the Group
approach to risk management, as defined
by the Group Risk Management Policy,
andbuilding on the current approach to
operational risk management. Material
risks and dependencies will be reported
inour future Annual Report and Accounts.
Nature metrics and targets
Following identification of our nature-
related impacts, dependencies, risks and
opportunities, we will review our existing
nature-related metrics and create new
metrics for key areas. We intend to
reviewhow to align these metrics with
thestandard operation of our business
and incorporate them into our ESG
dashboards. Whilst the progress and
evolution of the ESG dashboards has not
developed as significantly as we would
have liked, we have seen good examples
already of how they have supported
delivery, for example on climate in
identifying decarbonisation projects
within Generation.
(1) Our ambition applies to current business
operations and biomass value chains. In the
eventof business growth or structural change,
theambition would be reviewed and adjusted,
asrequired.
The TNFD launched its final
recommendations in September
2023. Drax welcomes this framework
and is committed to the management
and disclosure of nature-related risks
and opportunities. Drax is a TNFD
Early Adopter, and we intend to
publish our first fully-aligned
disclosure for our 2025 financial year.
In 2023, we participated in the
WorldBusiness Council for
Sustainable Development (WBCSD)
TNFD pilot, aspart of the Energy
sector working group. We tested the
TNFD framework components for our
hydro sites and provided feedback
toinform the final recommendations.
As a WBCSD Forest Solutions Group
member, we shared expertise in the
development of the TNFD Forest
Sector Additional Guidance.
We are establishing the necessary
systems and processes Group-wide
toachieve our nature positive
ambition. Based on our pilot work,
wehave provided an initial disclosure,
referring to the four widely adoptable
TNFD pillars.
Taskforce on
Nature-related Financial
Disclosures (TNFD)
reporting
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Sustainable Development continued
Nature positive
Our approach to
environmental
management
Governance
Our Group Environment Policy, approved
in May 2023, states our commitment
tomanage, monitor and reduce the
environmental impacts caused by our
business through continual improvement
of our operations, wherever practicable.
Each month, we report internally on
environmental incidents and near misses,
and the Board receives HSE performance
updates, as part of the CEO report to the
Board. We respond to, and track actions
taken from, substantiated environmental
complaints made in relation to our
operations.
We investigate environmental incidents
inrelation to our operations (such as
waste spillage or near-miss contamination
events) to establish root causes and learn
the appropriate lessons.
Environmental
Management Systems
Our Generation assets in the UK are
certified to ISO 14001:2015 within an
integrated management system.
For information on our approach
tointegrated Health, Safety and
Environment (HSE) governance,
management systems, audit, and training,
see page 67.
Nature assessments
and initiatives
Nature assessments
Our approach to nature assessments
follows the TNFD LEAP (Locate, Evaluate,
Assess and Prepare) approach. LEAP and
the subsequent steps are summarised in
the diagram below.
For stages 1 and 2, we gather data and
information to better understand nature
inthe areas we operate, identifying nature
dependencies, impacts, risks, and
opportunities. This provides an
understanding of the state of the biomes
in which we are located, the proximity of
any high importance site to our operations,
our risks and dependencies, and the
opportunities available to protect and
enhance nature.
The diagram below summarises our
progress tocomplete nature assessments
for ourdirect operations in 2023. The
“Locate” and “Evaluate” stages have been
completed for Drax Power Station,
Cruachan and the Lanark and Galloway
hydro sites. The “Assess” stage has been
completed for Drax Power Station.
Looking ahead, we are expanding on the
assessments completed in the UK for
theabove Generation sites, by initiating
natureassessments for select operating
locations globally.
Our nature assessment approach and 2023 progress
Scope Stage 1 Stage 2 Stage 3
Direct
operations
Complete:
• Cruachan
• Lanark and
Galloway hydro
• Drax Power
Station
Complete:
• Drax Power
Station
In progress:
• Cruachan
• Lanark and
Galloway hydro
In progress:
• Cruachan
• Lanark and Galloway hydro
• Drax Power Station
• Set targets
• Disclose key
metrics and
activities
Locate and Evaluate
Act
Prepare Disclose
• Performance
management
• Identify
opportunities for
enhancement
• Understand where
we interface
with nature and
sensitive locations.
• Conduct
materiality
assessments
for the nature
dependencies and
impacts of our
business activities.
Assess
• Identify risks
and opportunities
specific to
each site.
• Build metrics
around our key
nature risks,
opportunities,
dependencies
and impacts.
• Set a bespoke
strategy for each
business unit.
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Over 2022 and 2023, we participated in
the WBCSD TNFD pilot, testing the beta
versions of the TNFD framework on
ourScottish hydro assets and providing
feedback to inform the development
ofthe final TNFD Recommendations.
Below provides a summary of the
workundertaken and initial insights,
forCruachan Power Station and the
Lanark and Galloway hydro schemes.
Locate
We considered 19 sub-sites for our
Cruachan and Lanark and Galloway
operations, identifying the ecoregion,
global biome, key biodiversity areas
(within 5km), and priority habitats for
each site. We then prioritised sub-sites
according to the integrity and
importance of relevant ecosystems,
toproduce an overall score for each
(from high to low). There are seven
sub-sites with a “high” priority score.
Thisis due to their relative proximity
tohigh integrity ecosystems and areas
of high biodiversity importance. None
ofthe sites assessed were identified
asareas of rapid decline in integrity
orwater stress.
This provided us with an understanding
of the key ecosystems within our hydro
operating areas. There are many key
biodiversity areas within 5km of our sites,
and our Lanark and Galloway run of river
hydro scheme is in the Galloway and
Southern Ayrshire UNESCO Biosphere.
Evaluate
We carried out materiality studies of
thedependencies and impacts for hydro
generation using the ENCORE (Exploring
Natural Capital Opportunities, Risks and
Exposure) tool, which enables
organisations to map their material
impacts and dependencies on nature.
Thistool provides the dependencies and
impacts for the business activity but
doesnot consider the location or specific
activities of an individual business.
Assess
We refined the results of the ENCORE tool
assessment using the priority scores from
the “Locate” stage. For each sub-site, this
provided us with a prioritised overview
(high, medium or low) of the relative scale
of each dependency and impact.
The table below outlines the
dependencies and impacts identified
forhydro generation with a high
materiality rating. We are reviewing our
analysis of the outputs of this “Assess”
stage and it will guide the focus of
ourefforts on nature for these sites
going forward.
Prepare, Act, and Disclose:
The TNFD pilot provided us with
animproved understanding of our
nature-related impacts and dependencies
for our hydro generation operations in
Scotland. We already disclose our water
use (both a dependency and an impact),
see page56. Building on this prioritised
information, we are compiling the
necessary additional metrics to better
understand our baseline for the priority
impacts and dependencies identified,
andto create abespoke nature strategy
for these assets over 2024.
Spotlight on: TNFD Scottish Hydro Pilot
Dependencies Materiality rating
Surface water
Water flow maintenance
Flood and storm protection
Impacts
Freshwater ecosystem use
Water use
Indicates ‘high’ materiality rating
TNFD materiality outputs for hydro generation
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Sustainable Development continued
Nature positive
Nature initiatives
During 2023, we expanded our support
of initiatives that aim to deliver nature
positive outcomes.
Southern Pellet Production (US)
We commissioned biodiversity experts to
conduct a biodiversity assessment across
our US Pellet Production catchment areas.
The resulting data and recommendations
will assist US operations with the reporting
of baseline biodiversity data and with
navigating TNFD’s LEAP process. In
addition, the assessment has been
commissioned to support target setting
and the disclosure of nature and
biodiversity metrics. It will also provide
insights on the opportunity (and
challenges) to monitoring and detecting
change of at-risk species and ecosystems.
Drax is actively collaborating with the
Louisiana Department of Wildlife and
Fisheries (LDWF) in respect of a National
Fish and Wildlife Foundation (NFWF) grant
to improve forest conditions of overstocked
hardwood plantings. These plantings were
established under the Wetland Reserve
Program (WRP) by providing a market
forthis small diameter, low-value forest
material. The grant has the potential
toimprove up to 588 hectares of WRP
hardwood forest plantings and provide
funds for regional conservation efforts.
We are proud to acknowledge our new
partnership with the Alabama Wildlife
Federation (AWF), having made a financial
contribution to its Land Stewardship
Assistance Partnership in August 2023.
Through this programme, AWF provides
on-the-ground wildlife and land
management assistance to private
landowners in Alabama. AWF’s land
stewardship biologists have provided
professional recommendations to more
than 1,000 landowners covering almost
405,000 hectares of land across the state.
Drax is a conservation partner of The
Longleaf Alliance (TLA). This includes
donor-directed financial support for TLA’s
Western Technical Assistance & Training
Specialist, with service in Southwest
Alabama, Mississippi, and Louisiana. Drax
supports TLA’s mission of being “leaders
inthe restoration, stewardship, and
conservation of longleaf pine ecosystems.
Since 2019, we have distributed
educational materials to a number of our
residual suppliers sourcing material from
counties that FSC® has identified as
“at-risk” for loss of habitat associated with
native longleaf pine systems.
Northern Pellet Production (Canada)
In British Columbia, our purchase of
low-grade wood and residues helps to
avoid the burning of the material left on
the forest oor, which otherwise often
occurs. Removal of the residues also
helpsprevent and mitigate the impact
ofwildfires.
Drax Power Station
The nearby areas of Barlow Mound and
Arthur’s Wood are monitored annually,
through ecological surveys with
independent reporting (such as of soil
health). Barlow Mound and Arthur’s Wood
are also managed for wildlife habitat
conservation.
Cruachan Power Station
Cruachan frequently completes
biodiversity surveys to monitor the species
living in the surrounding habitats. This
survey data has allowed the team to build
a picture of the variety of mammals, birds
and insects present in the area, including
asignificant number of protected status
species. We also seek to partner with local
organisations and landowners; for example
to reforest pockets of land near the
powerstation.
Lanark and Galloway hydro schemes:
In 2023, we completed our partnership
with the Galloway Glens Scheme in South
West Scotland, having contributed
£100,000 over four years. This included
the Dee Restoration project at Black Water,
to improve instream and riparian habitats.
We have worked alongside the Galloway
Fisheries Trust and the Scottish
Environment Protection Agency (SEPA)
totrial and develop changes to our ow
regime, to improve fish passage at our
Tongland Dam on the River Dee. Dams are
an integral part of generating renewable
electricity, but they can impede fish
movement upstream. This project has
included increasing the baseow of water,
supporting fish movement and increasing
the number of “freshets”, which mimic
natural rainfall. Early evidence from this
project is showing positive signs for
encouraging fish movement.
As part of the Galloway Glens Scheme,
wesupported a project with Galloway
Fisheries Trust on salmon movement.
Work began in 2021 to tag young salmon
(smolt) and monitor their movement down
the Ken/Dee River system in Galloway. The
study aims to understand how the salmon
are behaving under different conditions
and investigate what could be done to
ease their migration. In 2023, a further 40
smolts were tagged and Drax part-funded
the installation of 33 acoustic receivers.
Use of natural commodities:
biomass sourcing
Our business relies on sustainably sourced
fibre, and third-party certification is a
keypart of our due diligence processes.
Certification schemes embed nature-
related considerations, including
biodiversity by identifying high
conservation value areas and laying the
foundation for nature positive results.
Thisis in addition to our supplier’s forest
management compliance requirements.
Certification schemes are dynamic and
periodically revised to reect socio-
ecological considerations.
See biomass sourcing, page 72.
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Other emissions to air
Particulates (tonnes),
Drax Power Station
2
023
313
376
2
022
448
2
021
Drax Power Station is required to comply
with UK laws and regulations which limit
emissions to atmosphere. Standards came
into effect in August 2021 under the
Industrial Emissions Directive and Large
Combustion Plant Best Available
Techniques Reference Document (BREF)
which sets limits for emissions. 2023 was
the second year of operation under the
annual emission limits for biomass.
For biomass generation at Drax Power
Station, the main emissions to air are
nitrogen oxides, sulphur dioxide, and
particulates (dust). Nitrogen oxides and
particulates emissions have reduced
annually since 2020 at Drax Power
Station, which can be partly attributed to
the reduction in coal-fired power
generation. In 2023, emissions of sulphur
dioxide increased compared with 2022,
which can be attributed to the use of a
different mitigant.
Volatile Organic Compounds (VOCs)
(tonnes), Pellet Production
2
023
741t
854t
2
022
Our Pellet Production operations in the
USand Canada are subject to laws and
regulations which limit emissions to
atmosphere and set requirements on
thelevel of self-monitoring and reporting
which is required to be undertaken.
At our Pellet Production plants, the
mainemissions to air are particulates
(dust), VOCs, carbon monoxide and
nitrogen oxides.
Pellet Production: responding to
local environmental concerns
We acknowledge that a group of residents
of Gloster, Mississippi, local to our Amite
BioEnergy plant, have alleged that air
quality has worsened in the area since the
plant opened in 2016. We have engaged
with the Mississippi Department of
Environmental Quality (MDEQ), and in
2021, following historic emissions
breaches, we installed new technologies
at the Amite plant to improve our
environmental performance. We
continueto evaluate the operations
andmaintenance of the process and
control equipment.
During 2023, in Gloster we also prioritised
active community engagement. We
commissioned a third party to conduct
stakeholder interviews and analysis in
Gloster, which has fed into a Community
Action and Engagement Plan. We also
appointed a designated Community
Liaison Officer to lead on local outreach.
An aspect of local community feedback
has been ways Drax can support local
needs and initiatives.
We have sought to respond through our
Community Fund, we have supported a
wide range of community initiatives, with
nearly $200,000 committed to community
programmes. We have also held in-person
meetings with local community leaders
tohear their views on strengthening
community relations.
Water
The use of water is subject to strict criteria
and UK, US and Canadian laws. That
compliance is overseen internally by our
Operational and HSE teams and externally
by the local regulatory agencies.
Drax Power Station uses water for
operational and cooling processes. The
primary use for the water is to produce
steam at very high pressure, which is used
to power the turbines for electricity
generation. A proportion of the water used
is emitted as water vapour through cooling
towers. The remainder is recycled and
discharged under permit to the local river.
In line with permit requirements,
procedures are in place to manage water
system efficiency and usage, ensuring
discharge consent limits are met.
Total water abstracted for generation at
Drax Power Station decreased by 13%
between 2022 and 2023. This can be
attributed to the operational position
(MWproduced) for 2023.
In 2023, at the Lanark and Galloway Hydro
schemes, we diverted 3,515,581,216 m
ofwater from river systems to run through
our plants before being redirected back
into the river for hydro generation.
At Cruachan Power Station (our pumped
storage facility), we generate electricity
byallowing water to fall from Cruachan
dam down through four turbines which
generate electricity at times of increased
demand for power from the grid. The
water ows through the turbines before
being directed into Loch Awe. At times
when electricity demand is low and there
is excess power on the grid, we pump
water from Loch Awe into the upper
reservoir at Cruachan dam. We monitor
the arrangements for the cycling of this
water and report to SEPA asrequired.
At our Pellet Production plants, water that
is discharged primarily consists of deluge
water, wash water from hoses, and
stormwater from rain events. We conduct
periodic stormwater sampling at outfalls
tomonitor water pollutants.
Environmental
compliance
We have open and direct communication
with the local environment agencies in
theareas in which we operate. We provide
further information on environmental
compliance matters below.
Drax acquired the Daldowie Fuel Plant as
part of the hydro asset portfolio in 2018.
Daldowie processes domestic wastewater
including sewage. Since then, Drax has
responded to feedback from neighbouring
sites and SEPA to address concerns on
odour emissions. At the plant, we continue
to identify and mitigate potential sources
of odour. In 2023, work was completed
toconstruct a new standalone 50-metre
chimney stack, which takes the output
ofpotentially odorous air from Building
Ventilation Fans through a newly installed
ducted range system, to disperse the air
from the building. We continue our
dialogue with SEPA, keeping them
informed about our actions. In 2023, the
site received one substantiated complaint
about odour.
In March 2023, after identifying and
self-reporting air pollutant calculation
discrepancies at the Amite Bioenergy
plant to the MDEQ, we received a notice of
violation that was amended in June 2023.
In January 2024, we received a second
notice of violation in respect of the Amite
pellet plant. Drax has received notice of an
Administrative Conference, scheduled for
March 2024 with the MDEQ, to discuss
the respective notice of violations.
In September 2023, we received a notice
of potential violation in respect of our
Aliceville plant and a request for a written
response, following an air inspection
thatwas conducted in August 2023.
Aresponse was submitted to the
AlabamaDepartment of Environmental
Management in October 2023.
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People
positive
Our performance
People summary performance data
Our ESG Performance Report provides further environment,
social and governance data.
See www.drax.com/sustainability
We will only achieve our
ambitions through the
talent,skills, and experience
ofour people.
Unit 2023 2022 2021
Our People
Total number of Group employees
(1)
n 3,551 3,229 3,053
Total employee turnover rate
(2)
% 13.4 13.8
(8)
29.5
(8)
Voluntary employee turnover rate
(3)
% 8.7 9.3
(8)
–
Involuntary employee turnover rate
(4)
% 4.7 4.5
(8)
–
Colleague engagement score % 79 79 79
Colleague Inclusion Index score % 81 80 –
Colleagues covered by a collective bargaining agreement % 11 13 14
Health and Safety
Total Recordable Incident Rate (TRIR)
(5)
% 0.38 0.44 0.22
Total Lost Time Incident Rate (LTIR)
(6)
% 0 .13 0.13 0.05
Near Miss and Hazard Identification Rate (NMHIR)
(7)
% 129.26 – –
Ethics and Integrity
Number of Speak Up reports raised n 49 14 14
Employees that received and completed Code of Conduct eLearning refresh
% 92 99 100
Employees that received and completed an Annual Business Ethics Declaration
% 88 86 100
Employees that received and completed Cyber Security awareness training
(7)
% 98 – –
Community
Total donations (including Drax Foundation)
(7)
£m 2.7 – –
Notes
(1) Total number of Group employees as at 31 December.
(2) Total employee turnover is calculated as the number of leavers over the previous 12 months and divided by the average headcount over the same period.
(3) Voluntary employee turnover is based on leaver categorisation, including resignation and retirement.
(4) Involuntary employee turnover is based on leaver categorisation, including dismissal and redundancy.
(5) TRIR is the total fatalities, lost time injuries, restricted work, and medical treatment injuries per 100,000 hours worked. Total includes both employees and
contractors across our sites and offices. There were no fatalities in any of the years stated above.
(6) Lost Time Incident Rate (LTIR) is the total fatalities and lost time injuries per 100,000 hours worked. Total includes both employees and contractors.
(7) NMHIR is the total near misses and hazard incident rate per 100,000 hours worked. Total includes both employees and contractors. Metrics introduced in 2023
and therefore comparator values for previous years are not reported, due to unavailability of data.
(8) Turnover data reported for UK only for 2022 and 2021.
This metric was subject to external independent limited assurance by PricewaterhouseCoopers LLP (‘PwC’) as part of their assurance over metrics in the ESG Performance
Report 2023. For the results of that assurance, refer to page 10 in the ESG Performance Report 2023 (www.drax.com/esg-performance-report-2023) and for the Reporting
Criteria refer to page(s) 12 to 46 in the ESG Databook (www.drax.com/esgdatabook2023).
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People Strategy dashboard
Our People strategy
Our strategy encompasses all aspects of
acolleague’s experience at Drax, including
the systems we use, the values we live by,
our policies, and the culture we foster. Our
approach is to ensure the organisation has
the diversity, capability, and experience to
deliver our strategic aims. We want each
ofour colleagues to feel a valued member
of a winning team on a worthwhile mission.
The dashboard opposite provides an
overview of 2023 performance against
ourfive People Strategy pillars and across
which we delivered positive progress.
OurPeople Strategy objectives are to:
• Ensure the organisation has the
diversity, skills and experience to
deliveron our growth plans
• Bring to life a culture that is
representative of our strategic aims
andto orient the Group to growth
• Ensure our people are working as
effectively as possible and feel valued
for the work they do
Culture, Values and Employer
Value Proposition
In 2023 we began our Culture, Values
andEmployer Value Proposition (EVP)
programme, to orient our culture in support
of our growth strategy. To inform the
design, we engaged with a numberofour
colleagues representing allgeographies,
businesses, and career levels. We found a
strong emotional connection to Drax (due
to our purpose), divergent experiences
(with colleagues describing our culture
asopen, respectful, and inclusive, whilst
leaders focused more on the pace of
change), and growth outstripping people
and infrastructure.
This informed the creation of a new EVP:
“Together, we make it happen”. With three
key pillars: (1) clear and bold ambition; (2)
caring about positive outcomes; and (3)
the future is shaped by you. Additionally,
from this work we updated our values and
behaviours and built a Colleague
Experience framework, all of which will
belaunched in 2024. We are incorporating
our EVP into our recruitment marketing
and careers site, and embedding our
values and behaviours across talent
processes, systems, and internal
communications. The impact on our
culture and performance will be measured
through our new listening platform for
colleagues. We transitioned to the new
listening platform for our colleague survey
in 2023 and will commence the roll-out
ofadditional features in 2024.
Critical skills for the future have been
identified as transformational leadership
(including leading through change,
resilience, adaptability and driving a
performance culture), carbon capture
(including commercial contract
management, project controls, civil,
process and chemical engineering,
construction management and trading)
and project management.
Workforce risks, strengths and
opportunities have been identified with
short, medium, and long-term proposals
put forward, aligned to building the
required capability through evolving
ourearly careers, returners, development
andleadership programmes. This was
considered by the Executive Committee
inthe final quarter of 2023 and feedback
was provided on areas for change. Once
ratified, this will be built into our talent
strategy and plans.
Strategic workforce planning
As Drax grows, we recognise the
importance of ensuring we have the
capability and skills required to deliver our
strategic aims. In 2023, we worked with
the Executive Committee and leadership
teams in strategic workforce planning
workshops, to help determine needs
ofthefuture workforce.
Our People
Strategy pillars KPI Unit 2022 2023 Trend
Talent
Lifecyle
Increase % of women
on the Board
(1)
% 44 50
Increase % of women in
leadership roles (CL0-3)
(2)
% 30 31
Increase % of women in
management roles (CL4-5)
(2)
% 32 33
Meet Parker Review minority
ethnic Board members
number as a minimum
(3)
Minimum
number
(1)
1 1
Inclusive
Colleague
Experience
Improved Inclusion index % 80 81
Improved Inclusion index
(People of Colour)
% difference
from overall
3 1
Increase in colleague
engagement
% 79 79
Evolve and
Grow
Improved ratio of external
tointernal appointments
Ratio – 2:1
Reduction in time to hire Days 84
(4)
68.3
(5)
People
Foundations
Decrease in voluntary
employee turnover
% 9.3 8.7
Rewarding
Performance
In 2023, we continued to undertake reviews of our reward
strategies in each market so that our people are incentivised,
rewarded, and recognised for their contribution to Drax.
Our Board Diversity Policy states Drax’s support for the recommendations from the FTSE Women
Leaders Review and the Parker Review. Our Talent Lifecycle KPIs are aligned to the following targets:
(1) 40% women’s representation on the Board by the end of 2025 (FTSE Women Leaders Review).
(2) 40% women’s representation in leadership teams by the end of 2025 (FTSE Women Leaders Review).
(3) At least one director from a minority ethnic group on the Board by the end of 2024 (Parker Review).
(4) UK data.
(5) Global data.
Our Drax Values
• We care about what matters
• We’re a can-do kind of place
• We see things differently
• We listen carefully
• We do what we say we’ll do
Note: reects our values as of 2023, and our
updated values will be launched in 2024.
Positive trend Negative trend
No change
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Sustainable Development continued
People positive
Investing in our people
Resourcing to deliver
our strategic aims
During 2023, we recruited for over
1,000existing and new permanent roles,
with total headcount growing by 9%
compared with the previous year. The
retention rate for new starters joining
thebusiness in 2023 was over 80% (as
of31December 2023).
In 2023, we recruited over 100 new roles
to support our strategic aim on carbon
removals. 45% of these positions were
filled by internal applicants, creating
growth opportunity for key talent. We also
recruited over 250 new and existing roles
to support our strategic aim on sustainable
biomass pellets.
3,551
Total number of Group employees,
as at 31 December 2023 (2022: 3,229)
Early careers
We deliver programmes aimed at
developing early talent for colleagues with
0-5 years of professional experience. Our
programmes in the UK include: internships;
graduate programmes; work experience;
Year in Industry placements; T-levels; and
apprenticeships. In North America we are
evaluating the introduction of an approach
to early careers.
Work experience
In 2023 we delivered 42 week-long work
experience placements for students aged
14 to 18. In partnership with the Heart of
Yorkshire education group, we offered two
12-month work placements for students
undertaking T-Levels.
Apprenticeships
Since 2003, over 150 individuals have
completed an apprenticeship at Drax,
witha retention rate of 79%. Our
apprenticeship scheme at Drax Power
Station is our longest running early
careersoffering.
Growing skills and talent
We are committed to supporting
colleagues to develop skills and capabilities
to fulfil their career aspirations. In 2023
we delivered approximately 8,000 hours
oftraining (excluding compliance and
mandatory digital learning hours). Our
blended approach consists of virtual,
face-to-face, digitally-created material,
and some virtual reality.
Leadership and development
Our senior leadership development
offering supports colleagues to grow
theirleadership capabilities.
Inclusive Leadership
Senior leaders continue to participate
inthe Inclusive Leadership Programme.
More than 40 individuals attended our
Inclusive Leadership workshop in 2023
and the first leadership teams attended
our newly introduced Psychological
Safetymasterclass.
Future Creators
Our Future Creators Programme is
designed to support the development,
retention, and growth of our future
leadership pipeline. 61 colleagues have
been through the programme since its
inception in 2019 with an 77% retention
rate. Career progression rates are
comparable for men and women. 76% of
women and 77% of men who participated
have had either an upward career level
move, or have moved into a broader role.
Management Programmes
Our Management Excellence Programme
(MEP) is designed for aspiring or new
managers, offering upskilling and support
on managing people. 128 colleagues
completed the MEP in 2023. This included
the launch of a new MEP for supervisors
across our Pellet Production business in
North America.
Our Management Accelerate Programme
(MAP) is designed for experienced
managers who want to elevate their
management and leadership skills and
techniques. 141 MAP modules have been
completed by colleagues in 2023.
Performance management
In 2023, we launched an updated
Performance Improvement Policy in the
UK. The policy requires colleagues to take
responsibility for driving their performance,
and we encourage regular discussion
between colleagues and their manager.
Listening to our people
MyVoice Survey
Our annual MyVoice Survey is a key part
ofour listening strategy. In 2023, it was
completed by 84% of colleagues (a 5%
increase from 2022) and our engagement
score remained stable at 79%. We
introduced new indicators, including
health and wellbeing, and colleague
perceptions of how well change is
planned, managed, and communicated.
We also received over 22,000 comments,
which will feed into our 2024 planning.
The key actions from the 2022 My Voice
Survey were wellbeing, inclusion, and
Drax’s commitment to sustainability and
communities. We responded during 2023,
through our wellbeing strategy, Diversity,
Equity and Inclusion (DEI) strategy, and a
new community strategy (see pages 40,
65 and 69 for more information).
79%
Employee engagement score, 2023
(2022: 79%)
84%
MyVoice Survey completion rate, 2023
(2022: 79%)
81%
Colleague Inclusion Index, 2023
(2022: 80%)
To support the implementation of our
listening strategy, we moved to a new
colleague survey platform in 2023. It
enables us to track cultural measurement
metrics and uses predictive analytics
which we believe can help to identify
aspects of a colleague’s experience that
need improving, before negative impacts
might occur, such as attrition or a drop in
performance. We expect during 2024 to
evaluate the findings from the platform.
My Voice Forums
My Voice Forums (MVFs) provide a
feedback link between the Board and our
people. The MVFs meets quarterly and
in2023 covered topics including the new
community strategy, Sharesave maturity,
and our Employer Value Proposition.
OurOctober meeting was attended by
Andrea Bertone, as part of her onboarding
following her appointment as Chair
Designate in August 2023. The MVFs have
operated since 2019. Additionally we have
created multiple Colleague Resource
Groups, providing different opportunities
for colleagues to share feedback and
deliver improvements.
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5
Number of MVFs across Drax in 2023
Read more in Stakeholder Engagement,
page 32, and Corporate Governance
Report, see page 124.
Creating an inclusive
workplace
We are committed to a supportive, diverse,
and inclusive working environment and
continue to enhance Diversity, Equity
andInclusion at Drax. Our DEI strategy is
underpinned by the three pillars of: Talent,
Culture, and Data. From this, localised
action plans are derived. For example, our
Northampton office introduced wellbeing
and prayer rooms through their local plans.
The Board receives periodic DEI progress
updates through the CEO Report to the
Board and People Reports. Our DEI
Steering Committee meets quarterly and
is co-chaired by our Chief People Officer
and Commercial Transformation Director.
Data based as of 31 December 2023.
Senior Management are ExCom and their Direct
Reports excluding Executive Assistant, Personal
Assistants and Equivalents.
Our DEI programme in 2023
As well as partnering with our regional
teams and business units to deliver DEI
action plans, we also introduced a more
effective process to both request and
monitor Reasonable Adjustment requests
through IT.
Talent
We continue to focus on embedding DEI
into our recruitment, talent, and retention
process. We are currently developing the
Drax Recruitment Principles to embed DEI
into our recruitment processes and Hiring
Manager training. We seek to ensure fair
and representative processes that
mitigate bias, such as gender decoders in
role descriptions and balanced interview
panels. For example, where appropriate
we want to understand the root causes
behind prevailing hiring rates in any
particular categories. Improvements have
been made to the succession planning
process, and in 2023 we added DEI criteria
in the definition of Critical Talent, Critical
Role, and Regrettable Loss.
Data
In 2023, we extended our self-
identification campaign, “Count Me In”, to
North America. We also began collecting
candidate identity data (voluntarily from
candidates) in North America during the
recruitment process, which will enable us
to track candidate conversions to hires,
ensuring a measurable approach to
increasing diversity hires. We have defined
goals to better represent the communities
and regions we operate in, and we aim to
introduce targets for the recruitment of
people of colour in senior roles from 2024.
Culture
In 2023, we built on DEI learning by
ensuring that content is accessible and
available for colleagues across sites and
regions. In North America, we began the
Inclusion Managers Program to equip
colleagues and build regional action plans.
We have developed bite-sized learnings
forcolleagues to understand DEI in a way
which works for them. We also ran 13
workshops with leadership teams sharing
our approach to DEI and developing action
plans. In 2023 we celebrated DEI events
such as LGBTQ+ Pride, Jamaica Day,
BlackHistory Month, World Menopause
Day, Passover, Hispanic History Month,
Indigenous People’s Day, and Canada’s
National Day for Truth and Reconciliation.
Colleague Resource Groups
2023 saw the launch of our first Colleague
Resource Groups (CRGs). We now have
CRGs covering Women, Race and
Ethnicity, Neurodiversity, and LGBTQ+,
with approximately 15% of colleagues
joining one or more. As part of LGBTQ+
Pride and Inclusion Week we invited
speakers and held events to support CRG
growth and awareness. We will continue
to grow these groups to ensure people
have a strong sense of belonging at Drax.
Being a CRG Chair for Drax has been
incredible. Drax creates a safe and
inclusive environment for everyone
to come and share, learn, grow,
andsupport each other.
Kelly-Marie Lovesy, Opus Director
ofSales, and Women’s CRG Co-Chair
Colleague wellbeing and
benefits provision
Wellbeing
Our approach considers the holistic
wellbeing of our colleagues, with a focus
on four pillars of wellbeing: physical,
mental, social, and financial. In 2023,
weundertook a review of our wellbeing
strategy, to enable alignment with the
culture, new values, and colleague
experience. Priority recommendations have
been included as part of 2024 planning.
We recognise that supporting colleagues
with their mental wellbeing was identified
through the MyVoice Survey, as an area
for action. In 2023, a working group was
established at Drax Power Station, to
helpbuild awareness, support, and action
relating to mental health for all colleagues
including both Drax employees and
contractors. This was in recognition of
Mental Health UK data, which shows that
men are predominantly less likely to seek
help for mental health challenges.
The aims of the working group include
breaking down any stigma relating to
discussing mental health and working
closely with contractor partners to ensure
appropriate education and support is
available for all workers on site. This
support is provided by two local mental
health organisations. The approach
includes referring to mental health as
“mind safety” and using colloquial terms
toname onsite wellbeing hubs, to resonate
with colleagues and help normalise
conversations about mental health.
Weplan to do more on this important
areain 2024.
Women on the Board
2
023
50%
44%
2
022
Women in Senior Management
2
023
37%
38%
2
022
Workforce gender diversity, 2023
Men
68%
32%
Women
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Sustainable Development continued
People positive
Benefits provision summary
We continued to support colleagues
andtheir families through the provision
ofacomprehensive benefits package
encompassing retirement, risk and
protection, and health and wellbeing.
Allcolleagues have access to the same
benefits and level of coverage, in the
country in which they are based, unless
precluded by alternative arrangements
with their respective trade union group
oracquisition agreement. The benefit
offering consists of core features which
are mandatory to all colleagues, and a
suite of voluntary benefits which enables
colleagues to tailor their benefits package
to their personal circumstances.
The My Voice Survey results showed that
colleague satisfaction with wellbeing
benefits had increased by 20%, compared
to 2022. This reects work undertaken
toreview our benefits offering, as well
ascommunication and engagement
campaigns to raise awareness and support
colleagues in navigating to benefits that
support their needs.
In the UK, in 2023 we combined three
defined contribution pension plans into the
Aon Master Trust, giving colleagues access
to lower charges, financial tools toplan for
retirement, and a default investment fund
focused on Environmental, Social, and
Governance (ESG) funds.
We partnered with Peppy to provide our
colleagues with fertility, pregnancy, birth,
and menopause healthcare support. This
is available for colleagues in the UK, US,
and Canada.
In addition, to support our colleagues
inthese times of higher cost of living,
Draxprovides access to comprehensive
financial education through Nudge.
Annual bonus
All colleagues are eligible to participate
inthe Drax annual bonus plan, unless
precluded by alternative arrangements
with their respective trade union group.
The bonus plan is designed to reward
colleagues forthe delivery of annual
targets and objectives, which are directly
linked to the financial and strategic
performance of theGroup. This is
measured through the Group Scorecard
(see pages 151 and 152).
Long Term Incentive Plan (LTIP)
The Executive Directors and colleagues in
senior management participate in the LTIP
which rewards for the delivery of long-
term shareholder value. Vesting is subject
to the delivery of performance conditions
typically measured over a three-year
performance period. More information
onthe performance conditions associated
with the LTIP grant, to be made in March
2024, can be found on page 159.
One Drax Awards
One Drax Awards are a discretionary
grantof share awards made each year to
recognise above and beyond performance,
and to aid retention of key talent below
senior management level. The shares are
subject to a one-year vesting period, but
the level of vesting is not conditional on
achievement of performance conditions.
Enhanced maternity and paternity leave
for North American colleagues
In September 2023 ,we improved our
family leave offering for North America
colleagues. Previously capped at the legal
minimum, eligible colleagues can now take
maternity leave or adoption leave for up
to13 weeks at full pay. This aligns with
theUK offering for maternity or adoption
leave. Paternity leave was also aligned
tothe UK, meaning all colleagues will be
entitled to two weeks’ paid leave.
Wellbeing initiatives in 2023
In 2023 our approach focused on enabling colleagues to understand their
own health, encouraging healthy behaviours through our wellbeing support,
and a focus on financial wellbeing.
Understanding our health Healthy behaviours Financial wellbeing Wellbeing day
Fourteen members of the Drax
Leadership Team and Executive
Committee took part in a six-month
executive wellness trial beginning
September 2023. The group was
selected to critique and evaluate
the programme, which will
complete in February 2024. This
comprises in-depth health reviews
and one-to-one coaching on
physical and mental wellbeing.
Following the results of this,
further roll out will be considered.
We enlisted Workday Peakon as
our new survey provider, which
provides managers with a results
dashboard. This will be released in
early 2024 and includes health and
wellbeing, engagement, and
inclusion metrics and will help
colleagues to understand what
factors impact their engagement
performance.
A wide range of wellbeing activities
were undertaken in 2023, and
ongoing initiatives are taking place
to help colleagues make the most
of their benefits. This included
open enrolment campaigns in each
country, to support people to make
informed benefits choices.
Aligning with our DEI strategy we
held events for: Women’s health;
World Menopause Day; Mental
Health Awareness Week and
“Movember”.
In 2023 we launched Peppy Digital
Health in Canada, Peppy Women’s
health in the US, and Care
Concierge Service for elder care
toUK colleagues.
Financial stress can have a huge
impact on people’s mental health.
Taking steps to support our
colleagues’ financial resilience and
wellbeing is a critical part of
supporting wider wellbeing.
Recognising the impact of ination
and cost of living concerns, we
brought forward our annual pay
review to 1 January 2023 from
1April 2023, as a meaningful way
to support colleagues. In addition,
the salary increase budget was 8%,
higher than in recent years and
consistent with the ination rate in
the US and Canada, and broadly in
line with the Retail Price Index
(RPI) in the UK when adjusting for
the direct impact of energy prices.
Our new pension provider, AON,
offers events tailored to colleagues
of all ages to support financial
planning towards retirements and
later stages in life.
In 2023, all
colleagues had
access to a Wellbeing
Day in addition to
normal vacation and
sick days. It was
designed to be used
by colleagues when
they felt their
wellbeing was
compromised,
needed to recharge,
or do something that
positively contributed
to their health.
91%
of colleagues took
aWellbeing Day
in2023
* Does not include data
for US colleagues, where
the Wellbeing Day was
added to their Paid Time
Off allowance.
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Sharesave
In the UK, Drax offers a Sharesave
programme giving employees the
opportunity to save over three or five
years towards purchasing Drax shares
at a 20% discount to the share price
at the time of grant. At the launch of
the 2023 Sharesave scheme, around
70% of UK colleagues participate in
Sharesave. In 2023, around 900
colleagues had Sharesave options
maturing with significant gains. To
help colleagues navigate tax and
investment implications of maturing
options, Drax partnered with Wealth
at Work on a comprehensive,
award-winning, financial education
programme which ran in the first half
of 2023. We are proud to have won
two ProShare awards in 2023 for our
Sharesave plan in the UK. In 2023, we
also launched a new all-employee plan
in the US and Canada (the Employee
Stock Purchase Plan) under which
colleagues can save to purchase
discounted Drax shares every
sixmonths.
70%
of UK colleagues participate
inSharesave
Health and safety
Our approach and governance
Our Group Safety, Health and Wellbeing
Policy applies to employees and those
working for or on behalf of Drax, and is
supported by our OneSafeDrax vision
thatall colleagues have a role to play
insafety for themselves and those
theyworkalongside.
In 2023, we established a Group
Health,Safety and Environment (HSE)
Governance Framework. It defines a
systematic, risk-based approach with
clearaccountabilities, outlining the
minimum HSE requirements with
whichour businesses and operations
mustcomply. The Framework covers
occupational health and wellbeing,
occupational safety, process safety, and
environment. Designated business unit
leads are required to put in place HSE
implementation statements and processes
in line with the Framework. These are
determined locally by the nature of the
activities, risks, applicable regulatory
regimes, and other factors.
Local HSE performance is regularly
reviewed by each management team,
withGroup HSE performance reviewed
quarterly by the Group Health, Safety &
Environment (GHSE) Committee. The
GHSE Committee provides oversight
onHSE-related risks. HSE performance is
provided to the Executive Committee each
month. The CEO reports HSE performance
at each meeting to theBoard, including
progress made on initiatives and areas
forfurther action. Drax Leadership Team
sessions (held regularly) normally
commence with a “safety standout” item
where key safety messages are shared.
Our GHSE Centre of Excellence (C of E)
convenes Group and business unit HSE
leads, and its Terms of Reference were
updated in 2023. The GHSE C of E meets
monthly to share knowledge across the
business and aims to drive improvements
in HSE through use of best practice.
HSE Governance
Group Health,
Safety &
Environment
Committee
(GHSE Committee)
HSE Centre
of Excellence
(HSE leads meet
monthly, forum
for sharing)
Business Unit
HSE Committees
Board receives
quarterly HSE
performance
updates
Executive
Committee
HSE Management Systems
and audit
We have Safety Management Systems
(SMS) in place to promote safe workplaces
for our people. Our UK Generation assets
have an integrated management system,
certified to ISO 9001:2015, ISO
14001:2015, and ISO 45001:2018. Our
Commercial and Corporate sites in the
UKcontinue to implement a SMS, with
afocus on raising awareness and a
continuous improvement in our health
andsafety culture.
Pellet Production sites are aligned to
oneHSE management system across
theUSand Canada.
Findings and recommendations from HSE
internal audits, which are conducted by a
third party, are reported twice each year
tothe Audit Committee. Each business unit
receives a report for local management’s
ownership of the improvement areas, and
the overall assessment is reported to the
quarterly Group HSE Committee and to
the Audit Committee.
Training and raising
awareness onsafety
To ensure colleagues are aware of their
own responsibilities, the HSE Framework
sets the Group minimum standard for
roles, responsibilities, training, and
competence. Business unit leads are
responsible for maintaining and
implementing training matrices according
to the local requirements and the nature
of site operations.
Regular HSE training is issued to
employees in the UK, based on
therequirements of their role and this
approach is being implemented
throughout the business. In 2023,
members of the Commercial leadership
team completed the Institute of
Occupational Safety and Health (IOSH)
Leading Safely course, to enable senior
leaders to understand their HSE
responsibilities, benchmark our current
performance and know how to drive
health and safety performance
improvements.
During the year, we ran a Group-wide
“Speak Up for Safety” campaign, to
underline the importance of logging
hazards, incidents, and near misses in
ourHSE reporting platform. The campaign
aimed to equip colleagues with
information needed to identify risks and
hazards, understand what should be
reported, and to follow the correct
procedures. Information, guides and
training opportunities were shared via
channels including manager briefings,
team meetings, drop-in sessions, posters
and booklets.
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Sustainable Development continued
People positive
As reported in 2022, we received
notification from the Health and Safety
Executive in relation to non-compliance
with the Pressure Systems Safety
Regulations (2000) at Drax Power Station.
Drax consider this to be an administrative
breach and have responded to the
notification, and we are awaiting a
formalresponse from the Health and
Safety Executive.
(1) A lagging indicator measures events that have
occurred in the past and can alert organisations to
failures in their systems and processes. A leading
indicator measures HSE acts or conditions that
precede events and can provide insights into an
organisations future performance.
Safety targets and performance
We review our HSE performance regularly,
including our Total Recordable Incident
Rate (TRIR). We have a process to
investigate injury events, with particular
focus on those with a potential to become
more severe, to ensure we establish root
causes and learn lessons, before sharing
findings across the organisation,
whererelevant.
In 2023, lagging and leading safety
indicators
1
(TRIR and NMHIR respectively)
formed part of the Group Scorecard (see
page 151). Our TRIR in 2023 was 0.38 per
100,000 hours worked, against a target
of0.33 (2022: 0.44 per 100,000 hours
worked, against a target of0.20). NMHIR
was 129.26 per 100,000 hours worked.
In addition to Group-wide Scorecard
targets on safety, business units define
local objectives and targets to drive
positive safety behaviours locally.
Group TRIR
2023
0.38
0.44
0.22
2
022
2
021
129.26
Group NMHIR
(2)
(1) TRIR is the total fatalities, lost time injuries,
restricted work, and medical treatment injuries
per100,000 hours worked. Total includes both
employees and contractors across our sites and
offices.
(2) NMHIR is the total number of Near Miss and
hazard identification reports logged per 100,000
hours worked. The total includes both employees
and contractors.
This metric was subject to external independent
limited assurance by PricewaterhouseCoopers LLP
(‘PwC’) as part of their assurance over metrics in the
ESG Performance Report 2023. For the results of that
assurance, refer to page 10 in the ESG Performance
Report 2023 (www.drax.com/esg-performance-
report-2023) and for the Reporting Criteria refer to
page(s) 12 to 46 in the ESG Databook (www.drax.com/
esgdatabook2023).
Health and safety compliance
Wherever we operate, we seek to establish
open and direct communication with
thelocal health and safety agencies.
Weprovide further information on safety
aspects below.
In February 2023, after a detailed
investigation by the Health and Safety
Executive, all charges brought against
Drax in relation to alleged wood dust
exposure at Drax Power Station (as
reported in 2021) were discontinued,
withthe Health and Safety Executive
concluding there is no evidence of
continuing risk of harm from exposure
towood dust at Drax Power Station.
Two major planned outages were
carried out at Drax Power Station for
maintenance in 2023. This significant
and complex period of work saw an
increase in activity with a significant
number of contractors on site.
Pre-outage planning included a safety
leadership event with all front-line
supervisors (Drax colleagues and
contractors).
During the outages, additional HSE
resource was deployed to support teams
and to encourage Safe Systems of Work
(SSOW) to be developed and adhered to.
Additional safety initiatives were
deployed during the outages to promote
and reward proactive safety behaviours
and high standards.
The outages were completed
successfully and a lessons learned
process captured areas for
improvement.
Spotlight on: health and safety during
planned outages at Drax Power Station
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Community investment
Our approach
At Drax, we aim to make a real and positive
difference to the communities in which
weoperate. In 2023, we launched a new
community strategy which combines
Community Action and Engagement plans
for each of the countries in which we
operate, with strategic corporate giving to
be delivered through the Drax Foundation
and a designated Community Fund.
Our Community and Charity Policy was
updated in 2023, and offers opportunities
for colleague involvement, such as give
asyou earn (UK only), employee match
funding, employee volunteering, and
corporate charitable giving.
During 2023, we prioritised getting out
into our communities, meeting with
diverse community stakeholders and
improving our understanding of the
concerns and opportunities. We have
identified priority communities with
specific needs. We have also prioritised
early-stage community engagement in
ournew BECCS markets in the US.
Over 2023 we worked towards
establishing metrics for measuring our
impact in the community. By determining
our baseline, we plan to evaluate progress
towards a positive impact on people and
communities. We will publish our first
DraxCommunity Impact Report in 2024.
Read about our engagement in the
community, on page 40.
Drax Foundation
In 2023, we launched the Drax Foundation
to provide funding for UK, US, and
Canadian non-profit organisations that
share our commitment to improving
access to science, technology, engineering
and mathematics (STEM) education,
community green spaces, and renewable
energy. We prioritise funding for projects
that support under-represented and under-
served groups, to advance gender equality
and support Indigenous communities.
During the year, the Drax Foundation
provided £1.8 million in grant funding for
non-profit organisations. This has created
access to STEM education and skills
development for more than 70,000
children and young adults, and improved
access tonature and community green
spaces fornearly 21,000 people. In the UK
we announced £2.5 million in funding,
ringfenced for UK schools to install
energy-efficient LED lights and solar
panels to deliver energy savings and
education. In 2023, this included a LED
pilot in eight UK schools near Drax Power
Station. The schools in this pilot will save
on average £8,600 per annum in energy
costs, and reduce their carbon emissions.
Drax also funded £150,000 to Energy
Sparks ensuring up to 240 schools across
Yorkshire and the Humber, East Midlands,
the East of England, and Scotland have
free access to its online energy
management tool, education programme,
and support services.
The Drax Foundation is a Donor Advised
Fund administered by the Charities Trust
(a UK-registered charitable organisation).
Applicants must be a registered charity;
non-profit or social enterprise; address a
societal need; show acommitment to the
SDGs; and contribute to the focus areas
outlined above.
Drax Community Fund
We recognise that each of the
communities in which we operate are
unique. That is why we established the
Drax Community Fund to respond to these
unique challenges and opportunities. Local
community groups and civil society are
invited to apply for funding throughout
theyear. In 2023, our Community Fund
provided £687,000 in funding for 222
localprojects, including over £100,000
forfoodbanks in communities in the
run-up to the December festive season.
Communities in Crisis Fund
The third pilar of our corporate giving
isour Communities in Crisis Fund, which
provides rapid donations to relief
organisations in the aftermath of natural
disasters and other humanitarian crises.
During 2023, we donated £207,000
through our Crisis Fund to relief efforts
inthe US, Canada, Libya, Morocco
andIsrael-Gaza.
For more information about our
impact through the Drax Foundation
and Community Fund in 2023, see
www.drax.com/community.
£2.7 million
Donated in 2023 to projects
and programmes
Indigenous Peoples
Drax recognises the profound
relationships that Indigenous people have
with the land on which we operate and
from which we source raw materials.
Weare committed to engaging with those
communities to ensure we respectfully
listen to, learn from, understand, and
respond to concerns related to our
operations and those of our suppliers.
In 2023, we established a Group
Indigenous Peoples policy. The policy,
developed in consultation with internal
and external stakeholders, is the
foundation of Drax’s interaction with
FirstNations who have traditional territory
where we operate. It outlines our
commitments regarding how we will
workwith Indigenous communities to
develop and foster meaningful
relationships, potential projects, and
business opportunities. This includes our
commitment to building positive and
sustainable relationships with Indigenous
peoples, based on trust and respect,
andfollowing Free, Prior, and Informed
Consent (FPIC).
Drax’s outreach is led by our Director of
Indigenous Engagement and Partnerships.
We have developed a Cultural Awareness
training programme to support colleague
engagement with Indigenous and First
Nations communities. In 2023, the training
was completed by a number of
sustainability colleagues in North America
and will be rolled out further in 2024.
Nature & community
green spaces
STEM education
& skills development
Grant funding | Strategic partnerships | Community outreach
Renewable energy
& energy efficiency
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Sustainable Development continued
People positive
In 2023, we provided support to
communities we engage with, including:
adonation to build community gardens in
Prince George. Through the Drax
Community Fund; we sponsored the Burns
Lake Centennial Celebrations and donated
to the Burns Lake National Day for Truth
and Reconciliation event. Colleagues
across the business were also encouraged
to mark the National Day for Truth and
Reconciliation.
Ethics and Integrity
At Drax, we are committed to conducting
business ethically, with honesty and
integrity. We have established a number
ofBusiness Ethics programmes to support
this commitment.
Governance of ethics and
business conduct
Everybody at Drax is personally
responsible for ethical business conduct.
Managers are responsible for
demonstrating leadership on ethical
matters and supporting their teams to
apply our ethical principles.
We have a dedicated Business Ethics team
who develop, maintain, and manage the
Business Ethics programmes and
associated Documentation Framework.
Inaddition, we have a Data Privacy team
that provides guidance on data privacy
best practice and meets the needs of
personal data requests.
Ethics and
Business
Conduct
Committee
(EBCC)
Business
Ethics team
Audit Committee
receives an
annual report
about EBCC
activity
Executive
Committee
The Ethics and Business Conduct
Committee (EBCC), a sub-committee of
the Executive Committee, oversees our
Business Ethics and Privacy programmes.
The EBCC is chaired by our Group General
Counsel. It serves as an escalation route
for higher risk ethical decisions, supported
by an agreed Escalation Protocol.
The Audit Committee provides an
additional layer of oversight, receiving an
annual summary on EBCC activity. The
Audit Committee also receives regular
Speak Up report updates.
Business ethics and privacy
programmes
Our Business Ethics and Privacy teams
take steps to understand our risk profile
and develop an appropriate risk mitigation
strategy. In addition to this they monitor
compliance and investigate potential
breaches, as applicable. Our internal audit
function provides additional assurance on
the robustness of our Business Ethics and
Privacy programmes.
In 2023, we strengthened our Ethical Due
Diligence programme by establishing a
second line assurance structure and
activity plan. The team also commenced
work on creating dedicated programmes
to support our Anti-Fraud and Political
Engagement policies. This work will be
completed in 2024.
Business Ethics
DocumentationFramework
Our Business Ethics and Privacy
Documentation Framework consists
ofprinciples, policies, and guidance.
Drax Code of Conduct
Our ethical principles are set out in the
Drax Code of Conduct (Drax Code). The
Code outlines our “doing the right thing”
approach and identifies the expected
behaviours from colleagues and relevant
individuals working on our behalf, on a
broad range of topics, such as health
andsafety, speak-up, and anti-corruption.
Theimportance of complying with
relevant policies and guidance is integral
to the Drax Code, which includes a series
of embedded training videos. The
consequence of failing to comply with
theDrax Code is clearly articulated in
theCode itself. Our Code is subject to
regular review.
Drax Supplier Code of Conduct
Our Supplier Code sets out the
commitments and standards we expect
from our third parties, and any
subcontractors they use, in relation to
working for Drax. The Supplier Code,
which was reviewed and updated in 2022,
includes details of how any third party can
“speak up” about a concern over non-
compliance with the Supplier Code.
During 2023 we continued to roll out
ourSupplier Code to relevant third-party
suppliers, incorporating it into the
associated contracts by means of a
specific business ethics clause, including
atermination clause for a serious breach.
We commenced a further review of the
Supplier Code which will be concluded
in2024.
Business ethics and privacy policies
Our Business Ethics and Privacy policies
relate to:
• Anti-Bribery and Corruption (including
gifts and hospitality and conicts of
interest)
• Anti-fraud
• Corporate Criminal Offences (also
known as ‘Anti-facilitation of Tax
Evasion’)
• Fair Competition
• Financial and Trade Sanctions
(supplemented by a Recusals policy)
• Human Rights
• Political Engagement
• Privacy
• Speak Up (Whistleblowing)
Each of these policies were reviewed
andrepublished over the course of 2023,
withthe exception of the Political
Engagement Policy which has been
reviewed, but will be reissued in the first
quarter of 2024, in conjunction with the
launch of a new Political Engagement
andLobbying programme, that reects
the Group’s growth and increasing
globalpresence. The work on this
programme was considered by the EBCC
at meetings held in November 2023 and
January 2024. A series of guides support
the above policies.
In 2023, the Board and Executive
Committee received ‘Business Ethics for
Senior Leaders’ learning, and additional
training to ‘high risk’ teams was provided
on Business Ethics and Privacy to
reinforce our resilience. Relevant Business
Ethics policies and documentation were
deployed as mandatory to colleagues at
our Princeton site, acquired in 2022.
Additional Business Ethics and Privacy
documents and training materials were
deployed to relevant colleagues at our new
Tokyo office. Existing colleagues received
an annual eLearning refresher on the Drax
Code and UK colleagues took an annual
eLearning refresher on Data Protection.
Relevant Business Ethics and Privacy
documentation was also deployed to our
new BMM Energy Solutions colleagues
(following Drax’s acquisition of BMM in
August 2023). To support this and future
integration operations, we created a
‘Keeping Ethics in Mind’ handbook.
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1. Anti-bribery and Corruption (ABC)
At Drax we do not condone any
behaviour that could lead to actual or
perceived bribery or corruption. Our
ABC programme is based on “Adequate
Procedures” guidance. In 2023, we
conducted an annual review of our Gifts,
Hospitality, and Conicts of Interests
records. We updated guidance on gifts
and hospitality, introducing additional
thresholds and approaches regarding
gifts and hospitality in Drax Asia, Japan,
and to indigenous people. We also
created and deployed dedicated ABC
eLearning to colleagues considered
‘higher-risk’ of encountering bribery
dueto the nature of their roles.
2. Speak Up (Whistleblowing)
We are committed to transparency,
openness, and continuous
improvement. We encourage those
working for and on behalf of Drax, and
our third parties, to raise genuine
concerns (via our reporting channels)
about practices that could breach laws,
regulations, or our own ethical
standards. Drax does not condone
retaliation or victimisation in relation
toSpeak Up matters. During 2023,
49reports were raised across both our
internal and external channels. This is
anincrease from 14 inthe previous year.
3. Corporate Criminal Offences (CCO)
(Anti-facilitation of Tax Evasion)
Our ethical due diligence and payment
procedures seek to facilitate the
conduct of business which is compliant
with applicable tax laws. These are
subject to regular internal audit.
Additional guidance was provided to
colleagues most likely to be exposed
to‘at higher risk’ activity.
Our Ethics programmes in more detail
Cyber Security
We recognise our exposure to cyber
security threats and place importance
on our resilience. We have a dedicated
cyber security team with responsibility
for managing our resistance to threats.
The Security team is evolving to align
tobusiness requirements to afford the
best service and levels of protection
Drax needs. All security framework
policies are reviewed and re-approved
annually. Information and cyber risk
assessments are performed in line with
our policy and regulatory requirements.
Security policies are communicated to
colleagues, stakeholders, suppliers, and
third parties. Security Awareness
Training and mandatory read policies
(Security and Acceptable Use Policy)
aremanaged through our learning
management system, forming part of
employee inductions and annually
thereafter. The business receives regular
cyber security communications. In 2023,
training was mandated in Japan for our
colleagues in Drax Asia.
Our people form our first line of defence
against cyber-attacks. As part of colleague
training and raising awareness, we
perform phishing tests quarterly, and the
rate of colleagues successfully reporting
the test phishing emails is improving,
helping to bolster resilience to phishing
attacks. In the event someone responds
negatively to a test, further awareness
training is automatically assigned.
Specific training will be delivered in
2024 to senior colleagues and those
deemed ‘higher risk’ due to the nature
oftheir role. Drax maintains multiple
information and security management
systems which align with industry best
practice standards, such as ISO
2
7001,
and meets the relevant legal and
regulatory requirements applicable to
our business including, but not limited
to, Network and Information Systems
Regulation (NIS), Data Protection Act,
Smart Energy Code (SEC) and Payment
card Industry Data Security Standards
(PCI-DSS).
4. Ethical Due Diligence
Our Ethical Due Diligence programme
underpins several other business ethics
programmes, helping us identify and
address any legal and/or reputational risks
associated with a proposed commercial
relationship. We carry out ongoing
monitoring of relevant third parties during
the lifecycle of our commercial relationship
with them. In 2023 we expanded the team
carrying out first line activity, introduced
second line assurance activities to enhance
reporting into the EBCC, and refreshed our
Ethical Due Diligence guidance.
5. Fair competition
We are committed to competing fairly
andin accordance with applicable fair
competition law. Our Fair Competition
programme now covers UK and Japanese
competition law, US anti-trust law, and
Canadian laws, and includes dedicated
training for ‘at higher risk’ teams.
6. Financial and Trade Sanctions
In 2023, our Financial and Trade Sanctions
programme was subject to internal audit,
which identified some improvements to
strengthen the robustness of our
programme. We plan to implement these
recommendations in 2024. Regular
reporting on sanctions activity to EBCC
continued in 2023, with no instances of
breach identified.
7. Human Rights
We set out our human rights
commitments in our Human Rights policy,
the Drax Code, and our Supplier Code. Our
cross-departmental Supply Chain Human
Rights Working Group reports quarterly
tothe EBCC. Drax has been a signatory
ofthe UN Global Compact (UNGC) since
2018 and participates in the UNGC’s
Modern Slavery Working Group,
together with Utilities Against Slavery
(Slave Free Alliance) working groups and
a steering committee. We have a close
working relationship with UK anti-
slavery charity Unseen, who run the
UK’s Modern Slavery Helpline. Our 2023
activity in relation to this programme is
set out in our 2023 Modern Slavery
Statement. Our planned activities for
2024 are also set out in that statement.
8. Privacy
In 2023, we completed the annual
review of policies and notices to confirm
they remain in line with prevailing legal
and regulatory requirements. System
improvements were implemented to
third-party onboarding for Data
Protection and Information Security
DueDiligence across the US and
Canada, to help ensure that due
diligence is performed consistently
across the Group in line with best
practice. Other improvements were
made to annual refresher training on
data protection topics, working
practices with the Information and
Cyber Security function, and continued
education within the Data Protection
team. Investigations into potential data
breaches were investigated in a timely
manner, with good support from
operational teams. No internal
investigations during 2023 resulted
inarequirement tosend a notification
toany relevant authorities (such as the
Information Commissioners Office).
Individual rights requests from
customers and employees were
processed within required timescales,
along with requests made by appropriate
authorities (such as the Police).
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Biomass
sourcing
Our performance
Biomass sourcing data summary
For additional data see ESG data supplement www.drax.com/sustainability
Sustainably sourced biomass
is central to realising our
strategy and our climate
positive, nature positive, and
people positive outcomes.
Unit 2023 2022 2021
Drax Power Station
Total volume of fibre (material consumed at Drax Power Station)
(1)
t 5,979,554 6,633,722 7,717,031
Proportion of woody biomass consumed at Drax Power Station with
SBPCompliant claim
% 97 97 98
Average biomass supply chain GHG emissions kgCO
2
e/
MWh
97* 96 100
Pellet Production and Trading
Total volume of pellets produced Mt 3.8 3.9 3.1
Proportion of pellets produced and sold with an SBP Compliant claim
– Southern Operations (US)
% 100 – –
Proportion of pellets produced and sold with an SBP Compliant claim
–Northern Operations (Canada)
(2)
% 89
Total volume of pellets traded (third party to third party) t 793,858 – –
Proportion of pellets traded with an SBP Compliant or PEFC Certified
claim (claims with which pellets sold)
(3)
% 86 – –
Drax Group sources of fibre
Sawmill and other
wood industry
residues (t)
Branches
and tops (t) Thinnings (t)
Low-grade
roundwood (t)
End-of-life trees
(t)
Agricultural
residues (t)
Country
total (t)
US 1,698,041 316,788 1,378,180 1,654,979 4,683 107,082 5,159,7 53
Canada 1,714,169 167, 876 0 163,458 7,416 0 2,052,919
Latvia 104,081 3,402 96 344,302 0 0 451,881
Estonia 17,992 56 9,914 58,697 0 0 86,659
Brazil 1,202 0 0 125,023 0 0 126,225
Portugal 45 572 1,17 7 16,795 16,556 0 35,145
Lithuania 9,883 0 0 3,011 0 0 12,894
UK 0 0 0 0 0 56,053 56,053
Bulgaria 0 0 0 0 0 12,594 12,594
Other European 5,217 0 0 2,446 0 668 8,331
Total 3,550,630 488,694 1,389,367 2,368,711 28,655 176,397 8,002,454
(1) Reported figure reects volume consumed for power generation at Drax Power Station in 2023.
(2) Reported figure reects pellets produced and sold with an SBP Compliant claim. The remaining volume was produced and sold with an SBP Controlled claim.
(3) Reported figure reects pellets traded with SBP Compliant or PEFC Certified claim. The remaining volume held PEFC Controlled claim or no claim.
* Limited external assurance by Bureau Veritas using the assurance standard ISAE 3000. For assurance statement see www.drax.com/sustainability
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The closed carbon cycle
Pellet plant
Carbon captured,
transported and stored
by BECCS
Replantation
of forest
Forest
sequestration
of carbon
Biomass
used as fuel
Electricity supplied
to national grid
CO
2
Sustainably
managed forest
Forestry
residues
Sawmill
residues
Logs
Sawmill
Construction/
manufacturing
Sustainable biomass is renewable when
sourced within the closed carbon cycle
which is shown in the diagram opposite.
This section provides details on
biomass sustainability.
The CO
2
released from sustainable
biomass operates within what is termed
abiogenic carbon cycle. This is part of
the continuous exchange of carbon
between the land and the atmosphere.
Conversely, fossil-derived carbon is
aone-way emission and all burning
offossil fuels adds to the accumulation
ofgreenhouse gases in the atmosphere.
Biomass sourcing:
Groupoverview
As one of the world’s largest users of
sustainable biomass for energy generation,
Drax is committed to ensuring the woody
biomass we source comes from forests
that are managed in accordance with
standards designed to support their
healthand growth over the long term.
Bydoing this, we can work towards our
commitment to deliver positive outcomes
for the climate, for nature, and for the
communities in which we operate.
Our Pellet Production business produces
and supplies biomass, for use in generation
at Drax Power Station and for supply
tothird parties. We have policies and
processes in place which aim to ensure
wemeet the required biomass sourcing
standards in our different business
operations.
44%
Sawmill and other wood industry residues
Sawmill residues are waste products (such
as chips, shavings and sawdust) produced
when timber is processed at third-party
sawmills. These residues are lower-cost
and, depending on moisture levels, can
reduce drying requirements in the pellet
production process.
30%
Low-grade roundwood
Low-grade roundwood is material which
does not satisfy the quality standards set
by the timber industry and is unsuitable
foruse in a sawmill.
17%
Thinnings
Thinning is an intermediate harvesting
technique which removes trees from
forests to increase forest growth, regulate
stand density, maintain forest health, and
to reduce potential fuels for forest fires.
Itcan improve biodiversity by allowing
more light onto the forest oor, promoting
herbaceous growth. Thinnings can provide
a secondary revenue for landowners and
utilises low-value trees, which cannot be
used by a sawmill.
Group biomass feedstock sources,
Group data for 2023
44%
6%
17%
30%
<1%
2%
Sawmill residues
Branches and tops
Low-grade roundwood
Thinnings
End-of-life trees
Agricultural residues
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Sustainable Development continued
Biomass sourcing
Biomass sourcing: Group
overview (continued)
Our policies
Our Responsible Sourcing Policy for
biomass, available on the Drax website,
sets out the criteria by which we acquire
biomass, which is processed by Drax’s
Pellet Production Operations in North
America and used to generate renewable
power at Drax Power Station.
The sustainable biomass used at Drax
Power Station is required to comply with
the standards set out in law, regulations,
andthe renewable support mechanisms
under which we operate. This includes
compliance with the Land Criteria and
theGreenhouse Gas (GHG) Criteria.
Read more on page 76
Monitoring compliance
We monitor and evidence compliance with
the applicable requirements for our
respective operations through third-party
certification, supplier engagement,
post-harvest evaluations, and Catchment
Area Analyses.
Certification
Third-party certification is an important
part of our due diligence process. Our key
certification scheme is the Sustainable
Biomass Program (SBP), a scheme specific
to the biomass industry. Under the
scheme, independent certification bodies
audit biomass suppliers against the
Standards developed by SBP. The
Standards look holistically across the
supply chain including the management
offorests to ensure health and vitality
ofecosystems are maintained, and
greenhouse gas emissions.
Also, in many cases the forests we source
from are certified to the Sustainable
Forestry Initiative (SFI®) Forest
Management Standard, which is endorsed
under the Programme for the Endorsement
of Forest Certification (PEFC). In the US,
where there is abundant family forest land,
Drax’s SFI Fiber Sourcing, FSC® Controlled
Wood, and SBP Certifications provide a
robust framework for assuring, and
verifying, sustainability.
For information on certifications at
Drax Power Station, see page 76, and
for Pellet Production, see page 77.
Post-harvest evaluations
At our Pellet Production operations in
theUS South, we conduct post-harvest
evaluations. This involves a combination
ofon-the-ground verification and remote
sensing-derived imagery, to assess and
evidence replanting of tracts from which
material was supplied to our facilities.
Weconduct on-the-ground checks of a
subset of active harvests as part of our
internal and external audit programmes,
and have procedures in place which is
intended to help us detect and avoid
potential conversion sources. Controls
include screening in-woods sources
forrisk factors, including size of harvest
unit and proximity to developing areas.
At our Pellet Production operations in
Canada, most fibre sources are from
government lands. This means harvest
authorities are traceable back to the field
sites and the dates of which they are
harvested. It is a legislated requirement
that harvested areas on government lands
are reforested ensuring deforestation does
not occur.
Catchment Area Analyses
Drax commissions independent
Catchment Area Analyses (CAAs) in some
of the regions from which we source.
These studies evaluate the carbon stocks
in those forests and how forestry and
other man-made or natural interventions
have or may impact on those carbon
stocks. We are committed to reviewing
themethodology of these studies as the
science develops.
Our CAAs are published on our website,
with details of the independent body
completing the work, the methodology
used, and their findings. Where findings
are inconclusive or indicate a negative
impact, we investigate further. Completion
of our CAAs is part of a rolling programme,
and to date we have covered 55% of our
sourcing, based on Group sourcing in 2023.
In 2023 we updated our strategy for CAAs,
which was reviewed by the IAB. CAAs will
be periodically updated to reect changes
in the forest areas and to ensure an
up-to-date assessment of the forest
carbon stocks from which Drax sources.
The period for updates will be no longer
than ten years in slow growing forests and
no more than five years in fast growing
forests, unless natural disturbances create
a change that needs to be identified.
Toensure consistency in our approach
toCAAs, we have identified the required
outputs of forest carbon metrics,
summarised in the table below.
During 2023, Drax commissioned four
CAA studies covering eight pellet plants
inthe US and Canada, of which seven are
for self-supply to Drax Power Station. Drax
will continue to assess and expand the
CAA programme for its pellet plants.
% of Drax supply
in 2023
Deforestation
Changes in
management
practice
Unexpected/
abnormal
increase in
wood prices
Reduction
in growing
stock
Reduction
in sequestration
rate of carbon
Increase
in harvesting
levels above the
sustainable yield
capacity
Alabama Cluster 6.52
Amite BioEnergy 3.94
Burns Lake and Houston 4.76
Chesapeake 11.7
Enviva Cottondale 0.56
Estonia 1.11
Georgia Mill Cluster 8.63
LaSalle 6.93
Latvia 5.41
Morehouse 5.77
Summary of CAA findings, covering 55% of Group fibre sourcing in 2023
No No/Inconclusive Inconclusive Yes/Inconclusive Ambivalent impact Slight increase
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Policy and standard
developments
UK Biomass Strategy
In August 2023, the UK Government
published its Biomass Strategy. The
Strategy is a “state of the nation” on
biomass and BECCS, reiterating the
UKGovernment’s support for both
technologies, noting that biomass is
already a key component of the UK’s
energy supply and that its future
potentialis “extraordinary”.
Whilst not proposing any new policy or
regulation, the Strategy serves as a
reminder of the UK Government’s support
for the scale up of sustainably sourced
biomass for BECCS in the UK. In the
Strategy, the UK Government committed
to consulting on reforms to the
sustainability criteria for biomass in 2024,
with a view to introducing a Cross Sectoral
Sustainability Framework. Any biomass
used in BECCS will be required to meet
theupdated sustainability requirements.
Additionally, the Strategy presented new
modelling on the global availability of
biomass to which the UK has access, up to
2050. The estimates are conservative, and
we await publication of the full modelling
with assumptions. The UK Government
also published a Priority Use Framework.
Whilst not binding, it states that biomass
uses that can produce negative emissions
(i.e., those that capture and store CO
2
)
should be prioritised in the long term to
support the UK’s net zero target.
Finally, the Strategy reiterated the
essential role of BECCS in reaching net
zero emissions. We worked collaboratively
with the UK Government across a two-year
period to help inform the Biomass Strategy.
We await the forthcoming sustainability
criteria consultation.
RED III and EUDR
The EU completed its “Fit for 55”
legislative package, including updates to
the Renewable Energy Directive (RED III)
and a new EU Deforestation-free products
Regulation. RED III strengthens biomass
sustainability criteria to reect good forest
management practices and aligns with the
cascading principle to ensure that wood is
utilised to its highest economic and
environmental added value. The EU
Regulation on deforestation-free products
requires companies to undertake due
diligence to ensure products do not result
from recent (post 31 December 2020)
deforestation, forest degradation or
breaches of local environmental and
sociallaws.
Both pieces of legislation impose
additional requirements that will require
adjustments to continue trade of wood
pellets into and from the EU. We therefore
continue to engage closely with the
implementation process leveraging our
membership in trade associations and
work with different governments,
including the US and Canada.
SBP Standard revision
In May 2023, the SBP updated its
standards, following the conclusion
ofathree-year development process.
Theupdate is part of a five-year refresh
cycle of the SBP standards, and includes
strengthened criteria associated with
forest carbon, biodiversity, and social
impact (including Free, Prior and Informed
Consent). Drax contributed to the
development of the revised standards
through participation in working groups
and representation on the SBP Technical
Committee. The deadline to transition to
the new standard is November 2025.
SBP recognition by
JapaneseGovernment
In September 2023, SBP was formally
recognised by the Government of Japan
asmeeting the requirements for
confirming both the lifecycle greenhouse
gas emissions under Japan’s Feed in Tariff
(FIT)/Feed in Premium (FIP) system for
renewable energy and the legality and
sustainability of imported wood as defined
by the Japanese Clean Wood Act. This
isasignificant step, given Japan is an
emerging and growing market for
biomassend use and its recognition
ofSBP becoming the industry standard
forbiomass globally.
Ofgem investigation
In May 2023, Ofgem announced the
opening of an investigation into Drax
Power Limited’s annual biomass
profilingreporting under the Renewables
Obligation scheme. In its opening
statement, Ofgem confirmed that it had
not established any non-compliance that
would affect the issuance of ROCs. Drax
awaits the conclusion of this investigation.
In 2023, Ofgem’s auditor verified the 2021-
2022 annual profiling data and found this
to be reported correctly.
SBP is a certification system designed
for woody biomass used in industrial
energy production. Originally created
bybiomass generators, SBP has evolved
and has had a multi-stakeholder
governance structure since 2019.
When we receive woody biomass at
Drax Power Station, the majority is
delivered with a “claim” to evidence
SBPcompliance. In 2023, 97% of
material consumed at Drax Power
Station was SBP Compliant.
SBP’s Standard outlines the
sustainability requirements which must
be assessed by a third-party auditor to
achieve SBP Compliant status. The new
SBP Standard, published in May 2023,
was subject to multi-stakeholder review.
The SBP feedstock standards cover a wide
range of sustainability issues, including
legal sourcing, carbon stock management,
environmental impacts (including
biodiversity and ecosystems) and impacts
on people and communities.
Using SBP certification provides a
significant amount of transparency on
thebiomass we use. On the SBP website,
anyone can search certified biomass
producers across the world and have
access to summary reports from their
audits and a Supply Base Report. Both
these documents are published annually
on the SBP website.
SBP Supply Base Reports describe
thematerial used at the pellet plant,
theareas sourced from, identifies the
risks of sourcing in those areas and
themitigations put in place by the
pelletplant to bring the identified risk
down toan acceptable level. These
reports aresubject to local stakeholder
engagement, to ensure all risks have
been considered and SBP manages
acomplaints process, where
concernscan be raised regarding
biomass sourcing.
The Sustainable Biomass Program (SBP) certification system
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Sustainable Development continued
Biomass sourcing
Our Group Sustainability Policy and
Supplier Code of Conduct outline our
requirements and are included in biomass
supplier contracts, for material sourced
atDrax Power Station.
Our Responsible Sourcing Policy for
biomass outlines our forest biomass
sustainability commitments. This is to
provide further assurance that the
sustainable biomass we source makes
anet positive contribution to climate
change, protects biodiversity, and supports
communities in the areas from which we
source. We utilise the SBP certification
scheme to help ascertain compliance
withour Responsible Sourcing Policy.
UK Government requirements,
certification, and assurance
The biomass used at Drax Power Station
isrequired to comply with the standards
set out in law, regulations, and the
requirements of the renewable support
schemes under which we operate. The
UKGovernment outlines sustainability
requirements for biomass generation to
beeligible for renewable support. Biomass
must comply with the Land Criteria
(whichfor wood pellets, sets out a range
of measures for sustainable forest
management) and the Greenhouse Gas
(GHG) Criteria.
The GHG Criteria is a limit set out by the
UK Government, which ensures that the
totality of emissions involved in Drax’s
biomass supply chain, represents
significant GHG reductions compared to
fossil fuels. The current GHG criteria for
UK biomass is to ensure supply chain
emissions do not exceed 200kgCO
2
e/MWh
electricity generated. For more
information, see page 55.
Drax Power Station average biomass
supply chain GHG emissions
(kgCO
2
e/MWh)
DPS 2023 average
UK Government GHG Criteria
200kgCO
2
e/MWh
97kgCO
2
e/MWh
Drax Power Station SBP Compliant
material (%), 2023
Audits and checks
SBP Compliant
97%
3%
We are required to demonstrate, and
assure to a limited level ISAE 3000
standard, that the biomass we use at Drax
Power Station is sourced against the UK’s
sustainability standards. We therefore
report monthly on the amount of biomass
used, the type of material used, where it
came from, and the GHG emissions from
the supply chain. Under UK regulations,
we must also confirm if the biomass
complied with the Land Criteria. At the end
of every compliance year, the renewable
support schemes require we have an
independent third-party audit to assess
the accuracy of the monthly reporting
submitted through the year.
In 2023, a retrospective audit covering
thecompliance period April 2021 to
March2022, which was issued to Drax
and to Ofgem, highlighted no material
misstatements in our reporting.
At Drax Power Station, to ensure we can
identify and track material through our
supply chain, we are certified against the
FSC® C119787, SBP and PEFC chain of
custody requirements.
97%
of biomass used at Drax Power Station
in2023 was SBP Compliant
Biomass Sourcing: Drax Power Station
Drax Power Station sources of fibre (material consumed at Drax Power Station)
Sawmill and
other wood
industry
residues (t)
Branches and
tops (t) Thinnings (t)
Low-grade
roundwood (t)
End-of-life trees
(t)
Agricultural
residues (t)
Country
total (t)
US 1,289,412 316,788 1,317,5 84 1,652 ,167 4,683 107,0 82 4,687,716
Canada 406,723 44,079 0 43,839 7,416 0 502,057
Latvia 104,081 3,402 96 344,302 0 0 451,881
Estonia 17,9 92 56 9,914 58,697 0 0 86,659
Brazil 1,202 0 0 125,023 0 0 126,225
Portugal 45 572 1,17 7 16,795 16,556 0 35,145
Lithuania 9,883 0 0 3,011 0 0 12,894
UK 0 0 0 0 0 56,053 56,053
Bulgaria 0 0 0 0 0 12,594 12,594
Other European 5,217 0 0 2,446 0 668 8,331
Total 1,834,555 364,897 1,328,771 2,246,280 28,655 176,397 5,979,555
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Biomass Sourcing: Pellet Production and Trading
Sawmill and other
wood industry
residues (t)
Branches
and tops (t) Thinnings (t)
Low-grade
roundwood (t)
End-of-life trees
(t)
Agricultural
residues (t)
Country
total (t)
US 1,078,620 0 770,826 36,635 0 0 1,886,081
Canada 1,4 67,578 149,020 0 150,920 0 0 1,767,518
Total 2,546,198 149,020 770,826 187,555 0 0 3,653,599
As a minimum, we assess all fibre suppliers
to our pellet mills under PEFC’s due
diligence review process. This ensures that
all fibre sources are claimed as PEFC
controlled sources.
Our Commitment to Sustainable Forestry
sets out the requirements associated with
our certification programme in the US. It
outlines our commitment to comply with
applicable federal, state and local laws and
regulations, and promotes the Principles
ofSustainable Forest Management.
Our North American Pellet Plants
are SBP certified
Our pellet plants are subject annually to an
external audit for SBP certification. This
assesses their sourcing and management
systems against the sustainability
requirements of the SBP Standards. Pellet
plants holding an active SBP certification
can apply SBP claims to the pellets they
produce. The certification status of wood
pellets produced at Drax pellet plants varies
by customer requirement.
A key process undertaken within the
scope of SBP certification, is the Supply
Base Evaluation (SBE), or the SBP-
endorsed Regional Risk Assessment (RRA)
for certain regions. Where this identifies
aspecified risk in the area we source from
(Supply Base), we will either avoid those
areas or implement mitigation measures
toensure those risks are managed to low.
During the annual SBP audit, the auditor
evaluates the quality of the implemented
mitigation measures, including visits to
theforest of origin.
Pellet Production: certification
In 2023, in our Northern Operations
(Canada), 89% of pellets produced and
sold in 2023 held an SBP Compliant claim.
The remainder held an SBP Controlled
claim. 100% of pellets produced and sold
in ourSouthern Operations (US) held an
SBP Compliant claim.
Trading: certification
In 2023, the volume of pellets traded was
793,858 tonnes. 86% of the traded volume
held either an SBP Compliant or PEFC
Certified claim. The remainder was PEFC
Controlled or without a claim.
The uncertified traded volume in 2023
was sourced from a supplier that is SBP
certified and FSC® certified. Through a
combination of on the ground supplier
visits, independent external audit and
assessment of sustainability risks, we
ensure suppliers meet their markets’
requirements.
Rapid Risk Assessment system screening
For our Pellet Production Southern
Operations in the US, we have
developed a Rapid Risk Assessment
system which is used by our fibre
procurement team to screen in-woods
harvests prior to contracting. This Arc
Geographic Information System (ArcGIS)
includes federally threatened and
endangered species, species and
ecological occurrence data from
NatureServe; and location of Specified
Risks identified by the FSC® Controlled
Wood National Risk Assessment.
These High Conservation Value areas are
managed individually based on ecological
requirements. If timber management
isincompatible, then Drax will avoid
contracting and will instead take steps
toinform and educate the landowners
andsuppliers. If the high conservation
area can benefit from active forest
management (for example, forest thinning
that enhances the habitat for wildlife) then
we will work in collaboration with the
landowner, fiber supplier, and, as needed
federal/state biologists, to carefully
harvest the unit to desired habitat
specifications. If there is a species or
ecological occurrence on the tract that
requires special protections, Drax works
in partnership with the relevant
stakeholders to ensure appropriate
habitat protections.
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Climate-related financial disclosures
The Taskforce on Climate-related Financial Disclosures (TCFD) provides a common
framework for the provision of clear and comprehensive information on the impacts
ofclimate change. Drax has been a TCFD Supporter since 2020, recognising that
identification and disclosure of climate-related risks and opportunities supports
Draxand our stakeholders to make long-term decisions.
Compliance statement
This disclosure has been prepared in line with the Financial Conduct Authority Listing Rule (LR 9.8.6R(8)), consistent with
therecommendations of TCFD. The climate-related financial disclosures outlined comply with the requirements of the
Companies Act 2006, as amended by the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022.
TCFD pillar TCFD recommended disclosure
Consistency
with
recommended
disclosure Reference
Governance 1. Describe the Board’s oversight of climate-related risks
andopportunities
Page 79
2. Describe management’s role in assessing and managing
climate-related risks and opportunities
Page 79
Principal risks, page 105
Strategy 3. Describe the climate-related risks and opportunities the
organisation hasidentified over the short, medium, and
long-term
Pages 86 to 88
Principal risks, page 105
4. Describe the impact of climate-related risks and
opportunities on the organisation’s business, strategy,
andfinancial planning
Page 82
Viability Statement, page 92
5. Describe the resilience of the organisation’s strategy,
takinginto consideration different climate-related
scenarios, including a 2°C orlowerscenario
Pages 84 to 85
Risk
management
6. Describe the organisation’s processes for identifying
andassessing climate-related risks
Page 81
Principal risks, page 105
7. Describe the organisation’s processes for managing
climate-related risks
Page 81
Principal risks, page 105
8. Describe how processes for identifying, assessing,
andmanaging climate-related risks are integrated
intotheorganisation’s overall risk management
Page 81
Principal risks, page 105
Metrics and
targets
9. Disclose the metrics used by the organisation to assess
climate-related risks and opportunities in line with its
strategy and risk management process
Page 89
Climate positive, page 50
10. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3
greenhouse gas (GHG) emissions and the related risks
Climate positive, page 50
11. Describe the targets used by the organisation to manage
climate-related risks and opportunities and performance
against targets
Pages 86 to 88, and page 90
Climate positive, page 50
Fully consistent
Partially consistent
Taskforce
onClimate-
related
Financial
Disclosures
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Our 2023 actions and progress
Climate-related financial disclosure is an evolving practice and a journey of ongoing improvement.
The table below summarises progress against our 2023 actions, and outlines priorities for 2024.
TCFD Pillar
Actions for 2023
(as per Annual Report 2022) Progress in 2023 Actions for 2024
Governance In 2023 we will roll out our new
sustainability governance
approach.
We put in place a revised
sustainability governance
structure, aligned to our
Sustainable Development
Framework (see page 46).
Embed the sustainability governance
structure and evaluate effectiveness.
Implement decarbonisation projects
as agreed for the 2024 Group
Scorecard.
Strategy Drax will perform an additional
materiality assessment of ESG
related risks that will seek to
inform the Group’s approach to
climate and other sustainability
related risks.
We completed a materiality
assessment in 2023 (see page 48).
The results inform our
sustainability disclosures and
subsequent updates to our
Sustainable Development
Framework.
Undertake an initial quantitative
transition risk scenario analysis
exercise.
Risk
Management
Drax will update and monitor the
risk register for the climate change
Principal Risks and build on our risk
assessment work.
We built on our risk assessment
work by exploring the potential
quantitative impact of physical
climate risk parameters for
Generation and Pellet Production
assets (see page 84 to 85).
Utilise quantitative scenario analysis
insights, relating to potential future
development of physical climate
parameters across Pellet Production
and Generation assets.
Metrics and
Targets
In 2023, we will be developing
individual carbon reduction plans
across our three main business
units (Pellet Production,
Generation and Customers). These
will form part of our climate
transition plan.
Each business unit has a ranked
and costed (shadow price of
carbon) list of potential
decarbonisation projects, which
form the business unit carbon
reduction plans (see page 53).
Publish a Climate Transition Plan
inline with the Transition Plan
Taskforce (TPT) Disclosure
Framework. This will outline the
plansunderpinning our carbon
reduction targets.
Governance
Responding to climate change is a core
component of the Group’s purpose, to
enable a zero carbon, lower cost energy
future. This is reected in our governance
– from our Board through our Executive
Committee and their leadership, to our
business units and their functions (see
Climate Governance Diagram, page 80).
Our Group Climate Policy, first approved
bythe Board in 2020, is available on
theDrax website.
Actions taken during the year to
further embed sustainability and
climate governance included:
• Inclusion of new climate and
sustainability questions in the
internal Board evaluation
• Three 2023 decarbonisation
scorecard targets, linking climate
outcomes with remuneration (see
page 52)
• Appointment of Chief Sustainability
Officer (CSO), Miguel Veiga-Pestana
• Recruitment of a dedicated
Sustainability Central Project
Management Office (PMO) Lead,
tomanage delivery of the Group
sustainability change management
portfolio from 2024
Strengthening
climategovernance
Board oversight
The Drax Board has ultimate
accountability for climate-related risks
andopportunities. The CEO and Executive
Committee oversee and ensure that
Draxeffectively implements the business
strategy, which is aligned to
decarbonisation objectives.
Every quarter, the sustainability leadership
team provide a sustainability update for
inclusion within the CEO Report to the
Board. This includes an update on the
Climate positive pillar of our Sustainable
Development Framework.
Management’s role
The CSO is responsible for implementation
of the Group’s sustainability programme.
The Sustainability Council (see page 46)
acts as Risk Management Committee for
the climate change Principal Risks.
Governance of the climate change
Principal Risks is described on page 81.
The Group conducts Quarterly Business
Reviews with the Executive Committee.
For this, the sustainability leadership team
provide quarterly updates on progress
andchallenges across our Sustainable
Development Framework, including
theClimate positive pillar.
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Sustainable Development continued
Taskforce on Climate-related Financial Disclosures
Drax Group plc Board
The Board meets regularly and has ultimate accountability for
climate-related risks and opportunities.
In 2023, the Board:
• Considered and approved the acquisition of BMM Energy
Solutions, strengthening our electrification proposition to
UK business customers
• Received an update on 2023 decarbonisation progress at the
Group’s October Board Strategy days
• Received a briefing on decarbonisation at Drax, during the
December Board meeting. The session focused on absolute
emissions reductions, including progress against our targets,
current decarbonisation project options, and potential future
decarbonisation pathways
• Received two papers on evolving sustainability reporting
requirements, including climate-related disclosure and
management’s plans to meet disclosure requirements
Audit Committee
The Audit Committee has delegated responsibility for overseeing
effectiveness of risk management processes and controls,
including the climate change Principal Risks.
In 2023, the Committee:
• Reviewed and challenged the climate change Principal Risks
disclosures at Half and Full Year.
• Received an update on climate-related disclosure and
management’s progress against plans to meet disclosure
requirements.
• Received a paper regarding sustainability disclosure and
assurance, including climate-related disclosure requirements.
Carbon Reduction Task Force (CRTF)
The CRTF meets at least monthly and has responsibility for operational implementation
of carbon reduction workstreams. Membership includes representatives from each of
our business units, to centrally co-ordinate decarbonisation workstreams.
In 2023, the CRTF:
• Co-ordinated delivery of the three 2023 decarbonisation Scorecard target projects
and non-Scorecard projects.
Business Units and Functions
Sustainability: Responsible for the
sustainability programme, including
decarbonisation projects, the climate
change Principal Risks, ESG disclosure,
data, and assurance.
HSE: Responsible for environmental
compliance and performance.
Executive Committee
The Executive Committee holds at least seven formal meetings
annually but meets almost every week. The Committee focuses on
the delivery of Drax’s strategy, and operational and financial
performance, including our ambition to become carbon negative.
In 2023, the Committee:
• Considered the new sustainability governance structure.
• Undertook an in-depth review of the climate change
PrincipalRisks.
• Considered Drax’s participation in the Science Based Targets
initiative (SBTi).
• Considered two update papers on evolving sustainability
reporting requirements, including climate-related disclosure
andmanagement’s plans to meet disclosure requirements.
• Received an update on climate transition plan requirements.
• The CEO reviewed and signed off our CDP Climate Change
questionnaire submission in July.
Sustainability Council
The Council was established in the second quarter of 2023 and
meets at least quarterly. It has responsibility for review and
challenge of the climate change Principal Risk register.
In 2023, the Council:
• Reviewed key updates to the climate change Principal Risk
register in June and December.
• Received updates at each meeting relating to progress on the
Climate positive pillar of our Framework. For example, in
October, an update on progress towards achievement of three
2023 decarbonisation Scorecard projects, and candidate
projects for the 2024 Scorecard.
Independent Advisory Board (IAB)
The IAB met six times in 2023. The IAB provides external advice and challenge on the Group’s responsible sourcing of biomass,
and aspects of the wider sustainability strategy. See page 47for more information.
Remuneration Committee
The Remuneration Committee oversees the approach to
remuneration, including the Safety and ESG element of the
Group Scorecard.
In 2023, the Committee:
• Considered and approved the 2023 Group Scorecard targets
and KPIs, including three carbon reduction projects, with a
6.7% weighting.
• Received an update on the progress tracking the performance
against the 2023 targets.
• Considered potential carbon reduction projects (with
corresponding targets) for the 2024 Group Scorecard.
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Risk management
Climate-related risk management
isintegrated into the Group-wide
approach
The identification, assessment and
management of climate-related risks is
integrated into the Group risk
management approach, as defined by the
Group Risk Management Policy. The Group
Financial Risk Management Committee
annually reviews and re-approves the
Policy. It is supported by the Group Risk
Management Framework, which defines
Drax’s approach to risk management and
the responsibilities of management and
our colleagues.
Climate change is a Principal Risk category
governed within the Group-wide approach
(see page 105, Principal Risks and
Uncertainties). The climate change
Principal Risks are owned by the CSO,
andsubject to an annual review by the
Executive Committee. In June 2023,
theExecutive Committee undertook an
in-depth review of the climate change
Principal Risks, challenging the
assumptions, mitigations and controls
which had been identified.
Senior leadership and risk owners, who
arelocated across the business units,
arecollectively responsible for the
identification of risks with the potential
tothreaten the achievement of strategic
objectives.
The Audit Committee and the Board
review the effectiveness of risk
management processes and controls.
TheAudit Committee reviews and
challenges the Principal Risks disclosures
twice annually, including those relating
toclimate change, as part of their review
and approval of the Half Year Report and
Annual Report.
The Board also reviews and considers
theevaluation and mitigation of Principal
Risks, the disclosure to be made in periodic
financial reporting, and the internal
processes for the identification and
management of risks.
Processes for identifying, assessing
and managing climate-related risks
The climate change Principal Risks are
administered by the Senior Scientific
Officer. Each risk has an assigned business
unit management owner, responsible and
accountable for monitoring the risk,
providing updates, and ensuring
mitigations and controls are fit for
purpose. Risk owners provide updates
tothe risk register at Half and Full Year.
Since its inception in 2023, the
Sustainability Council acts as the Risk
Management Committee, responsible
forreview and challenge of the climate
change Principal Risks.
Additionally, we identify, assess, and
manage our climate-related risks through
scenario analysis (see approach to
scenario analysis, below), climate
vulnerability assessments, and our internal
carbon reduction workstreams.
To assess the materiality of climate-related
risks, identified risks are prioritised based
on the Group risk scoring matrix, which
considers likelihood and impact. The
assessment of impact is separated into
different categories, including financial,
regulatory, strategic, reputational,
technological, and environmental
considerations. The level of impact,
fromminor to critical, is defined for
eachcategory.
During 2023, we completed a materiality
assessment. We engaged with our
workforce and key internal stakeholders
tounderstand the sustainability topics
they view as priorities for the business and
our stakeholders. “Climate action and GHG
emissions” was one of the material topic
groupings considered, see page 48.
Approach to scenario analysis
Scenario analysis helps us to identify and
assess climate-related risks. Using
authoritative third-party sources, scenario
analysis provides a method for climate risk
identification and assessment that is
guided by climate science.
In 2021 and 2022, we undertook two
scenario analyses that informed updates
to our climate change Principal Risks
(top-down identification). In 2023, we
evolved our approach and focused our
scenario analysis on the most significant
physical climate-related risks that
management had identified (bottom-up
assessment). The 2021 scenario analysis
encompassing transition risks is deemed
to provide a sufficient current
understanding of those risks. We intend
toundertake a quantitative transition
riskscenario analysis in the next year.
Drax’s approach to scenario analysis, from top-down identification to bottom-up assessment of key risks
Summarised results of our 2023 scenario analysis, exploring the potential quantitative impact of physical
climate risk parameters across our Generation and Pellet Production assets, are presented on pages 84 to 85.
2021 2022 2023
High-level, qualitative, transition
and physical scenario analysis
Quantitative, physical scenario analysis
Quantitative, physical scenario analysis,
exploring different climate parameters
Time horizon: 2030 Time horizon: 2040 Time horizon: 2025, 2030, 2040, 2050
Scope: Group, all business units
Scope: Pellet Production
supply chain (self-supply)
Scope: Generation and
Pellet Production assets
Climate Change Principal Risk Register Climate Change Principal Risk Register Climate Change Principal Risk Register
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Strategy
A strategy to enable a zero carbon,
lower cost energy future
Drax’s three strategic aims are aligned
with decarbonisation objectives (see
CEO’s Review, pages 13 to 14). The
identified climate-related risks and
opportunities that could have a material
financial impact on the business are set
out on pages 86 to 88 and in Principal
Risks and Uncertainties (page 105).
Drax’s carbon reduction pathway
An overview of Drax’s carbon reduction
targets and our plans (current projects
andseveral projects in development) is
provided in the Climate Positive section
(page 50). In 2024, we intend to build
onthis with the publication of a Climate
Transition Plan.
Impact of climate-related risks and
opportunities on financial planning
The conclusions from the scenario analysis
detailed on pages 84-85 informed the
approach to the viability assessment.
The table below summarises how
climate-related matters inuence and
arefactored into the respective areas
ofour financial planning.
Financial planning element Our approach
Revenues The UK Government is legally committed to its target to achieve net zero in the UK by 2050. For our UK-based
Generation business, the impact of a transition to net zero is incorporated into our forecasts for future power
prices, modelled over a 15-year basis (see Note 2.4 to the consolidated financial statements, page 195). In
2023, the UK Government Biomass Strategy identified that current modelling implies biomass use combined
with BECCS will contribute the most toward net zero. We include BECCS conversions in our long-term plans,
capital expenditure and main strategic investments. Our business plans include developments in the US
fornew build BECCS plants, where the Inflation Reduction Act (IRA) has been put in place. The IRA creates
government-backed incentives to build capabilities in sustainable power generation and carbon capture
andstorage, which could include BECCS.
We model sensitivities to our business plans for potential disruption to Pellet Production operations caused
byextreme weather events. This presents a potential risk to revenue for Pellet Production and could have
subsequent impacts to biomass generation if the supply chain is disrupted. Current risks are largely from
extremes of weather, including severe cold and sub-zero freezing in winter, as well as wildfires in Canada,
andstorms in the US South.
Our transition away from fossil fuels to renewable forms of energy creates an opportunity for the Group, with
increase in demand for our products and services. Our pumped storage hydro asset provides vital support to
the UK system, balancing supply and demand caused by variability of intermittent generators, such as wind
and solar. As reliance on intermittent generation increases, the system is likely to require more balancing
services, increasing the value available for assets such as pumped storage. Consumer demand for renewable
electricity is growing, and the value of Renewable Energy Guarantee of Origin (REGO) certificates has
increased. Our biomass and hydro run-of-river generation assets are eligible to claim REGOs on the electricity
they produce, and our Customers business provides REGOs to their customers.
We expect global demand for biomass to increase and our business plans include an increase in third party
pellet sales into Asia, through primarily our operations in Canada but also in the US.
Costs (direct and
indirect)
The demand for renewable electricity and transition away from fossil fuels also creates risk for our costs, as
the cost of biomass and fibre (the primary raw material for Pellet Production) will likely increase with demand.
We seek to mitigate this risk through contracting significant volumes of fibre under long-term (5-year+)
offtake agreements.
Operating costs include carbon taxes paid in the jurisdictions in which we operate. This includes fuel duties
inthe UK and BC Carbon Tax in Canada. Since ceasing coal generation, the impact of carbon taxes has
significantly reduced on the Group. There remains carbon tax to pay on oil used in biomass generation and
gasused at the Daldowie Fuel Plant in the UK, and fuels used inPellet Production in Canada. Introduction
ofan EUCarbon Border Adjustment Mechanism (CBAM) may impose taxes on all trade of electricity between
the UK and the EU via relevant interconnectors in the future. We do not currently expect the introduction
ofan EU CBAM to be material.
Further to our necessity to operate as a sustainable business, we have a dedicated sustainability function
which comes with its own cost base and has increased in size. This is in response to the growth in our business
and the importance of following laws, regulations, and standards.
Sustainable Development continued
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Financial planning element Our approach
Capital
expenditures and
capital allocation
Drax’s capital allocation policy outlines our focus on: (1) maintaining the Group’s credit rating, (2) investing in
the realisation of the Group’s strategy, (3) paying a sustainable and growing dividend, and (4) returning surplus
capital beyond investment requirements.
We have embedded a shadow carbon price withinthe capital expenditure decision-making process.This
internal shadow carbon price is used principally to modify the Net Present Value and Internal Rate of Return
models used to assess new business and investment cases. This provides avalue for decarbonisation and
acorresponding penalty for investments which increase our carbon footprint (see page 89 for associated
metric).
From a tax perspective, Drax currently makes use of the UK Patent Box tax relief regime and will ensure that
further opportunities arising from UK BECCS patented activities are explored. Biomass is currently excluded
from the UK Emissions Trading Scheme, which has provided us with a working capital inflow, through
substituting coal (which had incurred taxes) to biomass (which does not). We expect that UK BECCS revenue
expenditure may qualify for R&D relief under the UK Research and Development Expenditure Credit (RDEC)
regime. For tax effect of RDEC credit to date, see page 89.
R&D investment: In the shorter term, we continue to look into next generation carbon capture technologies
with the aim of identifying future options with lower energy penalty than the current technologies. We have
used some R&D spend to expand and improve our carbon capture incubation area, to accommodate more and
larger pilots to advance our understanding of future alternatives to the current amine-based systems. The
innovation team supports the CRTF and are dedicating more R&D budget to investigate technology options
todisplace orreduce the use of fossil fuels in the Group’s operations.
In the longer term, management consider the impact of changes to the UK grid on the need for dispatchable
renewable power and energy storage solutions. Globally, we recognise the increasing role biomass will have
toplay in decarbonising other industries. We are conducting research into areas that may fit Drax’s future
strategy, including biofuels, Sustainable Aviation Fuel (SAF), and hydrogen.
Acquisitions and
divestments
Drax’s three strategic aims are closely aligned with climate solutions, enabling net zero, and energy security.
Acquisitions and divestments are therefore guided by, and intended to enable, the achievement of our strategic
and decarbonisation aims. For example, the acquisition of Pinnacle Renewable Energy Inc in 2021 and
Princeton Pellets in 2022 supports our aim to be a global leader in sustainable biomass pellets. The divestment
of Combined Cycle Gas Turbines (CCGTs) in 2021 supports our aim to be a UK leader in dispatchable, renewable
generation.
In 2023, we acquired BMM Energy Solutions to strengthen our Customers business in the provision of
electrification capabilities to large and medium-sized enterprises. The acquisition of BMM provides Drax
withenhanced offerings for the installation and maintenance of electric vehicle (EV) charge points.
Access to capital Banks and investors are concerned not only with their own ESG performance, but also the ESG risks and
opportunities they are subject to as a lender. Drax maintains a strong and wide investor base and portfolio
ofworking capital facilities through financial and banking institutions.
We have sought to embed aspects of our climate targets and commitments into our debt and credit facilities.
These facilities all include an embedded ESG mechanism that adjusts the margin of interest paid based on
Drax’s carbon emissions per GWh of electricity generated, measured against an annual benchmark. This is
consistent with our continued strategic focus on reducing our carbon emissions.
Government support will be required for Drax to fully realise its ambitions and will be critical in attracting cost
effective investment and capital to the business.
In 2023, we formalised the
consideration of climate risk within the
asset impairment review. Physical (acute
and chronic) and transition climate-
related risks were added to the
impairment checklists completed by the
business unit finance teams. Financial
Reporting and ESG colleagues led a
training session in September 2023,
toupskill Finance colleagues on the
climate-related risk categories, as
defined by the TCFD Recommendations.
For further information regarding
climate change and financial reporting,
see Note 3.8 (Climate Change) to the
Consolidated financial statements.
Integrating climate risk and financial reporting
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Quantitative physical risk
scenario analysis:
summary of results
We utilised the S&P Global Climanomics
tool to undertake quantitative analysis of
the potential financial impacts resulting
from physical risks of climate change. We
explored how different physical climate
change hazards could evolve under three
scenarios, for our operational Generation
and Pellet Production asset portfolio.
The majority of data underpinning the tool
is derived from the Coupled Model
Intercomparison Project (CMIP) 6 models,
developed in support of the IPCC’s Sixth
Assessment Report (IPCC AR6). The
Representative Concentration Pathways
(RCPs) and Shared Socioeconomic
Pathways (SSPs) referenced in the table
above are combined for scenarios available
in the CMIP6 version of the tool.
• The SSPs are based on distinct
narratives for future economic
development, using a consistent logic
for the qualitative projections of land
use, energy use, population, emissions,
and other factors
• The RCPs are emission scenarios, driven
primarily by projections of changes in
factors such as GHG emissions and
landuse
Assets operational as of H2 2023 were
inscope for the analysis. We mapped 28
UK Generation and North American Pellet
Production locations, and four North
American port locations onto the
Climanomics tool.
We applied our analysis across four time
horizons, the 2020s, 2030s, 2040s, and
2050s. The 2040 and 2050 time horizons
allow us to explore how different climate-
related risks may evolve into the long-
term, and capture periods covering the
useful life of assets and over which the
impact of physical climate-related risks are
expected to become more pronounced.
The Climanomics tool enables an analysis
of eight physical climate change hazard
types, and provides an estimate of the
climate-related change in the level of
hazard exposure of an asset over time
(relative to a historical baseline). The
hazard types are: temperature extreme
(heat), drought, wildfire, coastal ooding,
uvial ooding, tropical cyclone, water
stress, and pluvial ooding.
Potential financial impact resulting
from physical climate-related risks
Absolute risk (in £m) is the modelled
potential financial impact of risk. It is
afunction of:
• Hazard: the likelihood and impact of
thephysical climate change hazard
• Vulnerability: the responses of the
assets to the hazard
• Asset value: the combined value of
theassets (we input the book value
foreachasset considered, as at
September 2023)
At the portfolio grouping level, the
magnitude of potential financial impact
(absolute risk, £m) is summarised for the
Medium scenario, representing the
mid-range results of the three scenarios
considered.
The classification thresholds have been
defined and are presented as follows:
The classification thresholds have been
defined and are presented as follows:
Key: Magnitude of potential financial impact (absolute risk, £m), as a proportion of asset value (%)
Low 1 Low, 0 to 3% Medium Medium, 10-15%
Low 2 Low, 3 to 6% High High, >15%
Low 3 Low, 6 to <10%
Time frames over which Drax considers climate-related risks Corresponding time horizons explored for scenario analysis
• Short-term (1 year) – aligns to our time periods for assessing going concern
• Medium (2-5 years) – aligns to the period assessed for viability reporting
• 2025
(1)
• 2030
(1) Representing sum of potential financial impact
(absolute risk, £m) for 2020-2029 period, as a
proportion of asset value
• Long-term (5+ years) – aligns to our 2030 BECCS ambitions and beyond • 2040
• 2050
The following three scenarios were modelled for the analysis:
Scenario Description Rationale for selection
High (RCP 8.5/
SSP5-8.5)
Low mitigation scenario in which global average temperatures rise
by 3.3 to 5.7°C by 2100.
Exploration of a high warming scenario
to ‘stress test’ a high level of physical
risks.
Medium (RCP 4.5/
SSP2-4.5)
Strong mitigation scenario in which total GHG emissions stabilise at
current levels until 2050 and then decline to 2100, resulting in global
average temperatures rising by 2.1 to 3.5°C by 2100.
Exploration of an ambitious yet
plausible mid-range scenario.
Low (RCP 2.6/
SSP1-2.6)
Aggressive mitigation scenario in which total GHG emissions reduce
to net zero by 2050, resulting in global average temperatures rising
by 1.3 to 2.4°C by 2100, consistent with the Paris Agreement.
Exploration of an ambitious 2°C or
lower scenario consistent with the
Paris Agreement.
Sustainable Development continued
Taskforce on Climate-related Financial Disclosures
Key:
Magnitude of potential financial impact
(absolute risk, £m), as a proportion of asset value (%)
Low 1
0 to 3%
Low 2
3 to 6%
Low 3
6 to <10%
Medium
10 -15%
High
>15%
Increasing impact of physical hazard type
Decreasing impact of physical hazard type
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Preliminary findings
• The top drivers of physical climate-
related risks for the Drax assets
considered are temperature extreme,
drought and ooding.
• There is a relatively greater potential
impact on our Northern and Southern
Pellet Production Operations due to
thephysical risks of climate change.
Generation operations are the least
affected by the impacts of climate
change.
• None of the risks arising from the
physical climate change hazard types
over the time horizons considered are
modelled to have a material potential
financial impact.
Assessment of resilience
While impacts on our business units and
financial performance of the Group could
materialise under particular climate
scenarios in the long term (such as the
High warming scenario), the geographical
diversity of our operational locations
provides some mitigation against isolated
risks. Management believe we have a
range of strategic options and we expect
to have the necessary capital to manage
impacts, take opportunities and remain
resilient under the wide range of scenarios
considered.
Generation (UK)
Medium (4.5) Scenario
Magnitude of potential financial impact (absolute risk, £m),
as a proportion of asset value (%)* Financial Impact
Physical hazard type 2025 2030 2040 2050 Impact Example of how the risk potentially manifests
Temperature extreme
Cooling and ventilation costs and increased servicing costs;
employee productivity; revenue impact
Drought
Business interruption; water expenses; foundation damage
Flooding**
Clean-up costs; repair costs; business interruption
Wildfire
Employee health; business interruption; physical damage
Water Stress
Business interruption; revenue impact
* Gradient according to absolute risk (£) which is a function of hazard, vulnerability, and asset value.
** Flooding is a combination of pluvial and uvial ooding, and tropical cyclone. No Drax Port Operations asset is at
risk of coastal ooding or water stress and therefore these hazard types have not been included in this assessment.
* Gradient according to absolute risk (£) which is a function of hazard, vulnerability, and asset value.
** Flooding is a combination of pluvial and uvial ooding. No Drax Generation asset is at risk of coastal
ooding or tropical cyclone and therefore these hazard types have not been included in this assessment.
* Gradient according to absolute risk (£) which is a function of hazard, vulnerability, and asset value.
** Flooding is a combination of pluvial and uvial ooding, and tropical cyclone. No Drax Southern Pellet Production asset
isat risk of coastal ooding or water stress and therefore these hazard types have not been included in this assessment.
* Gradient according to absolute risk (£) which is a function of hazard, vulnerability, and asset value.
** Flooding is a combination of pluvial and uvial ooding. No Drax Northern Pellet Production asset is at risk of coastal
ooding, water stress or tropical cyclone and therefore these hazard types have not been included in this assessment.
Southern Pellet Production (US)
Medium (4.5) Scenario
Magnitude of potential financial impact (absolute risk, £m),
as a proportion of asset value (%)* Financial Impact
Physical hazard type 2025 2030 2040 2050 Impact Example of how the risk potentially manifests
Temperature extreme
Cooling and ventilation costs and increased servicing costs;
employee productivity; revenue impact
Flooding**
Clean-up costs; repair costs; business interruption
Wildfire
Employee health; business interruption; physical damage
Drought
Business interruption; water expenses; foundation damage
Northern Pellet Production (Canada)
Medium (4.5) Scenario
Magnitude of potential financial impact (absolute risk, £m),
as a proportion of asset value (%)* Financial Impact
Physical hazard type 2025 2030 2040 2050 Impact Example of how the risk potentially manifests
Temperature extreme
Cooling and ventilation costs and increased servicing costs;
employee productivity; revenue impact
Flooding**
Clean-up costs; repair costs; business interruption
Wildfire
Employee health; business interruption; physical damage
Drought
Business interruption; water expenses; foundation damage
Port Operations (US and Canada)
Medium (4.5) Scenario
Magnitude of potential financial impact (absolute risk, £m),
as a proportion of asset value (%)* Financial Impact
Physical hazard type 2025 2030 2040 2050 Impact Example of how the risk manifests
Flooding** Clean-up costs; repair costs; business interruption
Temperature extreme
Cooling and ventilation costs and increased servicing costs;
employee productivity; revenue impact
Wildfire
Employee health; business interruption; physical damage
Drought
Business interruption; water expenses; foundation damage
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Climate-related risks
1. Time frame:
• Short term (1 year) – aligns to our time
periods for assessing going concern
• Medium (2-5 years) – aligns to the
period assessed for viability reporting
• Long term (5+ years) – aligns to our
2030 BECCS ambitions and beyond
2. Significant impact:
Significant impact is assessed as an
impact greater than 20% of 2023 Adjusted
EBITDA (excluding EGL) of £1,214m.
Assessment considers gross potential
impact only, and not likelihood. Risks
assessed as net low risk are not presented.
Impacts of climate change are considered
in the Viability Statement on page 92 and
note 3.8 (Climate Change) to the
consolidated financial statements.
3. Link to our strategic aims:
To be a global leader in
carbonremovals
To be a global leader in
sustainablebiomass pellets
To be a UK leader in dispatchable,
renewable generation
Sustainable Development continued
Taskforce on Climate-related Financial Disclosures
Description
Time
frame
(1)
Significant
impact
(2)
Our response (strategic mitigation)
Related metrics and
targets
Link to our
strategic
aims
(3)
Risk category 1: Physical risks toour Pellet Production operations and supply chain inthe US andCanada
Acute and chronic
climate hazards
impacting:
• Fibre availability
toCanadian pellet
production
• Site operations in
USpellet production
sites
• Site operations
atCanadian pellet
production sites
ST, MT
and LT
No (direct
impact on
revenue and
cost of sales)
• Proactive weather monitoring with appropriate mitigations taken
tominimise the potential impact of extreme weather events
• Pellet Production business has developed stockpiles to alleviate
incidences of extreme weather-related production interruption
• Diversification into new jurisdictions that reduce seasonal impact
on the business
• New build pellet mills positioned to minimise risk associated with
potential future weather patterns
• Continue monitoring systemic risks when moving to new
geographies
• Colleague training to respond to adverse climate effects
• Smaller plants distributed in different fibre baskets
Strategic target:
8Mt pa of pellet
production
capacity by 2030
(see pages 30-31)
Metric: Annual
totalvolume of
pellets produced
(see page 89)
Metric: Generation
and Pellet
Production assets:
potential financial
impact (absolute
risk, £m) as a %
ofasset value
(seepage 89)
Risk category 2: Physical risks toDrax Power Station operations and supply chain in the UK
Physical risks to ports
and shipping UK,
including:
• Extreme weather
events and ooding
at multiple UKport
locations
• Sea level rise
impacting available
port facilities,
preventing the
receipt of material
into Drax’s UK ports
ST, MT
and LT
Yes (direct
impact on
revenue and
costof sales)
• Business continuity plans in place for ports in our supply chain,
includingresponse to weather events
• Continue getting more detailed climate scenario analyses to look
atsupplychainrisks
• Engaged with the local authority climate risk plan to cover storm
surges
Metric: Generation
and Pellet
Production assets:
potential financial
impact (absolute
risk, £m) as a %
ofasset value
(seepage 89)
Metric: Water
consumed from
areas of water
stress (see page 89)
• River water
temperature atDrax
Power Station rises
to a level which could
cause permit breach
ST, MT
and LT
No (direct
impact on
revenue and
cost of sales)
• Permit variation already in place for the summer months
Risk category 3: Policy risks related to the transition to alow-carbon economy in the UK
Future regulatory
framework(s) no longer
consider biomass to be
renewable and/or
require biomass
generators to pay
acarbon price on stack
emissions or on supply
chainemissions
ST, MT
and LT
Yes (direct
impact on
revenue, cost
ofsales and
operating
expenses)
Due to the potential high impact of these unmitigated risks, we have
astrongmitigation plan in place which is functioning well, lowering
therisk toanacceptablelevel
• BECCS ambitions are a key part of our strategy
• Group decarbonisation plans in place to reduce biomass supply
chain emissions
• Engaging with regulators and industry bodies and wider
stakeholders to understand their priorities, inuence the strategic
direction, and undertake scenario planning in preparedness for
ensuring compliance
• Targeted scenario planning and direct engagement with the RED III
negotiation process and via Trade Associations suggesting
alternative policy and regulatory solutions, to ensure workable
outcomes
• Seeking engagement with eNGOs to discuss issues of contention
and potential areas of common ground, as well as challenging views
where we believe they areinaccurate or misleading
Metric: Total
non-renewable
generation
capacity (see
page89)
Metric: Generation
business revenue
(see page 89)
Metric: Generation
business Adjusted
EBITDA (see
page89)
Updates to
sustainability criteria
onbiomass cannot
bemet (UK)
ST No (direct
impact on
revenue,
costof sales
andoperating
expenses)
• Continued engagement with key stakeholders around our biomass
sourcing and the benefits of using biomass from working forests
• Alternative Fuels programme looking at options for alternative
feedstocks
Metric: Total
non-renewable
generation
capacity (see
page89)
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Description
Time
frame
(1)
Significant
impact
(2)
Our response (strategic mitigation)
Related metrics and
targets
Link to our
strategic
aims
(3)
Changes in UK Carbon
Budget, Government
strategy significantly
limits or does notallow
for unabated gas
generation – risk to
OCGTs projects
ST and
MT
No (direct
impact on
revenue, cost
of sales and
operating
expenses)
• Close liaison with UK Government on future polices. Group Market
Analysis team modelling future generation scenarios and predicting
future generation mix
• Broad range of future options being developed
• Drax’s existing assets will either need to decarbonise or close.
Anynew gas assets will need to plan to decarbonise
Metric: Total
non-renewable
generation
capacity (see
page89)
Metric: Capital
expenditure (see
page 89)
Risk category 4: Reputation and market risks related to the transition to alow-carbon economy in the UK
UK BECCS is delayed
orunable to progress
atscale due to limited
support mechanisms
orabsence of sufficient
market for negative
emissions
MT and
LT
Yes (direct
impact on
revenue)
• Close liaison with Government on future policies. Drax engages
with a variety of MPs and political parties. The majority of these
recognise the role of the technologies Drax is pursuing. In the event
of a new government, we believe that deploying CCUS technologies
will remain important.
Metric: Capital
expenditure
(seepage 89)
Market factors or
reputation leads to a
reduction inprofitability
of the Customers
business
MT and
LT
No (direct
impact on
revenue)
• All energy supply propositions now from renewable sources
• Introduction of value-adding energy services. Offer non-generation
system support and energy management services, such as the
provision ofdecarbonisation services, including vehicle eet
electrification
• Strategic Communications work ongoing to provide better data
andtransparency on BECCS and biomass
Metric: Customers
business Adjusted
EBITDA (see
page89)
Conicting requirements
on reporting of carbon
emissions require us to
report multiple, varying
estimates
ST, MT
and LT
No (direct
impact on
costs)
• Establishment of a carbon alignment expert group to document all
causes of variance for publication
• Evidence book to contain a detailed, public explanation of the
different accounting schemes that we are required to report against
Climate-related opportunities
Each of our climate-related opportunities would impact on revenue, cost of sales and operating expenses.
Description
Time
frame
(1)
Significant
impact
(2)
Our response (strategy to realise opportunity)
Related metrics
and targets
Link to our
strategic
aims
(3)
Opportunity 1: Development of BECCS at Drax Power Station in the UK
At Drax Power Station,
we continue to develop
an option for BECCS,
with plans to add
post-combustion carbon
capture to two of the
existing biomass units
that use sustainable
biomass and technology
from our partner,
Mitsubishi Heavy
Industries (MHI)
(4)
.
Achieving this could
offer a model for further
BECCS retrofit for
adoption by other power
generation plants.
LT Yes • At Drax Power Station, between 2018 and 2020, we completed
twoBECCS pilot projects.
• In 2021, we completed a pre-Front End Engineering Design
(pre-FEED) study. As part of our capital investment programme
onBECCS, in2022 Drax selected Worley Europe Limited to begin
the FEED work.
• In 2022 we signed a Memorandum of Understanding (MoU) with
British Steel, and submitted our Development Consent Order (DCO).
• In 2023 we commissioned a small sugar extraction plant and we
remain an equity shareholder in C-Capture Limited which is
developing solvent technology that could be used for BECCS and
other applications.
• We submitted our planning application for the UK Government
consultation on greenhouse gas removals (GGR) business models,
in2022 with development consent being awarded in January 2024
by the Secretary of State for Energy Security and Net Zero, for two
BECCS units.
See CEO’s Review, page 13, for further information.
(4) The Group is developing a pipeline of projects that could contribute
toward its ambition for 20Mt of carbon removals. As part of this, we
areprogressing plans for 7Mt of carbon removals through BECCS
(4Mtwould be in the UK, and 3Mt in the US). 7Mt by 2030 is a revision
from 12Mt previously stated in the Annual Report and Accounts 2022,
reecting realistic timelines based on the progression of projects
todate.
Metric: Generation
business revenue
(see page 89)
Metric: Capital
expenditure
(seepage 89)
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Description
Time
frame
(1)
Significant
impact
(2)
Our response (strategy to realise opportunity)
Related metrics
and targets
Link to our
strategic
aims
(3)
Opportunity 2: Development of Global BECCS inNorth America
The US represents an
attractive investment
environment for
large-scale carbon
removals, in addition to
asupportive investment
horizon provided by the
Ination Reduction Act
and associated schemes.
The Group is developing
a pipeline of projects that
could contribute towards
its aim of 20Mt of
removals globally. We
continue engaging with
policymakers and are
screening regions and
locations for BECCS
inNorth America.
LT Yes • Progressing with site selection, Government engagement and
technology development, the Group is developing a pipeline of
projects that could contribute towards its aim of 20Mt of removals
globally
• In September 2022 we announced an MoU with Respira, an
impact-driven carbon finance business. Under the MoU, Respira
could purchase up to 2Mt of CDRs over a five-year period from our
North American BECCS projects. This would enable other
corporations and financial institutions to achieve their own CO
2
emissions reductions targets, by purchasing CDRs from Respira
• New-build BECCS enables a wider choice of biomass materials,
including non-pelletised materials such as woodchips. Exploring
plants in regions closer to the sources of sustainable biomass and
carbon transportation and storage systems is expected to
significantly reduce the cost of a new-build BECCS plant compared
to retrofit, as well as emissions reductions in the supply chain
1
See CEO’s Review, page 10, for further information.
Metric: Capital
expenditure (see
page 89)
Opportunity 3: Development of new sustainable biomass pellet capacity and self-supply in North America
Drax is targeting 8Mt p.a.
of biomass pellet
production capacity by
2030. This production
will be used for
third-party sales plus
ourown generation. This
target also covers the
balance of supply from
other lower cost biomass
sources and third parties.
As a vertically integrated
producer, user, buyer,
and seller of biomass, we
operate a differentiated
biomass model from our
peers. We see the
current market as
representing a balance
of short-term risks and
long-term opportunities
for the Group.
ST, MT
and LT
Yes • We have progressed development opportunities with the expansion
of Aliceville and a new-build pellet plant at Longview (Washington
state)
• These developments, taken with existing operations gives Drax
anetwork of 18 pellet plants capable of 5.4Mt of capacity
See CEO’s Review, page 10, for further information.
Strategic target:
8Mt pa of pellet
production
capacity by
2030(see pages
30and 31)
Metric: Annual total
volume of pellets
produced (see
page89)
Metric: Pellet
Production
business revenue
(see page 89)
Metric: Capital
expenditure
(seepage 89)
Opportunity 4: Planned expansion ofCruachan Pumped Storage Power Station in the UK
Pumped storage hydro
assets provide vital
support to the system,
balancing supply and
demand caused by the
variability of intermittent
generators like wind and
solar. As reliance on
intermittent generators
increases, the system
islikely to require more
balancing services such
as pumped storage.
Meeting the full extent
of expected demand will
require the addition to
and expansion of current
power sources.
Additional sources
ensure dispatchable
power and energy
security and stability
forconsumers.
MT No • A planning application was submitted in May 2022 to expand our
Cruachan facility. This, combined with the current facility, will
increase generation capacity to over 1GW. The location, exibility,
and range of services it can provide makes Cruachan strategically
important to the UK power system
• The Scottish Government awarded planning consent for the
expansion in July 2023, and subject to the right investment
framework we are targeting a final investment decision to be taken
in 2025 and commercial operation by 2030
See CEO’s Review, page 10, for further information.
Metric: Capital
expenditure
(seepage 89)
Sustainable Development continued
Taskforce on Climate-related Financial Disclosures
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Metrics and targets
Climate-related metrics
We have developed our approach to report across the TCFD seven cross-industry climate-related metric categories (see table below).
For carbon emissions and energy use data, see page 50. For water use and waste data, see page 56. We are developing a baseline of
direct operations land use data for future TNFD disclosure; see page 74 (summary of Catchment Area Analyses findings) for current
available metrics related to land use in biomass sourcing catchment areas.
TCFD Metric
Category Metric Unit 2023 2022 Link to climate-related risks and opportunities
GHG emissions See Carbon and energy performance table, page 50
See Decarbonisation dashboard, page 52
Risks 1-4 and Opportunities 1-4.
Transition risks
Amount and extent
ofassets or
business activities
vulnerable
totransition risks
Total non-renewable
generation capacity
(1)
GW 0.1 1.4 Risk 3: Metric reflects the generation capacity potentially vulnerable to
policy, legal, and/ormarket-related risks in the context of atransition to
alow carbon economy. The non-renewable generation capacity reported
for 2022 represents two coal-fired units at Drax Power Station;
decommissioning commenced in March 2023. Value for 2023 represents
gas-fired start-up capacity at Drax Power Station.
Customers business
Adjusted EBITDA
£m 72 26 Risk 4: Market factors or reputation leads to a reduction of profitability
ofthe Customers business.
Physical risks
Amount and
extent ofassets or
business activities
vulnerable
tophysical risks
Generation and Pellet
Production assets, exposure
to physical climate hazard
risks: potential financial
impact (absolute risk, £m)
asa % of asset value
(2)
% 0.9 – Risks 1-2: Proportion of Generation and Pellet Production asset value
potentially vulnerable to physical climate-related risks. An interruption
tobiomass generation is considered to be the most likely way that physical
risk could manifest. The impact of this could be greater than 20% of
Adjusted EBITDA in a given year.
Water consumed from areas
of water stress
(3)
m
3
347 – Risk 2: This metric considers water use across Drax’s direct operations.
Thevolume reported represents water use at our London office, the only
location classified as baseline (current) ‘high water stress’.
Climate-related
opportunities
Generation business
revenue (External)
£m 2,486 3,639 Risk 3 and Opportunity 1.
Pellet Production business
revenue (External)
£m 398 377 Opportunity 3: Development of new sustainable biomass pellet capacity
and self-supply in North America.
Generation business
Adjusted EBITDA
(excludingEGL)
£m 1,138 696 Risk 3: An interruption to biomass generation is considered to be the most
likely way that physical risk could manifest. The impact of this could be
greater than 20% of Adjusted EBITDA in a given year.
Opportunity 1.
Pellet Production business
Adjusted EBITDA
£m 89 134 Opportunity 3: Development of new sustainable biomass pellet capacity
and self-supply in North America. In 2023, the Pellet Production business
contributed £89m Adjusted EBITDA.
Development of new
sustainable biomass pellet
capacity: annual total
volume of pellets produced
Mt 3.8 3.9 Risk 1: and Opportunity 3: Development of new sustainable biomass pellet
capacity and self-supply in North America. Drax is targeting 8Mt pa of
production capacity by 2030. Existing operations and developments will
give Drax a network of 18 pellet plants (c. 5.4Mt of capacity).
R&D relief: tax effect of
RDEC credit
The Group has utilised the relief available under the RDEC regime. See pages 203-204.
Capital
deployment
Capital expenditure £m 519 255 Risk 3: £189m of capital expenditure related to the Group’s strategic
developments of three OCGTs was recognised in 2023 (2022: £90m).
Risk 4 and Opportunities 1-2. £18m of capital expenditure related to UK
BECCS was recognised in 2023 (2022: £19m), with a total capitalised spend
on the project to date of £43m, as of 2023. As of 2023, US BECCS costs
have not been capitalised.
Opportunity 3: £163m of capital expenditure related to Pellet Production
was recognised in 2023, including £76m relating to pellet plant expansion
projects (2022: Pellet Production capital expenditure, £66m).
Opportunity 4: £6m of capital expenditure related to pumped storage was
recognised in 2023 (2022: £2m).
Internal carbon
prices
Generation Capex process,
shadow carbon price: price
used on each tonne of GHG
emissions
GBP/
tonne
CO
2
e
90 75-
100
Opportunities 1-4. A major shadow carbon price annex is embedded within
the capital expenditure decision-making process. It is principally used to
modify NPV/IRR models used to assess new investment cases.
Remuneration Proportion of remuneration
linked to sustainability
performance
(4)
% 20 – The Safety and ESG element of the 2023 Group Scorecard (20% weighting)
included KPIs on safety, decarbonisation, and a colleague inclusion index
measure. See page 151.
Proportion of remuneration
linked to climate
performance
(5)
% 6.7 – The Safety and ESG element of the 2023 Group Scorecard included three
KPIs (6.7% weighting) relating to three decarbonisation projects (with
corresponding targets). See page 52.
(1) Total operational non-renewable generation capacity as at 31 December in the reporting year.
(2) Data source: S&P Global Climanomics. See page 84 for eight physical climate hazard types considered. Potential financial impact, as % of Generation and Pellet
Production asset value (operational assets as of September 2023), is the presented value for 2023, which represents the annual average over the period 2020-2029.
(3) Total volume of water from areas of water stress, as classified by the WRI Aqueduct Water Risk Atlas (Aqueduct 4.0), baseline “water stress” indicator.
(4) Total percentage weighting for Safety and ESG element of the Group Scorecard.
(5) Total percentage of sub-weightings for climate-related KPIs within the Safety and ESG element of the Group Scorecard.
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Climate-related targets
See Climate positive section, page 52, for
our carbon reduction targets and progress
in 2023.
Looking ahead
We are monitoring the developments of
the International Sustainability Standards
Board (ISSB), which the UK Government
intends to build upon for the forthcoming
UK Sustainability Disclosure Standards
(UK SDS). We support these initiatives to
develop a comprehensive global baseline
of sustainability-related disclosure
standards.
External commitments that support
ourthree strategic aims and climate-
related targets:
• Lobbying activities aligned with
ParisAgreement (Direct government
campaigning, indirect being part of
the wider industry voice of BECCS
and Drax methodology)
• Drax has joined the World Economic
Forum First Movers Coalition, which
includes a commitment to purchase
50,000 tonnes of durable and scalable
carbon removals. The FMC is a
coalition of companies using their
purchasing power to create early
markets for innovative clean
technologies across eight hard to
abate sectors. These in-scope sectors
are responsible for 30% of global
emissions – a proportion expected
torise to over 50% by mid-century
without urgent progress on clean
technology innovation
• Drax has joined the Alliance of CEO
Climate Leaders – A group of 100+
CEOs who come together to
encourage policymakers on an
ambitious Paris agreement and to
support bold climate action by setting
ambitious targets, taking collective
action, reducing own emissions, and
inspiring others to do the same. Drax
signed the open letter for world
leaders at the United Nations Climate
Change Conference (COP28)
• Drax has joined the Carbon Business
Council and signed an Ethical Oath
torestore the Earth
• Drax is part of the C2ES Carbon
Removal working group. C2ES is
anNGO whose mission is to secure
asafe and stable climate by
accelerating the global transition to
net zero greenhouse gas emissions
and a thriving, just, and resilient
economy
• Drax is part of the Sustainable
Markets Initiative and supports their
taskforce work. The purpose of
taskforces is to drive collective action
towards a sustainable future within
and across industries in line with
theTerra Carta
Advocacy on climate
Sustainable Development continued
Taskforce on Climate-related Financial Disclosures
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Non-financial and sustainability information statement
We have summarised our policies and disclosures in relation to non-financial matters,
in line with the Non-Financial Reporting (NFR) requirements of the Companies Act 2006.
Non-Financial Reporting requirement Policies, due diligence processes and outcomes Page
Environmental matters
Our purpose is to enable a zero carbon, lower cost energy future.
Our Environmental policy sets out how we will manage, monitor,
and reduce the environmental impacts caused by our business
through improvements of our operations wherever practical.
Group Environment policy
Group Climate policy
Sustainability policy
Responsible Sourcing policy
Climate positive 50
Nature positive 56
Climate-related Financial Disclosures,
including TCFD and CFD
78
Employees
We operate to a number of policies and guidance documents that
encompass aspects of a colleague’s experience at Drax, including
the systems we use, our policies, our values, and our culture. We
are committed to creating a work environment that promotes the
importance of colleagues’ health, safety, and wellbeing.
Code of Conduct
Supplier Code of Conduct
Group Safety, Health and Wellbeing policy
Human Rights policy
Gender Pay Reporting
Our people strategy 63
Health and safety 67
Social matters
We aim to create a positive social impact within the communities
where we operate. Our internal Community and Charity policy
outlines opportunities for colleague engagement.
Community and Charity policy
(internalpolicy)
Community investment 69
Respect for human rights
Our Human Rights policy sets out our commitment to respect
human rights throughout our operations, and our expectation for
suppliers and business partners to do the same.
Supplier Code of Conduct
Human Rights policy
Modern Slavery Act statement
Ethics and integrity 70
Anti-corruption and anti-bribery matters
We do not condone any behaviour that could lead to actual or
perceived bribery or corruption. Our Anti-Bribery and Corruption
policy sets out Drax’s approach to bribery andcorruption.
Code of Conduct
Anti-Bribery and Corruption policy
(internal policy)
Ethics and integrity 70
A description of the Company’s business model Business model 06
A description of the principal risks Climate-related Financial Disclosures,
including TCFD and CFD
78
Principal Risks and Uncertainties 94
A description of the non-financial key performance indicators Remuneration committee report 144
ESG Performance Report 2023
Limited assurance, PwC
We have engaged PricewaterhouseCoopers LLP (PwC) to perform an external independent limited assurance engagement over the
ESG metrics denoted with
. For the results of that assurance, refer to page 10 in the ESG Performance Report (www.drax.com/
esg-performance-report-2023) and for the Reporting Criteria refer to page(s) 12 to 46 in the ESG Databook (www.drax.com/
esgdatabook2023).
Limited assurance, Bureau Veritas
Bureau Veritas UK Ltd has provided independent limited assurance to Drax Group Plc over its ‘average biomass supply chain
greenhouse gas emissions’ data as reported in its Annual Report and Accounts 2023. The assurance process was conducted in
accordance with International Standard on Assurance Engagements (ISAE) 3000 Revised, Assurance Engagements Other than
Auditsor Reviews of Historical Financial Information (effective for assurance reports dated on or after 15 December 2015), issued
bythe International Auditing and Assurance Standards Board. Bureau Veritas’ full assurance statement includes certain limitations,
exclusions, observations, and a detailed assurance methodology and scope of work. The full assurance statement with Bureau Veritas’
independent opinion can be found at www.drax.com/sustainability
London, 22nd February 2024
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Viability Statement
Introduction
As part of the annual business
planning process an assessment
ofviability was presented to the
Board. This process, led by the
CFOand CEO:
• Took the Board approved long-term
forecast, which includes significant
strategic capital expenditure and
associated earnings,
• Sensitised the forecast to the strategic
capital expenditure not occurring for
any reason: removing the capital
expenditure, revenues, associated costs
and assuming no biomass generation at
Drax Power Station after March 2027,
tocreate a Viability base case. Note
thatDrax Power Station not generating
after March 2027 is for viability
modelling only, and is not the core
assumption used in the Board
approvedlong-term forecasts,
• Further sensitising the resulting forecast
to reect a decrease in power prices and
an increase in biomass costs to produce
a severe but plausible downside scenario,
including considering the mitigating
actions that could be employed to limit
the impact and how these mitigating
actions may be achieved.
This occurred in October, as part of the
Board’s strategy review discussions. There
were two facets to the process, covering
both the viability period (five years) and
the longer-term period beyond this. The
review was performed with regards to the
principal risks facing the Group, as outlined
in the Principal Risks and Uncertainties
disclosure on page 94, and distinguished
between those risks which are particularly
relevant over the viability period, and
those risks which could have an impact
over a longer term time horizon. Further
information was presented to the Audit
Committee as part of their assessment
ofthe viability statement.
The key assumptions made in this analysis
were around:
• Power prices, including associated
impact on collateral balances;
• Potential biomass pellet sales margins;
• Subsidies available to Drax Power
Station after the end of the current
arrangements in 2027; and
• No changes to markets and regulatory
regimes other than those the Group was
aware of at the time.
In addition to the analysis presented to
theBoard, forecasts were also subjected
to certain additional events (stress tests)
and longer-term changes in assumptions
(sensitivities), to consider the resilience
ofthe business. This information was
presented to the Audit Committee as
partof their review of viability.
Finally, a reverse stress test was
performed by incrementally increasing
theseverity of the sensitivities forming the
severe but plausible scenario presented
tothe Board, to determine whether any
scenario that presented a threat to
viability was considered plausible.
The conclusion of the above was that
theGroup remained viable under each of
the individual stress tests and sensitivities.
Whilst the impact of the severe but
plausible scenario was significant the
Group continued to be viable. The
increases required under the reverse
stress test to reach a scenario where
theGroup was not viable were not
considered plausible.
Viability review
Period of assessment
Consistent with 2022, viability was
considered over a five-year period. Factors
contributing to this decision were:
• The Group’s business plan includes a
range of financial forecasts and
associated sensitivities and is used for
strategic decision making. This process
covers one year in detail and then
extends to 15 years. Five years was
determined to be an appropriate
mid-point in this range.
• The Group benefits from stable and
material earnings streams available from
current subsidies until 31 March 2027,
covering three of the five years of the
viability period.
• Within the forecast period, liquid
commodity market curves and
established contract positions, including
those for pellet sales, are used. Liquid
curves typically cover a one to two-year
window and contracted fuel
commitments with third parties extend
out to five years. The Group’s foreign
exchange exposure is actively hedged
over a rolling five-year period, taking
account of expected generation levels.
Selecting a five-year period balances
short-term market liquidity whilst
including medium-term contractual
positions.
• The Group has a plan for strategic
capital expenditure extending to 2030.
• A significant proportion of the Group’s
debt facilities mature in this period, with
95% maturing in the five-year window.
• There is limited certainty around the
Group’s markets and regulatory regimes.
However, the Board has assumed no
material changes to the medium-term
regulatory environment and associated
support regimes beyond those already
announced at the date of this report.
Having considered the balance of
arguments, five years was determined to
be an appropriate time horizon given the
level of visibility and certainty over future
expected cash ows over that period.
Asset out in note 2.4 to the Consolidated
financial statements, and in line with the
requirements of accounting standards, the
business considers longer-term forecasts
for areas such as value in use analysis and
estimates of useful economic lives.
Modelling performed
The key assumptions used in the modelling
are set out in the ‘Introduction’ section of
this report, and the table overleaf explains
the further analysis performed over areas
of risk. The scenarios presented were
considered to be the most likely ways in
which the principal risks would crystallise.
Political and regulatory and Biomass
acceptability principal risks do not appear
in the table. However, these are captured
through the Viability base case scenario
already, as a no biomass generation at Drax
Power Station after April 2027 scenario is
likely to be a result of a crystallisation of
these risks. A summary ofthe modelling
performed can be found overleaf.
Further information on risks and
opportunities related to climate change
can be found in the TCFD section, on page
78. Quantitative climate change risk
analysis on our operational Generation and
Pellet Production assets suggested that
asset exposure to impacts arising from
physical climate-related risks remains low.
This includes consideration over both the
viability period time horizon and longer-
term potential impacts, extending to 2050.
Therefore, these have not been explicitly
incorporated into the viability modelling
but the potential impact of a climate event
within the viability assessment period can
be inferred from the plant availability
scenario in the table overleaf.
The outcome of the modelling performed
indicated that, whilst there may be
plausible scenarios which would place the
Group under significant financial pressure,
these would not compromise its ability to
meet its liabilities as they fall due. Further,
it was noted that the scenario modelled for
the Reverse stress test was implausible.
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Liquidity and solvency
The annual business planning process
considers the Group’s financial position,
performance, cash ows, credit metrics
and other key financial ratios. In particular,
the Plan considered the solvency and
liquidity of the Group, as defined in the
Glossary. No issues were noted with
solvency or liquidity, other than in the
reverse stress test, which considers the
point at which liquidity is inadequate to
settle the Group’s obligations. The reverse
stress test scenario was not considered
plausible. In particular, in the severe but
plausible case, modelling suggests that the
Group would still have the ability to settle
outstanding debt facilities as they fall due.
The Group’s financial performance in
2023was strong, delivering improved
profitability and a decrease in Net debt
toAdjusted EBITDA to 0.9 times (2022:
1.6times), against a long-term target of
around 2 times. The Viability base case
assumes the repayment of the Group’s
current borrowings as they fall due,
underpinned by the strong forecast cash
ows to the end of the current subsidy
regimes in March 2027.
Longer term risks
All of the risks considered as part of the
review described above remain relevant
over a longer-term time horizon. In
addition, risks around strategy become
more relevant over this period. Namely,
that if returns from strategic capital
expenditure are below forecast then
thiscould present solvency and liquidity
challenges because of the significant
capital expenditure required to build these
projects. However, management notes
that these options will only be progressed
after a Board approved final investment
decision, which will include sensitivities in
relation to potential returns. More detail
on the emerging risk around capital
construction is contained within the
Principal Risks report on page 94.
Other risks
The remaining principal risks were
considered and were not deemed to
present a significant threat to viability
overthe assessment period. The impact
ofincreased expenditure or a loss of
margin as a result of one of these risks
(e.g.a cyber-attack resulting in disruption
to planned generation) can be inferred
from the scenarios already modelled.
Expectations
Based on its review, the Board is satisfied
that viability would be preserved in a range
of scenarios, with various mitigating
actions available to manage the risks,
should they be required. Taking all of the
above into account, the Board has a
reasonable expectation that the Group
willbe able to continue in operation and
meet its liabilities as they fall due over the
five-year period of their assessment.
Principal risk Scenario modelled
Stress test or
sensitivity?
Mitigations (assumed
orpotential)
Impact over viability period
>20% of opening cash and
committed facilities?
Trading and
commodity
Reduction in market power prices of
£40/MWh to 2027, based on gas reducing
byc.30p/thm back to historic averages
Sensitivity Re-optimise
generation profile
Yes
Plant operations/
climate change
Decreased pellet sales margin/tonne by 29%
by 2027, based on higher fibre prices and a
smaller reduction to repairs and maintenance
and port costs than forecast
Sensitivity Potential to increase
sales prices
Long term fibre price
hedges
No
15% biomass generation forced outage rate
(FOR), based on this being above the highest
level of annual FOR experienced in the past
7years.
Sensitivity None assumed No
90-day outage on one biomass unit in 2024 Stress test Re-optimise
generation (to other
units) or sell biomass
Insurance proceeds
No
Failure of a large supplier to deliver for one
quarter in 2024
Stress test Replace lost volume
with merchant
Re-optimise
generation
No
Pellet production volume decrease of 7% into
perpetuity, approximating one pellet plant
being unavailable at any given time
Sensitivity Re-optimise
generation
No
Combination Severe but plausible – reduction in power
prices and decreased pellet sales margin,
asdescribed above.
Sensitivities Defer or cancel
capitalexpenditure
Reduction in
dividends
Reduction in
operating expenditure
Yes
Reverse stress test – incrementally reduce
power prices, decrease pellet sales margin
and increase FOR at Drax Power Station
tolevels that present a threat to viability.
Sensitivities Defer or cancel
capitalexpenditure
Reduction in
dividends
Reduction in
operating expenditure
Yes
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Principal risks and uncertainties
The effective
management of risk
supports the delivery
ofour strategy
Our approach to risk management
Identifying, assessing, and managing risks
across the Group is an integral part of
enabling an informed assessment of the
potential challenges in the delivery of our
strategic objectives:
• To be a global leader in carbon removals
• To be a global leader in sustainable
biomass pellets
• To be a UK leader in dispatchable,
renewable generation
Our risk management framework
underpins the Group’s approach to
theidentification, management and
governance of risks. Key components
include a Board-led approach to
determining risk appetite aligned to our
strategic goals, and risk management
policies and procedures to ensure a
consistent approach across the Group.
This approach is summarised below.
Risk appetite
The risk appetite is the level of risk that the
Group is prepared to tolerate in seeking to
realise its business objectives. The Board
determines the Group’s risk appetite to
ensure current and emerging risks are
appropriately managed, increasing the
likelihood that the Group’s business
objectives can be achieved whilst
minimising the threat of adverse impact to
the financial and operational performance
and prospects of the Group. Where a risk
facing the business has increased, the
riskmanagement governance process,
discussed further on page 96, will assess
what additional mitigating actions are
required to ensure the risk remains within
the Group’s Board-defined risk appetite.
Risk appetite therefore informs the
expected behaviours from our Board,
senior executives, colleagues, contractors,
and partners. Risk appetite can vary
depending on the nature of the risk, the
expected impact of that risk, the extent
towhich the risk is foreseeable and the
potential benefits to the Group and its
stakeholders from accepting a certain
level of risk. For example, trading in
commodities, where the Group has
developed a commercial strategy that is
designed to manage the Group’s exposure
to volatility in commodity prices whilst also
reecting the opportunity for commercial
gain in this area. We deploy forward
hedging strategies which seek to manage
the volatility of commodity prices and limit
the Group’s exposure to future adverse
movements, whilst also acknowledging
that this same market volatility provides
anopportunity for financial returns.
Weexplore the issues and challenges
associated with this risk further on
page103.
Risk identification and assessment
Risk reviews are undertaken bottom-up,
through the maintenance of risk registers
governed by risk management
committees, as well as top-down, by the
Executive Committee and Board, through
review of the Group’s risk profile to identify
relevant external risks; for example, those
caused by macro-economic factors such
as geopolitical unrest.
Risks are assessed consistently across
allareas of the Group, using a 5x5 matrix
thatconsiders both probability and impact.
Individual risks are scored on a gross
andnet basis. A target risk rating is also
maintained for each risk, reecting the
Group’s risk appetite. Where net risk
exceeds target risk, actions are taken
toalign these two measures, such as
theintroduction of additional
mitigatingcontrols.
The risk management approach intends to
manage, rather than eliminate, the risk of
failure to achieve business objectives, and
provides reasonable, but not absolute,
assurance in accordance with the Group’s
risk appetite and the inherent nature of
the risk.
Identification
Senior leadership and risk owners are
collectively responsible for the identification
of risks with the potential to threaten the
achievement of strategicobjectives.
Assessment
Risk owners assess likelihood and possible
impact ofrisks occurring using the Group’s
risk scoring methodology.
They also seek to ensure appropriate
mitigating controls are in place to manage
identified risks to an acceptable level
aligned to risk appetite and targetrisk.
Governance
Risk management committees undertake
regular risk reviews and receive reports
frombusiness units and risk owners which
reect their specialist areas and technical
knowledge.
Monitoring and Reporting
The Executive Committee undertakes
deep-dive reviews of each Principal Risk on
an annual cycle and receives reports from
the risk management committees and
Principal Risk owners.
The Audit Committee and the Board review
the suitability and effectiveness of risk
management processes and controls.
Theyalso review and challenge the proposed
disclosures prepared bymanagement on risk
to consider whether they are fair, balanced
and understandable, provide adequate links
to the Group’s strategy (including the ability
to realise objectives over the near and longer
term) and reect adequately wider macro
and emerging threats.
The Group has a Risk Management Policy, which defines
its approach to risk management. The key elements of
the policy are detailed below:
Drax Group’s
Risk Management
Process
Identification
Governance
Assessment
Monitoring
and
Reporting
Group approach to risk management
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Emerging risks
Undertaking a holistic review to identify
emerging risks involves judgement, and
isundertaken by gathering the views of
key internal stakeholders, including the
Executive Committee and Board members
who bring to bear significant levels of
technical knowledge, industry experience
and economic awareness. Where
appropriate, management may also seek
the views of external experts or
stakeholders.
The execution of material capital projects,
which will be required in future periods to
deliver strategic objectives, was identified
as an emerging risk for the first time in
2022. In addition to ongoing capital
expenditure on the OCGT projects, and
investment in the expansion of existing
and new North American pellet plants,
thebusiness is approaching a pivotal
pointin relation to options for BECCS
development.
This exposes the Group to increased
risksassociated with the execution of
significant and complex programmes of
innovative work, dependency on supply
chains, availability of skills in the labour
market, and other operational and safety
risks associated with large scale
construction. As these projects progress
through 2024 and beyond, and final
multi-million pound investment decisions
are expected to be taken, the Board will
consider whether this represents a new
Principal Risk to the Group and continue
tomonitor for any other emerging risks
facing the Group.
Internal control
The Group has a well-defined system of
internal control which has been in place
for the year under review and up to the
date of approval of the Annual Report,
supported by policies and procedures and
documented levels of delegated authority
which underpin decision-making by
management. These internal controls
operate as important mitigations of the
risks identified via the Group’s risk
management processes. Therefore, the
effective design and operation of these
internal controls is critical to the
achievement of the Group’s strategic aims.
Annually, the Audit Committee review and
challenge an assurance map prepared by
management detailing the level of
assurance obtained for each of the
Group’s Principal Risks across different
lines of defence, including both internal
and independent external assurance.
Thisreview considers whether any
increase in the risks facing the Group
require a respective enhancement in the
level of assurance obtained. For example,
an updated approach to HSE assurance
was recently approved by the Audit
Committee, including internal peer
reviews, an external implementation
review of Group HSE management
systems in the business units and external
assessments of compliance with local HSE
legislation and regulation. Refer to page 67
for further information.
The Audit Committee approves and
oversees a programme of internal audits
covering all aspects of the Group’s
activities on a rotational basis, following
anassessment of the key risks facing the
business. Refer to page 143 for further
information on this programme of work.
The majority of internal audits are
performed by KPMG, who provide a fully
outsourced internal audit function to the
Group, reporting to the Audit Committee.
For some specialist areas, such as HSE,
expert auditors may be employed to
supplement this work.
The findings and recommendations from
each internal audit are distributed to
members of the Executive Committee and
the Audit Committee. Where weaknesses
are assessed, these are investigated and
the impact on the business is identified,
with remediation actions established. This
is also reported to the Audit Committee.
None of the findings reported during 2023
were individually or collectively material
tothe financial performance, results,
operations, or controls of the business.
Drax Group plc Board Audit Committee
External audit
Group Executive Committee
First line of defence Second line of defence Third line of defence
Management of Risk Controls Develop a Risk Management Framework Internal Audit
Internal Controls Provide Independent Oversight of Risk
Limited or Reasonable Assurance
Engagements
Management Controls Compliance
Independent Assurance of Risk
Management Framework
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Risk management governance
The Group’s risk management governance
structure includes the Executive
Committee and the Group’s various risk
management committees covering areas
such as HSE, trading and security, who
have responsibility for:
• Regularly assessing and understanding
the risks that may impact our business
to ensure any new, current or emerging
risks are managed within the defined
risk appetite and limits of the business
• Reviewing changes in the internal
business and external macro
environment and responding
appropriately
• Driving completion of the actions
required to improve the mitigation of
risks and where possible reduce risk
exposures to target levels
• Driving an appropriate risk management
culture that promotes and creates
balanced risk-taking behaviour and clear
accountability
Risk management committees at the
business unit and Group function level
undertake risk reviews of operational and
financial risks on a regular basis, receiving
reports from subject matter specialists and
risk owners to inform these reviews where
appropriate.
The Executive Committee (from which
owners are identified as accountable for
each Principal Risk) undertakes deep-dive
reviews of all the Principal Risks through
an annual cycle and receives ad hoc
reports from the risk management
committees and Principal Risk owners.
Please refer to the Audit Committee
Report on page 132 to understand how
the Committee oversees the Group’s
Principal Risks.
Review of effectiveness
The Board is responsible for determining
risk appetite and ensuring the
effectiveness of risk management and
internal controls across the Group. The
system of risk management and internal
control is also reviewed against FRC
guidance, and any significant gaps are
highlighted to the Board. There were no
instances in 2023 where management
identified significant gaps in risk
management or internal control that
would have had a material impact on the
Group’s operational performance, financial
performance or results. However, where
opportunities for improvement were
identified, the Audit Committee challenged
management to enhance internal
processes. For example, as a result of the
Audit Committee’s review of regulatory
reporting, with support from an external
consultant, actions were established by
management to improve the
documentation and consistency of these
review processes and the clear
designation of roles and responsibilities
associated with reporting to regulators.
Refer to the Audit Committee Report on
page 132 for further detail on the Audit
Committee’s review of internal controls.
Under the guidance and challenge of the
Audit Committee, management undertake
a process that targets continuous
improvement with regards to risk
management, and a quarterly update is
provided at each meeting of the
Committee. During 2023, enhancements
to risk management included actions
identified as part of the risk management
maturity assessment undertaken by KPMG
during 2022. Whilst this review did not
identify any high priority actions,
enhancements, such as the creation of
aSustainability Council responsible for
review and challenge of related risks and
the continued migration of the Group’s
riskregisters onto a system-based solution
to provide greater transparency and
identification of trends in risk, were noted
as opportunities for improvement.
Overall risk profile
The Group has identified nine Principal
Risk categories which represent inherent
risk areas with the potential to undermine
the delivery of our strategy.
The year-end risk review, as described
above on page 94, has taken account
ofchanging external factors, such as
volatility in energy prices, risks relating
tothe pricing and availability of biomass,
political uncertainty, developments in
Government policy and regulation relevant
to our strategy, and the ongoing security
impacts of geopolitical unrest in regions
such as Russia, Ukraine and the Middle
East. These factors, with the potential to
materially alter the Group’s risk exposure
have been considered further below.
As a result of the below analysis, the
Boardnoted that Trading and Commodity
risk had significantly reduced during 2023.
This is primarily due to the reduction
inenergy prices during 2023, which
limitsthe business’ exposure to an
unplanned outage.
Conversely, Political risk is considered
tohave significantly increased due to
uncertainty surrounding the potential
impact on policy or regulation affecting
the Group should there be a change in
Government in either the UK or US as
aresult of the respective elections
anticipated in 2024. The Board further
noted that, despite consideration of the
various external risk factors as discussed
below, the other Principal Risks have not
materially changed from the previous year.
Cyber security
Geopolitical uncertainty has been known
to create not only volatile market
conditions, particularly for energy, but
alsothreats to operational activities; for
example, from attacks on our systems and
those of suppliers on whom the Group
relies for integrity of service. In the prior
year, it was concluded that due to the war
in Ukraine, the cyber security risk facing
the business was materially heightened.
Conict in areas such as the Middle East,
combined with the ongoing war in Ukraine,
means that cyber security risk continues
to be higher than historical norms.
This view is supported by our engagement
with a range of third parties in addition
topublicly available information.
It is acknowledged that cyber-attacks
areincreasing in sophistication and
complexity, requiring ongoing assessment
and response to address any emerging
vulnerabilities. Whilst currently we believe
the mitigations in place sufficiently
remediate the gross risk to the business,
emerging threats require enhancement
ofkey controls and investment to support
a proportionate but effective response.
Principal risks and uncertainties continued
On behalf of the Board, the Audit
Committee reviews the effectiveness
of the system of risk management
andprovides challenge over the
robustness of internal control.
TheCommittee takes a keen interest
in understanding the evaluation of
theGroup’s Principal Risks, to
ensurethat internal controls remain
appropriate and that the Group’s
overall exposure to risk aligns with
theBoard’s risk appetite.
You can read more about the
AuditCommittee’s process of
reviewand the resulting findings
onpages 134 to 136.
Vanessa Simms
Audit Committee Chair
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Market price volatility and biomass
availability
During 2023, current and forward energy
prices experienced a significant reduction
from the highs of 2022, on the back of
mild weather and reducing risk premiums
associated with European gas storage
levels. Despite prices remaining
substantially higher than historical
long-term averages, the reduction reects
a material decrease in the risk associated
with having to buy back power at current
energy prices should the business
experience an unplanned outage. The
significant changes in price can also
present optimisation opportunities.
As a result, the Board concluded that the
Trading and Commodity principal risk has
significantly reduced from the heightened
level reported in the 2022 Annual Report
and Accounts. This assessment reects
information available at the time of
reporting, including the fair value of
forward power hedges as detailed in note
7; however, the Board and management
recognise the need for continuous
monitoring given the inherent volatility
incommodity markets which could
materially alter the Group’s exposure.
The global biomass market remains under
pressure, and while most of the third-party
biomass we use is under long-term
contracts, financial pressures on suppliers
create risks to their ongoing viability.
Thisis being monitored closely, and regular
discussions are being held with key
suppliers to understand the potential
impact on their operations. In some
instances, it has been necessary to incur
additional costs to underpin the resilience
of our supply chain; this could continue
tobe a factor in 2024.
UK Power-BECCS
Generation from biomass has continued
toplay a crucial role in UK energy security,
and the case for the future role of BECCS
in supporting UK energy independence
and its net zero ambitions strengthened
during 2023. However, achievement of the
Group’s strategic aim to become a global
leader in carbon removals remains subject
to significant Government support.
The UK Government’s Biomass Strategy
was published in 2023, reaffirming support
for biomass, whilst also explaining the
potential design of a Power BECCS
business model, which includes a 15-year
CfD with a dual payment mechanism
linked to both low-carbon electricity
andnegative emissions.
During 2023, the UK Government also
provided an update on the next steps of
the cluster sequencing for carbon capture,
usage and storage (CCUS) programme,
being the Track-1 expansion and Track-2
cluster deployment for both of which the
Group is eligible, and under which support
contracts could be negotiated and
awarded over the coming years.
The UK Government has confirmed that
they intend to facilitate the transition from
biomass to BECCS to support biomass
generation after the expiry of existing
subsidies until biomass generators have
been able to transition to support under
the power-BECCS business model. The
‘bridging mechanism’, as this is now
known, is currently the topic of a public
consultation launched in January 2024.
Despite this positive public support by
theUK Government during 2023, both
thebridging mechanism and cluster
sequencing process remain subject to
ongoing processes with the current UK
Government, and the risk remains that
Drax is not successful in either application.
The Board does not believe there has been
a material change in this risk during 2023.
Political and Regulatory uncertainty
It is anticipated that there will be both a
UK General Election, and US Presidential
Election in the next 12 months. A change
in Government in either country could
result in delays or changes to policy or
regulation that could increase the cost to
operate our businesses, impact investment
or financial support, reduce operational
efficiency, and affect our ability to realise
our corporate strategy. We continue to see
strong support from both UK and US
Government officials in our areas of
operation and in our prospective strategic
goals; however, this level of increased
uncertainty has resulted in the Board
concluding that, as at the time of approval
of the 2023 Annual Report and Accounts,
political risk is heightened.
Regulators continue to apply a high level
ofscrutiny to the energy market, partly
asa result of recent volatility in commodity
markets. This includes ensuring we use
sustainable biomass, especially in
jurisdictions such as the UK where
electricity generation from biomass
benefits from public subsidies. This is
particularly relevant to the Group given the
potential expansion of the use of biomass
for the purposes of BECCS. We remain
confident in our compliance as regulations
continue to evolve. The Board does not
believe there has been a material change
in the risk of compliance during 2023.
Potential escalation of Middle East
conict
The business is cognisant of the ongoing
conict in the Middle East and the
potential for this to escalate further. The
possible impacts on the business, based on
the status of the conict in the region at
the time of signing the report, have been
considered including market volatility,
supply chain disruption and pricing
pressures. Because of the mitigations and
contingencies in place, the Board does
notcurrently expect these impacts to be
material. However, the Board notes that
future events are uncertain, and any
escalation of the Middle East conict
could change this assessment.
Set out below are the Group’s nine
Principal Risks:
• Strategic
• Health, Safety and Environment
• Political and Regulatory
• Biomass Acceptability
• Trading and Commodity
• People
• Climate Change
• Plant Operations
• Information Systems and Security
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Risk level change from previous year Up/increasing Down/reducing No change
Strategic risk
Context
The Group’s purpose is to enable a zero carbon, lower cost energy
future, with an ambition to become a carbon negative company by
2030. The Group has three strategic aims that underpin its purpose
and ambition as detailed in the Group’s business model on page 6.
Strategic risks are defined as those that could materially undermine
any of the Group’s strategic aims, and thereby prevent the Group
from delivering its stated outcomes and fulfilling its purpose.
The strategy execution team monitors the delivery of strategic
initiatives and mitigates risks. A quarterly review is undertaken
bythe Executive Committee to gauge its confidence in delivery
and determine the actions to be taken, should course correction
or additional risk mitigation be required.
Strategic pillar: To be a global leader in carbon removals
To be a leader in the emerging carbon removals market, Drax is
working to prepare Drax Power Station for BECCS, and developing
projects to deliver BECCS globally. This requires the development
of an economically attractive business model within its target
jurisdictions.
Risk and impact
• There is a risk that current or future governments do not provide
the fiscal and legislative framework required to support the scale
of the Group’s BECCS plans and Drax’s future investment
decision. This could result in the potential impairment of circa
£42.8 million of capitalised UK BECCS development costs if the
project does not progress as detailed further in the critical
accounting judgements on page 179.
• Over the last year we have observed increasing competition
forsustainable fibre, particularly in the US South, as other
bio-energy developers initiate projects, including biomass
forSustainable Aviation Fuel (SAF).
• The increased competition was stimulated in the US through the
Ination Reduction Act, which has also increased the competition
in carbon removals technologies, with Direct Air Capture projects
now moving through to execution and operation.
• The process and timetable in the UK for BECCS remains
dependent on UK Government timelines. In the US, development
and permitting complexities for new BECCS developments could
slow down our ability to execute the strategy relative to
competitors.
• There is a risk that Drax cannot build the right asset portfolio at
sufficient scale to achieve a leading position.
Key mitigations
• We have developed options for the UK BECCS project at Drax
Power Station, and are in ongoing engagement with UK
Government and other stakeholders to secure the right
commercial model for continued operation and bridging support
in the interim. Refer also to Political and Regulatory risk on
page101.
• We have developed sets of options for BECCS projects in other
jurisdictions providing resilience against various country-specific
risks such as political and regulatory uncertainty.
• We continue the proactive development, marketing and sale
ofcarbon removal products. We have produced a CDR standard
and are seeking alignment and buy-in from other participants and
accreditation bodies.
• The execution of a medium to long-term fibre strategy, actively
engaging with fibre providers to establish longer-term contracts.
• Engagement with US regulatory and planning bodies.
Strategic enabler: Capital
Delivering any one of the strategic aims requires the ability
toaccess and effectively allocate the capital required, whilst
maintaining a corporate credit rating in the BB range, to support
power trading and B2B energy sales to customers.
Risk and impact
• The fact we continue to lack a longer-term view of support
mechanisms post 2027 exposes the Group to increasing costs
offinancing.
• There is a risk that the Group is unable to raise sufficient finance
to fund the execution of our strategy due to poor performance,
illiquid capital markets or poor credit rating, leading to lack of
investor appetite for the Group’s credit and/or equity.
• Wider economic or geopolitical challenges may impact the
availability of financing due to changes in market liquidity and
costs of capital.
Key mitigations
• The Group’s financial position including working capital and cash
resources is strictly controlled.
• We continue to run a full investor relations programme, covering
equity and debt markets.
• We are consciously managing the business and investment to
accommodate a range of possible outcomes for UK Government
support at Drax Power Station post-2027.
• The Group’s capital allocation process provides rigour and
consistency in assessing the technical, financial, and strategic
justification of new projects across the Group, in particular when
investment is related to new and emerging technologies.
Principal risks and uncertainties continued
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Strategic risk continued
Strategic pillar: To be a global leader in sustainable biomass pellets
Achieving a leading position requires delivering and growing our
own production of sustainable biomass, at a sustainable economic
cost whilst ensuring our sustainability requirements are met.
The primary objectives are to increase biomass production capacity
to 8Mt p.a. and to continually improve the biomass pellet supply
chain to maintain pellet costs at a sustainable economic level.
Risk and impact
• Increased fibre costs have led to a heightened cost of pellet
production in recent years. In addition, there is risk that
inflationary pressures will continue during 2024 especially
iftensions in the Middle East escalate, creating the potential
fordisruption to, and increasing costs of, shipping.
• There is the risk that biomass does not have stakeholder support
in our target markets (for example, Government, investors,
economic and social) leading to a lower rate of adoption than
ourstrategic plan assumes.
• We have observed an increased level of challenge to the use of
biomass from external stakeholders including NGO groups over
the last 12 months. However, the UK Government published its
biomass strategy during 2023, which provided reassurance that
biomass is considered to be a part of the decarbonisation and
security of supply plan.
• Given ongoing discussions with the UK Government on a
“bridging-mechanism” contract for Drax Power Station services
to the power system post 2027, there is some uncertainty over
the total Drax internal demand for pellets. We have therefore
paused the development of new capacity beyond the current
projects at Aliceville and Longview, pending further clarity on
demand. There is a risk that should additional capacity be
required, there is a limited availability of feasible expansion
opportunities, and successful identification and delivery of
initiatives to reduce the current cost of biomass.
Key mitigations
• Our vertically integrated business model provides a degree of
protection from inflationary pressures on these production costs.
As a producer, user, buyer and seller of biomass, the Group is able
to balance short-term risks and long-term opportunities.
• Continued execution of the integrated plan to expand biomass
production capacity at existing facilities through operational
effectiveness, together with the development and execution of
the pellet production cost reduction plan to maintain the cost of
sustainable biomass pellets at an economically sustainable level.
• Government and stakeholder engagement in understanding the
cost and benefits of sustainable biomass use as part of the power
system and decarbonisation.
• The progression of third-party sales opportunities in new markets
with higher value use, to create demand and additional options
until we have certainty on major demands (e.g. from Drax Power
Station, and other global BECCS projects).
Strategic pillar: To be a UK leader in dispatchable, renewable generation
To maintain the position as the leading provider of UK
dispatchable, renewable power requires the right portfolio of
assets and associated business models. These must operate
within a system that values the dispatchable characteristics
ofthose assets at the right economic levels.
Risk and impact
• There is a risk that our asset portfolio is not appropriately valued
by the market, is excluded from effective participation in power
markets, or might be outperformed by a future technology.
• There is a risk that Drax Power Station does not receive the right
economic support post 31 March 2027 required to operate and
invest in assets which provide the dispatchable renewable power.
• There is the risk that the current market mechanism and
incentives do not support additional long duration energy storage
such as Cruachan II.
• There is a risk that unexpected changes to electricity supply and
demand could reduce both demand and volatility, and therefore
limit the market for dispatchable renewable assets.
• Some of the Group’s assets are significantly aged and, as plants
age, despite an established maintenance programme, their
operational reliability and integrity is expected to reduce
whichmay result in unplanned outages. Refer to page 106
forfurther detail.
Key mitigations
• We continue to actively engage with relevant UK Government
departments and regulators in relation to obtaining the best
mechanism through which we can provide dispatchable
renewable power from Drax Power Station. We also engage
actively with the UK Government on a range of measures that
would facilitate the development of long duration energy storage.
• We continually evaluate the current and projected performance
of our own portfolio of assets, and the value gained from
changing the composition of the asset portfolio in line with the
Group’s view of the outlook for the market and emerging
technologies.
• A comprehensive plant investment and reliability programme
hasbeen implemented. Refer to page 106 for further detail.
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Health, Safety and Environment
Context
The health and safety of our employees and contractors, and
effective management of our environmental impact, remain
priorities for the Group. Maintaining high operational and
procedural safety standards is also an important contributor to
the continued success of the business across all aspects of our
activities. Safe, compliant and sustainable operations are integral
to the delivery of our strategy and crucial for sustained long-term
performance. Safety and environmental management are
foundational to our operational philosophy, and we continue to
work across the Group to identify, implement and maintain high
standards supported by a positive culture of safe working. We
seek to respond proactively to emerging legislation and regulatory
changes in both safety and environmental aspects.
Risk and impact
• Our operations involve a range of potential hazards which could
affect colleagues, contractors, others attending our sites, and
the wider environment, that arise from the materials and
equipment we use and the processes we perform. This includes
heavy plant and machinery across our sites in the US, Canada
and the UK in the manufacture, storage and transportation of
biomass pellets, and the generation of electricity from different
sources, including biomass and hydro. Refer to page 67 for
moreinformation.
• The biomass we use to generate electricity, and the particulates
that can occur if the biomass pellets degrade, are highly
combustible, contributing to Health, Safety and Environment
(HSE) risk unless appropriately mitigated.
• Our operations in North America may be disrupted by weather
events such as wildfires or hurricanes. Refer to Climate Change
risk on page 105.
• In the generation of electricity, supplied to the National Grid at
up to 400kV, we operate various plants at high temperatures
and pressures, as well as managing significant volumes of water
used by our nine hydro plants in Scotland. These are inherent
attributes of our operations which contribute to HSE risk.
• The day-to-day operation of our assets includes maintenance
work on plant and machinery that is large and comprised of
numerous parts. Work of this nature carries risks to our
colleagues and contractors. The planned outage performed
ontwo of the Power Station’s biomass units during 2023,
involved capital expenditure of £49 million, and was
executedsuccessfully.
Key mitigations
• Continued investment in safety equipment, environmental
mitigation, and plant equipment and its regular maintenance.
• Maintaining robust management systems which are subject
toperiodic review, and are refreshed as appropriate.
• An effective governance framework including an executive-level
Group HSE Committee, chaired by the CEO, to review and
challenge the management of HSE across the Group.
• We report our safety performance including our total recordable
incident rate (TRIR) monthly and share this with the Board
regularly. This measure forms part of the safety metric in the
Group’s bonus calculation.
• Regular reporting to the Board on HSE matters as part of the CEO
report, outlining trends, incidents, and initiatives to enable the
Board to understand culture, behaviours, and the status ofkey
HSE matters.
• Development of plans to align all business units on key focus
areas to drive improvement in our HSE performance, whilst
building upon the existing ‘One Safe Drax’ vision.
• Adoption of our HSE IT reporting system for tracking and
reporting events and near misses, prompt investigations, and
timely implementation of corrective actions by directing attention
and encouraging continuous improvement.
• A programme of training, which aims to provide colleagues with
an appropriate level of competence and awareness, enabling
them to contribute to the effective management of HSE risks,
including working practices to minimise risks.
• Health and Safety awareness events were held, including a
two-day pre-outage event for employees and contractors at
DraxPower Station.
• Raising awareness through shared experiences of events or near
misses with colleagues across different sites, and seeking to
adopt improved practices in response to incidents.
Principal risks and uncertainties continued
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Political and Regulatory
Context
Generation of electricity using sustainable biomass has continued
to play a crucial role in UK energy security, and the case for the
future role of BECCS in supporting UK energy independence and
its net zero ambitions has continued to strengthen. During 2023,
the UK Government published its Biomass Strategy in which it
outlined the potential “extraordinary”role that biomass can play
within power, heating and transport, including a priority role for
BECCS, which is seen as critical for meeting net zero targets set
by the UK Government due to its ability to facilitate large-scale
carbon removals.
However, the Group remains conscious of the ongoing discussion
associated with biomass (refer to Biomass Acceptability Principal
Risk on page 102) and the need for further commitment and
financial support from the UK Government, and other critical
partners, in order to deliver the decarbonisation of UK power
generation and enable the Group to realise its negative
emissionsstrategy.
Global economic challenges and volatility in commodity markets
have created the potential for an accelerated timeline for the
UKGovernment’s continuing review and reform of the detailed
legislation and regulation that underpins the electricity market.
In2023, this included continuing work on the Review of Electricity
Market Arrangements (REMA), introducing the Energy Bill
Discount Scheme (EBDS) and the commencement of the
Electricity Generator Levy (EGL). Through 2023 the UK
Government also consulted on further reforms to the Capacity
Market, in particular to strengthen the security of supply and
provide greater clarity around the transition to net zero.
Refer to page 97 for further explanation of the material increase
inPolitical Risk specifically.
Risk and impact
• The cost-of-living crisis, compounded by the residual effects of
Covid-19 and other geopolitical issues, continues to have an
impact on social and economic policy as well as UK Government
funding. This has resulted in delays to the introduction of new
legislation to deliver investment frameworks that support
reducing carbon emissions. This could adversely impact the
investment needed to support BECCS, which may result in
material delays in the ability to realise Drax’s strategy around
carbon removals.
• It is anticipated that there will be both a UK General Election and
US Presidential Election in 2024. Any resultant changes or delays
to government policy at a regional and national level in the
countries in which we operate, may increase the cost to operate
our businesses, reduce operational efficiency, and affect our
ability to realise our strategy.
• The UK Government, in their Biomass Strategy, confirmed that
they intend to facilitate the transition from biomass to BECCS.
InJanuary 2024, the UK Government launched a public
consultation on a bridging mechanism. Alongside this, the
Government provided an update to industry on the next steps of
the CCUS cluster sequencing programme (under which support
contracts will be negotiated and awarded). Both the bridging
mechanism and cluster sequencing process remain subject to
ongoing processes with the current UK Government, and there
isa risk that Drax is not successful in either application.
• Given the industry in which the business operates, the Group is
subject to a large number of regulations which are broad ranging
in nature. As a matter of course, there are many areas where
regulators may see fit to request information on compliance
frameworks, reporting processes, internal/external assurance
and/or market interactions in relation to our regulatory
obligations. For example, in May 2023, Ofgem opened an
investigation into Drax Power Limited’s compliance with
reporting requirements under the Renewables Obligation.
Pleaserefer to page 75 for further detail.
• The global regulatory environment is evolving, which may result
in additional costs and complexity. Our involvement in new
international supply chains and pellet markets in Asia introduces
additional challenges and costs in terms of compliance,
regulatory change and misalignment of standards and legal
frameworks between markets.
Key mitigations
• Engaging with politicians and Government officials, to both listen
to and inform understanding and perception of Drax’s business.
This includes our commitments on sustainability and the creation
of socioeconomic value (including jobs, training, and investment
in communities), plus the critical role that Drax’s strategy will play
insupporting the UK’s committed target to achieve net zero by
2050 and ensuring security of supply.
• Working with regulators and industry bodies to understand their
priorities, provide constructive feedback that may contribute to
their strategic direction, and undertake scenario planning and
commercial impact analysis in response to potential reforms,
andinpreparedness for ensuring compliance.
• Exploring opportunities for the delivery of investment in BECCS
globally, such as in the US. Working with leaders and key
stakeholders in those regions, to identify areas of common
purpose and share ideas for creating jobs, investment and new
growth opportunities.
• Ensuring our compliance frameworks and internal guidance
remain robust and continue to focus on best practice as regulation
evolves and the business further expands its global operations.
• Investment in knowledge and experience through recruitment,
tobest support our global operations.
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Biomass Acceptability
Context
The use of sustainable biomass is a significant element of Drax’s
business and is important in the delivery of longer-term strategic
objectives, enabling the Group to meet its carbon removal target
and the UK to realise its net zero goal. During 2023, Drax sourced
or produced, and shipped to the UK, 6.0Mt of biomass for use in
the operational activity of generating electricity at Drax Power
Station. Drax enters into commercial contracts to supply biomass
to third parties. The supply of 2.6Mt of biomass from the Pellet
Production and Generation businesses to third parties
represented 5.1% of revenue during 2023 and is expected
togrowas demand for biomass increases.
Biomass Acceptability risk relates to the Group’s exposure to
unfavourable changes to biomass-specific Government policy or
regulation as a result of high-profile campaigning by anti-biomass
groups against the use of biomass. There continues to be clear
and reiterated acceptance and recognition by the UK Government
and other key organisations of the importance of biomass in
enabling security of supply and in tackling climate change, seen
predominantly within the supportive Biomass Strategy which
waspublished during 2023.
Risk and impact
• Some parties, including certain environmental non-governmental
organisations (eNGOs) continue to argue against the use of
biomass. These groups seek to inuence and challenge policy
and lawmakers, which may result in reduced political, business,
public, and financial support for the utilisation of biomass in
energy generation.
• A UK General Election is expected in 2024. There may be
increased protester activity immediately before and after the
election with anti-biomass sentiment seeking to inuence
decisions associated with biomass and Drax’s business model.
• The UK Government has demonstrated their awareness of
additional policy decision-making that will be required as a result
of the support shown for biomass in the UK Government’s
Biomass Strategy published in 2023, in particular, how biomass
sustainability can be assured when the CfD regime closes to
biomass from 2027 onwards. If the UK Government’s support for
biomass as a renewable technology changes, this may negatively
impact the Group’s UK operations and revenues.
• Regulatory frameworks associated with the sourcing of biomass
materials are under development, including in regions where we
currently conduct business and others where we may seek to
develop our business in the future. It is possible that future
regulatory frameworks may conict with our strategy. This could
result in reduced support for certain types of biomass as a
renewable energy source, increased costs of doing business, or
the introduction of barriers to entry which may adversely impact
our growth plans and financial returns versus expectations. For
example, the EU has completed its ‘Fit for 55’ legislative package,
including updates to the Renewable Energy Directive (REDIII) and
a new EU Deforestation Regulation. Both pieces of legislation
impose additional restrictions and requirements that may impact
our ability to supply biomass to Europe. The EU Deforestation
Regulation is entering into application in December 2024. REDIII,
as a Directive, will need to be transposed into national legislation
of the EU Member States by 21 May 2025; Member States will
have some exibility in implementing REDIII requirements.
• A new proposal on Certification of Carbon Removals (including
BECCS) is currently going through the EU legislative process.
Wecontinue to engage with EU policymakers to reect Drax’s
perspective during the implementation phase of the legislation
and offer views for consideration in finalising the certification
legislation.
• Reputation and market risks related to the transition to a
low-carbon economy include increased activity by eNGOs; the
potential for reduced investor and customer confidence; reduced
sales in the Customers business; delays to our strategy (for
example, more stringent qualifying regimes or approval
processes linked to developing existing or new facilities, risk from
legal challenge by eNGOs to our development or operational
activities, or to government action which is supportive of BECCS
and sustainable biomass through the use of judicial review); and
challenges with employee recruitment and retention. Refer to
People risk on page 104.
Key mitigations
• Engagement with stakeholders in all regions in which we operate,
to understand their concerns, requirements and expectations
around sustainability, as well as improving readiness to produce
evidence of compliance.
• Proactive education of stakeholders on the science of our
sustainability practices and benefits of sustainable biomass.
• Increased resource within teams to develop and maintain strong
relationships with policymakers in the UK, EU, North America
andAsia via targeted engagement across institutions.
• Targeted planning and engagement with the REDIII negotiation
process and via Trade Associations suggesting alternative policy
and regulatory solutions, to ensure workable outcomes.
• Where possible, seeking engagement with eNGOs to discuss
issues of contention and potential areas of common ground, in
support of more constructive engagement on delivering change
that is responsible and sustainable. Equally, where we believe the
views of eNGOs are inaccurate or misleading, providing
appropriate challenge and explaining Drax’s approach.
• The Independent Advisory Board (IAB) made up of experts in
thefield of forestry and associated disciplines provide Drax with
advice on sustainable biomass and its role in Drax’s transition
tonet zero emissions. The IAB provides feedback on Drax’s
approach to sourcing, including feedstock options, procurement
practices, forest science and how Drax can optimise carbon
benefits. Using the latest scientific analysis, the IAB make
recommendations on Drax’s approach to sustainable biomass
sourcing, helping Drax become climate, nature and people
positive. Drax has also commissioned analysis by third parties
toanalyse the business’ BECCS strategy, such as the recently
published report ‘The Value of BECCS at Drax Power Station’
which was authored by Baringa.
• New governance structure introduced, consisting of the
Sustainability Council and Biomass Leadership Team. Both are
concerned with the oversight and deliverability of Drax’s activity
on sustainability of biomass and BECCS.
• Scenario and contingency planning and direct engagement with
voluntary certification schemes, notably SBP, at Board and
technical levels to provide feedback in the preparation of revised
standards and suggest alternative options where necessary.
• Continued assessment of new markets from which to source
sustainable biomass.
Principal risks and uncertainties continued
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Trading and Commodity
Context
The Group is exposed to volatility across a range of commodity
prices, impacting both revenues and expenditures. Effectively
managing these uctuations, their interconnections, and the
resulting balance of opportunity and risk is fundamental to the
successful financial performance of the business. Despite
remaining above historical levels, system prices have significantly
reduced since 2022 and, therefore, thelevel of exposure to the
business of an unplanned outage is materially decreased as at
thetime of reporting. However, this remains under continuous
scrutiny given the recent volatility incommodity markets.
Our portfolio strategy focuses on optimising assets to extract
maximum value while adhering to our risk management
framework, which comprehensively addresses the unique aspects
of each commodity. We use forward hedging of varying lengths
tomitigate the impact of commodity price uctuations on both
revenue and expenses. Furthermore, we have implemented
multiple routes for market access to effectively manage liquidity
constraints.
Refer to page 96 for further explanation of the material decrease
in Trading and Commodity risk.
Risk and impact
• The risk that the present CfD subsidy regime concludes in 2027
without being extended or a suitable alternative being
implemented would fundamentally impair the ability of Drax
Power Station to be operationally viable. The uncertainty
associated with this could impact Drax’s ability as a route to
market for its Customers division, and increase the price and
supply risk of the associated biomass fuel for the power station.
• Despite power prices reducing materially since their peak at the
end of 2022, they remain subject to significant volatility.
Short-term elevated power prices in excess of hedged rates may
result in losses should an unplanned outage occur on one or
more of the Group’s generating units, as the Group could be
required to buy back at spot rates (or the current market price)
which could be higher than the price that Drax had originally
been paid for supplying that power.
• Delivery of commercial value from the exibility of our portfolio,
and the optimisation of a complex supply chain against an
uncertain running regime, requires effective execution of our
trading strategy and opportunities to trade being available
through sufficient liquidity. Errors in execution, delays in carrying
out planned trading or interruptions to our trading platform
couldall materially adversely affect the Group’s performance.
• Falling power prices can lead to increased market exposures
across market participants, which could potentially reduce the
market’s appetite to trade.
• There remains a risk to the availability of sufficient volumes of
biomass due to supply chain challenges. Ination and other cost
increases have inversely impacted several suppliers. As a result,
Drax could face shortages in the biomass needed to maintain the
generating operations at Drax Power Station and/or significant
additional costs which could materially impact its operational and
financial performance.
• The Generation business may fail to secure future system
support services contracts or the value in providing those
services may reduce due to increased competition.
• Inability to fulfil pellet sales contracts may result in an exposure
to the difference between the contracted and market price of
the pellets. This could result in significant additional costs as a
result of the need to buy the pellets from a third party to fulfil
contracts, particularly when wider supply of pellets is restricted.
• The fibre market is very dynamic and is impacted by both our
suppliers and competitors. This makes it difficult to forecast the
probability and impact of associated risks. The industries that use
residuals (and other fibre classes) continue to develop. Whilst
biofuel technology is still an early concept it is likely that this
market will develop in the longer-term, further increasing
demand for fibre.
• There is continued pressure in the Canadian fibre market due to
adecrease in the lumber industry. There has been a reduced
harvest as a result of an increase in protected areas and a
reduction in Annual Allowable Cut levels. This may impact Drax’s
ability to source fibre for its pellet plant operations.
• Across the international markets we trade in, we are exposed to
foreign currency exchange risk, primarily in relation to the sterling
cost of pellets to the Generation business, which is typically
contracted in USD or EUR.
• There is a risk of continuing energy supplier failures from volatile
commodity prices, which results in greater cost mutualisation,
whereby the cost of supply failure is spread across the remaining
industry participants.
Key mitigations
• We are in discussions with the Department for Energy Security
and Net Zero on the extension of Drax Power Station beyond
March 2027 and a potential support mechanism.
• Our hedge levels for 2024 to 2026 are above historical levels
andwe continue to build on these high levels of forward power
hedges (sales). The CfD on one of our biomass generation units
also helps to reduce our exposure to volatility.
• Our UK portfolio of I&C electricity customers provides an
effective route to market for forward power and renewable
certificate sales from the Generation business. Any power price
exposure within the supply contracts is hedged.
• The majority of our larger I&C contracts operate under exible
purchasing agreements, which provide a framework under which
the customer locks in the power price according to their own risk
management strategy rather than at the point the contract is
signed. We are able to regularly reforecast the usage under these
contracts and the customer absorbs the costs or benefits of
reforecasting.
• Under our hedging strategy, our exposure to buying back power
at higher prices in the short term is mitigated by holding back
apercentage of generation. This provides back-up should there
be an unplanned outage.
• Real-time monitoring of the Group’s credit exposure, both cash
and non-cash, and identification of a number of levers that could
be utilised should the Group’s market exposure move outside of
our defined levels.
• The continued intention to increase self-supply of biomass will
allow the Group to better manage the supply chain to meet both
forecasted generation requirements at Drax Power Station and
also third-party supply contracts and respond quickly to changes
in these demand profiles.
• Operating three biomass units under a single ROC cap for Drax
Power Station provides increased opportunities for exibility
ofgeneration and can create additional value.
• The Group has long-term fibre contracts to supply the Pellet
Production business. We also actively engage with third-party
pellet suppliers to ensure delivery schedules are met and any
changes to agreed schedules are understood, to limit the impact
on power generation.
• Foreign exchange risk is mitigated by significant hedging
offorecast exposures over a five-year horizon.
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People
Context
During 2023, we continued to face significant challenges due
tothe competitive markets in which we operate. Resources for
certain skill sets remain scarce and salaries for in-demand skills
are increasing.
To fulfil our international growth plans we need to undertake
recruitment programmes in sectors with which we are less
familiar. The expansion into new states and jurisdictions requires
extensive forward planning to ensure we are compliant with
regulatory and legal requirements which impact the costs of
doingbusiness.
Plans to understand the long-term skills and capabilities required
are underway, such as supporting work on new technologies like
BECCS, alternative fuels, and the expansion of our biomass
facilities in the US. Whilst addressing these market pressures and
growth plans, keeping our colleagues safe is paramount in our
planning and decision-making. It is imperative that our workforce
has the skills required as the Group expands its presence.
The UK political uncertainty, and high-profile and heightened
campaigning by anti-biomass groups during 2023 have the
potential to impact our reputation, engagement with prospective
candidates, and workforce attrition.
Risk and impact
• In addition to ensuring we retain the core skills that will be
required to run our business, the growth plans of the organisation
will require new skills and capabilities. As such, we require people
with skills and capabilities which are adaptable to addressing
newand emerging aspects of sustainable power generation and
associated markets. Our performance and the delivery of our
strategy is dependent upon having a robust talent pipeline at
alllevels of the organisation which importantly also reects the
diversity in the wider societies in which we operate.
• As we grow into new territories we also have to become familiar
with the relevant laws, regulations and customs associated with
conducting business in these regions, including the
empowerment of people. Thisprocess can impact our pace of
execution and creates the potential for non-compliance where
the level of understanding of specific requirements for doing
business is immature. These risks can impede our progress, result
in unforeseen costs and impact our reputation.
• Union organisation could lead to complex pay negotiations with
both our direct workforce, and in contracting companies, with
anassociated cost of establishing appropriate contingencies to
mitigate against any threat of potential strike action.
• Changing ways of working allows colleagues more choice about
where and how they work. This means we have to be competitive
on all fronts with our employee value proposition. The failure to
adequately respond to changing colleague expectations could
result in the loss of existing colleagues or failure to attract new
colleagues with the skills the Group needs for future growth.
• The Group is undertaking significant change associated with
implementing our strategy and improving operational
effectiveness. Such change can have an impact on employee
engagement, wellbeing, stress and retention, with subsequent
impacts on colleague turnover and productivity.
• International growth brings with it increased complexity, which
requires an understanding and appreciation of cultural, legal
anddiversity matters in those territories.
• Reputation and market risks related to the transition to a
low-carbon economy may result in challenges with employee
recruitment and retention. Refer to Climate Change risk on
page105.
Key mitigations
• Working with colleagues across all aspects of our business to
understand and determine our skills and capability needs, for the
near, medium and longer term. Supporting the more immediate
needs through reskilling programmes whilst also looking at the
medium/longer term through our early careers offering.
• We are progressing our employee value proposition and strategic
workforce planning approach to fulfil our growth plans. Current
growth needs are being met by increasing the overall capacity
ofthe resourcing team and outsourcing recruitment processes
where required to manage the increased demand.
• Contingencies are in place to mitigate against the risk of
operational interruption caused by strike action.
• Recruiting specialists in talent management to ensure strategic
planning for the attraction of people with the current and future
expected skill sets. Additionally, development of targeted training
and development programmes for colleagues.
• Enhancing our diversity and inclusion strategy to ensure it is
responsive to stakeholder views, provides equality of opportunity
and aligns to our organisational vision and goals. You can read
more about our work in this area on pages 65 and 129.
• Introduction of an Inclusive Leadership Programme, and an
Inclusive Management Programme, aligning to the business’
strategy to educate and inspire colleagues to make Drax a more
inclusive place to work.
• Regular reviews of our succession and key talent cover, mapped
to our development programmes and talent offering.
• Broadening of our benefits and wellbeing offering to help
colleagues take more preventative measures in areas such
asfinancial wellbeing.
Principal risks and uncertainties continued
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Climate Change
Context
Given the pervasive nature of the potential impact of climate
change on various parts of the business and its Principal Risks, the
resilience of the Group’s strategy and operations to climate risks is
important to the functioning and long-term value creation of the
Group. We identify climate risks in two main categories – physical
and transitional. Physical impacts of climate change include
event-driven, acute impacts such as ooding, and chronic impacts
such as sea-level and temperature rises which may pose
challenges to our operations. Transitional impacts of climate
change include policy, regulatory, technology and market-related
changes associated with the transition to a low-carbon economy
that could affect the Group’s business model, but also serve as
opportunities for growth. In the analysis of the risks we therefore
assess differing factors: those where the Group needs to mitigate
against adverse events which could impact our ability to conduct
our business, and those where, through effective and
constructive engagement with third parties, the Group will be able
to deliver a combination of commercial and sustainability benefits
through its activities. We provide further detail on climate-related
risks and opportunities in our TCFD disclosure on page 78.
Risk and impact
• Physical risks to our Pellet Production operations and supply
chain in the US and Canada include increased frequency,
variability and severity of weather events, such as hurricanes,
extreme low temperatures and wildfires. These have the
potential to cause damage to assets, impact on the supply and
production of raw material and finished goods, and create
challenges in executing work on site, for example, having to
regularly operate Canadian plants at sub-zero temperatures.
Overall, we observe a continued rise in frequency of severe
weather events with increased likelihood going forward that
such events could cause greater disruption to North American
Pellet Production operations.
• Physical risks to our Generation operations and supply chain
include sustained rising water temperatures, and increased
frequency and severity of extreme weather events, such as
heavy rainfall, flooding and high winds, with potential to cause
damage to assets, breach of permits, interruption to operations,
and impact on transport infrastructure that could restrict or
reduce access to sites.
• Policy and regulatory risks related to the transition to a
low-carbon economy include changes in government and
cross-border climate or emissions policies that may negatively
impact our Generation and Pellet Production businesses. Refer
to Political and Regulatory, and Biomass Acceptability risks on
pages 101 and 102 respectively.
• Technology risks related to the transition to a low-carbon
economy include technology and innovation, such as BECCS,
not developing as expected, or faster than expected
development of competing technologies, such as direct air
capture, impacting delivery of the Group’s carbon negative
ambition and business strategy.
Key mitigations
• In recognition of the increased likelihood and frequency of severe
weather events, the Pellet Production business has increased its
planning for outage periods. Mitigations include development of
stockpiles to alleviate the risk of harvesting or delivery disruption
and the increase in geographic diversity of pellet plant asset
locations across the US and Canada should minimise the impact
ofproduction interruption due toextreme weather.
• Continue to comply with the TCFD recommendations, including
physical and transitional scenario analysis and modelling of
reservoir spillway capacities at Cruachan Dam, to understand
capacity for extreme weather events.
• The Group’s carbon negative ambition, three strategic aims,
near-term Science Based Targets initiative (SBTi) targets, and
Climate Policy, underpin a business strategy consistent with UK
and international climate change policies. Refer to pages 1 and 52.
Discussions with governments and policymakers continue with
increasing recognition of the role the Group’s strategy can play in
combatting the adverse effects from climate change.
• Sourcing from a wide geographical range of third-party biomass
suppliers and continued evaluation of alternative fuels, using
different feedstock types and considering wider sourcing
geographies.
• Constructively challenging the views of eNGOs where we believe
those views are inaccurate or misleading. Seeking engagement
with eNGOs on carbon accounting and reporting, and liaising with
the UK Government on future policies. Establishment of an
internal Science and Evidence function to collate and examine the
science underpinning our activities related to BECCS and biomass.
• An internal Innovation team track technology advances and the
development of new technologies, and compare this against the
Group’s projects.
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Plant Operations
Context
The reliability and safe operation of our facilities is critical to our
ability to create value for the Group as well as fulfilling our
contracted obligations in the generation of power for the UK
power system. The Plant Operations risk profile is inuenced by a
number of key activities, including the safe management of ageing
assets, building inherent reliability and safety by design for new
installations, management of change, and operating equipment
within intended design limits and parameters. The Group’s
facilities are highly complex and require careful management,
identification, control and mitigation of risk to operate safely
throughout the full life cycle (from design through to
decommissioning). The operational risk profile is varied and
continually changing due to growth in the business, with the
construction of new assets and decommissioning of older assets.
Risk and impact
• Severe weather events (such as hurricanes, fires and oods)
across North America and in the UK could result in interruption
to operations and hinder the supply of required materials to
operate our assets. Refer also to Climate Change risk on page
105.
• Drax Power Station, located in Selby in Yorkshire, was built
approximately 50 years ago and some of our hydro assets,
located in Scotland, nearly 100 years ago. As plants age, their
operational reliability and integrity is expected to reduce.
Furthermore, there is an inherent linkage between physical
infrastructure and the systems that play an integral role in
supporting them. These systems also require continuous
upgrade and investment to ensure operational reliability. Refer
toInformation Systems and Security risk on page 107.
• Loss of experience due to planned restructuring or leavers could
lead to loss of knowledge and increasing reliance on processes
and procedures to operate plant and maintain quality. In
particular, the Pellet Production business saw a high colleague
turnover in 2023.
• An increase in the cost of fibre resulting from supply chain
pressure could cause challenges in maintaining maximum
biomass pellet production levels at a viable cost.
• An inherent risk of handling biomass is the potential for fire
andexplosion during its storage, production, transportation
andon-site delivery. Such events have the potential to cause
significant disruption to operations. Refer to Health, Safety
andEnvironment risk on page 100.
• There are also threats across our biomass supply chain due to
thereliance on the complex coordination of transportation at
various stages of the process. Therefore, Drax Power Station
could be exposed to unplanned interruption in supply.
• Decommissioning and demolition activities on a site that remains
operational brings unique challenges which may introduce
additional safety and operational risk to people, plant and the
environment. Such work is ongoing at our sites, including Drax
Power Station, following cessation of coal operations.
• Cyber security threats to networks and systems continue to be
heightened as a result of geopolitical tensions, with the potential
to compromise key plant and equipment. Refer to Information
Systems and Security risk on page 107.
Key mitigations
• Business continuity plans are in place for all plants, ports and
other logistics which cover weather impacts and other factors.
This enables Drax to be better placed to respond to abnormal
andone-off weather events.
• A comprehensive plant investment and reliability programme
hasbeen implemented, including successful major outages of
generating Units 2 and 4 at Drax Power Station.
• The potential cost of an outage is considered when determining
the running regime of our generation plant. For example,
whenprices are higher, lower risk running options will be utilised,
whereas when prices are lower, we may look to take the
opportunity to perform short maintenance outages.
• Proactive reliability management including planned, rather
thanbreakdown, maintenance and imbedding several condition
monitoring tools (infrared, vibration, spark detection) works
tominimise unplanned outages.
• Maintaining stringent safety procedures for sourcing, acceptance
and handling biomass, and the control of dust management from
both a respiratory, health, and fire and explosion perspective.
• Maintaining plant standards and investment in plant to As Low
AsReasonably Practicable (ALARP) levels has been established,
such as for the chemical suppression systems at Drax Power
Station. In areas of the plant where engineering controls cannot
yet meet required standards, Personal Protective Equipment
(PPE) is used to ensure individuals are not exposed to harmful
levels of dust.
• Insurance is in place to cover potential material losses from
significant plant failure, where possible.
• Maintaining robust management systems, designed to identify
and mitigate risks with the potential to prevent the safe operation
of our assets and manage process safety across operating assets
utilising the SAI360 system.
• Providing the required training and development for our
colleagues in conjunction with recruiting people with the right
skills and experience to safely and effectively operate the
Group’splant.
Principal risks and uncertainties continued
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Risk level change from previous year Up/increasing Down/reducing No change
Information systems and security
Context
Our Information and operational technology systems and the
integrity of the data we use are essential to supporting the day-to-
day business operations of the Group, in addition to contributing
to the delivery of our growth strategy. As part of the UK’s critical
national infrastructure, we are required to maintain availability of
our systems and the capability to adapt and respond to evolving
external threats. We have a clearly defined technology and
security roadmap, which sets out the means by which the Group
should invest and enhance further its available technology to
ensure it is capable of meeting current and projected future
requirements and ensuring our financial, legal, regulatory and
compliance obligations are met.
Managing these risks in an environment where threats
andchallenges are continually evolving requires careful
understanding and assessment. We use internal and external
expertise, including engagement with regulators, auditors and
industry groups to update our understanding of the IT and
Security risk environment.
Risk and impact
• Geopolitical tensions have in the past been known to result in
increased cyber-related threats. The ongoing conicts in
Russia-Ukraine and the Middle East have increased the Group’s
risk exposure to attacks from private groups, including so-called
cyber-criminals, state-sanctioned attacks on our systems and
those of suppliers on whom we rely for integrity of service.
• Successful cyber-attacks have the potential to compromise our
systems, affecting the confidentiality, integrity and availability of
our data (including personal data). Current attack methodologies
seek to deny access, which may cause operational and financial
impacts and regulatory non-compliance.
• Evolving regulatory requirements present ongoing challenges
and costs to the Group. Operators such as Drax are required to
broaden the scope of systems that are deemed ‘at risk’ and focus
continues to be placed on establishing adequate resilience, the
capability to respond and recover quickly from disruptions, and
ensuring the continuation of safe and secure operations.
• Our partnerships with third parties support our information
andoperational systems. If those businesses were themselves
tosuffer systems failure, cyber-attack or financial difficulties, this
could in turn impact our business, operations and performance.
• Legacy systems are more difficult to maintain and are more
susceptible to cyber-attacks. Subsequent operational issues,
such as reduced performance, may impact the availability of
systems, data and facilities, adversely affecting our operations.
• The availability of experienced IT and Security personnel in the
labour market has tightened. This may result in not being able
toretain and/or hire people with the necessary skills to manage
these risks.
• The effective function of our cyber-based resilience and
oversight of our information and operational technology systems
requires that the Group employs people with the requisite skills,
knowledge and experience. Such capabilities are in high demand
and the Group may not be able to recruit and retain the people
needed. Refer to page 104 for further information.
• Identifying and responding to emerging threats requires access
to people, industry experts and collaboration with organisations
able and willing to work with the Group. Whilst such collaboration
has been strong across multiple jurisdictions and agencies in the
past, changes in geopolitical interests and willingness to share
information, whether on a timely basis or at all, would impact
howthe Group is able to respond to events.
Key mitigations
• As an Operator of Essential Services, Drax is obliged to meet the
security of Network and Information Systems (NIS) Regulations
and is subject to regulatory inspection by a competent authority
to ensure we meet control requirements.
• We seek to maintain a close working relationship with Ofgem
andother Government agencies, responding quickly to changing
threat levels and responding to such agencies’ advice and
requirements.
• Maintenance of effective and up-to-date cyber security
measures, including a prevent, protect, detect, respond and
recover strategy, which evolves to address known and emerging
threats.
• We work with external experts and also develop our internal
capabilities so that we are able to respond to changing
regulations and standards. We continue to develop technology,
security controls, and resilience measures to maintain
compliance.
• Regular campaigns and training events are undertaken to
improve cyber security awareness.
• Maintenance of a robust supplier onboarding methodology.
• Periodic internal and independent external assessment of the
integrity, adequacy and compliance status of our IT and cyber
security controls.
• Exercising and refreshing of business continuity, disaster
recovery and crisis management plans.
• Periodic technical refresh programmes to address legacy
infrastructure and systems, and adoption of secure-by-design
principles and design patterns.
The strategic report is set out on pages 1 to 107 and was approved by the Board of Directors on 28 February 2024.
Will Gardiner
CEO
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Governance
Contents
110 Letter from the Chair
114 Board of Directors
118 Corporate governance report
127 Nomination Committee report
132 Audit Committee report
144 Remuneration Committee report
161 Directors’ report
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Andrea Bertone,Chair
Good governance is integral to the
success of our business. It informs
our purpose and values, and is
fundamental to the way in which
everyone, from the Board down,
isexpected to act. It supports the
Board in decision-making and helps
us realise our goals.
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Corporate Governance
Report
Our purpose, strategic objectives
andvalues
Our purpose and ambition
Our purpose is to enable a zero carbon, lower cost
energyfuture.
Our ambition is to become carbon negative by 2030. Being
carbon negative means that we will be removing more carbon
dioxide from the atmosphere than we produce throughout
ourdirect business operations globally – creating a carbon
negative company.
Our strategic objectives
Safety, sustainability and cost reduction underpin our three
strategic objectives:
To be a global leader in sustainable biomass pellets
Pellet sales, self-supply, cost reduction, fibre sourcing
andtechnology
To be a global leader in negative emissions
Development of projects in UK and internationally
Carbon negative by 2030
To be a leader in UK dispatchable, renewable power
Flexible renewable power – biomass, hydro, pumped storage
Renewable power and energy services to strategic customers
Our Values
• We care about what matters
• We’re a can-do kind of place
• We see things differently
• We listen carefully
• We do what we say we’ll do
I am pleased to present our Corporate Governance Report.
I joined the Board in August 2023 as a Non-Executive Director
and Chair Designate, taking over from Philip Cox as Chair of
theBoard on 1 January 2024 following the completion of his
nine-year term as a Non-Executive Director. I want to start this
report by thanking Philip for the time he spent with me, offering
valuable information and insight about Drax and assisting in my
induction. It is clear that Philip, and the rest of the Board at Drax
consider good governance as central to the success of our
business, as do I and which was a factor in my joining. The
realisation of our strategy requires as an integral feature,
continued attentiveness to conducting the various aspects of
Drax’s activities in a manner which has the right values and in
compliance with the laws, regulations and codes which apply
across the Group.
The information presented in this section reects the Board’s
assessment on the application of the Code of Corporate
Governance. Here and in the rest of the Annual Report we
address how the Group has reected stakeholder expectations
on issues, including application of practices according to laws
andstandards. Importantly also, how the actions that have been
taken ensure decision making, sound policies and procedures
support management and the Board in effective controls and
oversight. In this Corporate Governance report, I refer to other
sections of the Annual Report where relevant. The Board,
management and our colleagues across the Group recognise that
as Drax continues to grow and evolve, we will face challenges
andscrutiny in the way we deliver against the expected
standards. We accept that we need to continue to question
andevaluate the extent to which our procedures, policies and
practices need to evolve in order to respond to the changing
circumstances of our global business. That is a key function
oftheBoard and forms an integral part of how it also evaluates
theplans, decisions and actions across the Group.
Andrea Bertone,Chair
Good governance throughout
thebusiness is vital in helping the
Company to achieve its long-term
strategy and purpose.
Letter from
the Chair
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The Board welcomed the continuing expansion at Cruachan
following confirmation that the site had achieved development
consent from the Scottish Government in July 2023. My Board
colleagues had a successful visit to Scotland in June 2023 which
comprised site visits and meeting colleagues during which the
opportunities for our hydro business were considered. We have
continued to devote time during regular meetings and in our visits
to understanding performance in activities such as health, safety
and sustainability and these also formed part of the discussions
inScotland in understanding how management were addressing
local requirements. Safety of course is a key focus for
management and the Board across all parts of the Group and for
more information about safety and how we embed key actions
into assessing management’s performance, please see page 100.
When visiting the pumped storage site at Cruachan, the hydro
sites at Lanark and the waste treatment plant at Daldowie, the
Board recognised that a crucial element is the opportunity to
meet with colleagues where we can discuss our successes as
wellas the challenges experienced. Some of the local issues
weconsidered included people priorities such as recruitment,
diversity, engagement (including how we attract female talent to
join as apprentices) and understanding how wellbeing initiatives
were being offered to colleagues as part of their benefits. We
alsodiscussed ongoing engagement with key stakeholders in
understanding their views on the proposed Cruachan expansion
project. It is pleasing to learn of the pride with which our
colleagues work as members of the local community, combining
their knowledge and passion for Drax and what we do, with
interest and care for the locations in which we operate and in
which colleagues live.
During the year the Board also reviewed proposals and ongoing
actions to decarbonise and reduce emissions, including within
thehydro business. Our aim to be a carbon negative company
by2030 is a key part of the Group’s strategy, and progress made
since our original baseline has been largely due to the elimination
of the use of coal from our generation business. However, if we
are to continue to achieve our stated objectives, itis essential
that decarbonisation goals become embedded into the breadth
ofour activities and include stretching but attainable targets.
InDecember 2023 the Board reviewed and discussed the Group’s
decarbonisation targets and ightpath to 2030 which have
beenvalidated by the Science Based Targets initiative (“SBTi”).
More information on the SBTi targets and how we track such
performance can be found on page 52.
Drax has a clear purpose and strategy and the Board regularly
reviews the performance of the business against its strategic and
financial objectives. The Group has established KPI’s and at each
Board meeting the Directors are able to review the status across
aportfolio of projects, discussing with management progress
andassessing both the opportunities associated with expected
execution as well as the risks which might impact delivery.
As we explain in our Principal Risks section (page 94), wider
macro-economic conditions and political uncertainty can have
amaterial impact on the realisation of the Group’s objectives. The
Board regularly considers those matters along with the principal
and emerging risks and believes that a robust assessment is in
place. During 2023 this included assessment of the Group’s
BECCS programme and ongoing engagement with key partners
including UK Government. The Board has given careful
consideration to the status of such discussions, as well as wider
and associated matters including announcements made by the
UK Government on biomass as a sustainable and renewable
resource for use in power generation.
At its meeting in October, the Board considered in detail the
strategic objectives, which included assessment of the status
ofengagement with stakeholders in regions where the Group is
seeking to further its aims. The Board continues to consider that
the stated strategy for developing BECCS both in the UK and
US,combined with expansion of capacity in the production
ofsustainably sourced biomass pellets in North America is
appropriate and offers opportunities for growth. The Board has
also considered the appropriate governance, internal controls,
and infrastructure required to support delivery of the strategy.
The Board continues to hold management to account on the
importance of such frameworks, which the Board considers
represents a critical part of enabling the proper execution of
theGroup’s strategy. More information can be found in the
reportofthe Audit Committee on page 132.
2023 was a year of continuing global economic challenges,
inationary pressure, volatile commodity prices, alongside
challenging climate changes. 2023 brought a number of weather
events that adversely affected both our US and our Canadian
sites. The seasonal effects of wildfires as well as tornados
impacted our pellet business of which the most significant was
amicro-burst at the Baton Rouge site where an intense wind
vortex resulted in serious damage to the Port’s crane. For more
information on weather related challenges please see page 105.
Thanks to the efforts of colleagues in the Pellet Operations
business we were able to mitigate the business impact of these
events. Throughout the year the Board received updates on
operational challenges and risks as well as the steps taken to
mitigate issues and ensure continuity of pellet supply in order to
allow the Group to meet its generation commitments and sales
contracts. This included implementing alternative measures for
loading pellets to ships as well as effecting the required repairs
tothe Baton Rouge site.
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In line with the Board’s expectations for a full and thorough
stakeholder engagement process, the Cruachan expansion
workduring 2023 involved a broad consultation with relevant
stakeholders. During the year, the Board received updates on
progress and discussed the structure of engagement. The project
received development consent from the Scottish Government
inJuly 2023, which is an important and exciting step in the
process. The expansion represents a key part of enabling the
supply of secure, renewable energy in England, Scotland and
Wales andit will become a focus for education and job creation
inthe local communities.
Will Gardiner and Philip Cox met each quarter with the chairs
ofthe MyVoice Forums, our invaluable workforce engagement
initiative. These meetings allow the Board to hear from colleagues,
via their representatives, on a range of topics. It is a forum where
everyone can speak openly, holding discussions on the key issues
that are important for our colleagues, with topics including the
rising cost-of-living and progress on business strategy. Will and
Philip then reported to the Board, supporting all directors in
understanding employee interests and concerns while also
providing an opportunity for directors to offer informed guidance
and reections on our possible responses. I attended my first
meeting of the MyVoice Forum chairs in November 2023, and
wasimpressed by the open and constructive engagement. I very
much look forward to listening to and working with the MyVoice
Forums during 2024. You can read more about this on page 64.
The Board recognises the value of interaction across various
media with colleagues. In keeping with prior practice, and as
partof my induction, I recorded a video addressed to colleagues.
Iwelcomed the opportunity to introduce myself to the wider
business in a more personal video form and also talked about
some of the exciting projects that Drax has in the pipeline, in
order to achieve our strategy. This has augmented my visits to
Drax locations at London and Yorkshire in England and Vancouver
in Canada. Throughout 2023, our Non-Executive Directors met
with various colleagues to provide guidance based on their own
experience. For example, ahead of our December 2023 Board
meeting, our Group HSE Director met with several Non-Executive
Directors on a one-on-one basis to discuss some of the health,
safety, and environmental issues being addressed. These
discussions helped the Board and management in considering
proposals for working with external advisors on different parts
ofhealth, safety and environment pertaining to our Group.
In 2023 Philip Cox, as Chair, held virtual and in-person meetings
with some of our largest shareholders. The Senior Independent
Director (SID), David Nussbaum, also met with two major
shareholders in person to discuss the Board’s approach to
governance, sustainability, and the wider business. In addition,
Philip and David participated in a virtual meeting with investors
hosted by the Investor Forum – an institutional investor-led
groupwhich aims to facilitate engagement with corporates
andgood stewardship.
Our duty to stakeholders
The Board recognises the duty it owes to a range of stakeholders,
including employees, contractors, partners, communities and
shareholders to safeguard the operational integrity and prospects
of the core business and strategy. Particularly as we grow
internationally, we feel it is vital we are informed by the views of
stakeholders. More information on how stakeholder views were
considered as part of our UK BECCS strategy is included on page
124. Engagement with stakeholders is a two-way process and
wevalue discussion and challenge. One of the most valuable
pieces of feedback the Board receives each year from internal
stakeholders is through the My Voice employee survey. Some
ofthe areas covered by the survey include safety, leadership,
engagement and wellbeing. The Board also places real
importance on engagement levels for our diverse employee
groups and challenges management’s programmes for
improvements. Will Gardiner’s CEO report, which is a standing
item in Board packs, contains regular updates on engagement
with various stakeholders.
In July, the Board received a scheduled deep-dive presentation
from the External Affairs team and discussed, assessed and
challenged the quality of the team’s engagement in satisfying
Section 172 of the Companies Act. The Board also sought to gain
a better understanding of what matters most to our stakeholders,
and of how management seeks to address these issues. This
requires attentiveness to local issues, as well as those of a
strategic nature. For example, time was devoted in the July 2023
meeting to community engagement work taking place in different
business locations and contributions made to groups via the Drax
Foundation, which was established in 2023. More information
about the Foundation can be found on page 40. The Board
received a second deep-dive presentation on stakeholder
engagement at the January 2024 Board meeting. The
presentation included a detailed update on the community work
taking place in different locations with local groups and NGOs,
and plans for 2024 engagement. The process of listening and
building trust with stakeholders can take time in order to become
effective. The Board recognises the importance of investing that
time and that more needs to be done. It will continue to be an
area of focus in 2024.
During 2023 Ofgem, announced it was opening an investigation
into industry regulator compliance by Drax Power Limited (“DPL”)
with reporting regulations. Ofgem’s announcement stated that
the opening of an investigation did not imply any finding of
non-compliance and separately confirmed that as of that date it
had not established any non-compliance that would affect the
issuance of Renewable Obligation Certificates (ROCs) to Drax,
and therefore the associated financial benefit. Like all energy
generators, as part of normal business Drax receives regular
requests from Ofgem, and the Board and wider business
understand the importance of full and transparent co-operation.
In the latter part of 2022, a third party was appointed to
independently verify the accuracy of DPL’s biomass sustainability
and profiling data as part of an ongoing process, which the Board
scrutinised during 2023. From the findings, and based on the
assessment and challenges undertaken through the various
stages conducted in the year, the Board has been assured in the
compliance with the Renewables Obligation criteria of biomass
used by DPL. However, we recognise that there is always room
for improvement to governance-related processes throughout
the business. The Board and its Committees regularly challenge
management on the ongoing implementation of proposed actions
arising from the reports provided by the third party, together with
associated governance structures and processes that enhance
compliance with regulations.
Corporate Governance Report:
Letter from the Chair continued
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Culture and governance
The Board leads the Company’s culture and is responsible for
setting the right tone within the business. The Board recognises
the importance of having the right culture, understanding that
good governance can only exist in places that have the right
culture and values. With this in mind we continued to focus on
culture, values and our colleagues’ experience of working at
Draxin the differing locations and this is also forms part of the
feedback to the Board, mentioned above.
The Board and management continue to place particular
emphasis on the wellbeing of our people. In April 2023 we
decided to provide all employees with a “wellbeing day”, which
wasan additional day of paid leave, to recognise the contribution
ofall colleagues towards the success of our business. We also
continued to engage our financial wellbeing partner, called
“nudge”. Through a web application, nudge offers colleagues
personalised financial guidance that aims to help them navigate
arange of financial matters, including responding to the
increased costs of living through to planning for retirement.
In the UK, Drax offers a Sharesave programme giving employees
the opportunity to save towards purchasing Drax shares at a 20%
discount to the market price. To help colleagues navigate the tax
and investment implications of their maturing options, Drax
partnered with Wealth at Work on a comprehensive financial
education programme which ran in the first half of 2023.
Feedback about the programme was very positive. Responding
tofeedback from colleagues in North America, in 2023 we also
launched a new all-employee plan in the US and Canada – the
Employee Stock Purchase Plan – under which colleagues can
save to purchase discounted Drax shares every six months.
In October, I visited Drax Power Station with Philip Cox as part
ofmy induction. We met with members of management and
colleagues to enable introductions and to discuss issues such
asthe station performance, the My Voice Forums and employee
groups, and health and safety matters. More information on my
induction is included in the Nomination Committee Report on
pages 128.
Looking to the future, we will continue to focus our efforts on
strategy for biomass acceptability, carbon removal, and secure
renewable power. Drax has experienced many challenges during
2023 and the Board recognises the significant work by all
colleagues, in response to those challenges. We very much
appreciate everyone’s positive contribution in delivering our
day-to-day operations while progressing our strategy. It’s only
byworking together, informed by our values and our continuing
commitment to realising our ambitions responsibly, that we can
deliver our purpose.
Andrea Bertone
Chair
Diversity and inclusion
In the 2022 Annual Report and Accounts, we outlined our work
enhancing diversity and inclusion at Board level and throughout
the Group and we are pleased with our progress during 2023.
Even so, we recognise there is always more work to do. We
welcomed the ambition of the FCA to improve transparency, as
announced in its April 2022 Policy Statement on “Diversity and
inclusion on company boards and executive management”. It
included targets that appear in our own Board Diversity Policy,
which is approved annually and covers our main Board and Board
Committees. As at 31 December 2023 Drax met two of the FCA’s
three board diversity targets. From 1 January 2024 with Andrea
Bertone formally replacing Philip Cox as Chair, we met all of the
FCA’s board diversity targets. In collecting the data to measure
progress against the FCA’s three board diversity targets, Board
Directors were asked to self-report against ethnicity categories as
defined by the Office for National Statistics. Set out below is how
we comply with the FCA board diversity targets and we provide
further diversity figures in the tables on page 123:
1. At least 40% of the board are women. Met: As at 31
December 2023 50% of the Board were women. From
1January 2024 Andrea Bertone formally became Chair,
following Philip Cox’s retirement, at which point 56% of
theBoard are women. In addition, 37.5% of the Executive
Committee are women.
2. At least one of the following senior board positions is staffed
by a woman - Chair, Chief Executive Officer (CEO), Senior
Independent Director (SID) or Chief Financial Officer (CFO).
Met with effect from 1 January 2024 when Andrea Bertone
became Chair.
3. At least one board member is from a minority ethnic
background, defined by reference to the categories
recommended by the Office for National Statistics, excluding
those listed as coming from a White ethnic background. Met:
The Board currently has one director from an ethnic minority
background.
In March 2023, the Parker Review published a new target for
FTSE 350 companies which sought disclosure on the target
percentage of senior management positions to be occupied by
ethnic minority executives by 2027. We fully support the Parker
Review’s ambitions and as part of changes being implemented at
Drax (see page 129), we will during 2024 consider an appropriate
target for 2027.
In other sections of this Annual Report and Accounts (see page
65), we detail activity during 2023 to support positive change
fordiversity, equity and inclusion. These include leadership
development, more transparency in career progression, and
awareness-raising through events. We are continuing to build
ourColleague Resource Groups (“CRGs”) to give members of all
communities an opportunity to communicate in a safe place. We
are also evolving our recruitment strategies to attract candidates
from under-represented groups. We continued to build our CRGs
and celebrated LGBTQ+Pride across Drax. It is pleasing how
these activities have increased membership of the CRGs to
hundreds of colleagues. During 2023, we also rolled out our
DEIlearning resources for colleagues across sites and regions.
InNovember 2023, we commenced the Inclusive Managers
Programme across North America with DEI workshops taking
place across the region in November and December 2023.
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Will Gardiner
CEO
Andrea Bertone
Chair
N
R
Contribution and experience
Using his strong financial and commercial
skills built over 25 years, Andy provides
thefinancial oversight and controls that
have supported the growth of Drax from
arenewable energy company to an
international company with a
differentiated portfolio.
Andy is highly values driven, with a
personal commitment to Drax’s climate,
nature andpeople positive ambitions.
Andy represents Drax as a member of
theNorthern Powerhouse Partnership,
helping create more opportunities and
abetter economy for the people of the
North of England, where he also lives.
Previously Andy was CFO at Fidessa
Group plc and has held a number of senior
finance positions at CSR plc, Ericsson and
Marconi, including two years as CFO of
Ericsson Nikola Tesla. Andy has a BA in
accounting and finance and qualified
as a chartered accountant in 1994.
Appointment to the Board:
January 2019
Contribution and experience
Will has driven the vision and operations
ofthe company since becoming CEO
inJanuary 2018, inspiring Drax’s
transformation from a leading UK
renewable energy company to global
leadership in sustainable biomass with
theambition to be a global leader in
carbon dioxide removals.
Sustainability considerations are at the
core of everything at Drax. Will is driving
Drax’s sustainability agenda, taking a
thought leadership role in defining
sustainability criteria for woody biomass.
Working with stakeholders across the
spectrum, Will is creating a purpose led
company at Drax to ensure outcomes
thatare positive for people, nature and
theclimate.
In addition to being CEO of Drax, Will is a
Commissioner of the Energy Transitions
Commission, a member of the World
Economic Forum’s (WEF) Alliance of
CEOClimate Leaders and a member of
Conservation International’s European
Council.
Will joined Drax in 2015 as CFO and was
appointed as CEO in January 2018. He has
a wealth of experience in finance and
technology, having held CFO and divisional
Finance Director roles at a number of
major companies, including CSR plc
(acquired by Qualcomm, Inc in 2015) and
Sky. He has dual US-UK citizenship and
has lived and worked in the UK since 1998.
Appointment to the Board:
November 2015
Contribution and experience
Andrea is an experienced leader of large,
listed businesses, having held both
executive and non-executive roles at
international energy companies. She has
adeep understanding of global markets,
including the US, and their underpinning
regulation.
Andrea is the former President of Duke
Energy’s international division (‘DEI’). She
spent 15 years at Duke Energy, including
seven years as President of DEI with
executive responsibility for hydro and
thermal assets across countries in Latin
America. Prior to her role as President,
Andrea held senior executive legal
positions at DEI, including as associate
General Counsel between 2003 and 2009.
Andrea also served as Latin America
counsel with Baker McKenzie. Andrea has
non-executive director appointments at
Waste Connections, Inc., Amcor plc and
Peabody Energy Corporation. Andrea was
previously a non-executive director
atDMC Global Inc. and Yamana Gold Inc.
Andrea has dedicated her career to
successfully leading international teams
with diverse cultures and backgrounds.
Andrea earned a Bachelor of Law from
theUniversity of Sao Paulo Law School in
Brazil and a Master of Law in International
and Comparative Law from Chicago-Kent
College of Law at the Illinois Institute of
Technology. She is a member of the
Brazilian Bar Association.
Appointment to the Board:
August 2023
Appointment as Chair:
1 January 2024
The Board shapes our purpose, strategy, culture and
values to generate long-term sustainable value and
provide strong stewardship of the Group.
Andy Skelton
CFO
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Vanessa Simms
Independent Non-Executive
Director
A
N R
David Nussbaum
Senior Independent
Non-Executive Director
A N
Contribution and experience
As Chair of the Remuneration Committee
Nicola brings to the role a wide range
ofexperience of international business,
government organisations, and dealing
with a variety of stakeholders.
Nicola is currently Chief Executive of
IBMUK and Ireland and Deputy President
of TechUK. Previously she was Vice-
President, Global Sales and Marketing,
Field Transformation at Microsoft, Chief
Operating Officer of Microsoft UK, and
previously held P&L and sales roles at
Siemens, CSC (now DXC) and EY. Nicola
isa Non-Executive Director of Beazley plc.
Nicola brings expert level technology
knowledge, with her current working
experience at the forefront of global
organisations. She is also skilled in
business and digital transformation, and
sales. Nicola is committed to inclusivity
and enabling people to realise their full
potential, irrespective of their background.
Appointment to the Board:
January 2018
Contribution and experience
Vanessa has extensive experience in
senior finance roles across several
different, and capital intensive, industries,
including real estate, medical devices and
telecommunications.
Vanessa is CFO of Land Securities Group
plc and has worked in finance for over 30
years. Prior to her role at Land Securities
Group plc, Vanessa was CFO of Grainger
plc, held a number of senior positions
within Unite Group plc, including Deputy
Chief Financial Officer, and was UK
Finance Director at SEGRO plc. Vanessa
isa Fellow of the Association of Chartered
Certified Accountants and has an
Executive MBA from Ashridge.
Vanessa has broad and expert level
experience in strategic capital allocation,
finance, risk and internal controls at highly
successful companies in the UK which is
invaluable in her role as Chair of the Audit
Committee. She has a comprehensive
understanding of large, listed companies’
requirements and brings a rich insight into
a broad range of stakeholder perspectives.
Appointment to the Board:
June 2018
Contribution and experience
David holds a portfolio of Board
appointments, including as Chair of
Anthesis Group, of International Alert
andof the Joffe Trust. He also serves as
amember of the Board (‘Council’) of
Chatham House, and of the International
Budget Partnership; is President of the
Advisory Council of Transparency
International UK; and is a member of
theEthical Investment Advisory Group
ofthe Church of England.
David’s executive career included being
the Chief Executive of The Elders,
WWF-UK, and Transparency International.
He was previously Finance Director and
Deputy CEO of Oxfam, and CFO of Field
Group plc. In a Non-Executive capacity,
David has been Deputy Chair ofthe
International Integrated Reporting Council,
Deputy Chair of Shared Interest Society,
aNon-Executive Director of Low Carbon
Accelerator Limited, and Chair of
Traidcraft plc.
David is a chartered accountant, and has a
Masters in Theology from both Cambridge
and Edinburgh universities, and a Masters
in Finance from London Business School.
David’s extensive experience in
international development and
environmental matters, in addition to his
prior experience as CFO of a UK listed
industrial company, is of significant value
to Drax and contributes to the Board’s
discussions and understanding of the
perspectives of and engagement
undertaken with stakeholders.
Appointment to the Board:
August 2017
Nicola Hodson
Independent Non-Executive
Director
A N
R
Key to Committees
A
Audit Committee
N
Nomination Committee
R
Remuneration Committee
Chair of Committee
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Kim Keating
Independent Non-Executive
Director
N R
John Baxter CBE
Independent Non-Executive
Director
N R
Contribution and experience
Erika’s extensive experience is gained
fromover 25 years working in global
organisations. Her broad knowledge has
been built serving various sectors of the
chemicals industry including plastics,
petrochemicals, agriculture and pharma.
Erika is currently serving as Senior Vice
President of Global I&D Manufacturing &
Oxyfuels at multi-national chemical
company LyondellBasell. Most recently,
Erika was Senior Vice President at BASF
Corporation, where she led the North
American Chemical Intermediates
business. Erika held other senior executive
roles with BASF, covering manufacturing
and production, engineering, strategy,
andcommercial business management.
Passionate about STEM and DEI, she
actively supports community workforce
development programs, as well as a range
of diversity and inclusion initiatives.
Erika sits on a variety of College of
Engineering Advisory Boards, including
those for the University of Houston and
the Georgia Institute of Technology.
Sheserves as a Board Trustee for The
Chatfield Edge, a scholarship foundation
based in Cincinnati, Ohio. She is also a
member of the Executive Leadership
Council, a non-profit organization whose
mission is to globally accelerate the
development of black executives over the
lifecycle of their careers. Erika holds a BSc
in chemical engineering from the Georgia
Institute of Technology and an MBA from
the University of Houston.
Appointment to the Board:
October 2021
Contribution and experience
Kim is a Professional Engineer with over
25 years of broad international experience
in the oil and gas, nuclear, hydropower,
and mining sectors. Most recently, Kim
was theChief Operating Officer of the
Cahill Group, one of Canada’s largest
multi-disciplinary construction companies.
Priorto joining the Cahill Group in 2013,
Kim held a variety of progressive
leadership roles from engineering design
through to construction, commissioning,
production operations and offshore field
development with Petro-Canada (now
Suncor Energy Inc.).
Kim is currently Board chair of Major
Drilling International Inc. and a Non-
Executive Director of Pan American Silver
Corp and Victoria Gold Corp. Kim is also a
founding member of Makwa-Cahill Limited
Partnership, a nuclear qualified indigenous
fabrication company. Kim is a Fellow of the
Canadian Academy of Engineering, holds
aBachelor of Civil Engineering degree
andan MBA. She also holds the Canadian
Registered Safety Professional (CRSP)
designation and Diligent Climate
Leadership certification. She is a graduate
of the Rotman-Institute of Corporate
Directors Education Program and was
awarded her ICD.D designation.
Throughout her career, Kim has made
significant engineering and project
management contributions to complex
major projects. She has a deep
appreciation and insight into the value
ofcommunity partnerships particularly
with indigenous groups.
Appointment to the Board:
October 2021
Contribution and experience
John has over 45 years working across the
nuclear, electricity, oil and gas sectors.
John was previously at BP plc, most
recently as Group Head of Engineering &
Process Safety, prior to which he worked
at the UK utility Powergen plc as Group
Engineering Director, as well as roles as
aUKAEA Board member and also as a
nuclear submarine engineer officer. He is
aNon-Executive Director of Sellafield Ltd
and chairs the Sellafield Board
Remuneration Committee.
He is a Chartered Engineer, Fellow of both
the Royal Academy of Engineering and
theRoyal Society of Edinburgh. John was
President of both the Institution of
Mechanical Engineers and The Welding
Institute.
John has broad and expert level
experience in engineering, health and
safety, and energy generation experience.
John is passionate about people
development, particularly advancing the
opportunities for young people in STEM
careers, including via apprenticeships. His
dedication to charity work and fundraising
to support young people, provides a depth
of understanding during Board discussions
on stakeholder engagement and culture
matters. Also, having been born and
brought up in Scotland he brings
important insights to Drax on the local
environment and culture.
Appointment to the Board:
April 2019
Erika Peterman
Independent Non-Executive
Director
A N
Corporate Governance Report: Board of Directors continued
Board statistics (As at 31 December 2023)
Non-executive 70
Executive 20
Chair 10
0-2 13
3-4 38
5+ 50
Female 50
Male 50
Gender diversity (%)
Composition (%) NED tenure in years (%)
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Executive Committee
The focus of this committee is the Group’s strategy, financial structure, planning, operational and financial performance,
andgovernance framework. It also closely considers culture and diversity, succession planning andorganisational
developmentbelow Board level.
Page 120
Audit Committee
This committee oversees financial
reporting, key accounting
judgements, internal controls and risk
management systems, plus internal
and external audit effectiveness.
Nomination Committee
The tasks of this committee include
making recommendations on the size,
diversity and composition of the
Board, and succession planning for
the Directors and senior executives.
Remuneration Committee
This committee oversees the Group’s
approach to remuneration, ensures
remuneration policies support the
purpose and strategy, and sets pay for
the Executive Directors and members
of the Executive Committee in
alignment with the shareholder
approved Remuneration Policy. It also
considers the alignment of reward
across the wider business.
Drax Group plc Board
The Board is responsible for leading the Group and ensuring long-term value creation for shareholders and wider stakeholders.
Italso establishes and reviews the Group’s purpose and values, assesses and monitors culture, and takes responsibility for setting
and overseeing the Group’s strategy and risk appetite. It monitors performance too, making sure the necessary controls and
resources are in place to deliver the Group’s plans and that the Group meets its responsibilities to its stakeholders.
Operating Review
Committees
(Pellet Production,
Generation, Core
Services and
Customers)
These committees
review the
operational and
financial performance
of the business units.
Ethics and
Business Conduct
Committee
This committee
monitors ethical
behaviour and
practices across the
business.
Financial Risk
Management
Committee
This committee
provides oversight
and challenges the
effective
management of all
financial risks,
including trading,
commodity, treasury
and currency.
Group HSE
Committee
This committee
reviews and
challenges the
management of
process and people
safety, health,
environment and
wellbeing risks.
IT Board
This board provides
oversight and
co-ordination of
ITactivities and
strategy, information
systems and security
risk.
A sound governance framework underpins our purpose and supports effective
decision making and the delivery of our strategy
Page 132 Page 127 Page 144
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Corporate Governance Report: Compliance with
the UK Corporate Governance Code 2018 (Code)
At two meetings during 2023, the Board formally considered reports on how Drax, the Board and its Committees applied the Principles
and complied with the Provisions of the Code. The meetings included discussions about the steps being taken and how they might
evolve, as well as the effectiveness of stakeholder and colleague engagement. We also discussed how the Board assesses, monitors
Board Leadership and
Company Purpose
Principles
A. Promoting the long-term sustainable
success of the Company, generating
value for shareholders and
contributing to wider society.
B. Purpose, values and culture
C. Resources and effective controls
D. Engagement with stakeholders
E. Workforce engagement and
whistleblowing (and Speak Up)
Division of Responsibilities
Principles
F. The role of the Chair
G. Board composition
H. Non-Executive Directors
I. The Company Secretary and Board
resources
Composition, Succession
and Evaluation
Principles
J. Appointments to the Board and
succession planning
K. The skills, experience and knowledge
of the Board and Committees
L. Board evaluation
Audit, Risk and Internal Control
Principles
M. The effectiveness of internal and
external audit functions
N. Fair, balanced and understandable
assessment
O. Risk management and internal control
Remuneration
Principles
P. Remuneration policies and practices
and alignment to long-term strategy
Q. Executive remuneration
R. Independent judgement and discretion
and remuneration outcomes
You can find the Code on the Financial Reporting Council website at www.frc.org.uk
The Board has clearly articulated the Group’s
purpose (to enable a zero carbon, lower cost
energy future), ambition (to become carbon
negative by 2030) and business model. The
Board promotes a culture of openness and
collaboration, setting a clear and positive tone
topromote our values.
This underpins the Group’s strategy: to be a
global leader in both sustainable biomass and
innegative emissions, and to be a leader in UK
dispatchable, renewable power. It also supports
the UK’s ambition to achieve net zero by 2050.
Items such as health, safety and wellbeing,
ethics and employee engagement are regularly
considered at monthly Executive Committee
and Board meetings. This provides oversight
and identifies areas for improvement and
practices that enable positive engagement,
underpinning the culture of respect.
The workforce engagement forums meet
quarterly. Key issues discussed in 2023 included
BECCS; wellbeing of employees; ination and
general market conditions; energy costs; and
the rising cost of living. Chair, Philip Cox, and
CEO, Will Gardiner, met quarterly with the chairs
of the workforce forums, with support from
Hillary Berger, who is Group General Counsel
and also an Executive Committee member. The
subsequent CEO report to the Board included
information about these meetings.
Typically, the Company undertakes employee
engagement surveys annually with the 2023
survey taking place in the fourth quarter of 2023.
In early 2023, anonymised data behind the 2022
My Voice Survey Speak Up-related question was
analysed and presented to the EBCC and Board,
along with action plans for relevant items, and
areas for improvement. In January 2024, the
Board discussed the results for the 2023 My
Voice survey. Our engagement for 2023
remained at 79%. With inclusion being a priority
for Drax, our 2023 survey included questions
togive us an inclusion index score, which is a
Key Performance Indicator (KPI) on our Group
Scorecard. The score for 2023 was 81%.
In June 2023 the Board visited a number of sites
in Scotland. This gave Directors the opportunity
to discuss key projects, meet colleagues, and
gain invaluable insight into the local issues
relevant to the business. The visit included
learning about Cruachan development work,
carbon reduction efforts, health and safety
andprocess safety.
The Board comprises the Chair of the Board,
two Executive Directors and six independent
Non-Executive Directors. All six were
considered independent on appointment from
whom one, David Nussbaum, acts as Senior
Independent Director.
The Senior Independent Director led the
Non-Executive Directors in a review of the
Chair’s performance and then provided
feedback to the Chair. The SID also led the
process for selection and appointment of a
newChair.
Non-Executive Directors routinely scrutinise
performance against business objectives
(including financial, strategic and other
measures captured in the Group Scorecard).
They hold management to account while
providing challenge and guidance in an open
and constructive environment. Examples from
2023 include requests for deep dives into the
The Nomination Committee comprises the Chair
of the Board (who also chairs the Committee)
and six independent Non-Executive Directors.
All appointments to the Board are subject to a
formal, rigorous and transparent process, and
allnew Directors undergo a thorough induction
programme.
Each year the Nomination Committee reviews
the Group’s succession plan, identifying
colleagues who have the potential to progress
to more senior roles in one to five years. Based
on merit and objective criteria, the review
focuses on various aspects such as technical
skills, experience, behaviours, attitudes and
diversity. This ensures the business has the
rightleaders in place to deliver our purpose and
strategy. The most recent review, conducted
inJanuary 2024 for the 2023 year, also assessed
the capabilities required to support progress
indelivering the breadth of projects across
keyfunctions of the Group.
The Audit Committee comprises four
independent Non-Executive Directors. The
Committee chair was considered independent
on appointment in that role and has recent
andrelevant financial experience.
The Audit Committee provides oversight and
challenge of the Group’s financial statements
toensure they provide a fair, balanced and
understandable assessment of the Group’s
position and performance.
The Board has procedures in place to manage
risk and oversee the internal control framework.
Its procedures also determine the nature and
extent of the principal risks the Group is willing
to take to achieve its long-term strategic
objectives. Details of the approach to risk
The Remuneration Committee comprises five
independent Non-Executive Directors including
the Chair. The Committee chair was considered
independent on appointment as chair and has
relevant experience of serving as a member
of a remuneration committee.
Shareholders approved the current Directors’
Remuneration Policy (“Policy”) at the 2023
AGM. A review of the remuneration consultants
was most recently conducted in early 2021 and
concluded in April 2022 with Korn Ferry being
approved as the new remuneration consultants.
This process was run for good governance,
alongside the external audit tender, and was not
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and constructively inuences culture. In addition, we considered the actions taken in addressing recommendations from the most
recent, externally-led Board and Committee performance evaluation in 2022. The Board’s view is that the Company has applied the
Principles and complied with the Provisions of the Code throughout 2023.
Board Leadership and
Company Purpose
Principles
A. Promoting the long-term sustainable
success of the Company, generating
value for shareholders and
contributing to wider society.
B. Purpose, values and culture
C. Resources and effective controls
D. Engagement with stakeholders
E. Workforce engagement and
whistleblowing (and Speak Up)
Division of Responsibilities
Principles
F. The role of the Chair
G. Board composition
H. Non-Executive Directors
I. The Company Secretary and Board
resources
Composition, Succession
and Evaluation
Principles
J. Appointments to the Board and
succession planning
K. The skills, experience and knowledge
of the Board and Committees
L. Board evaluation
Audit, Risk and Internal Control
Principles
M. The effectiveness of internal and
external audit functions
N. Fair, balanced and understandable
assessment
O. Risk management and internal control
Remuneration
Principles
P. Remuneration policies and practices
and alignment to long-term strategy
Q. Executive remuneration
R. Independent judgement and discretion
and remuneration outcomes
You can find the Code on the Financial Reporting Council website at www.frc.org.uk
The Board ensures that both it and colleagues
across the business actively engage with a wide
range of stakeholders to encourage meaningful
two-way participation. This also ensures the
Group makes a positive contribution to wider
society. Board papers submitted for material
decisions, and the assessment undertaken at
Board meetings, consider the impact on wider
stakeholders, and the Board routinely receives
updates on stakeholder engagement. You can
read more about this on page 124. The Chair,
Senior Independent Director and Chairs of the
Audit and Remuneration Committees are all
available forengagement with shareholders
and we haveresponded to such requests by
arranging meetings with the Chair, SID, and
chair of the Remuneration Committee.
Diversity, equity and inclusion are important
tothe work of the Board. The Board assesses
actions being taken in the three core areas
ofthe DE&I strategy:
(1) Data – understanding and tracking changes
being made to the socio-economic and
cultural balance of colleagues working
across the Group
(2) Educate – positive steps to inform
behaviours as part of driving change
(3) Inspire and recruit – encourage people
throughout the organisation to participate
and recognise the importance of their
involvement in realising shared objectives
The Diversity and Inclusion Steering Committee
reviews progress in each pillar monthly, with
the CEO providing regular updates to the
Board. You can read more about this work on
page 65.
The Group’s confidential whistleblowing
telephone hotline and web-portal enable
colleagues and third parties to raise matters
ofconcern. The Board oversees Speak Up and
whistleblowing and receives regular updates;
italso discusses findings from investigations.
Our Culture, Values and Employer Value
Proposition for Growth programme began in
January 2023. The objectives of the
programme are to further strengthen talent
attraction, retention and to develop
engagement metrics, which can measure
progress and support improved personal and
collective performance as enablers to delivery
of our business strategy. During the first half of
2023 our research phase was completed, with
findings from over 300 colleagues and leaders
representing all Business Units and markets.
Their responses showed a strong emotional
connection to Drax (due to our Purpose),
divergent experiences (with colleagues
describing our culture as caring using words
like ‘open’, ‘respectful’ and ‘inclusive’ whilst
leaders focused more on the pace of change
and transformation and growth outstripping
people and infrastructure. This, alongside
additional external research, has helped create
our Employer Value Proposition: ‘Together,
wemake it happen’ with three key pillars:
‘Clearand bold ambition’, ‘Caring about positive
outcomes’ and ‘The Future is shaped by You’
and we are in the process of creating an
employer brand and updating our values and
behaviours programme with the launch
planned for the first half of 2024. The Board
hasreceived regular updates on these matters
and this will continue in 2024 as we transition
to the implementation phase.
digital strategy and also a discussion on
management’s assessment of the acquisition
and integration of Pinnacle. In addition, there
were discussions about the cost tracking and
status of projects associated with programmes
such as US BECCS.
Before regular Board meetings, the Chair and
Non-Executive Directors meet without the
Executive Directors being present, giving them
the opportunity to consider and discuss
matters in a separate forum. The Audit
Committee, which the Board Chair, attends by
invitation, also provides routine agenda time to
discuss matters in the absence of management.
The Audit Committee members also routinely
meet with the external and internal auditors.
The Board considers additional external
appointments involving any Director, taking
into account the additional demands on their
time. No Executive Director has a non-
executive position in a FTSE company.
All Directors have full access to the services
ofthe Company Secretary, who works closely
with the Chair. This ensures the Board has the
policies, processes, information, time and
resources it needs to function effectively and
efficiently. The whole Board approves the
appointment or removal of the Company
Secretary.
All Directors seek re-election at (or following
their initial appointment to the Board, election
at) the Annual General Meeting.
An internal performance evaluation of the
Board and its Committees was conducted
in2023. The most recent external review was
in2022. You can read more about this, and the
status of key actions from the 2022 evaluation,
on page 130.
More about the composition and activities of
the Nomination Committee is in the Nomination
Committee Report, on page 127.
management, the process controls and
principal risks, together with mitigation
strategies, appear on pages 94 to 107.
Details about the composition and activities
ofthe Audit Committee are within the Audit
Committee Report, on page 132.
reective of any concerns with the standards
of service provided by PwC. The Remuneration
Committee scrutinises performance-related
pay at the point of completing a measurement
period. It has discretion to ensure that
remuneration outcomes are adjusted where it
considers such adjustment more appropriately
aligns reward outcomes to Group performance.
No Directors are involved in making decisions
regarding their own remuneration.
You can find the composition and activities
ofthe Remuneration Committee, and
remuneration outcomes in the Remuneration
Committee Report on page 144.
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Role of the Board
The Board determines the Group’s purpose, strategy and business
model for long-term value creation, and its appetite for risk and
risk management policies. The Board also determines the annual
plan and its budget, considering whether the Group has the
necessary resources to deliver the strategy. In addition, the Board
sets the key performance indicators to measure performance in
realising strategic objectives (for example, tracking cost reduction
targets in the self-supply of pellets). It also reviews and advises
onstakeholder engagement, including with shareholders, the
workforce, Government, NGOs as well as communities where
theGroup’s businesses are operated. The Board considers
management proposals for acquisitions, disposals, and other
transactions outside ordinary delegated limits. The Board also
evaluates significant financial decisions. Such decisions include
investment in large scale projects such as BECCS, the Group’s
capital structure and capital allocation policy of which
thedividend policy is one aspect. For more information on these
see the Financial Review which starts on page 22. The Board
provides challenge to management on the means by which the
Group’s priorities and initiatives related to sustainability and
environmental practices are being realised. The Board reviews the
effectiveness of the Group’s governance structure, commenting
on how it should be revised to reect the evolution of the
business. Reviews may cover: business conduct, ethics and
whistleblowing; the prosecution, defence or settlement of
material litigation; and Directors’ Remuneration Policy. They may
also include the terms of reference of Board committees, and the
Board structure, composition and succession planning.
Terms of reference
The Board has a schedule of Matters Reserved for its decisions,
and formal terms of reference for its committees (which it
reviews periodically). The terms of reference of the committees
of the Board are available to view on the Group’s website at drax.
com/about-us/corporate-governance/board-and-committees/.
Matters not specifically reserved to the Board and its Committees
under their terms of reference, or for shareholders in General
Meeting, are delegated. Delegation is to the Executive Committee,
or otherwise in accordance with a schedule of delegated
authorities. The most recent review of the Matters Reserved for
the Board occurred in December 2020. This review informed a
detailed assessment of the Group’s wider delegations of authority,
which was completed in 2021.
Role of the Executive Committee
The Executive Committee focuses on the delivery of the Group’s
strategy, assessing the adequacy of the Group’s financial
structure, operational and financial performance, innovation,
organisational development, and management of change. These
activities are informed by engagement with the workforce and
other external stakeholders, including the UK Government and
NGOs, that could impact the Group’s ability to execute its
strategy. There are more details about such engagement on page
32. During 2023, there were several changes to the membership
of the Executive Committee, due to the evolution within the
business to prepare for international success, revise our
leadership structure and to support the required breadth, depth
and expertise. In September 2023 Miguel Veiga-Pestana joined
asChief Sustainability Officer and a member of the Executive
Committee. From 1 December 2023 Penny Small was appointed
to the new role of interim Chief Operating Officer (“COO”). The
COO role will provide strategic leadership for our operational
assets and capital projects and represent them at the Executive
Committee and as part of this change, effective 1 December
2023 Matt White and Esa Heiskanen stepped down from the
Executive Committee, whilst retaining their prevailing operational
responsibilities for Pellet Operations and capital projects
respectively, supporting the growth of our assets.
The Executive Committee develops and considers policies and
procedures that provide an effective framework for operating in
line with required standards, laws and regulations. These policies
and procedures include our Code of Conduct, Supplier Code of
Conduct and Diversity and Inclusion Policy.
The Executive Committee considers business performance
against the annual plan, and reviews progress in realising
longer-term objectives. It receives reports on each of the business
units, covering financial and non-financial metrics. The latter
include matters affecting the safety and wellbeing of our
workforce, which is the opening agenda item for each meeting.
In 2023, the Executive Committee completed an in-depth review
of all nine principal risks; each of which is the responsibility of a
member of the Executive Committee. You can read more about
our principal risk processes on pages 94 to 107.
The Executive Committee meets informally most weeks, in
addition to holding 10 monthly meetings. Where relevant to
agenda items, Committee members are provided with the briefing
papers in advance of meetings. To support specific discussions
senior managers within the business units also attend.
The Committee meets with management teams three times each
year for deep dives into operational and financial performance
matters. Typically such meetings are held over the course of two
days and allow for a more detailed review of key programmes and
initiatives, to assess delivery against the Group’s strategy.
Biographies of the Executive Committee members are on the
website: drax.com/about-us/corporate-governance/board-and-
committees/.
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How the Board functions
Routinely, before the formal meeting of the Board, the Chair
andthe Non-Executive Directors meet in private without
management being present. This allows them to exchange views,
share any concerns and discuss matters of priority before the
meeting starts. At each Board meeting, the CEO gives a report on
key business, operational and safety matters and the CFO reports
on the Group’s financial performance. The Board also receives
regular reports on performance against the business plan, as well
as operational and financial performance. In addition, it receives
regular business reports from senior management across the
Group, and updates on investor relations and wider stakeholder
engagement. The Chair is responsible for ensuring adequate time
is allocated to each agenda item, to support effective discussion
and challenge by Directors and this is periodically reviewed
whether as part of a formal annual performance evaluation or
during the time allowed for discussion prior to the formal agenda.
The Board also holds dinners before anumber of the meetings
toallow more informal consideration oftopics, to which from
timeto time other members of the executive and management
oran external speaker may contribute.
During 2023, there was a consideration of the principal risks
associated with the decision to postpone investment in BECCS
atDrax Power Station. You can read more about the Board’s
decision process and stakeholder engagement on page 124 and in
the Principal Risks and Uncertainties section on pages 94 to 107.
Linked to energy security, the Board received regular updates
during 2023 on macro-economic factors inuencing energy
providers, availability of capital and cost of debt, which included
considering how these impacted realisation of the Group’s
objectives, for example how prevailing ination continued to
affect costs spanning the procurement of raw materials in the
production of sustainable pellets; and in day to day operations
through to the execution of capital projects in the UK and North
America supporting the Group’s growth, both of which have been
also further impacted by shortages of supply. The Board regularly
assesses the best use of the Group’s resources including its cash
and in early 2023 concluded that sufficient cash was available for
the Company to continue to meet its financial obligations whilst
also undertaking a buyback ofthe Company’s issued shares. In
reaching its determination, theBoard discussed the views of
stakeholders and analysts and, following careful consideration,
authorised a £150 million share buyback programme. The buyback
concluded in September 2023 with 26,426,259 ordinary shares
having been purchased.
Culture
How does management monitor and assess culture?
The Executive
Committee
• The subject of ethics and values is regularly discussed at the Executive Committee. The Group General
Counsel, who was Chair of the EBCC – see below – and Committee sponsor during 2023, supports the
CEO’s regular updates to the Board.
• The Executive Committee develops plans for Board consideration on matters such as responding to
workforce engagement feedback (My Voice Forums and annual My Voice Survey) promoting diversity
and inclusion, and dignity at work.
• The CEO sends a weekly Group-wide “Ask Will” email with Q&A (allowing colleagues to ask/comment
about what’s on their mind).
The Group Ethics
and Business
Conduct
Committee
(EBCC)
• A sub-committee of the Executive Committee, the EBCC meets quarterly to monitor, support and
challenge a range of activities across the Group. It considers initiatives to maintain, enhance and assess
ethical behaviour and business conduct across Drax.
• Current members of the EBCC include the Group General Counsel who chaired her first meeting in
January 2023 (EBCC Chair) and four other Executive Committee members. They are the: Chief Financial
Officer; Chief Sustainability Officer; Chief Commercial Officer and Group Generation Director. The
Executive Vice President (North America), the Group Company Secretary and the Group Regulation and
Compliance Director make up the remaining members. This ensures that related Executive Committee
discussions are well-informed and that there is strong senior engagement in the Group’s culture. The
EBCC supports the Group’s commitment to doing the right thing in its business practices. Steps by which
it achieves this include making sure there are appropriate communications to raise awareness and
providing appropriate training that informs behaviours in accordance with our Code of Conduct. For
more information, see page 70.
• The EBCC also assesses an annual review and risk assessment of each compliance programme. These
cover anti-bribery and corruption (including conicts of interest), corporate criminal offences (tax
evasion), ethical due diligence, fair competition, privacy, sanctions, Speak Up (whistleblowing), and
supply chain human rights.
• The EBCC oversee our Business Ethics programmes which are also reviewed as part of the Group’s
internal audit programme cycle, findings from which are reported to management and the Audit
Committee. In 2023, our Financial and Trade Sanctions programme was reviewed by internal audit.
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The Board receives regular industry, regulatory and topical
updates from internal specialists as well as external experts and
advisers. One example in 2023 was a deep-dive on the trading and
optimisation strategy which included consideration of the related
risks. The significant increase in gas prices in 2022, was a major
factor in higher power prices that saw higher financial returns
across the energy sector. In response to these circumstances the
UK Government introduced the Electricity Generator Levy (EGL)
– a levy on renewable power revenue over a certain threshold.
The EGL applies to our biomass RO (“Renewable Obligation”) and
run of river hydro assets but not the biomass CfD unit (“Contract
for Difference”) or Cruachan. The EGL impacts the economics of
our RO units versus the CFD unit and this is considered when
making trading and optimisation decisions.
The core activities of the Board and its Committees are planned
on a forward agenda that the Chairs of each Committee consider
and regularly review. The Group Company Secretary maintains a
list of matters arising from each meeting and reports on how
these are being addressed at subsequent meetings. The Group
Company Secretary also advises the Board on governance
matters, ensuring good information ows within the Board, its
committees, the Executive Committee and senior management.
The Group Company Secretary assesses and advises the Board
on compliance with the Listing, Prospectus, Disclosure Guidance
andTransparency Rules, the Corporate Governance Code and
theCompanies Act. An important part of this is effective
collaboration with other parties across all Group functions.
Goodtraining, regular discussions on key issues, and support in
evaluating the potential for change from those in areas of critical
operational risk are also imperative.
All Board Committees are authorised to obtain legal or other
professional advice as necessary to perform their duties. This
includes securing the attendance of external advisers at meetings
and seeking required information from any member of the
Group’s workforce.
The Company’s Articles of Association (the Articles) give the
Directors power to authorise conicts of interest when presented
with such matters for their review. The Board has an effective
procedure to identify potential conicts of interest, consider
them for authorisation and record them. In 2023, no conicts
ofinterest were identified. The Articles also allow the Board to
exercise voting rights in Group companies without restriction (for
example, to appoint a director to a Group company). The Articles
are available on the Group’s website at https://www.drax.com/
wp-content/uploads/2021/04/2021-Articles-of-Association.pdf.
The Business Ethics team oversees our Speak Up
(whistleblowing) programme. This includes the external,
confidential (and anonymous, should reporters so wish) reporting
service which is available in multiple languages 24 hours a day,
365 days a year. The Ethics and Business Conduct Committee
reviews the Speak Up programme and its annual risk assessment
(most recently completed in 2023). In the 2023 My Voice
engagement survey, 84% of colleagues responded positively
when asked whether they “feel comfortable to speak up or report
any concerns”. For more information on Speak Up, see page 71.
Our various Speak Up reporting channels are promoted to
internal stakeholders across several platforms, and to third
parties via our Supplier Code of Conduct. When applicable, the
Business Ethics team responds to any reports from within Drax,
as well as those referred via the external service. The Group
Company Secretary is the Whistleblowing Officer with oversight
of related investigations, as appropriate. Speak Up matters
continue to be reported to the Board, Audit Committee and EBCC
at the respective meetings, with an annual report of the broader
EBCC activities provided to the Audit Committee. The Audit
Committee also receives a quarterly report on Speak Up.
As stated in our 2021 Annual Report, our Speak Up programme
received a positive internal audit in May 2021 (reported to the
Audit Committee in July 2021). Most actions raised in the audit
were completed within 2021, although one that the Audit
Committee was tracking – related to creating an investigation
procedure – was carried over into 2022. To close this action, the
EBCC created and approved three principle-based guides in
June2022.
The Speak Up (whistleblowing) policy was last reviewed and an
updated version approved by the Board in September 2023. Our
guides and other Speak Up related material were also updated.
This was communicated to colleagues in late 2023.
Our Princeton colleagues in Canada received a copy of the Speak
Up policy (in place at the time) as part of their orientation activity
which took place in 2023. Our new BMM colleagues who joined
the Group in September 2023 also received initial information on
our Speak Up processes as part of their orientation activity. They
will receive further information in the first quarter of 2024.
As recipients of relevant Drax new starter onboarding material,
itwas concluded that colleagues at our newer Tokyo and
Houston offices do not require separate deployment of our Speak
Up programme, nevertheless, such colleagues have received
awareness raising on the topic in 2023.
A Code of Conduct eLearning refresher with a spot light on Speak
Up (whistleblowing) was deployed in quarter four of 2023 to all
colleagues with the exception of those at BMM.
Diversity
We explain our work promoting diversity of all kinds on page 65.
The tables below (and on p123) show the gender and ethnicity
representation on the Board, and in the wider workforce, at
31December 2023.
Gender diversity of the Board and wider workforce
Gender
Male Female Total
No. % No. % No. %
Board
members
(1)
5 50 5 50 10 100
Senior
managers
(2)
36 63 21 37 57 100
All
employees
(3)
2,375 68 1,111 32 3,486 100
Total 2,414
(4)
68 1,137 32 3,551 100
(1) Philip Cox stood down on 31 December 2023. He has been included in the
figures.
(2) Direct reports of the Board (i.e. Executive Committee) and their direct reports.
(3) Excluding Board members and senior managers.
(4) Two Executive Directors are also members of the Executive Committee (“Senior
Management”). They are included in both sets of figures to ensure the correct
diversity is reected, but have been removed from the total to ensure the
correct headcount is reected.
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Directors’ development and induction
To assist the Board in undertaking its responsibilities, a
programme of training and development is available to all
Directors. Training needs are assessed as part of the Board
evaluation procedure.
The Board’s programme includes presentations from
management, and informal meetings, that build an understanding
of the business and sectors, or in areas recognised as being
technically complex. Such training is intended to support a
deeper understanding and equip the Non-Executive Directors
with insight into how the Drax approach compares with the
practices of its peers.
All new Directors receive a comprehensive and tailored induction
programme. It includes meetings with key managers,
international site visits, briefings on key operational matters and
training with external and internal providers on Board procedures
and governance matters. Following her appointment in August
2023, Andrea Bertone undertook her induction programme in the
second half of 2023. Information on her induction is included in
the Nomination Committee report on page 127.
Throughout 2023, the Directors also had access to the advice
and services of the Group Company Secretary. Directors may
take independent advice at the Company’s expense, when they
judge it necessary to discharge their responsibilities effectively.
No such independent advice was sought in 2023.
Number of meetings held
The Board and its Committees have regular scheduled meetings
and hold additional meetings as required. The Board has eight
scheduled meetings each year, with the Board also meeting at
least annually to specifically consider strategy. Directors are
expected, where possible, to attend all Board meetings, relevant
Committee meetings, the Annual General Meeting (AGM) and any
other General Meetings.
Board leadership of stakeholder engagement
The Board is responsible for engagement with stakeholders.
Itensures that appropriate time is given to discussing the views
andfeedback from stakeholders and that sufficient resources
areavailable for the Group to effectively engage. The Corporate
Affairs team maintains a detailed map of our key stakeholders,
and the concerns which have been raised, and the date of each
meeting with them.
During 2023, the Board received reports on the engagement
strategy from a range of stakeholders. The topics included
BECCS, the expansion of the Cruachan pumped storage power
station, biomass acceptability and strategy, and the Board-
approved a £150 million share buyback programme.
The Board has a duty to promote the success of the Company,
asset out in Section 172 of the Companies Act 2006. Supporting
this, Board discussions – and supporting papers – for material
decisions consider the likely impact on any stakeholders affected
by the decisions. This helps to ensure the interests of all relevant
stakeholders, and the need to act fairly towards members of the
Company, are considered in decision-making. On page 124 you
can see examples of stakeholder considerations in action, in
respect of Board decisions related to BECCS project
developments in the UK and globally.
For our Section 172 Statement, and more detailed information
onour stakeholders and how we engage with them, please refer
toour “Stakeholder” section on page 32.
Gender representation on the Board and Executive Management
Number of Board
members
Percentage
of the Board
Number of senior
positions on the Board
(CEO, CFO, SID
andChair)
Number in
executive
management
Percentage
of executive
management
Men 5 50% 4 5 62.5%
Women 5 50% 0 3 37.5%
Other categories 0 0% 0 0 0%
Not specified/prefer not to say 0 0% 0 0 0%
Ethnicity representation on the Board and Executive Management
Number of
Boardmembers
Percentage
of the Board
Number of senior
positions on the Board
(CEO, CFO, SID
andChair)
Number in
executive
management
Percentage
of executive
management
White British or other White (including
minority white groups) 8 80% 3 8 100%
Mixed/Multiple Ethnic Groups 0 0% 0 0 0%
Asian/Asian British 0 0% 0 0 0%
Black/African/Caribbean/Black British 1 10% 0 0 0%
Other ethnic group, including Arab 0 0% 0 0 0%
Not specified/prefer not to say 1 10% 1 0 0%
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In our 2022 Annual Report we explained how delivery of
BECCS at Drax Power Station is reliant on the Government
financial model that supports BECCS. The Board has always
recognised the importance of engagement with the
Government and other stakeholders to highlight the value
ofBECCS to the UK’s energy system. In 2023 Drax
representatives attended the World Economic Forum for the
first time where our CEO, Will Gardiner, met with a number of
world leaders, business leaders and inuential journalists. We
also attended the Conference of the Parties (COP28) for the
second year in a row and the Clean Energy Ministerial Summit
where the CEO and colleagues spoke with delegates to explain
why BECCS is a critical technology to tackle climate change.
In March 2023, due to Drax not receiving “Track-1” status from
the UK Government, after careful consideration the Board felt
that, due to the ongoing uncertainty, proceeding with on-site
investment in enabling works to deliver BECCS at Drax Power
Station would not be in the best interests of stakeholders.
Wetherefore announced that the Board had decided to pause
such on-site investment until sufficient certainty is gained
from the UK Government in the support mechanism and the
timing of BECCS at Drax Power Station. In reaching the
decision the Board gave careful consideration to the impact
onstakeholders, including partners and employees. The
Government’s decision that precludes Drax from delivering
BECCS at Drax Power Station in line with the intended 2027
commissioning date represented a change to our strategy,
andso engagement with key stakeholders in the immediate
aftermath and subsequent periods following the Government’s
announcement occurred. The Board considered the related
risks to delivery of UK BECCS programme, with 2030 now the
targeted delivery date for the first unit of UK BECCS, and set
out the requirements to allow for the viability of Drax Power
Station beyond the end of the present subsidy regime in 2027,
until BECCS can be delivered. The importance of a form of
bridging mechanism is fully recognised and discussions have
continued with relevant stakeholders to attain the required
clarity and commitments. In January 2024 the Board
welcomed the approval by the UK Government of the
Development Consent Order for BECCS at Drax Power
Station. Also in January 2024, the UK Government launched
aconsultation, which closes on 29 February 2024, on options
for a bridging mechanism, which is another key milestone
forenabling UK BECCS. The bridging mechanism would, if
implemented, provide important revenue certainty to support
Drax Power Station until the realisation of BECCS in the UK, in
turn enabling the UK to meet its legal commitments to reduce
CO
2
emissions by 2050. Failure to secure an appropriate
bridging mechanism would have a material impact on the
viability of Drax Power Station and consequently BECCS in the
UK. The Board and management will continue to monitor the
evolution of the support environment in the UK, the views of
different stakeholders, as to how they inform future steps and
what that could mean for investment decisions related to
BECCS at Drax Power Station.
Despite the timing challenges in the UK, the Board continues
to recognise the attractive options for international BECCS
projects and has continued to assess BECCS options globally,
with a focus on the US. The Board has regularly considered
progress in delivering against key project milestones and has
challenged management to focus resources on those projects
that are most likely to enable the timely fulfilment of the
Company’s strategy. During the year our team worked to
further advance our relationships and a significant number of
meetings were organised with senior policymakers at regional
and national Government levels – as well as NGOs, think tanks
and academia. Directors have reviewed the US BECCS options
project pipeline and received updates on prospective
development sites. Updates included those on project-specific
people developments to support BECCS. During 2023 several
people were hired to support global BECCS projects, and a
significant internal resource of colleagues are currently solely
focused on BECCS delivery. This includes Laurie Fitzmaurice
who joined us on 5 February 2024 as President of Global
BECCS. The Board continues to pay careful attention to the
appropriate resourcing needs of projects, including personnel
needs to effect execution.
The Board believes the MyVoice Forums (MVFs) are the most
appropriate means to facilitate workforce engagement. The
MVFs have demonstrated they operate as a constructive
method by which to address important issues, through which
the business has built a Group-wide framework of effective
and direct engagement between the Board and the workforce.
Each business unit has a MVF, comprising approximately
10colleague representatives. Across the Group, we have
approximately 50 representatives, drawn from across career
levels and jobs roles, and representing a range of diversity and
experience. Collectively, the MVFs ensure colleagues’ voices
and views can be heard.
A member of the senior leadership team and an HR
representative support these forums and attend each meeting.
The MVF chairs meet quarterly with the Board Chair and CEO
to discuss colleague sentiment and to provide feedback on key
topics. Each of these meetings features a discussion about the
feedback on topics previously agreed to be important to the
Board and workforce. Following each meeting, the Chair and
CEO provide updates to the Board, to make sure all Directors
can consider the views of colleagues. Engagement with
theMVF chairs has been valuable in helping the Board gain
ongoing feedback as the Group continues toevolve.
Topics discussed in 2023 included BECCS, the ongoing
cost-of-living crisis, wellbeing of employees, and the new
community strategy. The forums offer a safe space in which
toanswer direct questions raised by the MVF chairs, and to
discuss important issues.
The MVFs continue to be a key part of our listening strategy
and work in tandem with the My Voice engagement survey.
The forums provide valuable, deeper insight to the survey
themes and deliver further input to the resulting action plans.
Each week, the CEO sends an email to the entire workforce
with an update on what he and the business have been doing,
and with answers to colleague questions. During 2023, the
CEO answered over a thousand questions on topics including
sustainability, BECCS, and employee wellbeing.
Workforce engagement
Board decision-making and stakeholder considerations –
BECCS project developments in the UK and globally
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Time commitment
Directors’ commitments outside of Drax are kept under review to
make sure they have sufficient time to dedicate to the business
and effectively perform their role. Under the terms of the Chair’s
letter of appointment, the Chair is expected to commit between
50 and 70 full days a year to this role. Under the Non-Executive
Directors’ letters of appointment, each is expected to commit
12to 15 full days a year. That includes attendance at Board
meetings, the AGM, one annual Board strategy off-site event,
andat least one site visit each year.
In addition, Non-Executive Directors are expected to devote
appropriate preparation time ahead of each meeting. The time
commitment expected in respect of their membership of the
Audit, Nomination and Remuneration Committees is an additional
three to four full days a year in each case. However, in practice,
considerably more time is devoted, particularly by the Chairs of
the Committees.
Executive Directors may, with the prior approval of the Chair, take
on one additional role in an external listed company. Neither of
the Executive Directors have taken on such a role. Non-Executive
Directors may, with prior approval from the Board, take on
additional roles provided the individual can continue to devote
sufficient time to meet the expectations of their role.
Non-Executive Directors are encouraged to undertake visits
toDrax operations and spend time with management and the
workforce. This is designed to build and then maintain their
knowledge of the developing business, and to understand the
operational challenges.
Board composition and independence
The Board has reviewed the independence of each Non-
Executive Director. None of the Non-Executive Directors
whoserved during the year had any material business or other
relationship with the Group. In addition, there were no other
matters likely to affect their independence of character and
judgement. The Board recognises that, in view of the
characteristics of independence set out in the Code, length
ofservice is an important factor when considering the
independence of Non-Executive Directors. It also recognises
thatDirectors who have served more than nine years may not
beconsidered independent. The Board considers all the Non-
Executive Directors to be independent.
Board roles
The key responsibilities of Board members are as follows:
Position Role
Chair Responsible for leading and managing the Board, its effectiveness, and governance. Makes sure Board
members are aware of, and understand, the views and objectives of major shareholders and other key
stakeholders. Helps to set the tone from the top in terms of the purpose, goal, vision and values for the whole
organisation.
CEO Responsible for the day-to-day management of the business, developing the Group’s strategic direction for
consideration and approval by the Board and implementing the agreed strategy.
CFO Supports the CEO in developing and implementing strategy. Responsible for the financial management and
performance of the Group.
Senior Independent
Non-Executive
Director
Acts as a sounding board for the Chair and a trusted intermediary for other Directors. Available to discuss any
concerns with shareholders that cannot be resolved through the normal channels of communication with the
Chair or the Executive Directors.
Independent
Non-Executive
Directors
Responsible for bringing sound judgement and objectivity to the Board’s deliberations and decision-making
process. Constructively challenge and support the Executive Directors. Monitor the delivery of the strategy
within the risk and control framework set by the Board.
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Board attendance 2023
The table below shows the number of meetings held and the directors’ attendance during 2023.
Director Date appointed as a director and member of the Board
Scheduled
meetings
(1)
No. of meetings
attended
% of meetings
attended
John Baxter 17 April 2019 8 8 100%
Andrea Bertone 24 August 2023 3 3 100%
Philip Cox 1 January 2015 8 8 100%
Will Gardiner 16 November 2015 8 8 100%
Nicola Hodson 12 January 2018 8 8 100%
Kim Keating 21 October 2021 8 8 100%
David Nussbaum 1 August 2017 8 8 100%
Erika Peterman 21 October 2021 8 7 87.5%
Andy Skelton 2 January 2019 8 8 100%
Vanessa Simms 19 June 2018 8 8 100%
Notes:
(1) The scheduled meetings that each individual was entitled to, and had the opportunity to, attend.
In addition to the topics discussed earlier in the
Corporate Governance Report, the Board considered
the following key items in 2023.
Board strategy event
• Over a two-day period in October 2023, the Board
conducted its annual deep dive into strategy formulation
andexecution. The event facilitated presentations and
discussions involving various internal stakeholders from
across the organisation. The sessions provided insight into
market context, opportunities for the growth of the Group,
including international BECCS site options and deployment
progression and an explanation of key stakeholders involved
in supporting the Group’s plans. The strategy to achieve
pellet production and sales targets, sustainability principles
and commitments and the Group’s plans for growth using
sustainable biomass were also discussed.
Health, safety and wellbeing
• As detailed in the 2022 Annual Report, the 2023 bonus
Scorecard reintroduced a safety KPI, reecting the
importance of continuing to reduce safety related incidents.
At each Board meeting, updated statistics regarding health
and safety are included for discussion. In April 2023 the
Board discussed safety progress. The Board endorsed
initiatives encouraging sharing experiences of incidents and
making time for safety discussions in daily team meetings as
a means by which to enforce awareness and enable positive
changes in behaviours. Awareness events were also
organised, such as a two day pre-outage event held for
employees and contractors at Drax Power Station.
Operations
• Considered and approved the continuing development
of,and investment in, global BECCS.
• Considered and decided to pause ongoing investment in
UKBECCS, as discussed in the case study on page 124.
• Discussed the pellet production, uses and sales strategy.
• Discussed the Cruachan upgrade following planning
permission from the Scottish Government which allows
Draxto progress our ground-breaking plans to build a new
c.£500m underground pumped storage hydro plant.
• Considered and approved additional investment at Cruachan
units 3 and 4.
Summary of the Board’s activities in 2023
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Role of the Committee
The Nomination Committee has responsibility for:
• Reviewing the Board’s structure, size and composition
(including requisite skills, diversity, knowledge and experience)
so that it is effective in delivering the Group’s strategic
priorities and promoting long-term success of the Group
• Ensuring that a succession planning process is in place for the
Board and executive management, including the identification
of candidates based on merit and objective criteria, and taking
into account the need for diversity with regards to gender,
social and ethnic backgrounds, cognitive and personal strengths
• Undertaking a search and selection process for new Directors,
taking advice from independent search consultants as
appropriate
• Monitoring and challenging initiatives and progress in
addressing diversity and inclusion
Nomination Committee activities since the last report
• Search for a new Chair
• Recommendation for the renewal of David Nussbaum’s letter
of appointment for a third term
• Considered a report on succession planning at executive and
senior management levels
• Reviewed the Board Diversity Policy as part of a Board meeting
Nomination
Committee report
Andrea Bertone, Chair
As the Group grows and evolves,
having leaders and colleagues with
the right mix ofskills and capabilities
to deliver our strategy and purpose,
is key.
Committee members
Andrea Bertone (Chair)
John Baxter
Nicola Hodson
Kim Keating
David Nussbaum
Erika Peterman
Vanessa Simms
Attending by invitation
CEO
Number of meetings held in 2023: Two
The Group Company Secretary is Secretary to the Committee.
Attendance in 2023
(1)
Committee member
Date appointed
a member
No. of
scheduled
meetings
No. of
meetings
attended
% of
meetings
attended
John Baxter 17 April 2019 2 2 100%
Andrea Bertone 24 August 2023 0 – –
Philip Cox
(2)
22 April 2015 2 2 100%
Nicola Hodson 12 January 2018 2 2 100%
Kim Keating 21 October 2021 2 2 100%
David Nussbaum 1 August 2017 2 2 100%
Erika Peterman 21 October 2021 2 2 100%
Vanessa Simms 19 June 2018 2 2 100%
(1) The table shows the scheduled meetings of the Committee within the
ordinary annual cycle of the Committee’s activities. There were additional
meetings held during the course of the year which considered candidates for
the position of Board Chair. For more information on the recruitment process
see page 128.
(2) Philip Cox did not attend meetings outside of the ordinary annual cycle of
the Committee’s activities in order to maintain an orderly independent
search for a new Board Chair. Philip Cox stepped down from the Board and
as Chair of the Nomination Committee on 31 December 2023.
Terms of reference
The Committee’s terms of reference are reviewed
annually, most recently in February 2023. The terms
ofreference areavailable on the Group’s website at
www.drax.com/governance
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induction. I have had productive engagement with people in the
London office, Drax Power Station in Selby, and Vancouver office.
Drax has a well-established business delivering renewable power
to millions of people in the UK, and I was very impressed during
my tour of the Drax Power Station, not only with the quality of
the assets, but with the commitment and enthusiasm of the team
responsible for providing power to UK consumers and businesses.
As part of my onboarding, I have been learning more about our
strategy and the contribution from colleagues across our regions
to deliver our objectives. The timing of my appointment meant
Iwas able to participate in the annual strategy meeting held in
October. I am also getting a sense of the passion and pride that
Drax have in doing what is right in supporting each other and
communities in which we work to deliver positive outcomes
fornature, people and the climate.
Introduction
I am pleased to present the Nomination Committee Report
fortheyear ended 31 December 2023.
A key focus for the Nomination Committee during 2023 was
toconduct a search for a new Chair. I was appointed to the
Company as a Non-Executive Director and Chair Designate in
August 2023, with my appointment as Chair of the Board and
Nomination Committee taking effect from 1 January 2024. The
search was led by David Nussbaum, Senior Independent Director.
More information about the search process can be found below.
I was fortunate to have some time before taking over as Chair to
further enhance my understanding of Drax, its operations, culture
and people. My sincere thanks to those colleagues who have
been very generous with their time and knowledge during my
Nomination Committee report continued
Report of the Senior Independent Director
In planning for the completion of Philip Cox’s nine-year tenure
as a Non-Executive Director, we began the search process for
anew Chair in August 2022. Led by me, as Senior Independent
Director, the Nomination Committee carried out an assessment
of potential external firms with the capability toconduct an
international search for a diverse range of candidates, reecting
the structure of our growing Group across the US, Canada, Asia
and Europe. Following this assessment Heidrick & Struggles,
which is signed up to The Voluntary Code of Conduct for
Executive Search Firms (which ensures it factors diversity
considerations into its recruitment advice), was appointed in
October 2022 to assist with the search. Heidrick & Struggles
had no other engagement with the Group or any other conict
which would impact their role.
Heidrick & Struggles supported refinement of our search
criteria for suitable candidates for the role of Chair. This included
an ability to be a strong and effective leader of the Board, to set
the appropriate tone which informs our vision, values and
culture. The Board was also conscious of the value of a Chair
who understood the Group’s strategic objectives and would
bean enabler of appropriate challenge as well as an effective
supporter of their realisation. The Group continues to undergo
significant change as an integral part of implementing that
strategy and the Committee therefore considered carefully the
relative strengths of candidates who could help steer the Group
through a period of international growth and transformation.
This included a successor to Philip Cox who would be able to
engage with colleagues across our Group and be supportive of
engagement with external stakeholders. An appreciation and
understanding of the energy sector and experience in enabling
change including large-scale capital investment programmes,
were also important attributes.
From the longlist of candidates provided by Heidrick &
Struggles, in January 2023, six candidates were selected to
progress. First interviews were conducted with a panel
comprising the Senior Independent Director, the CEO, and at
least one Non-Executive Director forthe majority of candidates,
with all interviews attended andsupported by the Chief People
Officer. Following these interviews, three candidates were
taken forward.
The second stage required each candidate to undertake
psychometric tests and a Board Culture Survey. The candidates’
Culture Survey results were compared with the results of the
Culture Survey completed by all Board members in 2022.
Interviews were then completed between April and June 2023
which consisted of a panel interview with two or three Non-
Executive Directors and the Chief People Officer. Two finalist
candidates were selected and had individual meetings with the
CEO and CFO as well meetings with other executive
management, the current Chair and the Group Company
Secretary.
At the end of June 2023, both candidates met with a panel of
Non-Executive Directors, the Senior Independent Director and
the Chief People Officer. They presented their perspectives on
the Chair role for discussion with the panel and had a further
opportunity to ask questions.
Following conclusion of this process, the Nomination
Committee made a recommendation of appointment to the
Board. The Board considered and approved the appointment
ofAndrea Bertone as a Non-Executive Director and Chair
Designate in August 2023, allowing sufficient time for a
comprehensive handover from Philip Cox before taking up
therole of Chair on 1 January 2024.
David Nussbaum
Senior Independent Director
The search for a new Chair
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over a term of up to five years. Strategic workforce planning
helps develop our longer-term internal talent management
strategy as well as identify any external recruitment needs.
In the final quarter of 2023, the Board considered and endorsed
the Board Diversity Policy (the Policy) which had been approved
in 2022. The Policy has due regard for the FCA Policy Statement
on diversity and inclusion on Boards and in executive
management and confirms the Group’s support for the
recommendations of the FTSE Women Leaders Review and the
Parker Review. The Policy also confirms the Group’s objective to
maintain at least 40% female director representation and to have
at least one director from an ethnic minority. As at 31 December
2023 there was 50% female representation on the Board, rising
to 56% from 1 January 2024, and at least one director from an
ethnic minority. More information on gender and ethnicity
reporting can be found on page 123.
The Board and executive management continue to recognise
thatDrax needs to do more to support people from diverse
backgrounds. In March 2023, the Parker Review published a new
target for FTSE 350 companies which seeks disclosure on the
target percentage of senior management positions to be occupied
by ethnic minority executives by 2027. We fully support the Parker
Review’s ambitions and the Group is currently preparing an
ethnicity objective appropriate for the succession pipeline of an
internationally growing business. We also continue to expand our
diversity related activities, rolling out our Diversity, Equity and
Inclusion (DEI) action plans, embedding DEI into our recruitment,
talent and retention processes. We have also rolled out DEI
workshops across North America and have provided additional
bite-sized learning for all colleagues to understand more about DEI.
In 2023, we also celebrated events such as LGBTQ+Pride,
Jamaica Day, Black History Month, World Menopause Day,
Passover, Hispanic History Month, Indigenous People’s Day and
Canada’s National Day for Truth and Reconciliation.
Non-Executive Directors: terms of appointment
Under the Board’s policy, Non-Executive Directors are appointed
for an initial term of three years, which can be renewed by mutual
agreement. The Board must be satisfied with the Director’s
performance and commitment, in order to recommend that each
Director be put forward for re-election at each annual general
meeting. The Board will not normally extend the aggregate period
of service of any independent Non-Executive Director beyond
nine years. Also, the Board will review any proposal to extend
aNon-Executive Director’s aggregate period of office beyond
sixyears.
In 2023, the Board considered the re-appointment of David
Nussbaum, for a third term of three years. The Board considered
David’s skills and contribution, together with the feedback from
the evaluations of the Board and Committees. David has
extensive experience working in NGOs which has included
executive leadership in such organisations. He provides insight
and constructive challenge to the Group’s activities and brings
tobear his in-depth knowledge of effective governance and the
views of external stakeholders to inform Board discussions.
Onthe recommendation of the Non-Executive Directors, the
Board approved the extension of his appointment for a further
three years, taking effect from 1 August 2023.
Board and Committee evaluation
The Board conducts an annual performance evaluation, ensures
there are ongoing Board development activities, and provides a
comprehensive induction for new Board members. In 2022, an
externally facilitated evaluation of the Board and its Committees
was conducted by Board Alchemy. The table on pages 130 and
131 summarises the recommendations and how we responded
tothem during 2023.
Skills and knowledge of the Board
A key responsibility of the Nomination Committee is ensuring the
Board maintains a balance of skills, knowledge, and experience
appropriate to the long-term operation of the business and
strategy delivery. The Nomination Committee has reviewed
theBoard’s composition, considering whether it has:
• The right mix of skills, experience and diversity
• An appropriate balance of Executive Directors and Non-
Executive Directors
• Non-Executive Directors who can commit sufficient time to
the Company to discharge their responsibilities effectively
That review has been an active aspect of the work in appointing
anew Chair and the Committee remains satisfied that the Board
continues to have an appropriate mix of skills and experience
tooperate effectively, now and for the future. All the Directors
havemany years of experience, gained from a broad variety
ofbusinesses. Collectively they bring a range of expertise and
sector knowledge to Board deliberations, which encourages
constructive, challenging and insightful discussions. More on
therespective skills and experience of the Directors can be
foundon pages 114 to 116.
Succession planning and diversity
The Nomination Committee is responsible for ensuring that there
is an effective succession plan process in place for the Board and
executive management, which includes the identification of
candidates based on merit and objective criteria, and which takes
into account the need for diversity with regards to gender, social
and ethnic backgrounds, cognitive and personal strengths.
Given the growing international presence and complexity of Drax,
the Nomination Committee recognises the importance of having
effective measures in place to identify skills, capabilities and
experience needed to deliver our strategy, as well as contribute to
the appropriate culture, ethos and practices necessary to deliver
change whilst maintaining sound practices which enable more
established elements of the Group’s activities. Reviews include
identifying colleagues with the potential to progress into more
senior roles, across a timeframe of one to five years. It also
incorporates factors such as technical skills, experience,
behaviours and attitudes.
Our sustainability credentials and our reputation will play a critical
role in the Group’s ability to deliver on our corporate strategy,
including generating dispatchable renewable power in the UK,
delivering UK BECCS and becoming a leader in the production
and sale of sustainable biomass. The Board considered the need
for a Chief Sustainability Officer to lead our sustainability efforts
and build upon our global reputation with stakeholders. Following
a recruitment process, Miguel Veiga-Pestana was appointed in
September 2023.
In October, we announced the creation of the Chief Operations
Officer (COO) role. This role will help us to ensure the efficient,
safe, and sustainable operation of our energy assets and pellet
operations, whilst delivering our multi-billion-pound capital
investment programme. Consolidating our operational assets and
associated capital projects into one integrated business unit will
enable greater collaboration, co-ordination and efficiency. Penny
Small, who has served as Group Transformation Officer and Group
Generation Director, was appointed as interim COO in December
2023. In December, the EVP Pellet Operations, EVP Capital
Projects and Director of Generation stepped down from the
Executive Committee and report to the interim COO. A recruitment
process is underway to identify a permanent COO, who is
expected to be appointed to the Executive Committee in 2024.
In October, the Board also reviewed progress on the Group’s
strategic workforce planning which includes a review of the key
skills required across the Group to deliver the Group’s strategy
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A summary of the key recommendations from the 2022 Board and Committee evaluations, and how we acted upon them during 2023,
is provided below:
2022 External recommendation Action taken during 2023
1. Provide “refresher” development to Non-Executive
Directors in areas relating to hedging strategy plus
trading and commodity markets. Adopt a structured
approach to determining training needs for Board
members.
At the September Board meeting, internal experts from
theTrading and Optimisation team delivered a refresher
training session to the Board. The future Trading and
Optimisation strategy was also discussed. The Board
confirmed in the 2023 internally led evaluation that
deep-dive refresher training on complex topics is helpful
and will continue to assess further training opportunities.
2. Enable Board members to visit Drax assets more
regularly, particularly since this has been difficult
inrecent years. Members should use visits as an
opportunity to engage with staff.
The Board visited the Cruachan Power Station site in June
2023 and met with colleagues. Andrea Bertone also visited
offices in London, Selby (Drax Power Station) and
Vancouver and met with colleagues at those sites. More
information can be found on page 128.
Erika Peterman and John Baxter also visited the Ipswich
office in October 2023.
The Board agree that it is beneficial for Directors to visit
operational sites and support the continuance of this
practice.
3. Consider using the Chair succession exercise to meet
new requirement for a woman to hold one of the four
senior roles on the Board.
Our newly appointed Chair, Andrea Bertone, fulfils this
recommendation. More information about our Board and
executive management gender and ethnic diversity can be
found on page 123.
Diversity was actively considered as part of the recruitment
process for a new Chair. The external recruitment advisers,
Heidrick & Struggles, who assisted with the search for a
new Chair, are signed up to the Voluntary Code of Conduct
for Executive Search Firms, which ensures it factors in
diversity considerations into its recruitment advice.
4. Obtain specific feedback from Board members about
how to further improve papers submitted to the Board.
A question seeking feedback in respect of Board papers
was included in the 2023 internal evaluation questionnaire.
The Board commented that the quality of Board papers has
improved but the length of papers was highlighted as
requiring attention with management encouraged to be
more succinct.
5. Ensure less-experienced members of the management
team who present papers to the Board are consistently
well-briefed and adequately prepared.
There is ongoing support for presenters to ensure they are
well-briefed and adequately prepared prior to presenting
papers to the Board.
6. Consider the formal terms of reference for the
Independent Advisory Board (IAB) to Drax, then
regularly review and update them.
Terms of reference are in place. They were reviewed by the
Board in April 2023.
7. The Board should discuss the merits of establishing
aSustainability Committee and, if the decision is to
proceed, consider the timing of its launch and its remit.
During 2023, the Board established a Sustainability Council.
The Sustainability Council has Group-wide responsibilities
for matters relating to sustainability. In addition, the IAB,
ledby scientists and chaired by the UK Government’s
former chief scientific adviser Professor Sir John
Beddington, provided independent and impartial advice.
8. Give attention to the development of a digital strategy
tosupport the broader business strategy and purpose
ofDrax.
In October 2023, the Board discussed the Group’s digital
strategy to support the Group’s broader business strategy
and purpose.
Nomination Committee report continued
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2022 External recommendation Action taken during 2023
9. At Board level, undertake a “lessons learned” review
ofthe Pinnacle acquisition and establish the practice
ofconducting similar reviews on a regular basis.
A review paper was presented at the July 2023 Board
meeting. The shareholder circular at the time of the
transaction set out five key benefits: (i) it would establish
Drax as major producer and supplier of good quality
low-cost sustainable biomass; (ii) it would provide a large
and geographically diversified asset base; (iii) there would
be potential for long-term biomass revenues with access
toAsian and European markets; (iv) it would allow Drax
todevelop global growth opportunities for sustainable
biomass; and (v) return on investment. It was concluded
that key aspects of these objectives had been met. The
Board endorsed the significant work of colleagues to date
in making improvements and helping to raise standards.
10. Consider resuming the practice of holding occasional
Board meetings away from the London head office.
The Board agree that at least one Board meeting each year
should be held at a different site. The Board visited and held
a meeting at Cruachan Power Station in June 2023.
11. The Board should seek management views about how
the Non-Executive Directors might better support the
Executive in stakeholder management.
A strategy as to how the Non-Executive Directors might
better support the Executive in stakeholder management
isbeing prepared and considered.
12. The Board should discuss how to evolve support for
local communities, particularly through the creation
ofemployment opportunities for minority groups.
Updates on stakeholder engagement and support for
localcommunities are provided to the Board and include
information on work with minority or under-represented
groups in our communities. For more information see pages
32 to 41.
13. The Remuneration Committee’s terms of reference
should include a responsibility to annually review the
performance of the remuneration consultants.
The terms of reference were updated and approved at the
February 2023 Remuneration Committee.
In 2023, the Board also completed an internally led evaluation
which gathered feedback via questionnaire on a range of
topics including culture, strategy, performance, Board and
Committee decision-making, sustainability and engagement
with stakeholders. The Board concluded that it continues to
operate effectively but there is scope for deeper engagement
with stakeholders in respect of sustainability to further
enhance the Group’s TCFD’s capabilities. The Board also
concluded that it was satisfied with the progress made on the
recommendations provided by Board Alchemy in 2022. Details
of the progress can be found in the table on pages 130 to 131.
Renewal and re-election
Any newly appointed Director may hold office until the first
AGM following their appointment. At that meeting, they must
submit themselves for election by shareholders. Accordingly,
Andrea Bertone will offer herself for election at the
forthcoming AGM.
In accordance with the Company’s Articles of Association,
andin line with the recommendations of the Code, each of
theDirectors will retire annually and offer themselves for
re-election by shareholders at the AGM. The evaluation and
review of the Board and its Committees, described above,
concluded that each Director continues to demonstrate
commitment, management and business expertise in their
particular role. They continue to perform effectively.
Accordingly, John Baxter, Will Gardiner, Nicola Hodson, Kim
Keating, David Nussbaum, Erika Peterman, Vanessa Simms,
and Andy Skelton will all retire at the forthcoming AGM. Being
eligible, they will offer themselves for re-election.
The Executive Directors’ service contracts and Non-Executive
Directors’ letters of appointment are available for inspection
(by prior arrangement) during normal business hours at the
Company’s registered office. They will also be available for
inspection at the venue of the AGM, before that meeting takes
place. Details are contained in the Notice of Meeting.
During the year, Philip Cox met regularly with the Non-
Executive Directors in the absence of the Executive Directors.
Separately, the Senior Independent Director held a meeting
with the Non-Executive Directors without Philip being present,
as required by Provision 12 of the Code.
This report was reviewed and approved by the Nomination
Committee.
Andrea Bertone
Chair of the Nomination Committee
28 February 2024
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Committee members
Vanessa Simms (Chair)
Nicola Hodson
David Nussbaum
Erika Peterman
The Board is satisfied that the Committee’s membership has
the appropriate level of independence, skills, and recent and
relevant financial experience. Vanessa Simms, a chartered
certified accountant, is CFO of Land Securities Group plc.
David Nussbaum is a chartered accountant who has served
inseveral senior financial roles. Details of the skills and
experience of the Committee members can be found
onpages115 to 116.
Attending by invitation
Chair of the Board, CEO, CFO, Group Financial Controller,
internal auditor (KPMG), external auditor (Deloitte), incoming
external auditor (PwC), othersasrequired. The Group
Company Secretary is Secretary to the Committee
Number of meetings held in 2023: Four
In addition to the meetings mentioned in the table below,
Vanessa attended several planning meetings with
management in advance to discuss key agenda items, plan for
papers and ensure that her expectations were satisfactorily
reected in the matters discussed and explained. Vanessa also
held meetings with the external auditor and internal auditor at
intervals throughout the course of the year to discuss planning
for future work, responses to recommended actions from
previous reports, and other specific items as required.
Attendance in 2023
Committee member
Date appointed
a member
No. of
scheduled
meetings
No. of
meetings
attended
% of
meetings
attended
Nicola Hodson 12 January 2018 4 4 100%
David Nussbaum 1 August 2017 4 4 100%
Erika Peterman 21 October 2021 4 4 100%
Vanessa Simms 19 June 2018 4 4 100%
Introduction
Dear shareholders,
On behalf of the Audit Committee, I am pleased to present our
report for the 2023 financial year. During 2023 the Committee
continued to provide oversight of the financial reporting process,
the internal and external audit process, the Group’s system
ofriskmanagement and internal control, whistleblowing, and
compliance with laws and regulations. This report outlines
aspects of those activities and the primary areas of focus,
consistent with fulfilling the Committee’s obligations, and should
be read in conjunction with the section on our compliance with
the UK Corporate Governance Code on pages 118 to 119,
Principal Risks and Uncertainties on pages 94 to 107 and our
Viability Statement on pages 92 to 93.
The Group’s purpose positions Drax to play an important role
inresponding to the risks, opportunities and potential impact
ofclimate change faced by society. In fulfilling our purpose and
executing our strategy, sustainability is a key area of focus for
theGroup. The Committee increased its focus on this area during
2023, receiving regular updates on the assurance processes
andcontrols associated with a sustainable business model
incorporating financial, operational, and regulatory considerations.
Audit Committee report
The Committee continues to fulfil its
responsibilities to provide oversight
ofthe financial reporting process, the
internal and external audit process, and
the Group’s system of risk management
and internal control.
Vanessa Simms, Chair
Terms of reference
The Committee’s terms of reference are reviewed
annually by the Committee and then by the Board. The
terms ofreference areavailable on the Group’s website at
www.drax.com.
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This included a review, supported by KPMG, of the sourcing
ofsustainable biomass, how Drax complies with relevant laws
andregulations, and the level of assurance surrounding the
associated reporting to regulators. Whilst this review did not
highlight issues with the accuracy of underlying reporting, it
dididentify some specific areas for improvement. This included
the clear designation of roles and responsibilities and in the
documentation of reviews being performed before data is
submitted to regulators. Management has designed a programme
of work to ensure actions are taken to address these findings
during 2024. The Committee will track and hold management
toaccount on progress.
The Committee also received updates on implementing the
requirements of the Task Force on Climate-related Financial
Disclosures (TCFD), the evolving requirements of the Taskforce
onNature-related Financial Disclosures (TNFD), and wider climate
change risks and risk mitigations. I am pleased to report that the
Financial Reporting Council (FRC) included some of our 2022
TCFD disclosures as examples of good practice in its ‘Thematic
review of climate-related metrics and targets’ (July 2023). In a
letter received in December 2023, covering a review of our TCFD
disclosures of metrics and targets and the adequacy of net zero
commitment disclosures in the 2022 Annual Report and
Accounts, the FRC confirmed they had no questions or queries
inrespect of these areas. The FRC did raise some suggestions,
which we have sought to reect in this Annual Report.
The Committee regularly reviews and considers the effectiveness
of the Group’s internal controls, which includes cyber risk
assessment and mitigation activities. In July 2023, the Committee
considered a report from the cyber security function on
developing the security strategy to meet enhanced cyber
capabilities, and management’s recommendations on how these
could be realised. The Group’s generation assets form part of the
UK’s critical national infrastructure, and Drax Power Station is
designated as an Operator of Essential Services (OES). As an OES,
Drax Power Station is required to maintain a certain level of
resilience to defend against potential cyber-attacks. That level
ofresilience is defined in the Network and Information Systems
Regulations (NIS Regulations), introduced in 2018, which set
outthe work expected by OESs to achieve certain minimum
standards by 31 December 2023. Operators are required to
provide annual reports to Ofgem detailing their cyber defence
maturity progress.
In common with many other businesses, Drax faces evolving
cyber security threats. During discussions with management, the
Committee and Board provide challenge on the risk assessment,
adequacy of prevailing systems, investment, and internal
controls, as well as making clear their support of implementing
enhancements where deemed necessary. The status of response
to these threats was considered in January 2024. Through this
process, the Board considered that as at 31 December 2023
DraxPower Station had not fully achieved the required minimum
standards as defined in the NIS Regulations; however, the Board
approved a plan from management to address these
requirements during 2024. The status report submitted to Ofgem
in January 2024 identified the need for further work and outlined
these plans to address the remaining areas.
The Committee seeks to ensure transparent, robust, and
accurateexternal reporting that covers financial and operational
performance, future prospects, and the wider business controls
required for the day-to-day conduct of the business. The
Committee assesses whether stakeholders can gain a fair and
balanced understanding of how the Group is performing, its
underlying resilience, and the effectiveness of the governance
and control applied. Through these assessments, as well as
receiving reports from external experts, the Committee considers
the Group’s reporting meets expected standards.
Throughout 2023 the Committee continued to monitor risks
andchallenges and their potential impact on the Group’s strategy
and viability. Examples of areas considered were the ongoing
conicts in Ukraine and Gaza, political uncertainty, biomass
acceptability, challenges in the global pellet supply market, and
support for BECCS. This included the assessment of emerging
risks, particularly as the Group expands operationally and
geographically, such as the expansion of business in the US as
part of progressing opportunities with BECCS. The Committee
continued to evaluate the appropriateness of controls and
mitigation activities in responding to these challenges. You can
read more about this throughout this report and in the sections
on Principal Risks and Uncertainties and the Viability Statement
on pages 94 and 92 respectively.
As previously reported, and subject to shareholder approval at the
2024 AGM, PwC will become the Group’s external auditor for the
financial year ending 31 December 2024. During 2023, the
Committee has been working with the Group’s current external
auditor, Deloitte, and with PwC, on the transition planning. As part
of this planning, PwC has been working with management to build
its knowledge of the Group, and shadowing Deloitte in respect of
its audit of the Group’s 2023 Consolidated financial statements.
As Chair of the Committee, I report to the Board on the
Committee’s activities and considerations following each
meeting. I hold regular meetings with the CFO, external auditor,
and internal auditor, separate from the formal meetings of the
Committee. I also attend planning meetings with those preparing
for forthcoming Committee meetings, to discuss relevant papers
and key matters. Committee members have access to the
services of the CFO and the Group Company Secretary, and
theresources of their teams, as well as access to external
professional advice as necessary.
The Committee allows time at each meeting to speak in the
absence of management or advisers. In addition, the Committee
meets both the external auditor and the internal auditor without
management present. This allows the Committee members to
discuss areas for attention and identify potential areas of
challenge. The Committee’s understanding with both the external
and internal auditor is that, if they should at any time become
aware of any matter giving them material concern, they are able
to promptly draw it to the Committee’s attention via the Chair
ofthe Committee. No such issues were raised during 2023.
Role of the Committee
The role of the Committee is to assist the Board in fulfilling its
oversight responsibilities. This includes undertaking the following:
• Monitoring the integrity of the Consolidated financial
statements and other information provided to shareholders
• Reviewing significant financial reporting matters and
judgements contained in the Consolidated financial statements,
including application of accounting policies, and inviting
challenge from the external auditor on the approach taken
• Advising the Board on whether the Committee believes
theAnnual Report and Accounts and other periodic financial
reporting are fair, balanced andunderstandable
• Reviewing the systems of risk management and internal
control, including consideration of emerging risks
• Supporting the Board in establishing a culture of honesty
andethical behaviour, including oversight of whistleblowing
and Speak Up procedures, fraud risk and controls
• Assessing the requirement for, and reviewing the outputs from,
independent external assurance and verification
• Maintaining an appropriate relationship with the Group’s
external auditor and reviewing the effectiveness and
objectivity of the external audit process
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• Maintaining and monitoring the non-audit services policy
toensure the external auditor’s ongoing independence and
objectivity
• Making recommendations to the Board (to put to shareholders
for approval) regarding the appointment of the external auditor
• Monitoring and reviewing the effectiveness of the internal
audit function
Review of Committee effectiveness
In line with the FRC’s Guidance on Committees, the effectiveness
of the Audit Committee is considered annually. For 2023, this took
the form of an internal review (see page 131 for further details).
The review concluded that the Audit Committee continued to
function effectively. Meetings are well chaired; there is good
engagement between Committee members; and there are positive
relationships with management and both the external auditor and
the internal auditor. High quality papers are produced to support
the meetings and Committee members have fed back positively
on the information they receive. An internal review will be
conducted in 2024, followed by an externally-led review in 2025.
In addition to this review, the Committee has considered the FRC’s
publication ‘Audit Committees and the External Audit: Minimum
Standard’ issued in May 2023, and believes that there are no areas
of non-compliance in respect of 2023.
Committee activities in 2023
The Committee follows a programme of work designed to ensure
that sound risk management processes, a robust system of
internal control, and fair and balanced external reporting are all
inplace. In addition, where appropriate to activities in the Group
or to reect changes in applicable regulations or external
conditions, agenda items are incorporated to ensure members of
the Committee have the opportunity to consider and contribute
to an analysis of material issues. The main areas of work
undertaken by the Committee during 2023 at its routinely
scheduled meetings are set out in the table below.
Reviewing the effectiveness of the system
ofriskmanagement and internal controls
The Committee received updates on the Group’s risk
management and internal control environment and reviewed
internal audit reports at each of its four meetings during 2023.
There was continued focus on geopolitical tensions, including
their impact on global commodity markets and the associated
development of regulatory policies concerning energy.
At its April and November meetings, the Committee considered
the energy markets, and how management was responding
toprevailing volatility. Global energy markets are complex and
interconnected, with significant areas of direct and indirect
impact across the differing sources of man-made and naturally
occurring energy sources. This level of overlap can mean that
heightened risks can emerge as a result of quite disparate events.
For example, shortages in supply of natural gas can affect
markets in other sectors, such as those for biomass.
During 2023, the Committee considered risks, and possible
mitigations, in relation to potential challenges in safeguarding
biomass supplies, which remain heightened following a period
ofsignificant global ination and challenges faced by certain
suppliers in sourcing raw material. The Committee also
considered the Group’s credit exposure to its customers, which
increases when market prices fall below contracted prices. The
oversight and management of these risks falls under the remit
ofthe Financial Risk Management Committee, (as detailed on
page 117). The Audit Committee was satisfied with the controls
implemented to manage the underlying risks, and that potential
future scenarios were being considered, with appropriate plans
and potential mitigations identified.
As in many sectors, regulation and compliance is a continuing
area of scrutiny. The Committee discussed the regulatory
landscape as pertains to the Group, the internal controls that
February April July November
Item under review
• The 2022 year-end review
ofkey financial and reporting
matters
• An update on going concern
and viability
• Final report from Deloitte
onits2022 audit findings
• The 2022 Annual Report and
Accounts and preliminary
results announcement
• A deep-dive review of TCFD
disclosures in the 2022 Annual
Report and Accounts
• The verification process
undertaken to support the
2022 Annual Report and
Accounts
• An update on the effectiveness
of risk management and
internal controls
• Year-end principal risk review,
including ongoing risks and
mitigations arising from the
conict in Ukraine
• An update on whistleblowing
• Summary of internal audit
reviews for the period and
outstanding actions, and the
final internal audit plan for
2023
• Management update on key
financial and reporting
matters
• Group policy on exceptional
items and certain
remeasurements
• Deloitte’s management
letter for the 2022 audit,
and management responses
• An update on the
effectiveness of risk
management and internal
controls
• An update on the Group
assurance map
• An update on risk
management and internal
controls around health,
safety and environment
• An update on
whistleblowing
• Summary of internal audit
reviews for the period and
outstanding actions
• The effectiveness of the
2022 external audit process
• Senior Accounting Officer
reporting to HMRC
• An update on the Group
taxstrategy
• The 2023 interim review of key
financial and reporting matters
• Deloitte’s report on its half year
review
• The 2023 Half Year Report
announcement
• An update on the effectiveness
of risk management and
internal controls
• An update from the Ethics and
Business Conduct Committee
• An update on the risk
management and internal
controls around regulation and
compliance, including
sustainability
• An update on cyber security,
including scenario testing
• An update on internal controls
around sustainability data, plus
external review
• An update on the external
audit transition by PwC
• An update on whistleblowing
• Summary of internal audit
reviews for the period and
outstanding actions
• The Audit Committee’s terms
of reference and Auditor
Independence Policy
• Management update on key
financial and reporting matters
affecting 2023
• Plan and timetable for the 2023
Annual Report and Accounts
• Year-end planning report from
Deloitte
• Summary of internal audit
reviews for the period,
outstanding actions, and the
proposed plan for 2024
• An update on the effectiveness
ofrisk management and internal
controls during the period
• An update on the Group
assurance map
• A review of the Group’s
principal risks
• An update on external auditor
transition by PwC
• An update on sustainability
reporting and assurance for the
2023 Annual Report and
Accounts
• A deep-dive review of regulatory
reporting and controls, including
sustainability
• An update on whistleblowing
• The effectiveness of the internal
audit process
Audit Committee report continued
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arein place to ensure compliance with existing regulations and
associated regulatory reporting, and also the potential impact of
new or changing regulation on the Group’s operations and future
strategy. This assessment included reviewing announcements
during the year that impacted the Group’s UK BECCS project.
Having completed this review, the Committee was satisfied that
the risks were being appropriately managed and reported on,
both internally and within the Annual Report and Accounts,
whilst identifying and agreeing upon the required areas of
focusfor 2024.
The Committee undertook deep-dive risk management and
internal control reviews during 2023 covering topics including
cyber security, ethics and business conduct, HSE, and regulatory
reporting. Where the Committee feels it is of value, external
parties are appointed to support with these reviews and those
parties may be asked to attend Committee meetings to provide
additional expertise and insight. For example, the cyber security
review was supported by an external party that ran specific
scenario tests, whilst the regulatory reporting review was
supported by a team from KPMG with specific knowledge around
effective governance and compliance frameworks. The findings
and actions arising from these deep-dive reviews are evaluated
by the Committee, which also reviews and approves the deadlines
for implementation.
As part of the review of regulatory reporting, an analysis of the
supporting processes and controls was performed across certain
areas, including sustainability and environmental reporting. KPMG
was engaged to support management with this review, which
highlighted that a good level of awareness and an appropriate
governance structure were in place, incorporating review and
sign-off of key reporting prior to submission. However, areas
ofcontrol improvement were also identified, including the
documentation and consistency of these review processes,
andthe clear designation of roles and responsibilities associated
withreporting to regulators. Management has designed a
programme of work to address these areas, and progress will be
reported to the Committee at each of its meetings during 2024.
The Committee also agreed that this area would form part of
KPMG’s internal audit plan for 2024. See below for more detail
onthe work of the internal auditor during 2023.
Alongside the expert support provided by these external parties,
management co-ordinates ongoing self-assessment and review
of risk management and internal control activities covering the
Group’s principal risks. Control owners are required to provide
anassessment on the operation of key controls at least twice
annually, and to report on any gaps or control failures identified.
These responses are then reviewed by a separate internal team,
and the assessments of control operation and effectiveness are
periodically challenged. The outputs from the self-assessment
process are reported to the Committee at each meeting.
This self-assessment is performed against the broader context
ofchanges in both the underlying risks and also the environment
in which the Group is operating, and considers whether prevailing
controls remain appropriate. To support this, the Committee
regularly reviews a detailed assurance map for the Group,
covering each of the principal risks. The assurance map reports
on the levels of assurance that are in place, acting as different
lines of defence, as outlined on page 95. It also provides
management’s assessment of whether the level of assurance
isappropriate, and highlights areas that require addressing.
Having reviewed the latest assurance map at their meeting in
November 2023, the Committee was satisfied that there were no
significant gaps in the levels of assurance. Progress made during
2023 included the introduction of a new Sustainability Council
toprovide Group-wide oversight of sustainability-related matters,
and development of a consistent internal standard for second-line
HSE reviews being conducted across the Group, together with
aplanned programme of such reviews.
The Committee challenged management on the assurance
associated with the Biomass Acceptability and Political and
Regulatory principal risks during 2023, as these are areas
experiencing rapid change and are recognised as having the
potential to significantly impact the Group. The complex nature
and interaction of the rules in different jurisdictions was
discussed, in the context of the Group’s strategy and planned
expansion. Management has identified a series of measures
tobeimplemented in 2024 in response, including the further
strengthening of second-line assurance and the ongoing
enhancement of process documentation. Additional detail on
theGroup’s principal risks and key mitigations can be found
onpage 94.
During 2023 the Committee also undertook a deep-dive review
on the requirements of TCFD, and how these had been addressed
in the Annual Report and Accounts. This review was supported
by an external party, who provides the prescribed level of limited
assurance over data which forms part of the TCFD report.
TheCommittee discussed the level of assurance that was being
provided and options for how this might be enhanced in future.
Having reviewed the sustainability disclosures, and considered
the supporting controls and assurance in place, the Committee
was satisfied with the approach being taken to manage the
underlying reporting risks, but confirmed it expects management
to review this and report on areas for potential improvement in
future reporting cycles.
The continued enhancement of the Group’s wider internal control
framework formed part of the overall response to the then
proposed corporate governance reforms (“Restoring trust in audit
and corporate governance”). At each of its meetings during 2023,
the Committee received updates from the internal auditor on the
latest developments in this area and discussed the Group’s
planned approach in responding to potential future changes.
Management presented progress reports and an action tracker
tothe Committee, as well as an assessment of the areas likely
torequire most focus in future.
Whilst the UK Government subsequently withdrew the secondary
legislation associated with the proposed reforms, the Committee
considered the impact assessment produced from management’s
underlying work at its November meeting, noting the FRC’s policy
statement during November 2023 and its continued focus on
internal controls. This assessment included a proposal from
management on the key actions that would continue to help
enhance governance and control frameworks. Following their
review, the Committee agreed the areas that would be a focus for
management during 2024, including the continued formalisation
of the internal control framework. This work will take into
account any further updates or guidance issued by the FRC,
including the revisions to the Corporate Governance Code
announced in January 2024.
The Committee also works with the internal auditor, KPMG,
toassess the overall system of risk management and internal
control. The annual internal audit plan is designed with input from
the Committee and wider management, and focuses on key areas
of risk for the Group. The appointment of KPMG provides the
Committee with an additional external perspective on whether
the key controls designed to mitigate these risks remain effective.
Where appropriate, the internal auditor will provide detailed
recommendations to improve the systems of risk management
and internal control. Further detail on the role of the internal
auditor is provided on page 143.
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The Committee routinely considers information arising from
internal Speak Up and whistleblowing reports. It discusses with
management the scope of investigations, providing feedback and,
where relevant, challenge on the appropriateness of the steps
being taken in response. The Committee seeks to understand
how matters identified in incidents inform training for colleagues
to address findings that effect positive change, and how actions
by management can improve culture within the Group’s
operations. An explanation of the Group’s Whistleblowing
Programme can be found on page 71. The Board was also
separately updated on responses to such reports.
The Committee reviews and discusses findings and action points
arising from each of the internal and external reviews that are
performed, to assess whether improvement plans are suitably
robust and have appropriate delivery targets. None of the
findings discussed during 2023 were considered individually
orcollectively material to the financial performance, results,
operations, or controls of the business. Taking this into account,
the Committee was satisfied that the systems of risk
management and internal control have continued to operate
effectively. However, the assessments performed during 2023
did identify opportunities for future improvements. In addition
tothose areas noted above, areas highlighted include how
communications are managed during a business continuity event,
and the need to continue maturing trade surveillance capabilities
as the Group’s activities grow.
Reviewing key judgements and financial
reportingmatters
Explanations of all the Group’s material accounting policies,
critical accounting judgements, areas of significant estimation
uncertainty and other material financial reporting matters are set
out in the notes to the Consolidated financial statements. The
Committee reviewed these aspects of the Consolidated financial
statements, with a particular focus on the areas it deemed the
most complex or subjective, as highlighted in the table below.
Inaddition, the Committee considered how these matters are
disclosed within the Annual Report and Accounts, to ensure
thatappropriate context and explanation are provided.
At each of its meetings, the Committee receives a Financial
Reporting and Accounting update from management, covering
any key changes in the period, as well as emerging issues.
Thesepapers also incorporate any relevant updated guidance
orclarifications issued by bodies such as the FRC or FCA, and
management’s assessment of the impact on the Group and the
timing of any planned actions in response. These updates are
discussed with the external auditor in advance of the Committee
meetings, ensuring that they have the opportunity to consider
and provide their own views on the matters raised. This includes
highlighting alternative approaches or accounting treatments
toassist the Committee in their consideration of management’s
conclusions and proposals.
Description Audit Committee review and conclusion
Accounting for derivative financial instruments
As described on page 251, the Group makes use of derivative
financial instruments to help manage the key financial risks to which
it is exposed.
The Group’s balance sheet includes significant assets and liabilities
arising from these contractual arrangements that are measured at
fair value by virtue of being within the scope of IFRS 9 (Financial
Instruments). Judgement is required around which contracts meet
specific criteria and which do not (and therefore remain outside the
scope of IFRS 9) and may also be required in the valuation
methodology applied, where different approaches or sources of input
information may be possible.
A judgement is made that biomass contracts continue to fall outside
the scope of IFRS 9, primarily due to the illiquid nature of the market
and the contractual terms in place between counterparties. The
market remains immature and there is not a readily accessible source
of supply and demand at present.
Where a fair value calculation is required, this typically involves
amark-to-market calculation, comparing the contractual price to
prevailing market rates. Whilst volatility in several of the markets most
relevant to the Group, including power and foreign currency, reduced
during 2023 compared to 2022, the balances relating to these
contracts remain significant, as described on page 251. The size and
scope of the Group’s derivative portfolio means that small errors in
the valuation or disclosure process could have a material impact on
the amounts included in the Consolidated financial statements.
Whilst the inputs to these calculations are largely taken from
observable market prices or data points, in certain cases more than
one potential source of information is available. Whilst differences in
these forward-looking assumptions are typically relatively small, the
impact can become material when applied to a large portfolio of
contracts.
The accounting and disclosure requirements in relation to derivative
financial instruments are inherently complex and, as a result, the
controls in this area remain a key area of focus for the Committee.
At each of its meetings, the Committee receives an update on any
new classes of derivative financial instrument that the Group has
entered into, and the proposed accounting treatment. During 2023,
there were no new classes of instrument that required review.
Ahead of each reporting date, the Committee reviewed
management’s assessment that biomass contracts continue to
falloutside the scope of IFRS 9. This involved comparing the
requirements of the financial standard with the current situation
interms of observable practice and market conditions, taking
intoaccount developments during the period in question.
Having completed this review, the Committee was satisfied with
management’s assessment. However, it was noted that this remains
a critical judgement given the potential impact on the Consolidated
financial statements should biomass contracts be deemed to be
within the scope of IFRS 9.
At each of its meetings, the Committee was also updated on the
overall valuation of the Group’s derivative portfolio, and the
movements in the period. The Committee considered the operation
of the financial control framework with respect to the valuation
process, any enhancements made during the period, and the output
from a rolling self-certification process. Improvements noted during
2023 included simplification of certain valuation models, and
development of internal valuation tools for ination contracts.
Consideration was given to the disclosures made in the Annual
Report and Accounts, including the impact from a change during
2023 to present certain derivative assets and liabilities on a net
basis, as opposed to a gross basis. The Committee was satisfied that
the change was appropriate, and that the disclosures included in
the Consolidated financial statements clearly explained the impact
of this change and the reasons for it.
Based on these reviews, the Committee was satisfied that the
reporting and controls in place around derivative financial
instruments were robust. In reaching this conclusion, the
Committee considered the opinion and recommendations of the
external auditor, and the analysis performed by its specialist teams.
Audit Committee report continued
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Description Audit Committee review and conclusion
Electricity Generator Levy (EGL)
As described on page 179, following an announcement in December
2022, the EGL received Royal Assent in July 2023. The EGL applies
tothe period 1 January 2023 to 31 March 2028 and is an additional
charge that applies to the Group’s biomass units operating under the
Renewables Obligation scheme and its run-of-river hydro operations.
An assessment of the scheme was required, to determine whether
the EGL represents a tax under IAS 12 (Income Taxes) or a levy under
IFRIC 21 (Levies). Several factors needed to be considered in making
this determination, including the structure of the scheme and any
applicable reliefs or deductions. This assessment concluded that
thescheme should be accounted for under IFRIC 21, and recognised
asan expense in line with the underlying generation, as outlined
onpage 179.
The EGL expense recognised in the Consolidated financial
statements for 2023 is £205 million. Due to the materiality of
thischarge, both in quantum and in nature (being the first year
ofapplicability) clear disclosure and explanation is required in
theConsolidated financial statements. Further detail is provided
onpage179.
Determining the expense to be recognised in the Consolidated
financial statements requires interpretation of new legislation, and
the creation of new models and calculations. There are various inputs
to these calculations, some of which require assumptions and
judgements to be made.
At its meeting in July 2023, the Committee reviewed management’s
conclusion in respect of the accounting classification of the EGL.
Having discussed all relevant factors, and considered feedback from
the external auditor, the Committee concluded that the assessment
was appropriate and that the EGL should be accounted for as a levy
under IFRIC 21.
At the same meeting, the Committee also considered the disclosure
included within the 2023 Half Year Report, being the first external
reporting published by the Group since the EGL was announced.
Inparticular:
• The EGL charge was not presented as an exceptional item or
acritical accounting judgement
• The EGL charge was separately presented on the face of the
Consolidated income statement
• Key alternative performance measures (see page 139) were
presented both inclusive and exclusive of the EGL charge
Having completed this review, the Committee was satisfied with the
disclosures and that they would aid understanding of the impact of
the EGL on the Group. Equivalent disclosures are also included within
the 2023 Annual Report and Accounts.
At its meeting in November 2023, the Committee was updated on the
processes and controls that had been introduced in order to calculate
the EGL charge, and to ensure that legislation had been appropriately
reected. Based on this review, and feedback from the external
auditor, the Committee was satisfied with the approach taken to
calculate the EGL charge.
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Description Audit Committee review and conclusion
Impairment of goodwill and fixed assets
The Group reviews its goodwill and fixed assets (or, where
appropriate, groups of assets in cash-generating units (CGUs)) for
potential impairment. Impairment reviews are triggered by either
theexistence of potential indicators of impairment at a given point
intime or, in the case of goodwill and other intangible assets with
indefinite useful lives, are conducted at least annually.
As part of its annual review, management considers the classification
of CGUs. For 2023, the Drax Energy Solutions and Opus Energy CGUs
were updated to reect the fact that certain activities, including
theembedded renewables business, have now formally transferred
between CGUs. The Pellet Production business, previously split into
two CGUs (Northern and Southern operations) is now considered
asingle CGU, reecting the continued integration and increased
interdependence of the Group’s pellet plants. Further detail on these
changes is provided on page 196.
When an impairment review is deemed to be required, the
recoverable amount of the asset or CGU is assessed. This assessment
is made with reference to the present value of the future cash ows
expected to be derived from its value in use, or its expected fair value
on sale.
Assessments of value in use for each CGU are based on the most
recent Board-approved forecasts. The forecasts include all the
necessary costs expected to be incurred to generate the cash
inows from the relevant assets in their current state and condition.
Various assumptions are required in determining these forecasts, and
the reviews performed therefore also include sensitivity and scenario
analysis to help the Board understand how changes in key
assumptions impact the assessment. Where these reviews suggest
apotential risk of impairment, further detailed work is undertaken.
The discount rates applied to the underlying forecasts (to take
account of future risk and the time value of money) represent an
important assumption, and are impacted by market volatility, interest
rates and ination. These rates are reviewed annually with input from
external experts.
Impairment arises where management determines, and the Audit
Committee concludes, that the carrying amount of an asset (or group
of assets) exceeds its recoverable amount. Further detail on this
process and the assumptions made is provided in note 2.4 to the
Consolidated financial statements.
At its meeting in November 2023, the Committee considered
management’s review process and initial conclusions in respect
ofCGUs and impairment for the 2023 financial year.
Having considered and challenged management’s reports, process
and key assumptions, the Committee concluded that the overall
approach to impairment reviews was appropriate, as were the
proposed changes to the Group’s classification of CGUs and the
allocation of goodwill between these CGUs. The Committee was
satisfied that the only potential impairment necessary during the
year was in relation to the Opus Energy CGU, given the changes in
that business during 2023, as described in more detail on page 200.
The Committee also considered management’s review of capitalised
costs associated with the UK BECCS project, given that these are
material to the Consolidated financial statements. This included
consideration of external announcements made during 2023 in
relation to wider carbon capture and storage (CCS) projects in the UK,
progress with the Group’s own project, and potential future scenarios.
Based on this review, the Committee was satisfied that no indicators
of impairment were identified during the year, and accordingly no
impairment of these capitalised costs was required. The Committee
also noted that this continued to warrant inclusion as a significant
judgement in the Consolidated financial statements.
At its meeting in February 2024, the Committee reviewed a roll
forward of the analysis from November 2023 and considered any
significant internal or external changes. This incorporated further
analysis of the Opus Energy CGU and the final calculated impairment
charge of £69 million. This review did not indicate any changes in the
conclusions from the November 2023 meeting, and the Committee
was satisfied with management’s assessment and the impairment
charge proposed.
Further scenarios and analysis were also considered to support the
review of going concern and viability conducted by the Committee,
discussed in more detail on page 92. This analysis did not suggest
anyfurther indicators of impairment, and supported the
conclusionsreached.
The Committee reviewed the impairment disclosures in the Annual
Report and Accounts and concluded that the key assumptions and
sensitivities had been appropriately disclosed, and that all statements
made were supportable. The Committee was satisfied that this area
should be highlighted as a key source of estimation uncertainty
within the Annual Report and Accounts, given the sensitivity of the
conclusions reached to certain assumptions, as described in more
detail on page 180.
Audit Committee report continued
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Description Audit Committee review and conclusion
Calculation and presentation of alternative
performance measures
As described on page 206, the Group presents Adjusted results
excluding the impact of exceptional items and certain
remeasurements. Adjusted results are consistent with the way
Executive management and the Board review and assess the
performance of the Group. The effects of exceptional items and
certain remeasurements are presented separately in a column
ontheface of the Group’s Consolidated income statement.
The Group has a clear policy that sets out the transactions considered
as exceptional, and the determination of certain remeasurements.
However, the classification of transactions as exceptional and the
separate presentation of certain remeasurements requires
judgement. The definition of appropriate alternative performance
measures such as Net debt also requires judgement.
A full glossary of alternative performance measures referenced
throughout the Annual Report and Accounts, including the closest
equivalent IFRS measure and an explanation of why the measure is
considered important, is provided on page 285. Supporting
reconciliations of certain alternative performance measures from
relevant IFRS measures are provided in note 2.7 to the Consolidated
financial statements.
At each Committee meeting, management presents a paper that sets
out the transactions proposed to be classified as exceptional in the
period. The Committee reviews this paper, and challenges each of
theindividual items. Formal approval of the classification is provided
at reporting dates.
At its meeting in April 2023, the Committee reviewed and approved
updates to the Group’s policy in respect of exceptional items, noting
that the changes to the policy added further guidance and did not
change the underlying principles applied. As part of the review, it
wasconfirmed that the updated policy would not have changed
theclassification of exceptional items in the previous period.
In addition, the Committee reviews and approves the definition of
alternative performance measures. At its meeting in July 2023, the
Committee considered the presentation of the EGL within the Half
Year Report, as outlined on page 137. Having completed this review,
the Committee was satisfied that the presentation of certain
alternative performance measures as both inclusive and exclusive
ofthe EGL, in particular Adjusted EBITDA, was appropriate.
At its meeting in November 2023, the Committee considered the
Group’s definition of Net debt in detail, noting external focus on the
calculation of this metric. Having reviewed each of the Group’s key
working capital arrangements, the Committee was satisfied with
their treatment within the Group’s calculation of Net debt, and
thatthe calculation remains consistent with the Group’s covenant
reporting requirements. The Committee was also satisfied with the
proposed accounting and disclosure in the 2023 Annual Report and
Accounts, and the additional definitions included to assist users.
At its meeting in February 2024, the Committee reviewed the
finalclassification of transactions as exceptional or certain
remeasurements in the 2023 Annual Report and Accounts. It also
reviewed the final calculation and presentation of alternative
performance measures. Having considered analysis from
management, and the opinion of the external auditor, the Committee
was satisfied that the approach taken is appropriate and that the
policy in respect of exceptional items and certain remeasurements
had been applied appropriately. The Committee also considered these
areas when reaching its overall conclusion on whether the 2023
Annual Report and Accounts are fair, balanced and understandable,
as discussed further on page 141.
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Audit Committee report continued
Description Audit Committee review and conclusion
Review of other significant judgements and estimates
The other areas of significant judgement and key sources of
estimation uncertainty in the Consolidated financial statements are
set out on pages 179 to 181. Management regularly reviews these
other areas to ensure they are kept up to date, and also considers
whether other items should be included.
As part of the preparation for the 2023 Annual Report and Accounts,
management considered the level of provision required for expected
credit losses in the Customers business. This took account of market
conditions, the reduction in UK Government support for customers
during the year, and any observed changes in customer behaviour.
Management also considered whether the provision represents a
keysource of estimation uncertainty as defined by IAS 1.
The Group is currently in the process of developing several large
capital projects, as part of its overall strategy. These projects include
the development of BECCS at Drax Power Station, the expansion to
Cruachan (pumped storage) Power Station in Scotland, and several
BECCS projects in North America. Judgement is required to
determine if the expenditure associated with these projects meets
the criteria to be capitalised under IAS 16 or IAS 38, or whether it
should be expensed as incurred.
In November 2023, the Committee reviewed and discussed a paper
from management outlining how the potential future impacts of
climate change had been considered in preparation of the
Consolidated financial statements, covering areas such as
impairment reviews and the useful economic lives of the Group’s
fixed assets. This review also considered the treatment of these areas
as significant judgements and key sources of estimation uncertainty,
and whether the relevant criteria had been met.
At each of its meetings, the Committee reviews a paper prepared
bymanagement that includes a summary of significant accounting
judgements and key sources of estimation uncertainty, and an update
on any changes in the period. In particular, any material emerging
issues are discussed in detail.
During 2023, the Committee reviewed the approach taken to
calculate expected credit loss provisions in the Customers business.
Itnoted the impact of UK Government support, and the performance
of cash collection against billing seen during the year as a whole. In
addition, the Committee considered management’s review of the
provision calculation, in response to recommendations from the
external auditor, and was satisfied that these factors had been
reected andhad not materially impacted the overall level of
provision.
Having completed this review, the Committee was satisfied that the
approach adopted in the calculation was appropriate. The Committee
also concluded that the risk of a material change in the estimated
carrying value of related assets within the next financial year was
unlikely, and that therefore this does not represent a key source
ofestimation uncertainty under IAS 1.
The Committee reviewed management’s assessment that
capitalisation of certain costs associated with the UK BECCS project
remained appropriate. As well as internal progress on the technical
development, the Committee considered external developments
during the year, including Government support for the project and
thewider UK Biomass Strategy, published in August 2023. Having
completed this review, the Committee was satisfied that ongoing
capitalisation was appropriate.
The Committee also noted that judgements were being made to
notyet capitalise costs associated with other potentially significant
future projects, such as the expansion of the Cruachan (pumped
storage) Power Station and BECCS projects in North America. The
Committee was satisfied that the proposed disclosure incorporated
sufficient detail to cover these areas and that the ongoing treatment
within the Consolidated financial statements was appropriate.
Having considered the other matters raised in management’s papers,
the Committee was satisfied that the items disclosed as critical
accounting judgements and key sources of estimation uncertainty
onpages 179 to 181 are appropriate and complete. In addition, the
Committee was satisfied that the descriptions clearly and accurately
reect the matters disclosed and the positions taken.
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Reviewing the 2023 Annual Report and Accounts
At its meeting in November 2023, the Committee received
reports from management on its planning for the various
elements of the 2023 Annual Report and Accounts. This included
a timetable for preparing drafts and for the contributions,
including peer review and commentary, being made by members
of the wider management and Executive teams. The Committee
also discussed how such review would support the task of
ensuring the Annual Report and Accounts, taken as a whole,
wasfair, balanced and understandable.
Between the year-end date and the date of the approval of the
Annual Report and Accounts, the Committee Chair was updated
on progress with the year-end audit process and key financial
reporting matters. Updates were also provided by the external
auditor and the internal auditor. At its meeting in February 2024,
the Committee reviewed both the external auditor’s findings and
the draft 2023 Annual Report and Accounts.
At its meeting in November 2023, the Committee also reviewed
and approved management’s proposed plan for internal and
external assurance over the different parts of the Annual Report
and Accounts, considering the complexity of the information
andthe key focus areas for stakeholders. This included TCFD
reporting, for which the Committee considered both the
requirements of the disclosure, and the data points that would
beincluded. As part of this review, the Committee approved a
change in assurance provider to PwC, to provide an alternative
perspective on the reporting. There was no significant change in
the scope of assurance being provided, as outlined on page 91.
The change to PwC was considered within the context of their
proposed appointment as the Group’s external auditor for the
financial year ending 31 December 2024, as discussed further
onpage 142. The results of this assurance were presented by
management and evaluated by the Board at their meeting
inFebruary 2024.
The Committee also reviewed and approved the verification
process undertaken by management around key information
included in the Annual Report and Accounts. This process was
enhanced for the 2023 Annual Report and Accounts, with the
introduction of specialist software to support a streamlined
verification process and provide a clear audit trail. Having
completed this assessment, the Committee was satisfied that the
verification process was robust and that appropriate assurance
had been obtained over key information and statements included
within the Annual Report and Accounts.
As part of its review, the Committee also considered the internal
controls, forecasts and relevant assumptions underpinning the
Viability Statement and the ongoing adoption of the going
concern basis in preparing the Consolidated financial statements.
This included assessing a scenario analysis prepared by
management, reviewed by the external auditor, which considered
the potential future impact of the Group’s principal risks on its
financial projections. Particular focus was given to the scenarios
relating to plant operations and commodity price risks, given
thepotential medium to long-term impacts they could have.
Thisis discussed in further detail on page 94.
The Committee challenged the assumptions made around
availability of finance and covenant compliance, and considered
the appropriateness of the period of assessment for viability.
Whilst management and the Board consider longer-term forecasts
for other purposes, including strategic planning and capital
allocation, the Committee concluded that it was appropriate for
the viability assessment period to remain at five years.
The Committee was satisfied that the proposed Viability
Statement was robust, fair and balanced, including consideration
of the disclosure around longer-term risks extending beyond
theviability assessment period. This included reviewing the
assumptions and disclosure around long-term biomass
generation at Drax Power Station, and the impact of this on the
viability modelling. In addition, the Committee was satisfied that
the level of assurance, challenge and verification was appropriate,
taking into account the work undertaken by the external auditor.
Consequently, it was also concluded that the ongoing use of the
going concern basis of preparation for the Consolidated financial
statements was appropriate.
As noted above, the Committee considered and reviewed
management’s disclosure on certain remeasurements and
exceptional items (see page 181) and the presentation of these
items in the Consolidated income statement. This included a
review of the calculation and presentation of alternative
performance measures. The Committee was satisfied that the use
of alternative performance measures and the way in which they
are presented remains appropriate, and that they provide helpful
information to the users of the Annual Report and Accounts.
Fair, balanced and understandable
As a result of the Committee’s review, it advised the Board of
itsconclusion that the 2023 Annual Report and Accounts,
takenas awhole, are fair, balanced and understandable. This view
is underpinned by the Committee’s discussions with operating
andfinance management regarding the Strategic Report, and
with the finance team regarding the Consolidated financial
statements. In addition, the Committee believes that the Annual
Report and Accounts provide the information necessary for
shareholders to assess the Company’s and the Group’s position
and performance, business model and strategy, and that
statements made are supported by appropriate verification
andassurance, including those made around the systems
ofriskmanagement and internal control.
External audit
Effectiveness of external audit
The Committee reviewed the effectiveness of the external auditor
during the year and does so annually. Deloitte LLP (Deloitte), who
has performed the role of external auditor continuously since
2005, was reappointed at the AGM in April 2023. Makhan Chahal
became lead Audit Partner in 2021 and hassignificant listed
company and sector-specific auditing experience.
The Committee’s review primarily considered the independence
and objectivity of Deloitte, its professional competence and past
performance. The Committee also considered the robustness of
the audit process including, in particular, the level of challenge
given to critical management judgements and the professional
scepticism being applied. This took account of the Committee’s
discussions with the external auditor around areas of highest
audit risk, and the basis for the auditor’s conclusions on those
areas. During 2023, this included a particular focus on the annual
impairment review process and the calculation and presentation
of the charge related to the EGL. The Committee was satisfied
with the level of ongoing challenge applied by Deloitte, and its
consideration and presentation of possible alternative approaches.
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Audit Committee report continued
The annual review of effectiveness also incorporated feedback
from members of the finance and wider management teams.
TheCommittee sought their views on matters including the quality
of audit work and engagement whilst planning and executing the
audit, both at a Group and business unit level. An area highlighted
in the 2023 review was the use of specialist teams within Deloitte,
such as financial instruments and sustainability specialists, and
how to incorporate their work efficiently and effectively into the
overall audit process. Actions that were agreed included allowing
more time earlier in the audit process to scope the work of these
specialist teams, and the introduction of more regular standing
meetings with relevant members of management. The Committee
acknowledged the benefit that such specialist teams brought to
the overall quality of the audit.
In addition to completing an annual review, the Committee
considers the effectiveness of the external auditor throughout
the year and discusses this at each meeting. This ongoing review
incorporates any relevant external information, such as the FRC’s
annual Audit Quality Inspection and Supervision Report, which
was published in July 2023 and included an assessment of
Deloitte and other large audit firms.
Based on its overall review, the Committee is satisfied that the
external auditor and its audit has continued to be effective. The
Committee agreed that the external auditor’s work demonstrated
an ongoing commitment to audit quality, that the audit process
was robust, and that Deloitte had shown strong levels of technical
knowledge and appropriate professional scepticism in its work.
External auditor transition
As reported in the 2022 Annual Report and Accounts, following
atender process, in accordance with the UK Statutory Auditors
and Third Country Auditors Regulations 2016 (SATCAR), the
Board agreed to appoint PricewaterhouseCoopers LLP (PwC)
asthe Group’s auditor for the financial year ending 31 December
2024, subject to shareholder approval.
Following this decision by the Board in January 2022, a process
was undertaken to review all non-audit work being performed for
the Group by PwC, to ensure its independence. This process was
concluded by June 2023, and reviewed by the Audit Committee
at its meeting in July 2023, at which point the Committee deemed
PwC to be independent. PwC also confirmed to the Committee
atthis meeting that all of its internal independence policies and
procedures had been satisfactorily completed. Since this date,
PwC has been working with management to build its knowledge
of the Group, and has shadowed Deloitte in respect of its audit
ofthe Group’s 2023 Consolidated financial statements.
PwC has also attended each meeting of the Audit Committee
since July 2023, and has provided updates to the Committee on
its transition planning. Having considered the transition plan, and
the progress being made, the Committee is satisfied that it should
ensure an orderly transition of external auditor.
Independence of external audit
The Group has an Auditor Independence Policy (AIP) that
definesprocedures and guidance under which the Company’s
relationship with its external auditor is governed. The AIP also
facilitates the Committee being able to satisfy itself that there
areno factors that may, or may be seen to, impinge upon the
independence, objectivity and effectiveness of the external audit
process. The Committee reviews the AIP annually and last did
soin July 2023. As part of this annual review, the Committee
considers areas of development in best practice and guidance.
The main features of the current AIP (which is available at
www.drax.com) are:
• A requirement to review the quality, cost effectiveness,
independence and objectivity of the external auditor
• A requirement to rotate the lead Audit Partner every five years,
and processes governing the employment of former external
auditor employees
• A policy governing the engagement of the auditor to conduct
non-audit activities, which is expected to occur in very limited
circumstances and is kept under review at each meeting
oftheCommittee
The external auditor also reports to the Committee on its own
processes and procedures to ensure independence, objectivity
and compliance with the relevant standards. In light of the
planned transition of external auditor, noted opposite, from
30June 2023 the AIP was deemed to apply to both PwC and
Deloitte, whilst they remain the Group’s external auditor.
The amounts paid to the external auditor during each of the
financial years ended 31 December 2023 and 2022 for audit and
non-audit services are set out below and in note 2.3 to the
Consolidated financial statements (page 195).
Schedule of fees paid to Deloitte LLP
Year ended
31 December
2023
£000’s
Year ended
31 December
2022
£000’s
Audit fees:
Statutory audit of Drax Group 1,500.0 1,375.0
Statutory audit of the Company’s
subsidiaries 40.0 40.0
Total audit fees: 1,540.0 1,415.0
Interim review 140.0 115.0
Assurance services provided
to non-material affiliates
18.3 18.0
Other services 47.0 46.2
Corporate refinancing fees 130.0 65.0
Total non-audit fees: 335.3 244.2
Total auditor’s remuneration 1,875.3 1,659.2
As noted opposite, the external auditor should not provide
non-audit services where it might impair its independence or
objectivity. Therefore, any engagement for the provision of
non-audit services requires prior approval from the Audit
Committee or Committee Chair. Agreement to allow the external
auditor to perform additional non-audit services is taken only
after considering two key factors. Namely, that the non-audit
services policy has been fully applied, and that any engagements
are in the best interests of the Group and its key stakeholders.
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During 2023 there was an increase in the level of non-audit fees
paid to Deloitte, with the most significant items being the Group’s
interim review and work performed in relation to a corporate
refinancing project.
In all cases, the Committee was satisfied that the work was best
handled by the external auditor because of its knowledge of the
Group, and that the services provided did not give rise to threats
to independence, given the nature of the work and level of fees
payable. The Committee was also satisfied that the overall levels
of audit and non-audit fees were not of a material level relative to
the income of Deloitte as a whole, and that the level of non-audit
fees was below the 70% cap, based on the average audit fee for
the preceding three years.
Auditor appointment
The Group has fully complied with the provisions of The Statutory
Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Committee
Responsibilities) Order 2014. The Committee discussed the
appointment of an external auditor at its meeting in February
2024 and recommended to the Board that a resolution to appoint
PwC as the Group’s external auditor should be put to shareholders
at the AGM in April 2024.
Internal audit
The Group has adopted a fully outsourced model for internal
audit. KPMG has acted as the Group’s main internal auditor since
2020, supported by an internal team which acts as an interface
with the wider business. The internal auditor presents an annual
plan to the Committee for approval at its final meeting of the
preceding year. This proposed programme of work is based on
theassessment of the internal auditor, considering input from
interviews with key internal stakeholders across finance, risk
andwider management.
The Committee reviews and approves this plan to ensure that
priority is given to the areas of highest risk for the Group, whilst
maintaining appropriate coverage of all other key risks, including
those that are emerging. Fees are agreed on an audit-by-audit
basis depending on the scope and any requirement for specialist
input, whilst being managed within an overall annual budget.
The Committee receives reports at each meeting regarding the
internal audit reviews completed since its last meeting, and
progress against the overall annual plan. The Committee reviews
the findings and agrees the recommended actions and delivery
dates for improvements, taking into consideration supporting
analysis from management on the root causes of any weaknesses.
Key topics reviewed by the internal auditor during 2023 included
Payroll, Project Management and Tangible Fixed Assets. These
reviews each provided recommendations to the Committee
andmanagement on how to further improve the systems of
riskmanagement and internal control, including suggested
enhancements around the structure and formality of post-
investment reviews. The recommendations, and suggested
timelines, were agreed between management and the internal
auditor before being presented to Committee. As part of their
review, the Committee considers the significance of findings and
will discuss whether the proposed timeline for addressing them
isappropriate. All proposed actions and target dates were
subsequently approved by the Committee.
In conjunction with reports from the internal auditor on reviews
completed during the period, the Committee also receives reports
from management detailing progress on implementing
recommendations from previous reviews, tracking this against
the originally agreed implementation dates. This allows the
Committee to effectively monitor management’s response.
Having reviewed these reports, and received assurance from the
internal auditor around the effectiveness of the overall tracking
process, the Committee was satisfied that actions were being
implemented on a timely basis.
The Chair of the Committee, independent of management,
maintains direct contact with the internal auditor, allowing
opendialogue and feedback.
Health, safety and environment
Where relevant, and agreed between the Committee and the
internal auditor, additional external parties may be engaged to
support with internal audit reviews. This is typically in highly
specialised areas, to increase the overall level of assurance
obtained from the programme of internal audit work.
An external consultant DNV Limited (DNV) has been appointed
by the Committee to provide an ongoing assessment of the
Group’s health, safety and environment practices. The Committee
received an update from DNV at its meeting in April 2023, which
included a detailed site-by-site analysis, and benchmarking
against a peer group. The Committee approved the
recommended actions from this review, and received a further
update from management on progress being made on
implementation at its meeting in November 2023.
DNV’s work during 2023 noted improvements in areas including
process safety and major accident hazard management.
Opportunities for further improvement identified include refining
the processes by which risk exposures from work conducted by
external third parties in close proximity to the Group’s sites are
both managed and assessed. Having considered these reports,
the Committee was satisfied that the agreed actions were being
completed in a timely manner.
Effectiveness of internal audit
The Committee reviewed the overall effectiveness of the
approach to internal audit, and in particular the effectiveness
ofKPMG as internal auditor, at its meeting in November 2023.
This review considered the improvements made in response to
the detailed effectiveness review completed in November 2022.
Changes implemented during 2023 include allocating more time
to the up-front scoping of internal audit reviews, and ensuring
clear communication of key findings to senior stakeholders.
KPMG also provided its feedback on interactions and
engagement with management, having updated the Committee
on this at each meeting during the year.
Based on its review, the Committee is satisfied that the approach
to internal audit remains effective and that KPMG, as the Group’s
main internal auditor, continues to provide the requisite quality,
experience, and expertise in both its work and reporting to the
Committee.
This report was reviewed and approved by the Audit Committee.
Vanessa Simms
Chair of the Audit Committee
28 February 2024
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Committee members
Nicola Hodson (Chair)
John Baxter
Andrea Bertone
Kim Keating
Vanessa Simms
Attending by invitation
CEO, Chief People Officer, Group Reward Director, David
Nussbaum (Senior Independent Director) and external
remuneration advisers. The Group Company Secretary
istheSecretary to the Committee.
Number of meetings held in 2023: Three
The table below shows the scheduled meetings of the
Committee within the ordinary annual cycle of the
Committee’s activities. There was an additional meeting held
to consider how the Group’s strategy should be reected
within the performance-related components of total reward.
In addition, Nicola regularly attended planning meetings to
consider key agenda items.
Attendance in 2023
Committee member
Date appointed
a member
No. of
scheduled
meetings
No. of
meetings
attended
% of
meetings
attended
John Baxter 17 April 2019 3 3 100%
Andrea Bertone
(1)
24 August 2023 1 1 100%
Philip Cox
(2)
22 April 2015 3 3 100%
Kim Keating 21 October 2021 3 3 100%
Nicola Hodson 12 January 2018 3 3 100%
Vanessa Simms 19 June 2018 3 3 100%
Notes:
(1) Andrea Bertone was appointed as a Director on 24 August 2023 and joined
the Committee on this date. In line with the UK Corporate Governance Code,
Andrea Bertone was considered to be independent on appointment and was
therefore permitted to join the Committee.
(2) Philip Cox stood down as a Director on 31December 2023.
This Report has been prepared in accordance with Schedule 8
of the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008, as amended (the
Regulations) and the provisions of the Code. Relevant sections
of the Report have been audited as required by the
Regulations and the full Report will be subject to an advisory
vote by shareholders at the AGM to be held on 25 April 2024.
Role of the Remuneration Committee
The principal responsibilities of the Remuneration Committee
(theCommittee) are to:
• Develop the Directors’ Remuneration Policy (the Policy)
• Keep under review the implementation of the Policy to ensure
that it operates as intended
• Determine the remuneration strategy and framework for the
Executive Directors and Executive Committee members,
ensuring that executive remuneration is aligned to the Group’s
purpose, values and strategy
• Determine, within that framework, the individual remuneration
packages for the Executive Directors and senior management
• Approve the design of annual and long-term incentive
arrangements for Executive Directors and senior management,
including agreeing targets and payments under such
arrangements
• Determine and agree the general terms and conditions of
service and the specific terms for any individual within the
remit of the Committee, either upon recruitment or termination
• Oversee any major changes in colleague remuneration
throughout the Group, ensuring there is consistency with
theculture and values of Drax
Nicola Hodson, Chair
The Group delivered strong financial
performance in 2023 and made
important progress on delivering
onits key strategic objectives.
Theremuneration outcomes for
theExecutive Directors and
seniormanagement appropriately
reect this.
Terms of reference
The Committee regularly reviews its Terms of Reference, as
does the Board. The most recent review was in November
2023. The Terms of Reference are available on the Company
website at www.drax.com;/governance
Remuneration
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Key Remuneration Committee activities in 2023
The key matters considered, and decisions reached, by the Committee in 2023 are shown in the table below:
Our workforce Executives and senior management Committee governance
• Received updates on broader
remuneration matters relating
tothe wider workforce
• Reviewed the application of the
increases from the annual pay
review effective 1January 2024
• Reviewed and approved the
reporting of the 2023 Gender Pay
Gap statistics
• Approved the outcome of the
2022Group Scorecard and in turn
the outturn of the 2022 Group
Bonus Plan
• Adopted the 2023 Group Scorecard
for the purpose of determining the
2023 Group Bonus Plan
• Approved the operation of the 2023
Sharesave Share Plan for UK
colleagues
• Approved the implementation of a
new Employee Stock Purchase Plan
for colleagues in US and Canada
• Considered and approved the
remuneration on appointment for
Andrea Bertone and change in
remuneration in her appointment to
the role of Chair. Andrea Bertone was
not involved in these discussions
• Considered and approved the
remuneration of Executive Directors
and senior management.
• Approved Executive Director and
Executive Committee member annual
bonus awards for 2022
• Approved the Deferred Share Plan
awards for Executive Directors and
the LTIP awards for 2023
• Approved the grant of the 2023 LTIP
awards for those below Board level
• Approved the vesting of the 2020
LTIP awards
• Reected on feedback received
fromshareholders on remuneration
resolutions presented to the
2023AGM
• Considered and approved the
Committee’s Annual Report on
Remuneration for 2022
• Reviewed the fees paid to Korn Ferry,
as the Committee’s remuneration
advisers in 2023, together with fees
paid by the Group to Korn Ferry for
other HR matters
Review of decisions made during 2023
Annual assessment of performance
The Committee determines the remuneration of the Executive
Directors, members of the Executive Committee and wider
workforce against the objectives and priorities of the Group.
For2023 we assessed performance against a combination
offinancial, strategic and safety and ESG metrics. A number
ofthese metrics formed the basis of our 2023 Group Scorecard
(2023 Scorecard).
The Generation and Commercial businesses performed in line
with expectations in 2023. In a more challenging operating
environment for Pellet Production, our integrated global biomass
supply chain has also delivered robust performance, albeit below
the 2023 Scorecard threshold. Further detail on Pellet Production
performance can be found in the CEO review on page 11 and a
detailed review of the achievement against all performance
metrics in the 2023 Scorecard can be found on pages 151 and 153.
The final outturn of the annual bonus plan was 1.40 and this
score results in 70% of the maximum annual bonus being paid
tothe Executive Directors.
The Committee determined that the overall performance
outcome of the 2023 Scorecard represented a fair reection
ofthe business performance during 2023. The Committee also
assessed whether the level of pay-out is commensurate with the
experience of both shareholders and colleagues over this period
and concluded that this is the case. On this basis the Committee
determined that no adjustments to the formulaic outcome were
required.
In accordance with the Policy, 40% of the overall bonus award
forExecutive Directors will be deferred into shares and 60% will
be paid in cash in March 2024.
Annual Statement to Shareholders
Dear shareholders,
On behalf of the Committee, I am pleased to present the
Directors’ Remuneration Report for the 2023 financial year.
InApril 2023 our shareholders approved the changes proposed
tothe Directors’ Remuneration Policy with 97% of those votes
castin favour. Shareholders also approved the Annual Report
onRemuneration for 2022 with over 86% of those votes cast
infavour. The Committee and I are grateful to our shareholders
fortheir engagement on remuneration matters and their
ongoingsupport.
Andrea Bertone was appointed as an independent Non-Executive
Director on 24 August 2023 and from that date she became a
member of the Committee. Andrea was subsequently appointed
Chair of the Board on 1January 2024. Philip Cox stood down
from the Board on 31December 2023 and I would like to thank
Philip for his valuable contribution to the Committee over the
nineyears in which he was a member.
As noted elsewhere in this Annual Report, the Group continued
in2023 to deliver strong financial performance in challenging
market conditions. In addition, the Group made significant
progress on the Group’s key strategic objectives, including,
butnot limited to, progressing options for US BECCS and
carbondioxide removals (CDR) commercial opportunities.
The Committee firmly believes that the remuneration outcomes
mustbe fair, appropriate in the context of business performance.
The remuneration outcomes for 2023 have been assessed in line
with these principles.
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Remuneration Committee report continued
All-employee remuneration
Whilst the rate of Ination generally decreased during the
courseof 2023, the cost-of-living remained a challenge for many
colleagues, particularly in the UK. This impact was compounded
by rising interest rates.
For the 2024 pay review (increases effective 1January 2024), a
budget of 5% applied for UK-based colleagues and a slightly lower
budget applied for colleagues in the US and Canada (4%) and
Japan (3%). This was to reect the lower rates of ination in those
countries. The salary budget set in each location reected the
prevailing rate of ination at the time the salary budget was set.
On 31August 2023, Drax completed the acquisition of BMM
Energy Solutions Limited which is based in the UK. Careful
consideration was given at that time to ensure that the new
colleagues transitioned smoothly into the Group’s remuneration
and broader HR policies, where it was deemed appropriate.
Application of Remuneration Policy in 2024
Base pay review
For the 2023 pay review, base pay increases took effect from
1January 2023. Will Gardiner and Andy Skelton received an
increase of 4%, which was below the average increase of the
wider workforce of 8%. The Committee took this decision as it
was mindful of the knock-on impact on the quantum of variable
pay, and the relativity of Executive Directors’ base pay to that
ofthe wider workforce.
For 2024, base pay increases took effect from 1January 2024.
Will Gardiner and Andy Skelton received an increase of 4%, which
was lower than the average increase of the UK wider workforce
of 5%.
Pension
As noted in last year’s report, effective 1 January 2023, the
pension contribution rates of Will Gardiner and Andy Skelton
reduced to 10% of base salary which is aligned with the rate of
new joiners to the UK wider workforce. No Executive Director
was a member of a defined benefit pension scheme.
Long-term assessment of performance
Vesting of awards granted in 2021 under the Long Term Incentive
Plan (LTIP) was determined based on performance against two
measures over the three-year period from 1 January 2021 to
31December 2023. The measures were Total Shareholder Return
(TSR), relative to the FTSE 350, and Cumulative Adjusted Earnings
Per Share (EPS), each accounted for 50% of the award
respectively. TSR over the three-year period was above the upper
quartile (a rank of 21 out of the FTSE 350). The EPS outcome
was231.2p, which was over 80% ahead of the maximum target of
128.2p. The TSR and EPS performance resulted in 100% vesting
of the award.
The Committee determined that the vesting outcome was
appropriate in the context of performance by the Group over the
three-year performance period. As part of assessing the extent to
which the performance targets were met, the Committee
considered the impact of the share buyback programme which
was undertaken during 2023 and concluded that, even if the
impact of the share buyback programme was removed, EPS
performance would still have exceeded the maximum EPS target.
The Committee was also satisfied that the outcome had not
benefitted by windfall gains. In reaching this conclusion the
Committee noted that the share price used to convert the awards,
which are set as a multiple of salary, into shares was £4.293. This
share price was materially in excess of the Company’s share price
immediately prior to the onset of the Covid pandemic. The
Committee therefore determined not to apply discretion to adjust
the overall vesting.
Drax’s share price at 31December 2023 was 28% higher than the
start of the performance period. Given the averaging periods over
which TSR has been calculated, this equates to a return of 87.1%
based on the six-month averaging period prior to the start and end
of the performance period. The Committee believe these returns,
and the associated performance vesting of the 2021 LTIP
achieved, is reective of the very strong shareholder returns over
the period.
0
50
100
150
200
250
300
350
400
Drax FTSE 250 FX Investment Trust National Grid Contourglobal E ON N IberdrolaEDFCentricaSSE
Jan 21 Jul 21 Jul 22 Jul 23 Jan 24Jan 23Jan 22
Drax’s TSR over the 2021 LTIP performance period versus other energy companies
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Throughout 2023, colleagues continued to have the opportunity
to put questions to Will Gardiner on any topic, with his responses
made available to all colleagues. The Group also undertook its
annual engagement survey with colleagues across the Group.
Aspart of improving the survey, increased facility for colleagues
to provide their comments on topics which matter to them was
included. The results of the survey were considered by the Board
at its meeting held in January 2024.
Shareholder engagement
Drax engages with shareholders on executive pay in advance of
anew Policy and on any material changes to the implementation
of the existing Policy. In December 2022 we wrote to our leading
shareholders to share the proposed revisions to the Policy and
our thinking behind them, and in January and February 2023 we
met with some of these shareholders to discuss their feedback.
As mentioned in last year’s Annual Report, the Committee took
this feedback into consideration, and it helped to inform our final
Policy proposals. The Policy was subsequently approved by
shareholders at the 2023 AGM.
Summary
The Committee recognises the strong financial and operational
performance of the Group in 2023. Our colleagues across all
areas of the Group have contributed to that performance.
Webelieve the 2023 remuneration outcomes for the Executive
Directors and senior management fairly reect performance,
provide a fair and consistent approach to remuneration across
the Group, and is appropriate to the shareholder experience.
Ihope that having read this report you will vote in support of the
Annual Report on Remuneration for 2023 at the AGM on 25 April
2024. More details on all resolutions to be put to shareholders at
the AGM can be found on the Drax website at www.drax.com.
Annual bonus
The 2024 annual Group bonus will be based on performance
against the metrics in the 2024 Scorecard. This will apply to all
colleagues which participate in the plan, including the Executive
Directors. The majority of the bonus remains subject to the
delivery of challenging financial targets (55%). This includes 40%
based Group Adjusted EBITDA and 15% on Net Cashow, which
replaces Leverage which in previous years has been the
secondary financial KPI in the Scorecard. The remaining 45% is
subject to the delivery of a range of strategic, safety and ESG
targets. More information on the targets for performance metrics
can be found on page 28 and 29.
Long-Term Incentive Plan
It is intended that the 2024 LTIP grant is made in accordance with
the normal timetable in March 2024, and there are no changes
proposed to the existing LTIP structure. For the TSR element,
performance will continue to be assessed against the
constituents of the FTSE-350, with threshold vesting (25% of
maximum) for performance in line with the median and maximum
vesting for performance in line with the upper quartile. The
targets for the EPS element are provided on page 159.
Appointment of Andrea Bertone
On 31December 2023, Philip Cox stepped down as Chair and
Non-Executive Director, having served nine consecutive years.
During 2023 a comprehensive search for his replacement was
undertaken, further details of which can be found in the
Nomination Committee report. Andrea Bertone joined the Board
on 24 August 2023 as a Non-Executive Director and assumed
therole of Chair on 1January 2024. From the date of her
appointment, Andrea received the Non-Executive Director base
fee pro-rated for the portion of the year she served on the Board.
Effective 1January 2024 Andrea received the Chair’s base fee.
As Andrea is based in the US her fees are converted and paid
inUS dollars. As is the case with other overseas based Non-
Executive Directors, Andrea received a travel allowance to
recognise the additional time incurred for attending overseas
Board meetings. The travel allowance for Andrea is $30,000
perannum.
Workforce engagement
We believe engagement with our colleagues is extremely
important in informing decisions of the Committee and also in
communicating how the Committee reaches decisions. There
areseveral ways we engage with our colleagues on remuneration
matters.
During 2023 there were four MyVoice Forum meetings with the
respective Forum chairs, Will Gardiner and Philip Cox. At these
meetings, a variety of matters were discussed and this feedback
has helped to inform HR decisions. As noted in last year’s report,
one of the key feedback themes from meetings which took place
in 2022 was the need to improve recognition of the contribution
of colleagues beyond our reward programmes. In 2023, the
Forum chairs supported HR in developing comprehensive
proposals to address this which we hope to be in position to
implement across the Group in 2024.
In 2023, the feedback from the Forum chairs also played an
important role in helping to shape and communicate a financial
education programme, which supported around 900 UK
colleagues who had a Sharesave contract maturing in 2023.
Thisprogramme was very successful and I am pleased to report
that Drax subsequently received two awards for the Sharesave
education programme at the Pro Share Awards in December
2023. To note, new Sharesave plan rules will be submitted to
shareholders for approval at the 2024 AGM.
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Remuneration Committee report continued
Implementation of the Policy in 2023
Below is a summary of the Directors Remuneration Policy (Policy) which was approved by shareholders at the AGM on 26 April 2023
and became effective from that date. The full Policy can be found on Drax’s corporate website at www.drax.com. Also outlined below
is a summary of the implementation of the Policy in 2023.
Element Key features of the Policy in 2023 Implementation of the Policy in 2023
Will Gardiner (CEO)
000s
Andy Skelton (CFO)
000s
Base salary
• The Committee targets market level, as
determined by reference to appropriate
comparator companies with
consideration for factors such as
sector, size and international presence
• An Executive Director in post at the
start of the Policy period, and who
remains in the same role throughout it,
would normally receive an increase in
line with the average annual
percentage increase applied to the
workforce in their location of
employment
• The base pay increases in January
2023 were made as part of the annual
pay review process which resulted in
Executive Directors receiving an
increase in base pay of 4.0%. This was
below the average increase of the
wider workforce of 8.0%
£663 £422
Pension and
other benefits
• An Executive Director is entitled to a
contribution to the Group’s defined
contribution pension plan, a cash
payment in lieu of pension, or a
combination of pension contribution
and cash in lieu of pension
• Pension contribution rates for
Executive Directors are aligned to the
rates of new joiners to the UK wider
workforce
• Other benefits provided as appropriate
• The employer pension contribution rate
for Will Gardiner and Andy Skelton in
2023 was 10% of base salary, which is
aligned with the rate for new joiners to
the UK wider workforce
• Other benefits received include a car
benefit, life assurance, income
protection, the opportunity to
participate in all-employee share plans,
and private medical cover
£86 £59
Annual bonus
• The maximum opportunity is 175% of
base salary for Will Gardiner and 150%
for Andy Skelton
• Majority weighting of the bonus award
is measured on financial metrics and
the remaining on strategic metrics.
• 40% of the total bonus outcome will be
deferred into shares which are subject
to a three-year vesting period
• Clawback and malus provisions apply
• The 2023 annual bonus outcome as a
percentage of maximum opportunity
was 70%
• In line with the Policy, for the Executive
Directors, 40% of the overall bonus
award will be deferred into shares
under the DSP for three years
£812 £443
Long-term
incentive plan
(LTIP)
• For awards made under the LTIP, the
maximum award level is 200% of base
salary for Will Gardiner and 175% for
Andy Skelton
• Vesting is subject to long term
performance conditions, measured
over a three-year performance period
• Shares must be retained for a further
two years from the date of vesting and
clawback and malus provisions apply
• The 2023 LTIP award is measured over
a three year performance period to
31December 2025, and against equally
weighted TSR, relative to the FTSE
350, and Cumulative Adjusted EPS
• The 2021 LTIP is scheduled to vest on
1April 2024 at 100% of the award
£1,301 £742
Shareholding
requirements
• The requirement is 250% of base salary
for Will Gardiner and 200% for other
Executive Directors
• A post-cessation shareholding
requirement, equal to the employment
shareholding requirement, applies for a
two-year period after cessation. Only
shares for awards granted after the
2020 AGM will be included
• Will Gardiner and Andy Skelton have
both met their shareholding
requirements, with a shareholding at
31December 2023, equivalent to
838% and 591% of base salary
respectively. This includes shares
which Will Gardiner and Andy Skelton
have bought in the open market
>250% of
base pay
requirement
>200% of
base pay
requirement
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Alignment of Remuneration of Executive Directors and wider workforce
Many aspects of the remuneration for Executive Directors are also applicable to the wider workforce, such as the basis of the annual
bonus award through the Group Scorecard, pension, and benefits entitlements. Below is a summary of the remuneration arrangements
broken down by the colleague grouping. In this table as indicated in the key below, specific areas of remuneration which are not
highlighted represent remuneration which is fully aligned across all colleagues for 2023, whilst those highlighted in blue are not aligned.
Key
Aligned across workforce Unique to a specific colleague group
Remuneration element Executive Directors
(1)
Executive Leadership and
Senior Management
(2)
Wider workforce
(3)
Base salary Approach To target the appropriate market rate, as determined by comparisons with appropriate companies.
Increases Keep pay for colleagues consistent with market rate and reviewed in line with ination; base salary increases for
Executive Directors will generally be in line with those for the UK workforce.
Pension New hires All UK colleagues have the option to participate in the Company’s defined contribution pension plan, with company
contribution rate for new hires of up to 10% of base salary. Some colleagues choose to take a cash payment in lieu of their
pension, or a combination of pension contribution and cash in lieu of a contribution. All colleagues outside of the UK have
the option to participate in a retirement savings plan with a contribution from the company.
Benefits Health and
wellbeing
All colleagues outside of Japan receive medical cover, and access to an annual private health assessment or a local
equivalent arrangement.
Risk and
protection
All colleagues have company-funded life assurance and income protection, or a local equivalent arrangement, unless they
are covered under alternative collective bargaining arrangements.
Car benefit £12,000 Not applicable. Some colleagues
have a car as job requirement.
Not applicable. Some colleagues
have a car as job requirement.
Bonus Eligibility Drax colleagues are eligible to take part in the annual bonus programme, unless precluded by alternative arrangements
with their respective trade union group or acquisition agreement. The bonus plan is designed to reward the delivery of
targets and objectives directly linked to the financial and strategic performance of the Group set each year and detailed
ina Scorecard.
Metrics Bonus awards are conditional on achieving thresholds set in the Scorecard, which combines financial and strategic
metrics. These metrics are the same for all Drax colleagues, so there is Group-wide consistency.
Deferral 40% of the total bonus outcome will
bedeferred into shares in the form of
nil cost options or conditional awards
under a Deferred Share Plan (DSP).
Theperiod over which shares are
deferred is normally three years.
Vesting is subject to continued service
or “good leaver” termination provisions.
Not applicable, no deferral. Not applicable, no deferral.
Long-term
incentive
plan (LTIP)
Eligibility Discretionary annual grant of shares,
under the LTIP.
Discretionary annual grant of shares,
under the LTIP.
One Drax Awards are a discretionary
grant of share awards made to certain
employees in recognition of their
performance and to aid retention of
key talent below Executive Leadership
and Senior Management level.
Metrics For awards made under the LTIP,
vesting is subject to long-term
performance conditions, and typically
are measured over a three-year
performance period.
For awards made under the LTIP,
vesting is subject to long-term
performance conditions, and typically
are measured over a three-year
performance period.
The vesting is not subject to meeting
performance conditions.
Shareholding
requirement
Requirements of 250% and 200% of
salary for the CEO and CFO
respectively. A post-cessation
shareholding requirement, equal to the
employment sharing requirement,
applies for a two-year period after
cessation.
Not applicable. Not applicable.
All-colleague plans All UK colleagues have the option to buy shares in Drax at a discounted price (after a three-year or five-year saving period
elapses) under the Sharesave plan. Eligible colleagues across US and Canada are able to participate in the Employee
Stock Purchase Plan (ESPP).
Notes:
(1) The Executive Directors are the CEO and CFO.
(2) Executive Leadership and Senior Management includes all colleagues in the three most senior job grades, excluding the CEO and CFO.
(3) Wider workforce includes all colleagues in job grades below the three most senior job grades.
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Corporate Governance Code
In developing the existing Policy, the Committee considered a number of factors, including the provisions of the existing UK Corporate
Governance Code:
Our remuneration policy is aligned with the provisions of the 2018 Corporate Governance Code
Clarity
• Alignment between the delivery of
strategic goals and remuneration
outcomes
• Remuneration which rewards growth
inshareholder value over the medium
tolonger term
• Performance related elements, relevant
for the Group as a whole, creating
alignment across the wider workforce
indelivering financial, operational and
strategic imperatives, including ESG
Simplicity
• Annual bonus: a simple Scorecard
structure focusing on a limited number
of financial and strategic metrics,
including safety and ESG metrics, which
provides clarity, focus and ease of
understanding
• The vesting of the LTIP is conditional in
part on cumulative adjusted EPS, which
reects the capability to deliver stable
earnings, and TSR, which ensures
strong alignment with the shareholder
experience
Risk
• A significant proportion of remuneration
is linked to the longer-term performance
of the Group
• A significant shareholding requirement
for Executive Directors during and
post-employment
• Malus and clawback provisions mitigate
behavioural risks by enabling payments
to be reduced or reclaimed in specific
circumstances. This applies to the
Executive Directors and members
oftheExecutive Committee
Predictability
• Transparent performance measures and
targets make clear the possible range
ofremuneration outcomes and these
potential outcomes are illustrated in
thePolicy.
Proportionality
• Performance measures are linked to
Drax’s strategy and aligned with
long-term creation of value for
shareholders.
• Stretching targets ensure that
payments are only made for strong
corporate performance.
• The Committee has discretion to
override formulaic outcomes to ensure
that remuneration appropriately
reects overall performance, the
interests of stakeholders and
shareholder experience.
Alignment to culture
• In 2023 the annual bonus metrics for
allemployees, including Executive
Directors, were the same so that all
participating colleagues are focused
collectively on, and rewarded for, the
delivery of financial and strategic goals
and Drax’s purpose. In 2024 the
majority of employees will still
participate in the Group Scorecard.
• The annual bonus contains metrics
related to safety, the environment and
people which underpin Drax’s values
and business strategy.
Remuneration Committee report continued
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Annual Report on Remuneration
The relevant sections of this Report have been audited as required by the Regulations.
Single total figure of remuneration – Executive Directors (audited information)
The table below sets out the single figure of remuneration and the breakdown for each Executive Director for the financial year to
31December 2023, together with comparative earnings for 2022. Figures are rounded to the nearest £1000.
Director Year
Salary
(£000)
Benefits
(1)
(£000)
Bonus
(2)
(£000)
Long-Term
Incentives
(3)
(£000)
Pension
(4)
(£000)
Other
(5)
(£000)
Total
Remuneration
(£000)
Total
Fixed Pay
(£000)
Total
Variable Pay
(£000)
Will Gardiner 2023 663 19 812 1,301 66 0 2,862 749 2 ,113
2022 631 19 966 3,799 126 0 5,540 775 4,765
Andy Skelton 2023 422 16 443 742 42 0 1,665 480 1,185
2022 401 16 527 2,16 6 64 0 3,174 481 2,693
Notes:
(1) Benefits include car allowance, private medical insurance, life assurance and permanent health insurance.
(2) Bonus is the value of the award from the 2022 and 2023 annual bonus plans. It includes the value of bonus deferred and paid in shares after three years subject only
tocontinuous service. 40% of the overall bonus for 2022 and 2023 was deferred.
(3) The 2023 numbers represent the indicative value of the 2021 LTIP award which should vest on 1 April 2024, together with the dividend equivalent shares in relation
tothose vested shares. The value of the award is calculated based on the average share price over the last quarter of 2023, which was £4.414. The value of the award
attributable to share price appreciation for Will Gardiner is £32k and for Andy Skelton is £18k. This is based on the growth in the value of the shares due to vest (excluding
dividend equivalent shares) from the grant share price to the average share price over the last quarter of 2023 (£4.414). The 2022 number (for the 2020 LTIP award which
vested in May 2023) are restated to reect the actual share price on vesting of £6.067 on 10 May 2023. This had been calculated in the 2022 Annual Report on
Remuneration based on the average share price over the last quarter of 2022, which was £5.798.
(4) The pension contribution rate for Will Gardiner reduced from 20% to 10% and for Andy Skelton reduced from 16% to 10%, effective 1 January 2023.
(5) Other includes the value of Sharesave awards granted. Note no Sharesave awards were made in 2022 or 2023 as both Will Gardiner and Andy Skelton had maximum
contributions under an existing contract.
Annual bonus outcome (audited information)
A summary of the Committee’s assessment in respect of the 2023 Group Scorecard is set out in the following table:
Plan Targets Scoring
Key
Performance
Indicator Measure Weighting Threshold Target Stretch Outturn
Score
(out
of 2)
Financial
Group Adjusted
EBITDA (excl. EGL) (£m)
40.0%
977 1,086 1,195
1,180 1.87
Leverage (£m)
20.0%
(1,100) (1,000) (900)
(976) 1.24
Strategic
BECCS 10.0%
Partially Achieved Achieved Strongly Achieved Between Partially
Achieved & Achieved
0.50
Cruachan Expansion 5.0%
Partially Achieved Achieved Strongly Achieved Between Achieved &
Strongly Achieved
1.66
Delivery of Pellet Volume 5.0% 4.002mt 4.327mt 4.652mt 3.781 0.00
Total Recordable Injury Rate
(TRIR)
6.7%
0.42 0.33 0.24
0.38 0.44
Near Miss & Hazard Incidents
Rate (NMHIR)
85 110 130
129.26 1.96
Carbon – Reduction Milestones 6.7%
Partially Achieved Achieved Strongly Achieved Between Achieved &
Strongly Achieved
1.66
Inclusion Index
6.7%
76% 80% 84%
81% 1.25
100%
2023 Bonus Outturn:
Overall bonus outcome:
1. 40
(70.00% of maximum)
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The targets for the 2023 Scorecard metrics aligned with the Group’s strategy and the 2023 business plan. They were reviewed
regularly by the Board as part of their ongoing oversight of business and executive performance. No adjustment to the performance
targets were made during 2023. Below is a summary of the Scorecard targets and commentary on how the Group performed on each.
Group Adjusted
EBITDA (excl.
EGL)
This was the principal financial metric, combining the performance of each business to give a Group outcome.
Theoutturn for this metric for 2023 was £1,180 million, close to the high target (score of 1.87). The outturn reects
Group Adjusted EBITDA with a downward adjustment for ination in ROC buyout which was not fully reected
intargets. The Committee applied its judgement to remove the additional benefit from the outturn of this metric
toensure that the target and the outturn could be appropriately assessed, therefore ensuring the targets fulfilled
their original intent.
Leverage
(Average Net
Debt)
A progressive and sustainable structural reduction in debt is a key objective for the Group with progress assessed
against weighted average net debt targets measured within the financial year. Average net debt was £976 million
which was between the target and the stretch target (score of 1.24). The outturn and target excluded the impact
ofcollateral payments made to or received from counterparties. The Committee considered the impact of the share
buyback programme undertaken in 2023. The decision to undertake this programme was taken subsequent to
setting targets in spring 2023, in the context of the timing of investment in UK BECCS CAPEX, and the delayed
implementation of the EGL levy. As the decision to proceed with the share buyback programme was made after
thetargets for the Leverage metric were set in February 2023, the impact was not factored into the targets. The
Committee applied its judgement to remove the impact of the share buyback from the outturn of this metric to
ensure the target and outturn could be appropriately assessed, therefore ensuring that the targets fulfilled their
original intent.
Progress on
Strategic
Projects
Progress on key projects is of critical importance for Drax in delivering the Group’s strategy. There were two projects
which were included for 2023. The first project was advancing options for our BECCS strategy, with objectives
reecting progress in 2023 on all critical path activities of our UK BECCS strategy and in advancing our options
forBECCS in North America. As noted in this Annual Report, our ambitions for the deployment of new build BECCS
across sites in North America are now a key part of Drax’s long-term strategic aims (score of 0.50). The second
project was progress on advancing the expansion of the Cruachan (pumped storage) power station. Significant
progress was made on this project in 2023, as evidenced by the approval of the S36 application by the Scottish
Government and subsequent signing of a Grid Connection offer with National Grid ESO (more can be read on this
subject on pages 13 and 15). In addition, significant progress was made across other critical path activities (score
of1.66). The choice of projects, and assessment of performance of them in 2023 was subject to the Committee’s
scrutiny and approval.
Pellets The production of sustainable pellets is essential for the generation of power at Drax Power Station and also to serve
our customers of pellets globally. In 2023, 3.781Mt of pellets were produced, relative to the target of 4.327Mt. It was
a challenging year at our Southern Plants due to a variety of reasons (see page 11) but robust performance was still
delivered albiet below the Scorecard threshold.
Carbon
Reduction,
People and
Safety
The Board and the Committee believe a material element of the Scorecard must incorporate the realisation of goals
addressing environmental, safety and people targets. These should reect not only strategic goals but also inform
the right behaviours as well as aligning with our TCFD commitments.
• The assessment of our carbon reduction aims was focused on three elements. The first was to achieve a 25%
reduction in emissions at the Hydro assets from the 2020 baseline of 3,810 tonnes in carbon emissions by the
endof 2023. A reduction of 96% was achieved through the surrendered REGOs. The second was to achieve a
50%reduction of supply volumes in the Opus Gas portfolio by the end of 2023. A reduction of 59% was achieved
through a carefully managed offboarding process of consuming customers. The final element was the roll out
ofelectric vehicle (EV) charging infrastructure across all Drax’s UK owned sites by the end of 2023 and thereby
providing employees, visitors and contractors with the opportunity help reduce Drax’s carbon emissions by
choosing to make the switch to an EV. EV charging infrastructure was installed and commissioned at all in-scope
sites. A final score of 1.66, which reects all three elements, was achieved forthe carbon reduction metric.
• The assessment of our people aims was measured against an independent rating intended to provide an
understanding of to what extent our colleagues considered Drax to provide a culture of inclusivity. The rating
isderived through an all-employee survey administered by a leading and globally recognised management
consultancy. Drax’s score for 2023 was 81% (score of 1.25) which is considered a good overall score and
represents an improvement on the score achieved for 2022 of 80%.
• The assessment of our safety performance focused on one leading and one lagging indicator. The first was TRIR
– measured at a Group level, and with the target built up based on local business area targets. This measured the
performance of both employees and contractors, including both operating assets, business and construction sites.
As at the end of 2023, Drax had a TRIR of 0.38, relative to a target of 0.33 (score of0.44). The second focus was
near miss and hazard identification reporting rate (NMHIR) provided by colleagues measured across all operations
and locations, and included environmental, safety and process safety observations. The report of near misses and
hazard identification are an integral part of an effective managed health and safety system and a positive culture
of reporting can reduce the likelihood of actual incidents taking place. At the end of 2023, Drax had a NMHIR
of129.26, relative to a target of 110.00 (score of 1.96).
The Committee completed an in-depth review of the score for each of the metrics to ensure that the result was appropriate
individually and in aggregate. The Committee believes that the outcome reected the strong financial, strategic and ESG performance
of the Group, as well as wider employee and shareholder experiences. As noted in the Chair’s letter, no discretion was exercised by the
Committee in determining the final 2023 Scorecard outcome.
Remuneration Committee report continued
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Bonus earned for 2023 (audited information)
The table below sets out the bonuses earned for the 2023 financial year and the split between cash and deferred elements.
Director
Max bonus opportunity
(as % base salary)
Total bonus outcome
(as % of maximum)
Total bonus outcome
(as % base salary)
Total bonus outcome
(£000)
Amount paid
in cash
(£000)
Amount deferred in
shares
(£000)
Will Gardiner 175% 70.0% 122.5% 812 487 325
Andy Skelton 150% 70.0% 105.0% 443 266 177
40% of the total bonus award for 2023 will be deferred into shares for a period of three years and the remaining 60% will be paid in
cash in March 2024. The deferral element will in ordinary circumstances vest in March 2027, subject to the Executive Director being
employed by Drax at that time. If the Executive Director leaves, other than as a “good leaver”, the deferred element will be forfeited.
LTIP incentive outcomes (audited information)
The vesting outcome for awards granted in 2021 under the LTIP, which were subject to performance conditions over the three-year
period from 1 January 2021 to 31December 2023, and scheduled to vest on the 1 April 2024, is provided in the tables below.
Performance Condition Weighting
Performance for
threshold vesting
(25% vesting)
Performance for
maximum vesting
(100% vesting)
Actual
performance
Relative TSR vs FTSE 350 constituents 50% Median Upper Quartile 87.1%
(rank of 21 out
of FTSE 350)
Cumulative Adjusted EPS 50% 104.9p 128.2p 231.2p
The Committee considered the Group’s overall performance for 2023 and felt no discretion to the 2021 LTIP outcome was required.
The share buyback programme was not envisaged when the targets for 2021 LTIP grant were set and it did have a modest benefit to
the EPS outturn by decreasing the number of shares in issue. The Committee took this into consideration and felt discretion to the EPS
target or outturn position was not required given that the maximum EPS target was exceeded even if the impact of the share buyback
programme was removed.
The table below provides the awards due to vest based on this vesting result.
Director
Awards Granted
(as % of base salary) Awards granted Awards vesting
Dividend shares
earned
Total shares
due to vest
Total value
(£000)
(1)
Will Gardiner 200% 266,650 266,650 28,096 294,746 1,301
Andy Skelton 175% 152,022 152,022 16,017 168,039 742
Note:
(1) Represents the value of the 2021 LTIP award which should vest on the 1 April 2024, together with the dividend shares in relation to those vested shares. The value of the
award is calculated based on the average share price over the last quarter of 2023, which was £4.414. The value of the award attributable to share price appreciation for
Will Gardiner is £32k and for Andy Skelton is £18k. This is based on the growth in value of the shares due to vest (excluding dividend shares) from the grant share price
£4.293 to the average share price over the quarter of 2023 (£4.414). The value of dividend shares earned on the awards vesting for Will Gardiner is £124k and for Andy
Skelton is £71k based on the average share price over the quarter of 2023 (£4.414).
LTIP awards granted in 2023 (audited information)
The table below shows the conditional awards granted under the LTIP to Executive Directors on 31March 2023.
Director
Award granted
(as % of salary) Number of shares granted
Face value of awards granted
(£000)
(1)
Will Gardiner 200% 225,830 1,326
Andy Skelton 175% 125,698 738
Note:
(1) The number of shares awarded was based on the average share price in the three-day period prior to grant, which was £5.872. In accordance with the LTIP rules,
dividend shares are awarded at the time and in the event that awards actually vest. No dividend shares are awarded where the initial awards lapse.
The performance conditions that apply to the LTIP awards granted in 2023 are set out below.
Performance Condition Weighting
Performance for
threshold vesting
(25% vesting)
Performance for
maximum vesting
(100% vesting)
Relative TSR vs FTSE 350 constituents 50% Median Upper Quartile
Cumulative Adjusted EPS 50% 322.8p 394.6p
Straight line vesting occurs between performance levels for both conditions. Performance for both conditions is measured over three
financial years to 31December 2025.
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DSP awards granted in 2023 (audited information)
The table below shows the deferred conditional share awards granted under the Deferred Share Plan (DSP) to Executive Directors
on31March 2023 in respect of bonus earned for performance in the financial year ending 31December 2022. These shares will
veston 31March 2026.
Director
Value of deferred bonus
(£000) Number of shares granted
(1)
Will Gardiner 386 65,783
Andy Skelton 211 35,874
Note:
(1) The number of shares awarded was based on the average share price in the three-day period prior to grant, which was £5.872. In accordance with the DSP rules,
dividends in respect of the deferred shares are reinvested in additional shares, which vest when the deferred shares vest.
Sharesave options granted in 2023 (audited information)
No grants of Sharesave options were made to Will Gardiner or Andy Skelton in 2023. Both have ongoing Sharesave contracts to the
maximum permitted monthly savings.
Pension entitlements for defined contribution schemes (audited information)
Executive Directors are entitled to receive a contribution to the Group’s defined contribution pension plan, cash in lieu of pension
contributions or a mixture of these. The employer contributions for Will Gardiner and Andy Skelton in 2023 were 10% of base salary,
which is aligned with the rate of contributions provided to new joiners to the UK wider workforce. Will Gardiner’s employer
contributions were delivered as cash in lieu of pension. Andy Skelton’s were in part delivered as contributions to the Group defined
contribution pension plan (£3,454) and the remaining part as cash in lieu. No Executive Director was a member of a defined benefit
pension scheme.
Payments to former Directors (audited information)
There were no payments to former Directors.
Payments for loss of office (audited information)
There were no payments to Directors with respect to loss of office.
Statement of Directors’ shareholding and share interests (audited information)
The shareholding guidelines under the current Directors’ Remuneration Policy require Executive Directors who receive shares by virtue
of share plan awards, or who receive deferred bonus share awards under the DSP, to retain 50% of the shares received net (i.e., after
income tax and national insurance contributions) until the value of shares held is equal to at least 250% of salary for the CEO and 200%
of salary for other Executive Directors. Only shares that are not subject to performance conditions count towards the shareholding
requirement (shares owned by the Director and unvested awards subject to service only – DSP awards – on a net of tax basis).
Remuneration Committee report continued
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Directors’ interests in shares
The table below shows the shareholdings of the Directors, and their connected persons, as at 31December 2023. The value is based
on the mid-market quotation on 31December 2023 of £4.897. There was no movement in share interests between 31December 2023
and the last practicable date for recording changes prior to the date of publication.
Director
Beneficially
owned
(1)
LTIP awards
(2)(3)
DSP awards
(3) (4)
SAYE options
(5)
Shareholding
requirement
as a % of salary
Shareholding
as a % of salary
at 31December
2023
(6)
Shareholding
requirement
met at
31December
2023
Executive Directors
Will Gardiner 1,085,411 666,599 166,090 23,603 250% 838% Yes
Andy Skelton 471,055 374,627 91,905 23,603 200% 591% Yes
Non-Executive Directors
Andrea Bertone
(7)
0 – – – – – –
Philip Cox
(8)
60,000 – – – – – –
John Baxter 17,5 0 0 – – – – – –
Nicola Hodson 0 – – – – – –
Kim Keating 0 – – – – – –
David Nussbaum 0 – – – – – –
Erika Peterman 0 – – – – – –
Vanessa Simms 0 – – – – – –
Notes:
(1) The figures include 448,382 shares subject to a post-vesting holding period for Will Gardiner and 267,315 shares subject to a post-vesting holding period for Andy
Skelton.
(2) LTIP awards are conditional share awards subject to ongoing performance conditions.
(3) Shares representing dividend equivalents are added on vesting.
(4) A proportion of annual bonus is deferred into shares which are not subject to further performance conditions.
(5) The 2020 five-year SAYE option is due to mature on 1 June 2025 with an option price of £1.271.
(6) The calculation for Will Gardiner includes 1,085,411 shares owned, plus 88,028 unvested DSP shares on a net of tax basis. The calculation for Andy Skelton includes
471,055 shares owned, plus 48,710 unvested DSP shares on a net of tax basis.
(7) Andrea Bertone was appointed to the Board on 24 August 2023.
(8) Philip Cox stood down from the Board on 31December 2023.
Service agreements or contracts for services
The following table shows, for each Director of the Company as at the date this Annual Report and Accounts is published, or those
whoserved as a Director of the Company at any time during the year ended 31December 2023, the start date and term of the service
agreement or contract for services, and details of the notice periods. A new contract for services was agreed with David Nussbaum
in2023 and a new contract for services was agreed with Nicola Hodson in January 2024.
Director
Date appointed as a Director
and member of the Board
Contract start date/
renewal date
Permitted Contract
term (years)
Notice period by the
Company (months)
Notice period by the
Director (months)
Will Gardiner 16 November 2015 16 November 2015 Indefinite term 12 12
Andy Skelton 2 January 2019 2 January 2019 Indefinite term 12 12
Andrea Bertone
(1)
24 August 2023 24 August 2023 3 years 6 6
Philip Cox
(2)
1 January 2015 1 January 2021 3 years 6 6
John Baxter 17 April 2019 17 April 2022 3 years 1 1
Nicola Hodson 12 January 2018 12 January 2024 3 years 1 1
Kim Keating 21 October 2021 21 October 2021 3 years 1 1
David Nussbaum 1 August 2017 1 August 2023 3 years 1 1
Erika Peterman 21 October 2021 21 October 2021 3 years 1 1
Vanessa Simms 19 June 2018 19 June 2021 3 years 1 1
Notes:
(1) Andrea Bertone joined the Board as a Non Executive Director on 24 August 2023 and was appointed Chair on 1January 2024.
(2) Philip Cox stood down as a Director on 31December 2023.
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Relative importance of spend on pay
The table below illustrates the relative importance of spend on pay compared to distributions to shareholders. At the AGM on 25 April
2024 the Board will recommend to shareholders that a resolution is passed to approve payment of a final dividend for the year ended
31December 2023. The cost with respect to dividends for 2023 in the table below relates to the interim dividend, which was paid in
October 2023, and the final dividend to be paid in May 2024, subject to approval at the AGM.
£301.7m
£255.8m
Remuneration – 2023
Remuneration – 2022
£89.2m
£84.0m
Dividends – 2023
Dividends – 2022
0 £50m £100m £150m £350m£300m£200m £250m
Drax 10 year Total Shareholder Return performance to 31December 2023
The graph below shows how the value of £100 invested in both Drax and the FTSE 350 Index (Index) on 31December 2013 has
changed. This Index has been chosen as a suitable broad comparator against which Drax’s shareholders may judge their relative
returns given that Drax is a member of the Index. The graph reects the TSR for Drax and the Index referred to on a cumulative basis
over the period from 31December 2013 to 31December 2023.
0
50
100
150
200
250
300
Dec 23Dec 22Dec 21Dec 20Dec 19Dec 18Dec 17Dec 16Dec 15Dec 14Dec 13
Drax FTSE 350
CEO’s pay – last 10 financial years
Year 2014 2015 2016 2017 2018 2019 2020 2021 2022
(2)
2023
Group CEOs total single figure
(£000)
(1)
1,854 1,248 1,581 1,236 1,885 1,121 2,013 3,226 5,540 2,862
Bonus % of maximum awarded 73.00% 46.00% 88.00% 53.00% 53.00% 45.00% 45.00% 80.50% 87.50% 70.00%
LTIP award % of maximum
vesting
40.52% 21.66% 15.43% 0.00% 57.63% 18.00% 57. 20% 7 7. 28% 100.00% 100.00%
Notes:
(1)
D
orothy Thompson stood down as CEO on 31December 2017 where she was replaced by Will Gardiner. The information reported from 2014 to 2017 relates to the
remuneration Dorothy Thompson earned over this period; the information reported from 2018 to 2023 relates to the remuneration Will Gardiner earned over this period.
(2)
T
he 2022 Group CEO total single figure, which includes LTIP, has been restated to reect the actual share price on vesting of £6.067 on 10 May 2023.
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Percentage change in Directors’ remuneration compared with the wider employee population
The table below shows how the percentage change in the Directors’ salary/fees, benefits and bonus (where applicable) between
2020and 2023 compares with the percentage change in the average of each of those components of pay for a group of employees.
There are several employer entities but no employees who are specifically employed by Drax Group plc. As a result, the Committee
hasselected all Group employees below Executive Director level based in the UK, as the majority of employees are based in the UK
andthis provides the most appropriate comparison.
Salary/fees
(percentage increase)
Taxable benefits
(percentage increase)
(1)
Bonus
(percentage increase)
(2)
2020 2021 2022 2023 2020 2021 2022 2023 2020 2021 2022 2023
Will Gardiner 3.0% 2.0% 10.7% 4.0% 0.0% 0.0% 0.0% 0.0% 19.2% 82.9% 20.3% -15.9%
Andy Skelton 3.0% 2.0% 8.1% 4.0% 0.0% 0.0% 0.0% 0.0% 9.4% 82.9% 17.5% -15.9%
Andrea Bertone
(3)
– – – – – – – – – – – –
Philip Cox 0.0% 2.0% 4.5% 4.0% – – – – – – – –
John Baxter 0.0% 2.0% 4.5% 4.1% – – – – – – – –
Nicola Hodson 0.0% 2.0% 4.5% 6.5% – – – – – – – –
Kim Keating
(4)
N/A N/A 4.5% 4.1% – – – N/A
(5)
– – – –
David Nussbaum 0.0% 2.0% 4.5% 6.5% – – – – – – – –
Erika Peterman
(4)
N/A N/A 4.5% 4.1% – – – N/A
(5)
– – – –
Vanessa Simms 0.0% 2.0% 4.5% 6.5% – – – – – – – –
Average for UK
employees
3.0% 2.0% 4.5% 8.0% 0.0% 0.0% 0.0% 0.0% 0.0% 78.9% 8.7% -13.6%
Notes:
(1) With respect to taxable benefits, there has been no material change to Drax’s existing benefits policies over the reporting years.
(2) The bonus Scorecard outcome for 2023 (1.40) is lower than it was for 2022 (1.75) and this is reected in the negative difference. For the 2023 pay review,
Will Gardiner and Andy Skelton both received a smaller increase than the wider UK workforce which has resulted in a difference in overall bonus payment.
(3) Andrea Bertone joined the Board on 24 August 2023 and therefore the percentage change in her fees has not been provided.
(4) Kim Keating and Erika Peterman joined the Board on 21 October 2021 and therefore the percentage change in their fees has not been provided for 2020 and 2021.
(5) N/A refers to a nil value in the previous year, meaning that the year-on-year change cannot be calculated. Both Kim Keating and Erika Peterman received a travel
allowance from April 2023 following approval of the new Directors’ Remuneration Policy by shareholders at the 2023 AGM.
CEO pay ratio
The table below sets out the CEO pay ratio for 2023, along with the comparative ratios since 2019. The pay ratios have been calculated
using actual earnings for the CEO and UK employees. The CEO total single figure remuneration is given on page 151 of this report.
Financial Year Methodology
25th Percentile
Pay Ratio (P25)
50th Percentile
Pay Ratio (P50)
75th Percentile
Pay Ratio (P75)
2023 Option A 76:1 46:1 30:1
2022 Option A 114:1 79:1 57:1
2021 Option A 8 4.1 52:1 34.1
2020 Option A 65:1 38:1 25:1
2019 Option A 42:1 2 5.1 16 .1
The methodology used for calculating all pay ratios was the same. For 2023, the total remuneration of all UK employees of the Group
on 31December 2023 has been calculated on a full-time (and full-year) equivalent basis using the single figure methodology and
reects their actual earnings for 2023. The only exception is for employees with Defined Benefit (DB) pensions, where the employer
contribution to the respective schemes has been used in the calculation (rather than the single figure methodology) to reduce the
administrative complexity. This is likely to undervalue the DB pension value. No adjustments, other than to achieve full-time and
full-year equivalent rates, were made and no components of remuneration have been omitted. Of the three options permitted to
calculate the percentiles, the Committee has chosen option A (the calculation of the total pay and benefits for 2023 for all UK
employees on an FTE basis), as we believe it is the most robust and most statistically accurate method of the options permitted.
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Set out in the table below is the base salary and the total pay and benefits for each of the identified employees in respect of 2023.
Element 25th Percentile (P25) 50th Percentile (P50) 75th Percentile (P75)
Base Salary £26,040 £41,366 £59,400
Total Pay and Benefits £37,541 £61,948 £94,359
Base salaries of all employees, including Executive Directors, are set with reference to a range of factors including market practice,
experience and performance in role. The CEO has a larger portion of his pay based on performance of the business than the individuals
at P25, P50 and P75. The Committee believe that our senior executives should have a significant portion of their pay directly linked
tothe performance of the business but recognise that this does mean the pay ratios will uctuate each year depending on business
performance and associated outcomes of incentive plans.
The 2023 pay ratios report a narrower gap between actual earnings of the CEO and UK employees (than compared to 2022 CEO pay
ratios). This is ultimately due to a lower Scorecard outcome for 2023 than for 2022 (1.40 versus 1.75) and due to the lower number
ofshares vesting under the 2021 LTIP versus the 2020 LTIP.
The Group is comprised of different business units and teams with different levels of pay, including call centre staff, support staff
andengineers. The Committee reviews information about employee pay, reward and progression policies of the Group and (given
therelative differences in responsibilities of the roles, the pay relativities between grades within the organisation, and the positioning
of pay versus the wider market) is comfortable that the median pay ratio is consistent with these policies.
Single total figure of remuneration – Non-Executive Directors (audited information)
The fees for the Chair and Non-Executive Directors were reviewed at the start of 2023 and were subsequently increased. A 4%
increase to the base fee was applied for the Chair and a 4.1% to the base fee for the Non Executive Directors; both increases took
effect from 1 January 2023. Their increase was broadly a 50% discount to the average increase of the wider workforce as part of the
2023 annual pay review. Following a comprehensive external benchmarking exercise, the additional fees for chairing a committee,
excluding the Nominations Committee, and the additional fee for the Senior Independent Director were increased by 19.6%, effective
1 January 2023. The additional fee for chairing the Nominations Committee was increased by 59.5%, although it is noted the Chair
isalso the chair of the Nominations Committee and does not receive a fee for this. For completeness, the table below sets out the
single figure of remuneration and breakdown for each Non-Executive Director for 2023 together with comparative figures for 2022.
The figures are rounded up to the nearest £1000.
Director Year
Base fee
(£000)
Travel
Allowance
(£000)
Additional fee for
Senior Independent
Director
(£000)
Additional fee for
Chairing a Committee
(£000)
Total
(£000)
Andrea Bertone
(1)
2023 22 8 – – 30
2022 – – – – –
Philip Cox
(2)
2023 277 – – – 277
2022 267 – – – 267
John Baxter 2023 61 – – – 61
2022 59 – – – 59
Nicola Hodson 2023 61 – – 13 74
2022 59 – – 11 70
Kim Keating
(3)
2023 61 8 – – 69
2022 59 – – – 59
David Nussbaum 2023 61 – 13 – 74
2022 59 – 11 – 70
Erika Peterman
(4)
2023 61 7 – – 69
2022 59 – – – 59
Vanessa Simms 2023 61 – – 13 74
2022 59 – – 11 70
Notes:
(1) Andrea Bertone joined the Board as a Non Executive Director on 24 August 2023 and from this date received the Non Executive Director base fee. Upon appointment to
Chair on 1January 2024, her base fee increased to that of the Chair’s base fee. Andrea did not receive any fees for 2022 and her fees for 2023 are pro rata. As Andrea is
based in the US, her fee was paid in US dollars. Her base fee was in line with the fee structure in the Policy and was converted into US dollars based on the exchange rate
£1=$1.37. From her start date, Andrea received an annual travel allowance of USD 30,000 which was pro-rata for 2023.
(2) Philip Cox stood down as a Director on 31December 2023 and received his base fee for 2023. No further payments were received in connection for Philip stepping down
from the Board.
(3) Kim Keating is based in Canada and her fee was paid in Canadian dollars. Her base fee was in line with the fee structure in the Policy and was converted into Canadian
dollars based on the exchange rate £1 = C$1.72. Effective April 2023, Kim received an annual travel allowance of CAD 20,000.
(4) Erika Peterman is based in the US and her fee was paid in US dollars. Her base fee was in line with the fee structure in the Policy and was converted into US dollars based
on the exchange rate £1=$1.37. Effective April 2023, Erika received an annual travel allowance of USD 15,000.
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Statement of Implementation of the Remuneration Policy in 2024
This section sets out the proposed implementation of the Directors’ Remuneration Policy in 2024. No deviations from the procedure
for the implementation of the Policy are proposed.
Base Salary
Below are the base salaries of the Executive Directors which took effect from 1January 2024. There are no further planned increases
for 2024. The base salary increase in January 2024 was 4% and this was made as part of the annual pay review process. This increase
was below the average increase of the UK wider workforce of 5%.
Base Salary as at
1 January 2023
(£000)
Base Salary as at
1January 2024
(£000)
Percentage
increase
Will Gardiner £663 £690 4.0%
Andy Skelton £422 £439 4.0%
Benefits and pension
There are no changes intended to the benefits provided to the Executive Directors. The employer contributions for Will Gardiner
andAndy Skelton will remain at 10% of base salary which is aligned with the rate of new joiners to the UK wider workforce.
Annual bonus
The targets for the 2024 Group Scorecard were approved by the Committee in February. The bonus awards for the vast majority of
colleagues across the Group in 2024 will be subject to the performance against the 2024 Group Scorecard. Financial metrics make up
the majority weighting of 55%. The remaining 45% is equally split on the delivery of critical strategic milestones which represent
progress on Drax’s three core strategic objective and on the delivery of safety and ESG performance. The metrics in the 2024 Group
Scorecard are presented on pages 28 and 29 of this Annual Report, along with an explanation of why each metric has been selected.
The performance targets for these metrics are commercially sensitive, therefore disclosure would not be in the best interest to
stakeholders. The outcome of the 2024 Scorecard will be disclosed in the 2024 Annual Report on Remuneration.
LTIP
The Committee intends to grant LTIP awards to Executive Directors of 200% of salary for the CEO and 175% of salary for the CFO.
For the TSR element, performance will be assessed versus the constituents of the FTSE 350 with threshold vesting (25% of maximum)
for performance in line with the median and maximum vesting for performance in line with upper quartile. TSR performance will be
measured over the period 1January 2024 to 31December 2026.
For the EPS element, targets for the 2024 grant have been agreed by the Committee at the meeting in February. The targets were
considered similarly challenging to those set in prior years having had regard to current commercial circumstances. The EPS target
was set after considering the Company’s internal forecasts, market expectations and sector peers. The EPS target is “Adjusted EPS”,
derived from Adjusted Results as reported in the Company’s audited financial statements. Instances where such adjustments might
apply include acquisition and restructuring costs, asset obsolescence charges and certain remeasurements on derivative contracts.
EPS performance will be measured over the period 1January 2024 to 31December 2026 and vesting will be in accordance with the
following schedule. Note, vesting between the threshold and maximum will be on a straight-line basis.
Performance Target
% of Award Vesting
(of EPS performance condition)
Below threshold <286.7p 0%
Threshold 286.7p 25%
Maximum 350.4p 100%
With regards to targets set in 2023 for each of the performance related incentives, the Committee retains discretion to restate or
make adjustment to those targets in appropriate circumstances (such as material acquisitions, divestments, changes in capital
structure or capital returns to shareholders). This would take account of the importance of such performance targets fulfilling their
original intent and that they are not more or less challenging than intended when set and considering the impact of relevant events
inthe performance period. Any amendments would be disclosed in the Remuneration Report at the relevant time.
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Non-Executive Directors’ fees
The annual fee structure for the Non-Executive Directors for 2024 is shown in the table below. The fee structure for 2023 is also
provided for reference. The base fee for the Chair and Non-Executive Directors was increased by 4%, effective 1 January 2024. This is
consistent with the increase that the Executive Directors received as part of the 2024 annual pay review process (which was less than
the 5% average increase of the wider UK workforce). There was no change to the additional fees for chairing a committee or to the
additional fee for the Senior Independent Director.
Following shareholder approval of the Directors’ Remuneration Policy at the 2023 AGM, a travel allowance was introduced, effective
from the date of the AGM to the overseas based Non-Executive Directors. This was to recognise the additional time incurred by
Non-Executive Directors based overseas in providing services to a UK-based listed company. This will remain in place for 2024 and
there is no change to the quantum of the travel allowance.
Director
Fees at
1 January 2023
(£)
Fees at
1January 2024
(£)
Percentage
increase
(1January 2024)
Chair
(1)
277,250 288,340 4.0%
Non-Executive Director base fee
(1)
61,000 63,440 4.0%
Senior Independent Director 12,750 12,750 0.0%
Audit Committee Chair 12,750 12,750 0.0%
Remuneration Committee Chair 12,750 12,750 0.0%
Nomination Committee Chair
(2)
12,750 12,750 0.0%
Notes:
(1) The 2024 fees for the Chair and the two Non-Executive Directors based outside of the UK will continue to be paid in their respective local currency.
(2) No fee was paid for chairing this sub-committee as the Chair is also the Nomination Committee Chair.
Shareholder voting
The table below shows the voting outcome at the 2023 AGM on the 2022 Annual Report on Remuneration. The votes cast represent
73.76% of the issued share capital. In addition, shareholders holding 573,349 shares withheld their votes.
Voting on the 2022 Annual Report on Remuneration For Against
Number of votes 254,280,546 41,287,652
Proportion of votes 86.03% 13.97%
The table below shows the voting outcome for the Directors’ Remuneration Policy at the 2023 AGM. In addition, shareholders holding
563,770 shares withheld their votes.
Voting on the 2023-2025 Directors’ Remuneration Policy For Against
Number of votes 287,599,357 7,978,420
Proportion of votes 97.30% 2.70%
Adviser to the Committee
The adviser to the Committee for the year was Korn Ferry. Korn Ferry are an independent adviser and were appointed by the
Committee in May 2022. Korn Ferry were paid in fees in 2023 in relation to advising the Committee and on broader HR matters, such
as recruitment. Korn Ferry were paid £67,068, excluding VAT, during 2023 in respect of advice given to the Committee determined
ona time and material basis. Korn Ferry is a member of the Remuneration Consultants Group and a signatory to its Code of Conduct.
TheCommittee is satisfied that the advice it receives from Korn Ferry is objective and independent. Korn Ferry has no other connection
with the Company other than stated here, or individual Directors, and Korn Ferry has confirmed that there are no conicts of interest.
This report was reviewed and approved by the Remuneration Committee.
Nicola Hodson
Chair of the Remuneration Committee
28 February 2024
Remuneration Committee report continued
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Directors’ report
This report contains information which the Company is obliged to disclose and which cannot be found in the strategic, financial,
sustainability or corporate governance reports of this document.
The Directors present their Annual Report on the affairs of the Group, together with the financial statements and Auditor’s report
forthe year ended 31 December 2023. The Directors’ report required under the Companies Act 2006 is comprised of this report,
theCorporate Governance Report and the Audit, Nomination and Remuneration Committee reports.
Information about the use of financial instruments by the Company and its subsidiaries is given in note 7.1 to the Consolidated financial
statements on page 251.
Directors
The following Directors held office during the year:
Philip Cox Nicola Hodson
Will Gardiner Kim Keating
Andy Skelton David Nussbaum
John Baxter Erika Peterman
Andrea Bertone Vanessa Simms
The appointment and replacement of Directors is governed by the Company’s Articles of Association (Articles), the UK Corporate
Governance Code, the Companies Act 2006 and related legislation. See Articles 77 to 86 of the Company’s Articles, available
ontheCompany’s website at www.drax.com/about-us/corporate-governance/compliance-and-policies/.
Annual General Meeting (AGM)
The AGM will be held at 10am on Thursday 25 April 2024 at 133 Houndsditch, London EC3A 7BX. A separate document contains
thenotice convening the AGM and includes an explanation of the business to be conducted at the meeting.
Dividends
An interim dividend of 9.2 pence per share was paid on 6 October 2023 (2022: 8.4 pence), to shareholders on the register on
25August 2023.
The Directors propose a final dividend of 13.9 pence per share (2022: 12.6 pence), which will, subject to approval by shareholders
atthe AGM, be paid on 17 May 2024, to shareholders on the register on 19 April 2024.
Details of past dividends can be found on the Company’s website at www.drax.com/investors/shareholder-information/dividends/.
Share capital
Drax Group plc has a Premium Listing on the London Stock Exchange and currently trades as part of the FTSE 250 Index,
under the symbol DRX and with the ISIN number GB00B1VNSX38.
The Company has only one class of equity shares, being ordinary shares of 11
16
⁄
29
pence each, with each ordinary share having
one vote. Shares held in treasury do not carry voting rights.
Details of movements in the Company’s issued share capital can be found in note 4.4 to the Consolidated financial statements
onpage232.
Shares in issue
At 1 January 2023 414,872,491
Issued in period 10,050,915
At 31 December 2023 424,923,406
Treasury shares at 31 December 2023 40,258,547
Total voting rights at 31 December 2023 384,664,859
Issued between 1 January and 28 February 2024 17,706
At 28 February 2024 424,9 41,112
Treasury shares at 28 February 2024 40,258,547
Total voting rights at 28 February 2024 384,682,565
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Directors’ report continued
Authority to purchase own shares
At the AGM held on 26 April 2023, shareholders authorised the Company to make market purchases of up to 10% of the issued
ordinary share capital. At the 2024 AGM, shareholders will be asked to renew the authority to make market purchases of up to 10%
ofthe issued ordinary share capital. More details on resolution 19 can be found in the Notice of Meeting. During 2023, the Company
purchased a total of 26,426,259 ordinary shares between 18 May 2023 and 15 September 2023 as part of the Company’s £150 million
share buyback programme.
Interests in voting rights
Information provided to the Company in accordance with the Financial Conduct Authority’s Disclosure and Transparency Rules (DTR)
is published in a timely manner on the London Stock Exchange’s Regulatory News Service – a Regulatory Information Service – and
onthe Company’s website.
As at 28 February 2024, the following information had been received in accordance with DTR5 from holders of notifiable interests
inthe voting rights of the Company. The information provided below was correct at the date of notification. However, investors are
only obliged to notify the Company when a notifiable threshold is crossed and therefore it should be noted that the holdings below
may have changed but without crossing a threshold.
Date last
notification
made
Number of
voting rights
directly held
Number of
voting rights
indirectly held
Number of
voting rights
in qualifying
financial
instruments
Total number
of voting
rights held
% of the issued
share capital
held
(1)
Bank of American Corporation 23 Feb 2024 – 15,758,557 25,3 4 8,143 41,106 ,70 0 10.69%
Invesco Limited 22 Oct 2020 – 38,578,024 – 38,578,024 9.71%
Schroders plc 29 Jun 2021 – 38,333,806 67,765 38,401,571 9.64%
Orbis Holdings Limited 08 Jan 2024 – 19,274 ,15 4 – 19,274,15 4 5.01%
Notes:
(1) As at the date of the last notification made to the Company by the investor, in compliance with DTR.
Rights and obligations attaching to shares
The rights attaching to the Company’s Ordinary Shares are set out in the Articles, available on the Company’s website at www.drax.
com/about-us/corporate-governance/compliance-and-policies/. The Articles may only be changed by shareholders by special
resolution.
Attention should be given to the following sections within the Articles, covering the rights and obligations attaching to shares:
• Variation of rights – which covers the rights attached to any class of shares that may be varied with the written consent of the
holders of not less than three-quarters in nominal value of the issued shares of the relevant class (excluding any shares of that class
held as treasury shares), or with the sanction of a special resolution passed at a separate General Meeting of the holders of shares
ofthe class duly convened and held in accordance with the Companies Act.
• Transfer of shares – provides detail of how transfers of shares may be undertaken. It also sets out the Directors’ rights of refusal
toeffect a transfer and the action that Directors must take following such refusal. It should be noted that a shareholder does not
need to obtain the approval of the Company, or of other holders of shares in the Company, for a transfer of shares to take place.
• Voting, deadlines and proxies – these sections of the Articles deal with voting on a show of hands and on a poll. They also cover the
appointment of a proxy or corporate representative. In respect of appointment of a proxy or corporate representative, the Articles
provide for the submission of proxy forms not less than 48 hours (or such shorter time as the Board may determine) before the time
appointed for the holding of the meeting. It has been the Company’s practice since incorporation to hold a poll on every resolution
atAnnual General Meetings and General Meetings.
Disabled employees
The Company gives full consideration to applications for employment by disabled persons, bearing in mind the aptitudes of the
applicant concerned. In the event of employees becoming disabled, every effort is made to ensure that their employment with the
Group continues, and that appropriate training is arranged. It is the policy of the Group that the training, career development and
promotion of disabled persons should, so far as possible, be identical to that of other employees.
Colleague engagement
Engaging with our colleagues is critical to creating a supportive, diverse, and inclusive culture where colleagues feel they belong and
can contribute to delivering our purpose, strategy, and long-term success. Details of how the Company has engaged with employees
during the year can be found in the Stakeholder Engagement section on page 33, in People Positive on page 64, and in the Corporate
Governance Report on pages 123 to 124. In addition, details of how the Board has considered the interests of employees in key
decision making can be found in the section 172 statement on page 32.
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Political donations
Drax is a politically neutral organisation and, as further explained below, did not make any political donations or incur any political
expenditure (within the ordinary meaning of those words) in 2023. The Company regularly engages with regulators and policymakers
(including those associated with political parties and governments) to listen and contribute to discussions on a wide range of matters.
Such engagement is an important part of our strategy and contributing to initiatives enabling the UK in its goal of reaching net zero by
2050. Further information on how we engage with stakeholders can be found on pages 32 to 41, and our Political Engagement Policy
can be found on the Company’s website at: www.drax.com/about-us/corporate-governance/compliance-and-policies/drax-political-
engagement-policy/. Due to the broad definition of political donations under the Companies Act 2006 (the Act), and as a matter of
good governance and transparency, we have provided information on areas of expenditure incurred as a result of this engagement
which may be regarded as falling within the scope of the Act.
During the year ended 31 December 2023, Drax exhibited at, sponsored, and held events at, conferences organised by political parties,
spending a total of £67,274 (2022: £94,572). This included, the buying of attendance passes to the Scottish Labour Conference (£640),
Labour Party Conference (£3,740), and the Scottish Labour Business Gala (£360). It also included the hiring of an exhibition space at
the Conservative Party annual conference, with advertising and the sponsoring of events (£47,746), the sponsoring a Scottish
Conservative event at Conservative Party Conference (£6,000), and the sponsoring of an event at the Scottish Conservative
Conference (£3,500). It also included attendance passes to the Liberal Democrat Annual Conference (£1,500) and Scottish National
Party Annual Conference (£3,788). These events allow Drax to present its views on a non-partisan basis to politicians from across
thepolitical spectrum and non-political stakeholders such as NGOs and other listed and non-listed companies. These payments do
notindicate support for any political party. Overall, the recipients were the Conservative Party (£57,246), the Labour Party (£4,740),
the Scottish National Party (£3,788), and the Liberal Democrats (£1,500).
At the 2024 AGM, Drax will be seeking renewal from shareholders of the existing authority approved at the 2023 AGM. More details
are contained in the Notice of Meeting.
Other significant agreements
• A £300 million facility agreement dated 20 December 2012 (as amended and restated on 10 December 2015 and 21 April 2017,
asfurther amended and restated on 18 November 2020 and as further amended and restated on 14 September 2021) between,
amongst others, Drax Corporate Limited and Barclays Bank PLC (as facility agent) (the Facility Agreement) as extended pursuant
toan extension request dated 2 November 2023.
• An indenture dated 26 April 2018 (as amended and supplemented from time to time, including by a supplemental indenture dated
12February 2019 and a supplemental indenture dated 16 May 2019) between, amongst others, Drax Finco plc and BNY Mellon
Corporate Trustee Services Limited (as Trustee) governing $500 million 6.625% senior secured notes due November 2025 (the 2018
Indenture).
• An indenture dated 4 November 2020 between, amongst others, Drax Finco plc and BNY Mellon Corporate Trustee Services
Limited (as Trustee) governing €250 million 2.625% senior secured notes due 2025 (the 2020 Indenture and, together with the
2018Indenture, the Indentures).
• A £375 million term loan facilities agreement dated 24 July 2019 between, amongst others, Drax Corporate Limited and Banco
Santander S.A., London Branch (as facility agent) as amended and restated on 20 September 2021 (the 2019 Private Placement).
• A £98 million and €126.5 million term loan facilities agreement dated 18 August 2020, amongst others, Drax Corporate Limited
andBanco Santander S.A., London Branch (as facility agent) as amended and restated on 21 September 2021 (the 2020 Private
Placement).
• A loan facilities agreement dated 12 July 2021 between, amongst others, Pinnacle Renewable Energy Inc. and Royal Bank of Canada
(as facility agent) which includes a C$300 million term loan facility and C$10 million revolving credit facility (2021 Facility
Agreement) as further amended on 31 October 2023 and as further amended and restated on 22 December 2023.
• A £200,000,000 revolving credit facility agreement dated 9 December 2022 made between amongst others Drax Corporate Limited
and Lloyds Bank plc as facility agent (the 2022 RCF Agreement).
Under the Indentures, a change of control (a Notes Change of Control) occurs if any person other than Drax Group plc becomes the
ultimate beneficial owner of more than 50% of the voting rights of Drax Group plc’s direct subsidiary, Drax Group Holdings Limited
(unless replaced by a successor parent company), or else if all or substantially all of the assets of Drax Group Holdings Limited are
disposed of outside of the Group. No later than 60 days after any change of control, Drax Group Holdings Limited must offer to
purchase any outstanding notes at 101% of the principal amount of such notes plus accrued interest and other unpaid amounts.
Under the Facility Agreement, the 2019 Private Placement, the 2020 Private Placement, the 2021 Facility Agreement, and the 2022
RCF Agreement, a change of control occurs if any person or group of persons acting in concert gains control of Drax Group plc or
ifDrax Group plc no longer holds directly 100% of the issued share capital of Drax Group Holdings Limited (subject to carve-outs for
theinterposition of an intermediate holding company) or else if a Notes Change of Control occurs. Following a change of control, if
anylender requires, it may by giving notice to the relevant Group entity within 30 days of receiving notice from such Group entity that
a change of control has occurred, cancel its commitments and require the repayment of its share of any outstanding amounts within
three business days of such cancellation notice being given.
Further information in respect of the Group’s financial risk management programme (including commodity risk, foreign currency risk,
interest rate risk, ination risk, liquidity risk, and credit risk) appears in note 7 to the Consolidated financial statements on page 251.
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Directors’ interests and indemnity arrangements
Other than a service contract between the Executive Directors and a Group company, no Director had a material interest at any time
during the year in any significant contract with the Company or any of its subsidiary undertakings. There are no agreements between
the Group and its Directors providing for compensation for loss of office or employment because of a takeover bid. The Company
hasappropriate indemnity insurance cover in place in respect of legal action against Directors of the Company and its subsidiaries.
Strategic report
The Strategic report on pages 1 to 107 contains disclosures in relation to workforce engagement, stakeholder engagement, diversity,
Greenhouse Gas emissions, streamlined energy and carbon reporting requirements (SECR), future development and research
activities.
Post balance sheet events
None to report.
Auditors and the disclosure of information to the auditor
So far as each person serving as a Director at the date of approving this report is aware, there is no relevant audit information, being
information needed by the auditor in connection with preparing the report, of which the auditor is unaware. Having made enquiries
offellow directors, each Director has taken all steps that they ought to have taken as a Director to ascertain any relevant audit
information and to establish that the auditor is aware of that information. This information is given and should be interpreted in
accordance with the provisions of Section 418 of the Companies Act.
Deloitte LLP, who have performed the role of external auditor continuously since the Company’s listing in 2005, will step down as the
external auditor upon completion of their work for the financial year ending 31 December 2023. Following a tender process in 2021,
PricewaterhouseCoopers LLP (PwC) were appointed as the new external auditor. Resolutions will be proposed at the 2024 AGM (i) for
the appointment of PwC as the auditor of the Group, to take effect from, and including, the financial year ending 31 December 2024;
and (ii) authorising the Directors to determine the auditor’s remuneration. The Audit Committee reviews the appointment of the
auditor, the auditor’s effectiveness and its relationship with the Group, including the level of audit and non-audit fees paid to the
auditor. Further details on the work of the auditor and the Audit Committee are set out in the Audit Committee report on pages 132
to143.
Disclosures required under Listing Rule 9.8.4R
The information required to be disclosed in accordance with Listing Rule 9.8.4R of the Financial Conduct Authority’s Listing Rules can
be located in the following pages of this Annual Report and Accounts:
Section Information to be included Location
1 Statement of the amount of interest
capitalised
Note 2.5 on page 202
2, 4 – 14 Not applicable
The Directors’ report was approved by the Board on 28 February 2024 and is signed on its behalf by:
Brett Gladden
Group Company Secretary
Registered office: Drax Power Station, Selby, North Yorkshire, YO8 8PH
Registered in England and Wales Number 5562053
Directors’ report continued
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The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law
andregulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required
to prepare the group financial statements in accordance with international accounting standards in conformity with the requirements
of the Companies Act 2006 and United Kingdom adopted International Accounting Standards and have elected to prepare the
ParentCompany financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law), set out in FRS 101 Reduced Disclosure Framework. Under company law the Directors must
not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the
profit or loss of the Company for that period.
In preparing the Parent Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained
inthe financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue
inbusiness.
In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandableinformation;
• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users
tounderstand the impact of particular transactions, other events and conditions on the entity’s financial position and
financialperformance; and
• make an assessment of the Company’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken
as a whole;
• the Strategic report includes a fair review of the development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face; and
• the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 28 February 2024 and is signed on its behalf by:
Will Gardiner
CEO
Directors’ responsibilities statement
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Financial
statements
Contents
Financial statements
168 Independent Auditor’s report to the members
of Drax Group plc
177 Financial statements
Section 1
Consolidated financial statements
183 Consolidated income statement
184 Consolidated statement of comprehensive income
185 Consolidated balance sheet
186 Consolidated statement of changes in equity
187 Consolidated cash ow statement
Section 2
Financial performance
188 2.1 Segmental reporting
191 2.2 Revenue
195 2.3 Operating and administrative expenses
195 2.4 Impairment review of fixed assets and goodwill
202 2.5 Net finance costs
202 2.6 Current and deferred tax
206 2.7 Alternative performance measures
211 2.8 Earnings per share
211 2.9 Dividends
212 2.10 Retained profits
212 2.11 Share buyback programme
Section 3
Operating assets and working capital
213 3.1 Property, plant and equipment
217 3.2 Leases
219 3.3 Renewable certificate assets
220 3.4 Inventories
220 3.5 Trade and other receivables and contract assets
223 3.6 Contract costs
224 3.7 Trade and other payables and contract liabilities
225 3.8 Climate change
Section 4
Financing and capital structure
227 4.1 Cash and cash equivalents
227 4.2 Borrowings
230 4.3 Notes to the Consolidated cash ow statement
232 4.4 Equity and reserves
233 4.5 Non-controlling interests
Section 5
Other assets and liabilities
235 5.1 Business combinations
236 5.2 Goodwill and intangible assets
239 5.3 Provisions
Section 6
People costs
241 6.1 Colleagues including directors and employees
241 6.2 Share-based payments
245 6.3 Retirement benefit obligations
Section 7
Risk management
251 7.1 Financial instruments and their fair values
255 7.2 Financial risk management
269 7.3 Hedge reserve
270 7.4 Cost of hedging reserve
271 7.5 Offsetting financial assets and financial liabilities
272 7.6 Contingencies
272 7.7 Commitments
Section 8
Reference information
273 8.1 General information
273 8.2 Adoption of new and revised accounting standards
274 8.3 Related party transactions
Drax Group plc
275 Company financial statements
277 Notes to the Company financial statements
Drax Group plc
Annual report and accounts 2023
166
Financial statements
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In 2023 we delivered a strong
financial and operational
performance. We did so while
continuing to play a critical role
supporting energy security in the
UK through the provision
of dispatchable, renewable
generation for millions of homes
and businesses.
Will Gardiner, CEO
Drax Group plc
Annual report and accounts 2023
167
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Report on the audit of the financial statements
1. Opinion
In our opinion:
• the financial statements of Drax Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the
state of the group’s and of the parent company’s affairs as at 31 December 2023 and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting
standards;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes in equity;
• the consolidated cash ow statement;
• the basis of preparation and the material accounting policies on pages 177 to 182;
• the notes in Section 2.1 to 8.3 related to the consolidated financial statements; and
• the notes in Section 1 to 10 related to the parent company financial statements.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and
United Kingdom adopted international accounting standards. The financial reporting framework that has been applied in the
preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including
FRS101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit
ofthe financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit
services provided to the group for the year are disclosed in Section 2.3 of the notes to the financial statements. We confirm that
wehave not provided any non-audit services prohibited by the FRC’s Ethical Standard to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit
matters
The key audit matters that we identified in the current year were:
• valuation of goodwill and other intangible assets;
• valuation of commodity, ination and foreign exchange contracts;
• estimation of Customers’ accrued income; and
• estimation of expected credit loss provision in Opus Energy Limited (Opus Energy).
Within this report, key audit matters are identified as follows:
!
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the group financial statements was £21m (2022: £15m), representing approximately
2% (2022: 2%) of current year’s Adjusted EBITDA including EGL
(1)
.
Scoping
As further explained in Section 7.1, we performed full scope audits on the parent company and a further ten
components, as well as audits of specified account balances on five non-significant components. These components
represent the group’s principal business units and account for substantially all the group’s net assets, revenue, and
profit before tax.
Significant
changes in
ourapproach
There have been no significant changes in our approach for the current period.
(1) Adjusted EBITDA including EGL is Earnings before Interest, Taxation, Depreciation and Amortisation but including the Electricity Generator Levy, and excluding the
impact of exceptional items and certain remeasurements as disclosed on page 285.
Independent Auditor’s report to the members of Drax Group plc
Drax Group plc
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168
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4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis
of accounting included:
• evaluating the availability of adequate funding, repayment terms and covenants;
• assessing the historical accuracy of forecasts prepared by management and key assumptions underpinning the forecasts;
• checking the mathematical accuracy of the model used to prepare the forecasts;
• challenging the assumptions used in the forecasts, including performing sensitivity analyses in relation to assumptions for future
commodity prices;
• checking the amount of headroom in the forecasts;
• assessing whether the directors have considered and reected the impact of climate risks and opportunities in the group’s going
concern assessment; and
• evaluating the appropriateness of the going concern disclosures in the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group’s and parent company’s ability to continue as a going concern
foraperiod of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
tofraud) that we identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation
ofresources in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
5.1. Valuation of goodwill and other intangible assets
Key audit
matter
description
As at 31 December 2023, the carrying amount of the group’s goodwill and intangible assets amounted to £416.7m
(2022: £424.2m) and £81.5m (2022: £142.3m) respectively. An impairment of £69.1m gross of deferred tax was
recognised in relation to theOpus cash generating unit (“CGU”) as at 31 December 2023, following the cessation
of the gas offering and reorganisation of the Customers business.
The group’s impairment assessment of the carrying value of each cash generating units CGU to which goodwill is
allocated, is performed in accordance with IAS 36 Impairment of Assets (“IAS 36”). The recoverable amounts of the
group’s goodwill and intangible assets were assessed by reference to value in use calculations which require estimates,
including significant assumptions regarding future cash ows and discount rates. The cash ow forecasts are derived
from the group’s business plan which considers variables such as margins, supply volumes and ination. The forecasts
also reect relevant impact of climate risks such as future commodity prices on cash ows.
Goodwill and intangible assets are disclosed in Sections 2.4 and 5.2 of the notes to the financial statements, and the
key sources of estimation uncertainty on page 180. Climate change and biomass acceptability risks are disclosed in
theprincipal risk section of the strategic report.
How the
scope of
ouraudit
responded to
the key audit
matter
We obtained an understanding of relevant controls related to the impairment review of goodwill and other intangible
assets.
We checked the mathematical accuracy of the impairment models and whether the impairment methodology including
the duration of the cash ows applied by management was acceptable under IAS 36. We evaluated the key
assumptions including margins, future commodity prices and ination rates, and assessed retrospectively whether
prior year assumptions were appropriate.
With the assistance of our valuation specialists, we evaluated the reasonableness of management’s discount rates and
the methodology applied. We benchmarked the discount rate and developed an independent range for a reasonable
discount rate using relevant comparable companies and considering the underlying assumptions based on our
knowledge of the group and its industry. We compared management’s calculated rate to our reasonable range.
We evaluated all changes to key assumptions between the prior year impairment review and the current year’s review,
and challenged whether market conditions in the current year had been appropriately considered in the assumptions.
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Independent Auditor’s report to the members of Drax Group plc continued
How the
scope of
ouraudit
responded
tothe key
audit matter
(continued)
In respect of the reorganisation of the Customers business and the subsequent impairment recognised, we assessed
management’s conclusion that a change in CGU is appropriate, reviewed the methodology applied, assessed and
recalculated the reallocation of a portion of goodwill, and checked the allocation of the impairment to the remaining
assets.
We assessed the accuracy of management’s cash ow forecasts by comparing historical forecasts with actual cash
ows and external industry benchmarks. We checked whether projected cash ows were consistent with Board
approved forecasts. We also assessed whether management’s impairment forecasts are consistent with other
forecasts, including the going concern model.
In respect of climate-related risks, we assessed whether key assumptions, such as future commodity prices, relating
tothe group’s principal climate change risks had been incorporated into the group’s forecasts. We further considered
whether the forecasts and related cash ow sensitivities are consistent with the scenarios applied in the group’s Task
Force on Climate-Related Financial Disclosures (TCFD) and the group’s own-stated climate commitments. Furthermore,
we performed sensitivity analyses, including the impact of physical and transition climate change risks such as extreme
weather events and policy risks related to the transition to a low-carbon economy, as part of our overall evaluation of
the forecasts.
We also assessed the completeness and accuracy of the financial statements’ disclosures and compliance with the
requirements of IAS 36, in relation to the impairment assessments performed.
Key
observations
We conclude that the valuation of goodwill and intangible assets as well as the relevant disclosures are appropriate
based on the results of our work.
5.2. Valuation of commodity, ination and foreign exchange contracts
Key audit
matter
description
Net losses on derivative contracts amounted to £204.8m (2022: £302.4m), with related derivative assets of £622.0m
(2022 as restated: £757.9m) and liabilities of £538.2m (2022 as restated: £1,264.7m) recognised as at 31 December
2023. In the current period, management have restated the 2022 derivative assets and liabilities to offset certain
derivatives, as disclosed in Section 7.1 of the notes to the financial statements.
The group uses a variety of derivative contracts, including commodity contracts and cross currency swaps to mitigate
its exposures to financial risks such as foreign exchange risk and commodity price risk.
The valuation of derivative contracts is complex and requires selection of appropriate valuation methodologies and
relevant assumptions, including future market prices, credit risk factors, the time value ofmoney and spread
adjustments. As a result, we have identified the risk of error in this regard.
Specifically, this risk has been pinpointed to valuation of ination swaps, and the application of credit risk data
calculations as part of deriving overall fair value estimates for derivative contracts; these are manually applied and
involve the manipulation of large volumes of data.
In the prior year we communicated that the critical accounting judgement with regard to scoping of biomass contracts
under IFRS 9 Financial Instruments was included in this key audit matter. There has been no material change in the
biomass market since the prior year, therefore we no longer consider this to be a key audit matter for the year ended
31December 2023.
Further detail of the key judgements is disclosed in the audit committee report section on page 132. Financial risk
management disclosures are set out in Section 7.1 of the notes to the financial statements.
How the
scope of
ouraudit
responded to
the key audit
matter
We tested the operating effectiveness of relevant controls related to the valuation of commodity, ination and foreign
exchange contracts.
With the involvement of our financial instrument specialists, we tested management’s key judgements and calculations.
This included testing a sample of trades undertaken to trade tickets and checking key contractual terms such as
volumes and contracted prices.
We assessed the valuation models used by management, including any manual adjustments to determine the fair value
of the derivative instruments, and performed independent valuations on a sample of commodity and foreign exchange
contracts.
We checked the appropriateness of management’s assumptions by benchmarking these to third party sources. We also
evaluated the consistency of these assumptions against other relevant areas of the financial statements such as asset
impairment.
We challenged management’s approach and assumptions for assessing fair value adjustments such as credit risk, the
time value of money and spread adjustments through consideration of third-party data.
We considered the appropriateness of the relevant complex derivative energy contracts disclosure, including the key
source of estimation uncertainty disclosures.
We also challenged management’s assessment of offsetting of financial instruments required under IAS 32 Financial
Instruments: Presentation and tested the calculation and disclosure of the restatement of comparative amounts.
Key
observations
The valuation of commodity, ination and foreign exchange contracts are reasonable based on the results of our audit.
We consider the valuation methodologies used by management to be appropriate and the valuations are within
acceptable ranges for all instruments.
Management’s calculation and disclosure of restated comparative valuations are reasonable.
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5.3. Estimation of Customers’ accrued income
Key audit
matter
description
The recognition of retail energy revenue requires an estimation of customer usage between the date of the last billing
and year end, which is known as accrued income. Across the Customers business, accrued income at year-end
amounted to £277.8m (2022: £342.6m).
The method of estimating accrued income requires assumptions for both the volumes of energy consumed by
customers and the related value attributed to those volumes in the range of tariffs. Therefore, we identified the risk
oferror and the risk of fraud on the estimation of accrued income. Furthermore, the business undertook a change in
the ITenvironment in the current year.
Accrued income is disclosed in Section 3.5 of the notes to the financial statements.
How the
scope of our
audit
responded to
the key audit
matter
We obtained an understanding of relevant controls over the estimation of accrued income, including the reconciliation
of meter readings provided by the energy markets and used by management to estimate the power supplied, and the
controls over the price per unit applied in the valuation of certain aspects of accrued income.
Working with our IT specialists, we tested controls associated with the IT system migration exercise and validated the
accuracy and completeness of the balance migrated from the legacy systems. We recalculated the unbilled income
balance at the year end and tested the integrity of the underlying data that is used in preparing the estimate, including
expected rates and volumes as well as the manual adjustments applied.
We agreed the volume data for customer usage of energy in the year used in the calculation to external industry
settlement systems and agreed the volume data in relation to customer billings for the year to internal billing systems
inorder to assess for consistency, and then assessed any residual estimation risk. When external market information
was not available at the balance sheet date, our data analytics specialists assisted us in testing the accuracy of the
volume of power transferred from meter readings and the recalculation of estimated revenue supplied in order to
assess whether accrued income as at 2023 year end was subsequently billed.
We compared the unbilled unit pricing by agreeing historical pricing to sample bills and sensitising the pricing to
understand the impact of different pricing assumptions.
We evaluated the historical accuracy of management’s forecasting of accrued income by comparing estimates to final
billed and settlement amounts.
Key
observations
The estimation of Customers’ accrued income is reasonable based on the results of our audit.
5.4. Estimation of expected credit loss provision in Opus Energy
Key audit
matter
description
The current macro-economic conditions including heightened energy bills, increases in the cost of living, and high
ination have increased the rate of credit defaults across several industries. The group is therefore required to make
estimates on its expected credit loss provision for trade receivables. Opus Energy is an entity within the Customers
business whose customers are small and medium enterprises (“SMEs”) – including retail, entertainment, and hospitality
businesses – where the range of judgement that could apply is far broader relative to the other group entities.
The group uses a machine learning algorithm to calculate expected credit losses for its SME customer base. The
algorithm predicts the future performance of debt on an individual account basis using a broad range of indicators and
that are specific to the customer. Due to the complexity of the estimate and its impact on the allocation of resources
inthe audit, we identified this as a key audit matter.
Total trade receivables associated with Opus Energy were £155.8m (2022: £189.1m) against which a total credit loss
provision at the balance sheet date amounted to £50.6m (2022: £54.9m). Further detail on the estimation of expected
credit loss model is provided in note 3.5 of the financial statements.
How the
scope of our
audit
responded to
the key audit
matter
We obtained an understanding of the relevant controls related to the estimation of expected credit losses in line with
the requirements of IFRS 9.
We tested the completeness and accuracy of the data used in the expected credit loss model. With the involvement
ofour expected credit loss specialists and data analytics specialists, we evaluated the appropriateness of the model
parameters and output of the expected credit loss model, including its mathematical accuracy.
Further we challenged the group’s assumptions, including forward-looking assumptions regarding ongoing macro-
economic conditions, and whether they reect the lifetime expected credit outcomes for the amount receivable at
yearend. In challenging management’s assessment, we considered factors including current levels of write-offs and
disputes, levels of corporate insolvencies across the UK economy, wider macro-economic data including GDP forecasts,
SME insolvency rates and consumer confidence levels, as well as energy price forecasts. This included engagement
with our economic consulting specialists to understand the key drivers of credit risk.
We challenged the overall reasonableness of the provisions recognised at year end by assessing trends in cash
payments and cancellations of direct debits. We also benchmarked the recorded provision against alternative valuation
models, cash collection rates and external valuations.
We tested the historical accuracy of management’s estimation of the expected credit loss provision by comparing
previous estimates to actual write offs.
Key
observations
Based on the work performed we concluded that the expected credit loss provision has been appropriately stated.
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Independent Auditor’s report to the members of Drax Group plc continued
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or inuenced. We use materiality both in planning the scope
ofouraudit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Parent company financial statements
Materiality
£21.0m (2022: £15.0m) £8.4m (2022: £6.0m)
Basis for
determining
materiality
Approximately 2% of current year’s Adjusted EBITDA
including EGL (2022: 2% of Adjusted EBITDA) and
corresponds to 3% of the last three years’ average
Adjusted EBITDA.
0.5% of net assets (2022: 0.5%) capped at 40% (2022:40%)
of the materiality identified for the group.
Rationale
forthe
benchmark
applied
Adjusted EBITDA including EGL was applied as it is
considered to be of particular relevance to users of the
financial statements as a key profit-based measure of
performance used by the group. This measure allows the
underlying profitability of the group’s core business
activities to be assessed year on year. It excludes
uctuations caused in particular by the remeasurements
of derivative contracts and exceptional items, defined as
those transactions that, by their nature, do not reect the
trading performance of the group in the period. However,
it includes EGL as this is a recurring charge for the group.
Net assets is considered the relevant benchmark as
theprincipal activity of the parent company is to be an
investment holding entity for the group.
Adjusted EBITDA
Group materiality
Adjusted EBITDA
£1,009.2m
Group materiality
£21.0m
Component materiality range
£5.88m to £10.29m
Audit Committee
reporting threshold £1.05m
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole.
Group financial statements Parent company financial statements
Performance
materiality
70% (2022: 70%) of group materiality 70% (2022: 70%) of parent company materiality
Basis and
rationale for
determining
performance
materiality
In determining performance materiality, we considered the following factors:
a) our cumulative experience from prior year audits:
b) our risk assessment, including our assessment of the overall control environment and that we consider it appropriate
to rely on controls over a number of business processes;
c) the nature of the entity’s business during the year which would impact on our ability to identify potential
misstatements; and
d) the history, nature and size of corrected and uncorrected misstatements identified in the previous audits and
management’s willingness to correct those adjustments.
6.3. Error reporting threshold
We agreed with the audit committee that we would report to the committee all audit differences in excess of £1.05m (2022: £0.75m),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the audit
committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
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7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and
assessing the risks of material misstatement at the group level. In addition to the statutory audit of the parent company financial
statements, we performed full scope audits at ten components: Drax Power Limited, SMW Limited, Drax Hydro Limited, Drax River
Hydro Limited, Drax Pumped Storage Limited, Drax Energy Solutions Limited, Drax Finco plc, Drax Corporate Limited, Drax Group
Holdings Limited, and Opus Energy Limited. Audits of specified account balances were performed at Southern Pellet Operations,
Northern Pellet Operations, Hirwaun Power Limited, Progress Power Limited, and Millbrook Power Limited. These components
represent the group’s principal business units and account for substantially all of the group’s net assets, revenue, and profit before tax.
The group audit was performed by the group audit team in the UK and a component Deloitte team in Canada under the supervision of
the Senior Statutory Auditor. The full scope entities are all based in the United Kingdom and audited by the group audit team. Our audit
work at all significant component locations was executed at levels of materiality applicable to each individual entity which were lower
than group materiality and ranged from £5.88m to £10.29m (2022: £4.20m to £9.50m). Component materiality levels were set based
on the size and nature of each component on a range of applicable metrics.
In addition to the work performed at a component level, the group audit team performed audit procedures the consolidated financial
statements, including entity-level controls, the consolidation and financial statement disclosures. The group team also performed
analytical reviews to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial
information of the remaining components not subject to audit or audit of specified account balances.
7.2. Our consideration of the control environment
Our audit approach was to place reliance on management’s relevant controls over revenue and financial instruments business cycles.
We tested controls through a combination of inquiry, observation, inspection, and re-performance. Where controls were deficient and
there were not sufficient mitigating or alternative controls on which we could rely, we considered the impact and updated our audit
plan accordingly.
We also involved our IT specialists in assessing relevant controls over the group’s IT systems. Working with IT specialists we obtained
an understanding of the IT environment to assess the relevant risks of material misstatement arising from each relevant IT system and
the supporting infrastructure technologies based on the role of each application in the group’s ow of transactions. For the assessed
risks on key IT systems, we tested relevant automated and general IT controls. See pages 134 – 136 of the Audit Committee Report
forthe audit committee’s assessment of the control environment.
7.3. Our consideration of climate-related risks
The group has considered climate change risks, including biomass acceptability risk, as part of their risk assessment process when
considering the principal risks and uncertainties facing the group. This is set out in the strategic report (including TCFD) on pages 78
to90 and Section 3.8 of the notes to the financial statements on page 225. Based on our risk assessment, the areas of the financial
statements that are notably impacted by climate-related considerations are associated with future forecasts in the medium to long
term. These include the valuation of property, plant and equipment, goodwill, and other intangible assets, which is consistent with
management’s assessment. Our response is highlighted in section 5.1 above. In addition, we have:
• assessed and challenged management’s assessment of the key financial statement line items and estimates which are more likely to
be materially impacted by climate change risks given that the more notable impacts of climate change on the business are expected
to arise in the medium to long term;
• challenged how the directors considered climate change in their assessment of going concern and viability based on our
understanding of the business environment and by benchmarking relevant assumptions with market data;
• involved our Environmental Social and Governance (ESG) specialists in challenging the group’s climate change assessments,
including biomass acceptability. The ESG specialists were also involved in reviewing the Sustainable Development section of the
annual report and assessing TCFD on pages 78 – 90 against the recommendations of the TCFD framework. We considered if any
ofthe information disclosed was inconsistent with the information we obtained through our audit;
• assessed whether climate risk assumptions underpinning specific account balances were appropriately disclosed; and
• read the climate change risk disclosures, including biomass acceptability risk, included in the strategic report section of the annual
report for consistency with the financial statements and our knowledge of the business environment.
7.4. Working with other auditors
The group audit team are responsible for the scope and direction of the audit process and provide direct oversight, review, and
coordination of our component audit teams. The group audit team interacted regularly with the component teams during each stage of
the audit and reviewed key working papers. The group audit team maintained continuous and open dialogue with the component teams
in addition to holding formal regular meetings so that the group audit team were fully aware of their progress and the results oftheir
procedures. The group audit team also sent detailed instructions to the component audit teams and attended audit closing meetings.
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Independent Auditor’s report to the members of Drax Group plc continued
8. Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated
inour report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements, or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there
isa material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic
alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
highlevel of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to inuence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
ourprocedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws
and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• the group’s own assessment of the risks that irregularities may occur either as a result of fraud or error;
• results of our inquiries of management, internal audit, the directors and the Audit Committee about their own identification
andassessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
• the matters discussed with our internal fraud specialists, as part of our initial fraud risk assessment and our engagement team
discussions, including fraud schemes that had arisen in similar sectors and industries; and
• the matters discussed among the audit engagement team including the component audit team and relevant internal specialists,
including forensics, tax, pensions, IT, valuations, financial instruments and ESG specialists regarding how and where fraud might
occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas: estimation of Customers’ accrued income, as well as cut-off of bilateral
sales. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of
management override of controls.
We also obtained an understanding of the legal and regulatory framework that the group operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The
key laws and regulations we considered in this context the UK Companies Act, Listing Rules, pensions legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty, including regulations
established by regulators in the key markets in which the group operates, including the Office of Gas and Electricity Markets (“Ofgem”)
and biomass-related regulations.
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11.2. Audit response to risks identified
As a result of performing the above, we identified estimation of Customers’ accrued income as a key audit matter related to the
potential risk of fraud. The key audit matters section of our report explains these matters in more detail and also describes the specific
procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions
ofrelevant laws and regulations described as having a direct effect on the financial statements;
• inquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence
withOfgem;
• in addressing the risk of fraud in cut-off of bilateral sales, in addition to our testing described above we have performed focussed
testing on trades close to the year-end combined with analytical review procedures to assess accuracy and completeness of
revenue recognised; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and component audit teams and remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements
areprepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of
theCorporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on pages 92 and 93;
• the directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why the period
isappropriate set out on pages 92 and 93;
• the directors’ statement on fair, balanced and understandable set out on page 165;
• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 92 and 93;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems set
out on page pages 94 and 95; and
• the section describing the work of the audit committee set out on page 132.
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Independent Auditor’s report to the members of Drax Group plc continued
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not
been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by the shareholders at the Annual General Meeting on 26
April 2023 to audit the financial statements for the year ending 31 December 2023 until the conclusion of the next Annual General
Meeting. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 19 years,
covering the years ending 31 December 2005 to 2023. The year ending 31 December 2023 will be the last year of our appointment
asauditor.
15.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
16. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have
formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.15R – DTR 4.1.18R, these
financial statements will form part of the Electronic Format Annual Financial Report filed on the National Storage Mechanism of the
FCA in accordance with DTR 4.1.15R – DTR 4.1.18R. This auditor’s report provides no assurance over whether the Electronic Format
Annual Financial Report has been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R.
Makhan Chahal, FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
28 February 2024
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Introduction
The Consolidated financial statements provide detailed
information about the financial performance (Consolidated
income statement and Consolidated statement of comprehensive
income), financial position (Consolidated balance sheet), reserves
(Consolidated statement of changes in equity), and cash owh flows
(Consolidated cash ash flow statement) of Drax Group plc (the
Company) together with all entities controlled by the Company
(collectively, the Group).
The notes to the Consolidated financial statements provide
additional information on the items in the Consolidated income
statement, Consolidated statement of comprehensive income,
Consolidated balance sheet, Consolidated statement of changes
in equity and Consolidated cash ash flow statement. The notes
include explanations of the information presented. In general, the
additional information in the notes to the Consolidated financial
statements is required by law, International Financial Reporting
Standards (IFRS) or other regulations to facilitate increased
understanding of the primary statements set out on pages 183 to
187, as well as voluntary information which management believes
users of the accounts may find useful, in line with the principles
of IFRS.
Basis of preparation
The Consolidated financial statements have been prepared in
accordance with the United Kingdom adopted International
Accounting Standards in conformity with the requirements of
theCompanies Actthe Companies Act 2006 and International Financial Reporting
Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
The Consolidated financial statements have been prepared on
the historical cost basis, except for certain assets and liabilities
that are measured at fair value (principally derivative financial
instruments) and the assets and liabilities of the Group’s defined
benefit pension scheme (measured at fair value and using the
projected unit credit method respectively).
The Consolidated financial statements are presented in pounds
sterling, the functional currency of the Company and the Group’s
presentational currency, rounded to the nearest million to one
decimal place unless stated otherwise.
Foreign currency transactions
Each entity in the Group determines its own functional currency
and items included in the results of each entity are measured
using that functional currency. Transactions in currencies other
than an entity’s functional currency are initially recorded in the
transaction currency and translated into the entity’s functional
currency at the average monthly exchange rate to the extent that
this approximates the exchange rate prevailing at the date of the
transaction. If the average monthly exchange rate is not a
reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, income and expenditure are
translated at the rates prevailing at the date of the transaction.
At each reporting date, monetary assets and liabilities that are
denominated in foreign currencies are translated at the rates
prevailing at that date. Non-monetary items measured at
historical cost are translated at the date of the transaction using
the average monthly exchange rate to the extent that this
approximates the rate prevailing on the date the transaction
occurred. Non-monetary items that are measured at fair value
aretare translated at the exchange rate at the date when the fair
value was determined. Foreign exchange gains and losses arising
on such translations are recognised in the Consolidated income
statement within foreign exchange gains or losses. Foreign
exchange gains or losses on qualifying cash ow hedges flow hedges are
recognised in other comprehensive income (OCI) within the
Consolidated statement of comprehensive income, and deferred
within equity to the extent the hedges are effective, until the
hedged item impacts the Consolidated income statement.
Foreign operations
The assets and liabilities of foreign operations with a functional
currency other than sterling are translated into sterling using the
exchange rates prevailing at the reporting date. The income and
expenditure of such operations are translated into sterling using
the average monthly exchange rate to the extent that this
approximates the exchange rates prevailing at the date of the
transactions. If the average monthly exchange rate is not a
reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, income and expenditure are
translated at the rates prevailing at the date of the transaction.
Foreign exchange gains and losses resulting from the
retranslation of the operation’s net assets, and its results for the
year, are recognised in OCI within the Consolidated statement
ofof comprehensive income.
Climate change
The impact of climate change has been considered throughout
the preparation of the Annual report and accounts. In particular,
in the Strategic report and in compliance with FCA Listing Rules
9.8.6(8), the Task Force on Climate-Related Financial Disclosures
(TCFD) section contains information on the four
recommendations and 11 recommended disclosures of TCFD.
Consideration in respect of the Consolidated financial statements
focused on:
• Critical accounting judgements
• Impairment of assets
• Going concern and viability
• Useful economic lives of fixed assets
• Present value of decommissioning provisions
• Fair value of contingent consideration
Further information on these considerations can be found in
note 3.8 to the Consolidated financial statements.
Going concern
The Group’s business activities, along with future developments
that may affect its financial performance, financial position and
cash ash flows, are discussed on pages 1to 107 of thes 1 to 107 of this Annual report
and accounts. The current market conditions and financial
performance of the Group are considered in the Financial review
on page 22.
In assessing going concern the Directors have considered the
period up to 31 March 2025, as this period extends beyond the
Group’s debt repayment of a £122.5 million tranche of the 2019
UK infrastructure private placement facility in early 2025.
Subsequent to the reporting date and prior to the signing date of
the Consolidated financial statements, a separate £122.5 million
tranche of the 2019 UK infrastructure private placement facility
due in January 2024 has been repaid, as well as €25.0 million of
the 2020 UK infrastructure private placement facility. The
Group’s committed £300 million revolving credit facility (RCF)
which was also due to expire in January 2025 has been extended
by 12 months to January 2026. On 22 February 2024, the Group
signed a new secured committed Term Loan facility for
£209 million (sterling equivalent) and a further £50 million on
27Feb27 February 2024. All of these factors have been included in the
Group’s going concern assessment. See note 4.2 for further
details on the Group’s borrowings.
The Directors have also considered any significant events,
including any committed outflows beyond this period, in forming
their conclusion. The going concern assessment primarily focuses
on cash oh flow forecasts, available liquidity and continued
compliance with banking covenants over the period assessed.
The cash ow fh flow forecasts used to assess going concern are
modelled for the impact of severe but plausible scenarios ,
Financial statements
Drax Group plc
Annual report and accounts 2023
177
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Financial statements continued
consistent with the viability assessment detailed on pages 92 and
93. The scenarios modelled included a decrease in power prices
and an increase in biomass costs. At 31D1 December 2023 the
Group had cash and committed facilities of £639.4 million (see
note 2.7) and borrowings of £1,425.3 million (see note 4.2). Under
all scenarios modelled, the Group maintained sufficient liquidity
and continued to remain in compliance with its covenants. The
Directors have therefore concluded that they have a reasonable
expectation that the Group will continue to meet its liabilities as
they fall due for a period of at least 12 months from the date of
signing these Consolidated financial statements and have
adopted the going concern basis in preparing these Consolidated
financial statements.
See the Viability statement on pages 92 and 93, for details of the
Directors assessment that they have a reasonable expectation
that the Group will be able to continue in operation and meet
itslis liabilities as they fall due over the next five years based on
forecasts and projections that take into account reasonably
possible changes in trading performance and other key
assumptions.
Basis of consolidation
These Consolidated financial statements incorporate the financial
results of the Company and of all its subsidiaries made up to
31D1 December each year. Subsidiaries are entities controlled by the
Group. The Group controls an entity when it is exposed to, or has
rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the
entity. Subsidiaries are fully consolidated from the date on which
the Group obtains control to the date control ceases. Accounting
policies of subsidiaries have been aligned where necessary to
ensure consistency with the policies adopted by the Group.
All intra-group assets and liabilities, equity, income, expenses,
unrealised profits and cash ash flows relating to transactions
between the members of the Group are eliminated on
consolidation. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the
transferred asset.
Non-controlling interests in subsidiaries are identified separately
from the Group’s equity. The interests of non-controlling
shareholders that are current ownership interests, entitling their
holders to a proportionate share of net assets upon liquidation,
may initially be measured at fair value or at the non-controlling
interests’ proportionate share of the fair value of the acquiree’s
identifiable net assets. Subsequent to acquisition, the carrying
amount of non-controlling interests is the amount of those
interests at initial recognition plus the non-controlling interests’
share of subsequent changes in equity .
Profit or loss and each component of OCI are attributed to the
owners of the parent company and to the non-controlling
interests. Profit or loss and each component of OCI are attributed
to the owners of the parent company and to the non-controlling
interests even if this results in the non-controlling interests
having a deficit balance.
See note 4.5 for the accounting policy and further details on
theGroupthe Group’s accounting for non-controlling interests.
Joint arrangements are contractual arrangements where two
ormor more parties have joint control over the arrangement. Joint
arrangements are classified as either a joint operation or a joint
venture based upon an analysis of the rights and obligations of the
parties in the normal course of business. If the parties to the joint
arrangement have direct rights to the assets, and direct
obligations for the liabilities, relating to the arrangement, then it is
a joint operation. If the parties to the joint arrangement have rights
to the net assets of the arrangement, then it is a joint venture .
The Group currently has one joint operation and no joint ventures.
The Group recognises its direct right to assets, liabilities, revenue
and expenses of the joint operation, as well as its share of any
jointly entitled assets, liabilities, income and expenditure.
Associates are those entities in which the Group has significant
inuence,influence, but not control or joint control, over the financial and
operating policies. This is generally the case where the Group
holds between 20% and 50% of the voting rights of an entity.
Associates are accounted for using the equity method.
Investments in associates are initially recognised at cost, which
includes transaction costs. Goodwill is not separately recognised
in relation to associates. Subsequent to initial recognition, the
carrying amount of investments in associates is adjusted to
recognise the Group’s share of after-tax profit or loss and each
component of OCI ofeqf equity-accounted associates, that are
recognised in the Consolidated income statement and
Consolidated statement off comprehensive income respectively.
Dividends received or receivable from associates are recognised
as a reduction in the carrying amount of the investment. If the
carrying amount of anasf an associate reaches £nil, the Group only
recognises its share oflosf losses of the associate to the extent it has
incurred obligations orms or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its
associates are eliminated against the investment to the extent
ofof the Group’s percentage ownership in these entities. Unrealised
losses are also eliminated unless the transaction provides
evidence of impairment. Accounting policies of equity-accounted
associates have been aligned where necessary to ensure
consistency with the policies adopted by the Group.
Associates are tested for impairment whenever there are any
indicators of impairment. An impairment loss is recognised to
theextenthe extent that the carrying amount of the investment exceeds
its recoverable amount. Impairment losses on associates are
recognised within share of profits or losses from associates
inin theConsolidatedthe Consolidated income statement.
Accounting policies
The material accounting policies for the measurement of an
individual item in the Consolidated financial statements are
described in the note to the Consolidated financial statements
relating to the item concerned (see contents on page 166).
The accounting policies adopted in the preparation of the
Consolidated financial statements are consistent with those
followed in the preparation of the Group’s Consolidated financial
statements for the year ended 31December 201 December 2022, except for
theade adoption of new standards and amendments effective as of
1Jan1 January 2023. The Group has not early-adopted any standard,
interpretation or amendment that has been issued but is not yet
effective.
A full listing of new standards, interpretations and
pronouncements under IFRS applicable to these Consolidated
financial statements is presented in note 8.2. The application
ofthof these new requirements has not had a material effect on the
Consolidated financial statements.
Offsetting
IAS 32 requires financial assets and financial liabilities to be offset
and the net amount presented in the Consolidated balance sheet
when the Group has both a current legally enforceable right to
offset the recognised amounts, and also has the intention to settle
on a net basis. The offsetting requirements and relevant guidance
is based on the principle of reeeflecting the entity’s expected future
cash ash flows, and requires careful assessment around how the
requirements should be applied to derivative contracts that will be
settled in part through physical delivery of a non-financial asset.
Drax Group plc
Annual report and accounts 2023
178
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Contents

itsrs run-of-river hydro operations. It does not apply to the Group’s
Contract for Difference (CfD) biomass unit or its pumped storage
hydro operations. The EGL applies at a rate of 45% to receipts
from in-scope forms of wholesale electricity generation that
exceed a defined benchmark level, after the deduction of certain
costs, from 1Janm 1 January 2023 to 31 March 2028.
After consideration of the legislation underpinning the EGL, the
Group has determined that it should be treated as a levy under
IFRIC 21 ’Levies’, rather than as a tax under IAS 12 ‘Income taxes’.
Therefore, the cost is recognised above gross profit. Due to the
materiality of the charge, in terms of both its quantum and nature
(being the first year of applicability), it was determined that the
EGL should be presented as a separate line on the face of the
Consolidated income statement. A reconciliation of Adjusted
EBITDA including EGL to Adjusted EBITDA excluding EGL can
befobe found in note 2.7.
In accordance with IFRIC 21, a liability for a levy is recognised
once the obligating event, being the activity that triggers the
payment of the levy, has occurred. A liability to pay a levy is
recognised progressively if the obligating event occurs over time.
If an obligation to pay a levy is triggered when a minimum
threshold is reached the corresponding liability is recognised
onlywhly when that minimum activity threshold is reached. The EGL
istis triggered based on average generation receipts for in-scope
revenue schemes over a reporting period being higher than the
threshold set in the legislation. A liability is therefore recognised
iftif the average actual generation receipts to date in a financial
period are above the threshold. The threshold for 2023 is £75 per
MWh. The assessment is based on receipts above this threshold
after adjusting for allowable costs.
Judgements and estimates
The preparation of these Consolidated financial statements
requires judgement to be made in selecting and applying the
Group’s accounting policies. It also requires the use of estimates
and assumptions that affect the reported amounts of assets,
liabilities, income and expenditure. Actual results may
subsequently differ from these estimates.
Estimates and underlying assumptions are reviewed on an
ongoing basis, with revisions recognised in the period in which
the estimates are revised and in any future periods affected.
In accordance with IAS 1 the judgements which have the most
significant effect on the amounts recognised in the Consolidated
financial statements, and the key estimates and assumptions
thathat have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial
year, are set out below. Further detail, including sensitivity
analyses where appropriate for the key estimates and
assumptions, is included in the related notes.
Critical accounting judgements
The critical judgements made in the process of applying the
Group’s accounting policies during the year that have the most
significant effect on the amounts recognised in the Consolidated
financial statements are set out below.
Accounting for biomass purchase and sale contracts
The Group buys and sells biomass for operational requirements
inin its Pellet Production and Generation segments. The Group’s
risk management policies also permit some exibility in activity flexibility in activity
toopto optimise the overall portfolio position and potentially release
value in certain circumstances. As such, at each reporting date
the Group undertakes an assessment of whether contracts it
holds to buy and sell biomass are within the scope of IFRS 9.
IftIf theche contracts were deemed to be within the scope of IFRS 9,
this could result in these contracts being recognised at fair value
as derivative financial instruments from inception.
Previously, the Group did not consider derivatives that resulted
inin physical delivery of a non-financial asset and were not settled
solely in cash or another financial instrument to meet the
requirements for offsetting. During the current year, the Group
has revised its application of how the offsetting criteria are
applied to derivative contracts that are physically settled. This
has resulted in a number of physically settled derivatives now
being deemed to meet the offsetting criteria. The Group has
applied offsetting based on a contract level unit of account.
The Consolidated balance sheet for the comparative periods have
been restated to reflect the revised application. The impact of this
change is summarised in the tables below. There is no impact from
this change on the Group’s net assets or shareholders’ equity, nor
any impact on the Consolidated income statement, Consolidated
statement of comprehensive income, Consolidated statement
ofchof changes in equity or Consolidated cash flow statement.
Derivative financial instruments
421.7
(60.7)
361.0
Total non-current assets
3,597.2
(60.7)
3,536.5
Derivative financial instruments
796.3
(399.4)
396.9
Total current assets
2.797. 2
(399.4)
2,397. 8
Derivative financial instruments
(989.4)
399.4
(590.0)
Total current liabilities
(2,607.6)
399.4
(2,208.2)
Derivative financial instruments
(735.4)
60.7
(674.7)
Total non-current liabilities
(2,462.6)
60.7
(2,401.9)
Net assets
(1,324.2)
–
(1,324.2)
Derivative financial instruments
357.5
(167.3)
190.2
Total non-current assets
3,476.0
(167.3)
3,308.7
Derivative financial instruments
888.6
(478.5)
410.1
Total current assets
2,348.4
(478.5)
1,869.9
Derivative financial instruments
(962.7)
478.5
(484.2)
Total current liabilities
(2,232.9)
478.5
(1,754.4)
Derivative financial instruments
(541.8)
167.3
(374.5)
Total non-current liabilities
(2,284.7)
167.3
(2,117.4)
Net assets
(1,306.8)
–
(1,306.8)
See the Critical accounting judgements section below and note
7.5 for further details on the Group’s offsetting of financial assets
and financial liabilities .
Electricity Generator Levy
In December 2022, the UK Government confirmed the details
ofawiof a windfall tax – the Electricity Generator Levy (EGL) – on
renewable and low-carbon generators, for implementation
in202in 2023. The levy applies to the Group’s three biomass units
operating under the Renewables Obligation (RO) scheme and
Drax Group plc
Annual report and accounts 2023
179
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Contents

Financial statements continued
If management had not applied offsetting on physically settled
derivative contracts in the current year then a number of
derivative balances that are currently presented net in the
Consolidated balance sheet would have been presented gross
resulting in an additional £172.0 million of current derivative
assets and liabilities and £52.1 million of non-current derivative
assets and liabilities. See note 7.5 for further details on the
Group’s offsetting of all financial assets and financial liabilities.
In the financial statements issued in the prior year,
managementmanagement presented all physically settled derivatives gross.
See the offsetting section above for further details on the change
in presentation applied in the current year, with a restatement
ofthof the prior year.
Key sources of estimation uncertainty
The following are the key sources of estimation uncertainty that
carry a significant risk of resulting in a material adjustment to the
carrying values of assets and liabilities within the next financial
year. These are the items where actual outcomes in the next
12m2 months could vary materially from the estimates made in
determining the reported amount of an asset or liability within
theConsolidatedthe Consolidated financial statements.
Impairment
An impairment review is conducted annually on cash-generating
units (CGUs) with associated goodwill or intangible assets with an
indefinite life, and as required for other assets and CGUs where
an indicator of possible impairment exists. In 2023, an impairment
assessment has been completed for six of the Group’s CGUs
which all have allocated goodwill (Drax Energy Solutions, Opus
Energy, Pellet Operations, Lanark, Galloway and Cruachan). The
assessment of future cash ows that future cash flows that underpin the impairment
reviews are based on management’s best estimate of a number
ofasof assumptions (see note 2.4 for further details of these key
assumptions). Pellet Operations was identified as the only CGU
where a reasonably possible change in certain assumptions
couldluld lead to a material adjustment to its carrying value as at
31D1 December 2023.
The key assumptions to which the Pellet Operations CGU is
sensitive to a reasonably possible change in are increases to
thecothe cost of production and decreases in production volumes.
A$1A $10 per tonne increase in the cost of production, with no
corresponding impact on revenues, would lead to an impairment
of £105.1 million. A 12% decrease in production volumes would
lead to an impairment of £47.2 million.
See note 2.4 on page 195
Property, plant and equipment
Property, plant and equipment at Drax Power Station is
depreciated on a straight-line basis over its useful economic life
(UEL). UELs are estimated based on past experience, anticipated
future replacement cycles and other available evidence and are
reviewed at least annually.
Given the continued focus on climate change, renewable sources
of energy and transitioning to a net zero economy, the power
generation industry is going through a period of transformation,
which can impact on the UELs of assets. As the UK Government’s
net zero strategy continues to evolve and become clearer,
particularly in relation to UK BECCS, the Group will continue to
assess any potential impact of these developments on UELs in
relation to Drax Power Station. Once sufficient certainty over
UKBECUK BECCS at Drax Power Station is achieved, UELs will be
reassessed. The net book value of fixed assets being depreciated
at Drax Power Station as at 31Decn as at 31 December 2023 is £974.1 million
and depreciation on these assets in the year, based on the UELs
disclosed in note 3.1, was £77.2 million. If the UEL of assets that
are limited to the current assumed end of station life of 2039
The Group assessed both biomass purchase and sale contracts
and concluded that the nature of these contracts means they
cannot be readily net settled in cash or other financial
instruments and, as a result, they remain outside of the scope
ofIFRof IFRS 9. The Group concluded this due to the contractual terms
having no net settlement provisions and the highly illiquid nature
of the biomass market meaning contracts cannot be readily
converted into cash. The lack of an active spot market means
market participants cannot readily seek to make trading profits
from short-term price uctuations as fluctuations as prices and contracts
arenare negotiated bilaterally with no active market price and no
guarantee there will be a willing buyer or seller to trade with.
Accordingly, biomass contracts are not recognised as derivative
assets or liabilities in the Consolidated balance sheet prior to
delivery, consistent with the accounting in prior years.
Had the Group concluded biomass purchase contracts were
within the scope of IFRS 9, a £1 per tonne increase or decrease
intin the market price of biomass would result in a £17.4 million
fairvir value gain or loss respectively being recognised on these
contracts. The Group continues to assess developments in
thebie biomass market on an ongoing basis to identify any impact
onton thisahis assessment.
Capitalisation of development project costs
As the Group executes its strategy, significant investment is likely
to be required in large development projects, including bioenergy
with carbon capture and storage in the UK (UK BECCS) and the
expansion of Cruachan. In accounting for this expenditure,
judgements are required to determine whether these costs meet
the criteria to be capitalised, or whether they should be expensed
as incurred. The capitalisation of costs under IAS 16 and IAS 38
isbis based around the expectation that it is probable that economic
benefit will oll flow to the Group as a result of the costs incurred
tobrto bring the asset into working condition. This judgement can
becbe complex as it is dependent on several qualitative factors,
including technological feasibility, economic feasibility and
availability of finance. These factors can change over time and
soso any judgements are continually reassessed.
At 31DeceAt 31 December 2023 the Group had capitalised a total of
£42.8 million relating to the UK BECCS development project,
including £18.3 million in 2023. Had it been judged that the
criteria for capitalisation had not yet been met, these costs would
have been expensed as incurred. Should expectations around
theque qualitative factors noted above change in future, then the
amounts capitalised may need to be impaired. For further details
on UK BECCS see the Development of BECCS at Drax Power
Station in the UK opportunity in the Climate-related opportunities
on page 87. The Group has not yet capitalised any costs in
relation to the expansion of Cruachan or any BECCS projects
outside of the UK, as the recognition criteria have been judged
not to have been met.
Offsetting of financial assets and financial liabilities
IAS 32 requires financial assets and financial liabilities to be offset
and the net amount presented in the Consolidated balance sheet
when the Group currently has both the legally enforceable right
to offset the recognised amounts, and the intention to settle on
aa net basis. The offsetting requirements and relevant guidance
isbis based on the principle of reeeflecting the entity’s expected future
cash ash flows. Whilst the offsetting criteria can be met in relation
toto derivative financial instruments that will be settled through
physical delivery of a non-financial asset, there is an
interpretation required on howthow the offsetting criteria should
beabe applied. Namely, an interpretation is required around the
appropriate unit of account where there are a number of both
physical deliveries and cash sh flows that collectively settle
financialfinancial instruments, and how the offsetting requirements
should be applied to each of these settlements, either
individuallyoly or ata cr at a contract level.
Drax Group plc
Annual report and accounts 2023
180
Financial statements
Contents

Exceptional items and certain remeasurements
Exceptional items are those transactions that, by their nature,
dondo not reeflect the trading performance of the Group in the period.
For a transaction to be considered exceptional, management
considers the nature of the transaction, the frequency of similar
events, any related precedent, and commercial context.
Presentation of a transaction as exceptional is approved by
theAue Audit Committee in accordance with an agreed policy.
During the year ended 31Deced 31 December 2022, the application
guidance for this policy was enhanced, in particular, setting de
minimis thresholds for classifying items as exceptional. These de
minimis thresholds were applied during the second half of 2022
and throughout 2023. The policy has been reviewed by the Audit
Committee during the year ended 31D1 December 2023. This
review did not result in any significant changes to the policy.
Certain remeasurements comprise fair value gains and losses on
derivative contracts to the extent those contracts do not qualify
for hedge accounting (or hedge accounting is not effective)
which, under IFRS, are recorded in revenue, cost of sales, interest
payable and similar charges or foreign exchange gains or losses.
Management believes adjusting for fair value gains and losses
recognised on derivative contracts provides readers of the
accounts with useful information, as this removes the volatility
caused by movements in market prices over the life of the
derivative. The Group regards all of its forward contracting
activity to represent economic hedges and, therefore, the
contracted price at delivery or maturity is relevant to the Group
and its performance, rather than how the contracted price
compares to the prevailing market price, as the Group is not
seeking to make trading profits on these contracts through
market price movements.
The impact of excluding these fair value remeasurements is to
reect commodireflect commodity sales and purchases at contracted prices
(thep(the price paid or received in respect of delivery of the commodity
in question) in Adjusted results in the period the transaction takes
place, and also to take into account the impact of associated
financial derivative contracts (such as forward foreign currency
purchases) in Adjusted results on maturity, being the period these
contracts are intending to hedge.
Further information on exceptional items and certain
remeasurements in the current and comparative periods is
included in note 2.7.
Adjusted EBITDA including EGL and Adjusted EBITDA
excludingEGLg EGL
The Group previously presented Adjusted EBITDA. Due to the
introduction of EGL in the current year, the Group is presenting
both Adjusted EBITDA including EGL and Adjusted EBITDA
excluding EGL to enable comparability between prior and future
periods. Both Adjusted EBITDA including EGL and Adjusted
EBITDA excluding EGL are primary measures used by the Board
and Executive management to assess the financial performance
of the Group as they provide a comparable assessment of the
Group’s trading performance period-on-period. They are also
keymkey metrics used by the investor community to assess the
performance of the Group’s operations.
Adjusted EBITDA including EGL is earnings before interest, tax,
depreciation, amortisation, other gains or losses and impairment
of non-current assets, excluding the impact of exceptional items
and certain remeasurements (defined above). Adjusted EBITDA
including EGL excludes any earnings from associates and
Adjusted EBITDA directly attributable to non-controlling
interests. Adjusted EBITDA excluding EGL is consistent with the
definition of Adjusted EBITDA including EGL, apart from it does
not include the cost of EGL.
were to increase by 10 years, the impact on the depreciation
charge for the year would be a reduction of approximately
£16.6 million. If the assumed end of station life of 2039 were
todeto decrease by 10 years to 2029, the impact on the depreciation
charge for the year would be an increase of approximately
£72.9 million.
See note 3.1 on page 213
Pension liabilities
The Group records a net surplus or liability in its Consolidated
balance sheet for the fair value of assets held by the defined
benefit pension scheme, less its obligation to provide benefits
under the scheme. The actuarial valuations of the scheme’s
liabilities are performed annually by an independent qualified
actuary and contain assumptions regarding interest rates,
ination, future salarinflation, future salary and pension increases, mortality, and other
factors, all of which are subject to future change. Three of the
keyestimates estimates within the valuation are the discount rate, ination, inflation
rate, and life expectancy. Sensitivities in the valuation are
discussed in note 6.3. The value of the pension surplus
recognised by the Group at 31De1 December 2023 is £18.4 million.
See note 6.3 on page 245
Alternative performance measures (APMs)
The Group uses APMs throughout the Annual report and
accounts that are not defined within IFRS but provide additional
information about financial performance and position that is used
by the Board to evaluate the Group’s performance. These
measures have been defined internally and may therefore not
becbe comparable to similar APMs presented by other companies.
Additionally, certain information presented is derived from
amounts calculated in accordance with IFRS but is not itself a
measure defined by IFRS. Such measures should not be viewed
inisin isolation or as an alternative to the equivalent IFRS measure.
Each year management confirms the judgements made regarding
the Group’s definition of APMs, including exceptional items and
certain remeasurements and Net debt. The assessment as to
whether a transaction or group of transactions should or
shouldnod not be classified as an exceptional item or a certain
remeasurement can have a significant impact on the Adjusted
results of the Group. Deciding which items to include or exclude
from an APM’s definition can have a significant impact on the
APM presented. An internal policy governs the judgements
madebmade by management and in all instances, these judgements
areaare approved by the Audit Committee as set out on page 136.
Defined below are the key APMs used by the Board to assess
performance. The APMs glossary table on page 285 provides
details of all APMs used, including the APM’s closest IFRS
equivalent, the reason why the APM is used by the Group and
adefia definition of how each APM is calculated.
Adjusted results
The Group’s financial performance for the period, measured in
accordance with IFRS, is shown in the Total results column on
theface othe face of the Consolidated income statement. Exceptional
items and certain remeasurements are deducted from the Total
results in arriving at the Adjusted results for the year. The Group’s
Adjusted results are consistent with the way the Board and
Executive management assess the performance of the Group.
Adjusted results are intended to reeflect the underlying trading
performance of the Group’s businesses and are presented to
assist users of the Consolidated financial statements in evaluating
the Group’s trading performance and performance against
strategic objectives.
Drax Group plc
Annual report and accounts 2023
181
Financial statements
Contents

Financial statements continued
Adjusted basic earnings per share
Adjusted basic earnings per share (Adjusted basic EPS) is
Adjusted profit attributable to the owners of the parent company
divided by the weighted average number of shares outstanding
during the period. Repurchased shares held in the Treasury
shares reserve are not included in the weighted average
calculation of shares. This is the same denominator used when
calculating Total basic EPS. This metric is used in discussions
withth the investor community.
Net debt
The Group defines Net debt as borrowings less cash and cash
equivalents. Borrowings denominated in foreign currencies
towhto which the Group has entered into hedging arrangements
associated with this currency exposure are translated at the
hedged rate for the purposes of calculating Net debt. This is to
take into account the effect of financial instruments entered into
to hedge movements in, for example, foreign exchange rates
inrein relation to debt principal repayments. Borrowings that have
nohno hedging instruments attributed to them are translated at the
closing rate.
Borrowings includes external financial debt, such as loan notes,
term loans and amounts drawn in cash under revolving credit
facilities (RCFs) (see note 4.2), net of any deferred finance costs.
Borrowings does not include other financial liabilities such as
pension obligations (see note 6.3), trade and other payables
(seeno(see note 3.5), lease liabilities calculated in accordance with IFRS
16 (see note 3.2) and working capital facilities linked directly to
specific payables (such as credit cards and deferred letters of
credit) that provide short extension of payment terms oflms of less than
12 months (see note 4.3). The Group does not include balances
related to supply chain financing in borrowings as there are no
changes to the Group’s payment terms under this arrangement,
nor would there be if the arrangement was to cease (see note 3.7).
Net debt excludes the proportion of cash and borrowings in
non-wholly owned entities that would be attributable to the
non-controlling interests. Net debt includes the impact of any
cash collateral receipts from counterparties or cash collateral
posted to counterparties.
As noted above, the Group does not include lease liabilities,
calculated in accordance with IFRS 16, in the definition of Net
debt. This reeflects the nature of the contracts included in this
balance which are predominantly entered into for operating
purposes rather than as a way to finance the purchase of an asset.
The exclusion of lease liabilities from the calculation of Netdet debt is
also consistent with the Group’s covenant reporting requirements.
Net debt is a key metric used by debt rating agencies and the
investor community as a measure of liquidity and the ability of
theGre Group to manage its current obligations.
Net debt to Adjusted EBITDA including EGL ratio
This metric is the ratio of Net debt to Adjusted EBITDA including
EGL, expressed as a multiple. The Group has a long-term target for
Net debt to Adjusted EBITDA including EGL of around 2.0 times.
The Net debt to Adjusted EBITDA including EGL ratio gives an
indication of the size of the Group’s Net debt in relation to its
trading performance and is a key metric used by the investor
community to assess the performance of the Group’s operations.
Net debt to Adjusted EBITDA excluding EGL ratio
The Group also presents a Net debt to Adjusted EBITDA excluding
EGL ratio to enable readers to compare, on a consistent basis, the
Net debt ratio in prior periods in which EGL was not applicable.
See note 2.7 on page 206
Drax Group plc
Annual report and accounts 2023
182
Financial statements
Contents

Consolidated income statement
Year ended 31December 2023
Year ended 31December 2022
Revenue
2.2
7, 8 4 2 . 4
282 .9
8 ,1 2 5 . 3
8 ,15 9 . 2
(3 8 3. 9)
7,7 7 5 . 3
Cost of sales
(5, 8 8 4 . 4)
(8 2 .7)
(5,967 . 1)
(6,8 37 . 7)
8 5.7
(6 ,7 52 . 0)
Electricity Generator Levy
(20 4 .6)
–
(2 0 4 . 6)
–
–
–
Gross profit
1,7 53 . 4
20 0. 2
1,953.6
1, 321. 5
(2 9 8 . 2)
1, 0 2 3. 3
Operating and administrative expenses
2.3
(7 11 . 7)
–
(7 11 . 7)
(5 4 2 . 8)
–
(5 4 2 . 8)
Impairment losses on financial assets
(32 .5)
–
(32 . 5)
(4 8 . 0)
–
(4 8 . 0)
Depreciation
3.1
(19 5 . 6)
–
(1 9 5 . 6)
(2 0 8 . 0)
–
(2 0 8 . 0)
Amortisation
5.2
(29 . 4)
–
(2 9. 4)
(31 . 4)
–
(31 . 4)
Impairment of non-current assets
2.4
(1 . 7)
(6 9 .1)
(7 0 . 8)
(16 . 6)
(24 .9)
(41 . 5)
Other gains/(losses)
0 .7
(4 . 5)
(3. 8)
(5. 8)
–
(5 . 8)
Share of (losses)/profits from associates
(1. 6)
–
(1. 6)
0.5
–
0.5
Operating profit/(loss)
7 81. 6
12 6 . 6
908.2
4 6 9.4
(3 2 3 .1)
14 6 . 3
Foreign exchange (losses)/gains
2.5
(14 . 3)
4.9
(9. 4)
14. 8
(3. 8)
11. 0
Interest payable and similar charges
2.5
(11 5 . 2)
(0. 3)
(11 5 . 5)
(8 3 .1)
(0 . 4)
(83 .5)
Interest receivable
2.5
1 3 .1
–
13 .1
4 .3
–
4.3
Profit/(loss) before tax
665. 2
131 . 2
796.4
40 5.4
(3 2 7. 3)
7 8 .1
– Before effect of changes intaxrate
2.6
(19 5 . 2)
( 3 7. 3)
(2 32 . 5)
(6 4 . 5)
62.2
(2 .3)
– Effect of changes in tax rate
2.6
(0 .6)
(2 .4)
(3 . 0)
(2 . 9)
9.6
6 .7
Total tax (charge)/credit
(19 5 . 8)
(39 .7)
(2 35. 5)
(6 7. 4)
71. 8
4.4
Profit/(loss) for the period
4 69.4
91. 5
560 .9
338 .0
(255.5)
82.5
Owners of the parent company
47 0.7
91. 5
562. 2
3 4 0.6
(255.5)
8 5 .1
Non-controlling interests
4.5
(1 . 3)
–
(1 . 3)
(2 .6)
–
(2 .6)
Earnings per share:
Pence
Pence
Pence
Pence
– Basic
2.8
119 . 6
14 2. 8
8 5 .1
21. 3
– Diluted
2.8
116 . 8
139 . 5
82. 2
20.5
(1) (1)
(1) Adjusted results are stated after adjusting for exceptional items (including impairment of non-current assets, proceeds from legal claims, change in fair value of financial
instruments and impact of tax rate changes), and certain remeasurements. See note 2.7 for further details.
Section 1: Consolidated financial statements
Drax Group plc
Annual report and accounts 2023
183
Financial statements
Contents

Section 1: Consolidated financial statements continued
Consolidated statement of comprehensive income
Profit for the period
56 0.9
8 2.5
Remeasurement of defined benefit pension scheme
6.3
(28 . 8)
(24 .4)
Deferred tax on remeasurement of defined benefit pension scheme
2.6
7. 2
6 .1
Gains on equity investments
0.4
–
Net fair value losses on cost of hedging
7.4
7. 5
(19 . 0)
Deferred tax on cost of hedging
2.6
(1. 9)
2. 2
Net fair value (losses)/gains on cash flow hedges
7.3
(8 0 . 2)
205. 5
Deferred tax on cash flow hedges
2.6
2 0 .1
(4 9. 5)
Exchange differences on translation of foreign operations attributable to owners of the
parent company
4.4
(1 0 . 3)
42.4
Exchange differences on translation of foreign operations attributable to non-controlling
interests
(0 .4)
3. 4
Net fair value gains/(losses) on cash flow hedges
7.3
3 4 6 .7
(593. 1)
Net gains on cash flow hedges reclassified to profit or loss
7.3
2 5 6 .1
432 .9
Deferred tax on cash flow hedges
2.6
(15 0 . 8)
43.9
Other comprehensive income
365.6
50.4
Total comprehensive income for the year
926. 5
13 2 . 9
Owners of the parent company
9 28.2
13 2 .1
Non-controlling interests
(1. 7)
0. 8
Drax Group plc
Annual report and accounts 2023
184
Financial statements
Contents

Consolidated balance sheet
As at 31December
As at 1 January
Restated
(1)
Goodwill
5.2
41 6 . 7
4 24 . 2
416 . 3
Intangible assets
5.2
81. 5
14 2 . 3
18 8 . 6
Property, plant and equipment
3.1
2,69 8. 8
2,3 8 8. 0
2 , 310 . 7
Right-of-use assets
3.2
12 2 . 2
13 8 . 3
119 . 8
Investments
8 .9
6.9
5.5
Retirement benefit surplus
6.3
18 .4
3 8.5
4 8 .9
Deferred tax assets
2.6
52. 9
3 7. 3
2 8 .7
Derivative financial instruments
7.1
293 .6
3 61 . 0
19 0 . 2
3,6 93. 0
3,536 .5
3 , 3 0 8 .7
Inventories
3.4
328 .4
3 4 8 .1
1 9 9 .1
Renewable certificate assets
3.3
2 92. 2
1 8 7. 8
3 01. 4
Trade and other receivables and contract assets
3.5
9 76 .9
1, 2 2 7. 0
6 41. 9
Derivative financial instruments
7.1
36 8.4
39 6.9
41 0 .1
Cash and cash equivalents
4.1
3 79. 5
23 8.0
3 17. 4
2, 3 45.4
2 , 3 9 7. 8
1, 8 6 9. 9
Trade and other payables and contract liabilities
3.7
(1, 5 3 9 . 6)
(1 , 5 2 7. 9)
(1 , 2 1 1 .1)
Lease liabilities
3.2
(2 5 .1)
(2 2 .7)
(15 .1)
Current tax liabilities
(20 . 6)
(2 3 .3)
(3. 4)
Borrowings
4.2
(2 6 4 . 2)
(4 4 . 3)
(4 0 . 6)
Provisions
5.3
(6 . 6)
–
–
Derivative financial instruments
7.1
(2 31 . 6)
(59 0.0)
(4 8 4 . 2)
(2 , 0 8 7. 7 )
(2 , 2 0 8 . 2)
(1 ,7 5 4 . 4)
Net current assets
2 5 7. 7
18 9. 6
11 5 . 5
Borrowings
4.2
(1, 161. 1)
(1, 3 9 6 . 6)
(1,3 20.4)
Lease liabilities
3.2
(11 0 . 7)
(13 0 . 4)
(11 0 . 8)
Provisions
5.3
(7 2 . 2)
(58 .6)
(8 6 . 4)
Deferred tax liabilities
2.6
(3 1 7.1)
(14 1. 6)
(22 5.3)
Derivative financial instruments
7.1
(30 6 .6)
(6 74 . 7)
(3 74 . 5)
(1,967 .7)
(2 , 4 0 1. 9)
(2, 117 .4)
Net assets
1,9 8 3. 0
1, 324 . 2
1, 3 0 6 . 8
Issued equity
4.4
4 9 .1
4 7. 9
4 7. 7
Share premium
4.4
4 41. 2
43 3. 3
432. 2
Hedge reserve
7.3
207 .4
(15 2 . 0)
(1 7 7. 4)
Cost of hedging reserve
7.4
1 8 .7
4 0 .1
78.5
Other reserves
4.4
588.2
7 4 7. 7
70 6.0
Retained profits
2.10
666.4
193 . 8
19 8 . 3
Total equity attributable to owners of the parent company
1,97 1.0
1 , 31 0 . 8
1, 2 85 . 3
Non-controlling interests
4.5
12 . 0
13 . 4
2 1.5
Total shareholders’ equity
1,9 8 3. 0
1, 324 . 2
1,3 0 6 . 8
(1)
(1) Comparative amounts have been restated to reect the Group’s revised application of the offsetting criteria to physically settled derivative contracts. See the offsetting
section on page 178 for further details on this restatement.
The Consolidated financial statements of Drax Group plc, registered number 5562053, were approved and authorised for issue by the
Board of directors on 28 February 2024.
Signed on behalf of the Board of directors:
Andy Skelton
CFO
Drax Group plc
Annual report and accounts 2023
185
Financial statements
Contents

Section 1: Consolidated financial statements continued
Consolidated statement of changes in equity
At 1January 2022
4 7. 7
432 . 2
(1 7 7. 4)
78 .5
706 .0
19 8 . 3
21. 5
1,3 0 6 . 8
Profit/(loss) for the year
–
–
–
–
–
8 5 .1
(2. 6)
82.5
Other comprehensive income/(expense)
–
–
39 .7
(16 . 8)
42.4
(1 8 . 3)
3.4
50.4
fortheyear
–
–
3 9.7
(1 6 . 8)
42.4
66.8
0.8
13 2 . 9
Equity dividends paid (note 2.9)
–
–
–
–
–
(7 8 . 9)
–
(7 8 . 9)
Issue of share capital (note 4.4)
0.2
1 .1
–
–
–
–
–
1. 3
Contributions from non-controlling interests
–
–
–
–
–
–
1.3
1. 3
Acquisition of non-controlling interests without a
change in control (note 4.5)
–
–
–
–
(0 .7)
(9 .3)
(10 . 2)
(20.2)
Total transactions with the owners in their
capacity as owner
0.2
1 .1
–
–
(0 .7)
(8 8 . 2)
(8 . 9)
(9 6 .5)
directly from equity (note 7.3)
–
–
(1 9 .1)
–
–
–
–
(1 9 .1)
directly from equity (notes 7.3 and 2.6)
–
–
4.8
–
–
–
–
4.8
from equity (note 7.4)
–
–
–
(2 8 . 8)
–
–
–
(2 8 . 8)
from equity (notes 7.4 and 2.6)
–
–
–
7. 2
–
–
–
7. 2
payments (note 6.2)
–
–
–
–
–
9.5
–
9.5
directly from equity (note 2.6)
–
–
–
–
–
7. 4
–
7. 4
At 1January 2023
4 7. 9
433. 3
(15 2 . 0)
4 0 .1
7 4 7. 7
193 . 8
13 . 4
1, 324 . 2
Profit/(loss) for the year
–
–
–
–
–
562. 2
(1 . 3)
5 60 .9
Other comprehensive income/(expense)
–
–
391.9
5.6
(10 . 3)
(21. 2)
(0 . 4)
365.6
fortheyear
–
–
391.9
5.6
(10 . 3)
5 41 . 0
(1. 7)
926 .5
Equity dividends paid (note 2.9)
–
–
–
–
–
(8 6 . 3)
–
(8 6 . 3)
Issue of share capital (note 4.4)
1. 2
7. 9
–
–
–
–
–
9 .1
Contributions from non-controlling interests
–
–
–
–
–
–
0.3
0.3
Repurchase of own shares (note 2.11)
–
–
–
–
(1 4 9 . 2)
–
–
(1 4 9 . 2)
Total transactions with the owners in their
capacity as owner
1. 2
7. 9
–
–
(1 4 9 . 2)
(8 6 . 3)
0.3
(2 2 6 .1)
directly from equity (note 7.3)
–
–
(43 .4)
–
–
–
–
(43. 4)
directly from equity (notes 7.3 and 2.6)
–
–
10.9
–
–
–
–
10.9
from equity (note 7.4)
–
–
–
(3 6 . 0)
–
–
–
(3 6 . 0)
from equity (notes 7.4 and 2.6)
–
–
–
9.0
–
–
–
9.0
payments
–
–
–
–
–
13 . 4
–
13 . 4
from equity (note 2.6)
–
–
–
–
–
4.5
–
4.5
At 31December 2023
4 9 .1
4 41. 2
207 .4
18 .7
588.2
666.4
12 . 0
1,9 8 3. 0
Drax Group plc
Annual report and accounts 2023
186
Financial statements
Contents

Consolidated cash ow statement
Cash generated from operations
4.3
1 ,111 . 0
320.3
Income taxes paid
(1 8 0 . 0)
(3 8 .7)
Interest paid
(1 0 6 .1)
(77 .2)
Interest received
10 .7
3.3
Net cash from operating activities
835. 6
2 0 7.7
Purchases of property, plant and equipment
(42 9 . 8)
(1 63.9)
Purchases of intangible assets
(11 . 3)
(10 . 8)
Proceeds from the sale of property, plant and equipment
–
1. 6
Acquisition of businesses net of cash acquired
5.1
(9. 0)
(7. 6)
Purchases of equity in associates
(1. 7)
–
Net cash used in investing activities
(451.8)
(18 0 .7)
Equity dividends paid
2.9
(8 6 . 3)
(7 8 . 9)
Contributions from non-controlling interests
0.3
1.3
Acquisition of non-controlling interests without achangeincontrol
–
(19. 6)
Proceeds from issue of share capital
8 .6
1. 2
Repurchase of own shares
2.11
(1 4 9 . 2)
–
Drawdown of facilities
4.2
14 0 .0
18 8 . 5
Repayment of facilities
4.2
(12 5 . 3)
(18 6 . 4)
Payment of principal of lease liabilities
(25 . 8)
(18 . 0)
Other financing costs paid
(0 . 2)
–
Net cash absorbed by financing activities
(2 3 7. 9)
(111 . 9)
Net increase/(decrease) in cash and cash equivalents
145. 9
(8 4 . 9)
Cash and cash equivalents at 1 January
238.0
3 1 7. 4
Effect of changes in foreign exchange rates
(4 . 4)
5.5
Cash and cash equivalents at 31December
4.1
3 79. 5
23 8.0
Non-cash transactions recognised in the Consolidated income statement are reconciled to operating cash ows as part of the
disclosure provided in note 4.3. Further details of the cash ow impact of exceptional items can be found in note 2.7.
Drax Group plc
Annual report and accounts 2023
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Financial statements
Contents

The Financial performance section gives further information about the items in the Consolidated income statement. It includes a
summary of financial performance by each of the Group’s businesses (see note 2.1), analysis of certain Consolidated income statement
items (notes 2.2–2.6) and information regarding Total and Adjusted results, dividends, retained profits and the share buyback (notes
2.7–2.11). Further commentary on the Group’s trading and operational performance during the year can be found in the Strategic
report on pages 1 to 107, with particular reference to key transactions and market conditions that have affected the results.
2.1 Segmental reporting
Reportable segments are presented in a manner consistent with internal reporting provided to the chief operating decision maker
which is considered to be the Board. The Group is organised into three businesses, with a dedicated management team for each.
TheBoard rThe Board reviews the performance of each of these businesses separately, and each represents a reportable segment:
• Pellet Production: production and subsequent sale of biomass pellets from the Group’s processing facilities in North America;
• Generation: the generation and sale of electricity in the UK; and
• Customers: supply of electricity and gas to non-domestic customers in the UK.
Operating costs that can be reasonably allocated to the activities of a reportable segment are included within the results of that
reportable segment. Central corporate and commercial functions provide certain specialist and shared services, including optimisation
of the Group’s positions. Central corporate function costs that cannot be reasonably allocated to the activities of a reportable segment
are included within Innovation, capital projects and other. Innovation, capital projects and other is not a reportable segment as it does
not earn revenues, however it is included in the information presented below to enable reconciliation of the segmental amounts
presented to the consolidated IFRS results recognised in these Consolidated financial statements.
Given the principal activity of the Group is a generator and seller of electricity, the Consolidated income statement includes all revenue
from sales of electricity during the period. Where electricity is purchased rather than generated to fulfil a sale, either due to
operational or other requirements, the cost of this purchase is recorded within Cost of sales.
When defining gross profit within the Consolidated financial statements, the Group follows the principal trading considerations applied
by its Pellet Production, Generation and Customers businesses when making a sale. In respect of the Pellet Production business, this
rereflects the direct costs of production, being fibre, fuel and drying costs, direct freight and port costs, or third-party pellet purchases.
In respect of the Generation business, this reeflects the direct costs of the commodities to generate the power, the relevant grid
connection costs that arise, and from 2023, EGL arising on applicable renewable and low-carbon generation. In respect of the
Customers business, this reis reflects the direct costs of supply, being the costs of the power or gas supplied, together with costs levied
onon suppliers such as network costs, broker costs and renewables incentive mechanisms.
Accordingly, cost of sales excludes indirect overheads and staff costs (presented within operating and administrative expenses), and
depreciation (presented separately on the face of the Consolidated income statement). See note 3.4 for details of the costs included
within inventories.
The accounting policies applied for the purpose of measuring the reportable segments’ profits or losses, assets and liabilities are the
same as those used in measuring the corresponding amounts in the Consolidated financial statements.
Seasonality of trading
The primary activities of the Group are affected by seasonality. Demand in the UK for electricity and gas is typically higher in the winter
period (October to March) when temperatures are lower, which drives higher prices and higher levels of generation. Conversely,
demand is typically lower in the summer months (April to September) when temperatures are milder, and therefore prices and levels
ofof generation are generally lower.
This trend is experienced by all of the Group’s UK-based businesses, as they operate within the UK electricity and gas markets.
It is most notable within the Generation business due to its scale and the he flexible operation of its thermal generation plant.
The Pellet Production business incurs certain costs that are higher in winter months due to the impact of weather conditions, such
asfias fibre drying costs and heating costs. Production volumes and margins are typically higher in the summer months. The business
isis protected from demand uctuations demand fluctuations due to seasonality by regular production and dispatch schedules under its contracts with
customers, both intra-group and externally.
Section 2: Financial performance
Drax Group plc
Annual report and accounts 2023
188
Financial statements
Contents

2.1 Segmental reporting continued
Segment revenues and results
The following is an analysis of the Group’s performance by reportable segment and any other information necessary to enable
reconciliation to the Group’s total IFRS results recognised for the year ended 31De1 December 2023. Revenue for each segment is split
between sales to external parties and inter-segment sales. Inter-segment sales are eliminated in the intra-group eliminations column
along with any adjustments required for unrealised profits (primarily inventory purchased by the Generation segment from the Pellet
Production segment that is still held as inventory at the reporting date).
Adjusted EBITDA by reportable segment is presented in note 2.7.
External sales
397.8
2,486.3
4,958.3
–
–
7, 8 4 2 .4
282.9
8 ,12 5.3
Inter-segment sales
424.6
4,300.7
–
–
(4,725.3)
–
–
–
Total revenue
822.4
6,787.0
4,958.3
–
(4,725.3)
7,8 42.4
282.9
8 ,12 5.3
Cost of sales
(511.8)
(5,320.7)
(4,763.3)
–
4,711.4
(5,884.4)
(82.7)
(5,967.1)
Electricity Generator Levy
–
(204.6)
–
–
–
(204.6)
–
(204.6)
Gross profit
310.6
1,261.7
195.0
–
(13.9)
1,753.4
200.2
1,953.6
Operating and administrative expenses
(221.7)
(328.2)
(90.7)
(78 .1)
7. 0
(711.7)
–
(711.7)
Impairment losses on financial assets
–
–
(32.5)
–
–
(32.5)
–
(32.5)
Depreciation and amortisation
(94.0)
(103.0)
(22.5)
(3.3)
(2.2)
(225.0)
–
(225.0)
Impairment of non-current assets
(2.8)
1.1
–
–
–
(1.7)
(69.1)
(70.8)
Other gains/(losses)
0.5
0.2
–
–
–
0.7
(4.5)
(3.8)
Share of (losses)/profits from associates
(1.7)
–
–
0 .1
–
(1.6)
–
(1.6)
Operating profit/(loss)
(9.1)
831.8
49.3
(81.3)
(9.1)
781.6
126.6
908.2
Further information on the main revenue streams of each segment is presented in note 2.2.
Included within the Innovation, capital projects and other segment historically has been certain corporate costs that are utilised by
thewiderthe wider Group. In the current year, management has undertaken an exercise to recharge these costs to the respective business
segments: £10.8 million to Pellet Production, £81.9 million to Generation and £7.5 million to Customers. This updated allocation
methodology has not been applied to the comparative amounts presented in the table below.
The following is an analysis of the Group’s performance by reportable segment for the year ended 31December 21 December 2022:
External sales
377.2
3,638.9
4 ,143.1
–
–
8 ,159.2
(383.9)
7,7 75.3
Inter-segment sales
425.4
3,719.3
–
–
(4,14
4.7)
–
–
–
Total revenue
802.6
7,358.2
4,143.1
–
(4,14
4.7 )
8,159. 2
(383.9)
7,7 75.3
Cost of sales
(501.9)
(6,479.2)
(3,985.0)
–
4 ,128 .4
(6,837.7)
85.7
(6,752.0)
Gross profit
300.7
879.0
158 .1
–
(16.3)
1,321.5
(298.2)
1,023.3
Operating and administrative expenses
(167.3)
(183.5)
(84.3)
(113.6)
5.9
(542.8)
–
(542.8)
Impairment losses on financial assets
–
–
(48.0)
–
–
(48.0)
–
(48.0)
Depreciation and amortisation
(119.9)
(98.6)
(25.5)
(3.3)
7.9
(239.4)
–
(239.4)
Impairment of non-current assets
–
(16.6)
–
–
–
(16.6)
(24.9)
(41.5)
Other losses
(2.0)
(3.8)
–
–
–
(5.8)
–
(5.8)
Share of profits from associates
0.5
–
–
–
–
0.5
–
0.5
Operating profit/(loss)
12.0
576.5
0.3
(116.9)
(2.5)
469.4
( 323.1)
146.3
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2.1 Segmental reporting continued
Capital expenditure by reportable segment
Assets and working capital are monitored on a consolidated basis; however, capital expenditure is monitored by segment.
Pellet Production
–
–
163.0
66.0
Generation
1.9
2.8
333.4
171.5
Customers
2.7
2.3
0.2
0.3
Innovation, capital projects and other
5.3
4.3
12.6
8.2
Total
9.9
9.4
509.2
246.0
Total cash outflows in relation to capital expenditure during the year were £441.1 million (2022: £174.7 million). In the current year,
thece cash outflow in relation to property, plant and equipment is lower than the cost capitalised (see note 3.1) predominantly as a result
of prepaid amounts in the prior year being capitalised in 2023 and an increase in creditors relating to capital expenditure compared to
the prior year.
Intra-group trading
Intra-group transactions are carried out at management’s best estimate of arm’s-length, commercial terms that, where possible,
equate to market prices. During 2023, the Pellet Production segment sold biomass pellets and provided associated services with
atota total value of £424.6 million (2022: £425.4 million) to the Generation segment and the Generation segment sold electricity, gas and
renewable energy certificates with a total value of £4,252.0 million (2022: £3,719.3 million) to the Customers segment. During 2023
the Generation segment sold biomass pellets to the Pellet Production segment with a total value of £48.7 million (2022: £nil).
The impact of all intra-group transactions, including any unrealised profit arising, is eliminated on consolidation.
Major customers
There was no individual customer, in either the current or previous financial year, that represented 10% or more of total revenue.
Geographical analysis of revenue and non-current assets
The geographic information analyses the Group’s revenue and non-current assets by the entity’s country of domicile. In presenting the
geographic information, segment revenue has been based on the geographic location of customers and segment assets were based
on the geographic location of the assets.
The Group’s external revenue and non-current assets for the Generation and Customers segments are all UK-based. The Pellet
Production segment has third-party pellet sales to both the UK and other locations around the world. The Pellet Production segment’s
non-current assets are located in North America, in both Canada and the US.
North America (Canada and US)
8.5
10.6
Europe (excluding UK)
60.3
27.6
Asia
280.1
275.4
UK
7,776 .4
7,461.7
Total
8,125. 3
7,7 75.3
Canada
406.7
542.6
US
666.0
502.6
Asia
0.3
–
UK
2, 255.1
2,054.5
Total
3, 328 .1
3,099.7
(1)
(1) Non-current assets comprise goodwill, intangible assets, property, plant and equipment, right-of-use assets and investments .
Section 2: Financial performance continued
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2.2 Revenue
The majority of the Group’s revenue is within the scope of IFRS 15. The other sources of the Group’s revenue outside the scope
ofIFRof IFRS1S 15 comprise certain remeasurements, amounts reclassified to revenue for gains and losses on UK CPI inflation swaps, and
income from the Government’s Energy Bill Relief Scheme (EBRS) and Energy Bills Discount Scheme (EBDS). See note 2.7 for further
details of certain remeasurements and note 7.2.4 for ination risk management.or inflation risk management.
Year ended 31Ded 31 December 2023
Year ended 31Deed 31 December 2022
Revenue from contracts with customers
7,54
0.4
–
7,54
0.4
7,882.5
–
7,882.5
Other revenue
302.0
282.9
584.9
276.7
(383.9)
(107.2)
Total revenue
7, 8 42 .4
282.9
8 ,125. 3
8,159.2
(383.9)
7,775.3
Accounting policy
Revenue represents amounts receivable for goods or services provided to customers in the normal course of business, net of trade
discounts, VAT and other sales-related taxes and excludes transactions between Group companies. Revenue is presented gross in
theConsolidatedthe Consolidated income statement when the Group controls the specified good or service prior to the transfer to the customer.
A summary of the Group’s principal revenue streams, along with the nature and timing of performance obligations, payment terms,
methods of recognising revenue, and any estimation uncertainties, is given in the table below. Further details on significant elements
of revenue, principally how the Contract for Difference (CfD) and Renewables Obligation (RO) schemes operate and the related
accounting, are provided below the table.
includingsig significantpnt payment terms
Method of recognising revenue, including any estimationuncertaintiestimation uncertainties
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includingsig significantpnt payment terms
Method of recognising revenue, including any estimationuncertaintiestimation uncertainties
2.2 Revenue continued
Section 2: Financial performance continued
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includingsig significantpnt payment terms
Method of recognising revenue, including any estimationuncertaintiestimation uncertainties
2022 and
31 March 2023. Under the EBRS,
Renewable certificate sales
The generation and sale of renewable certificates, primarily ROCs and REGOs, is a key driver of the Group’s financial performance.
The Renewables Obligation (RO) scheme places an obligation on electricity suppliers to source an increasing proportion of their
electricity from renewable sources. Under the RO scheme, ROCs are issued to generators of renewable electricity which are then sold
bilaterally to counterparties, including suppliers, to demonstrate that they have fulfilled their obligations under the RO scheme. ROCs
are managed in compliance periods (CPs), running from April to March annually. CP1 commenced in April 2002. At 31De1 December 2023
the Group is operating in CP22.
To meet its obligations a supplier can either submit ROCs or pay the buy-out price at the end of the CP. The buy-out price rises annually
in line with the UK Retail Price Index (RPI). The buy-out price for CP22 is £59.01 (2022: CP21 £52.88). ROCs are typically procured in
arm’s-length transactions with renewable generators at a market price slightly lower than the buy-out price for that CP. At the end of
the CP, the amounts collected from suppliers paying the buy-out price form the recycle fund, which is distributed on a pro-rata basis to
the suppliers who presented ROCs during the CP.
The financial benefit of a ROC recognised in the Consolidated income statement at the point of generation is comprised of two parts:
the expected value to be obtained in a sale transaction with a third-party supplier relating to the buy-out price, and the expected value
of the recycle fund benefit to be received at the end of the CP. During the year, the Group also made sales and related purchases of
ROCs to help optimise its working capital position.
External sales of ROCs in the table below includes £583.3 million of such sales (2022: £604.5 million), with a similar value ree reflected
incin cost of sales.
REGOs are certificates that enable suppliers to prove that energy supplied to their customers came from a renewable source. One
REGO is issued to a generator for every MWh of renewable energy they generate. The primary use of REGOs is for the Fuel Mix
Disclosure that requires licensed electricity suppliers to disclose to potential and existing customers the mix of fuels used to generate
the electricity supplied. REGOs are managed in compliance periods (CPs), running from April to March annually. CP1 commenced in
April 2002. At 31D1 December 2023 the Group is operating in CP22.
The financial benefit of a REGO is recognised in the Consolidated income statement at the point of generation based on the expected
value to be obtained in a sale transaction with a third-party supplier. If the Group has already agreed sales contracts covering the
REGOs generated in a period, the expected value is recognised at the point of generation based on the contracted price. The expected
value of REGOs not covered by agreed sales contracts are recognised at the point of generation based on published third-party market
price assessments.
See note 3.3 for further details of renewable certificates generated and sold by the Generation business and those utilised by the
Customers business during the year.
CfD income/payment
The income/payment is calculated by reference to a strike price per MWh. The base year for the strike price was 2012 and it increases
each year in line with the UK Consumer Price Index (CPI) and changes in system balancing costs. The strike price at 31D1 December 2023
was £132.47 per MWh (2022: £126.37).
When market prices (based on average traded prices in the preceding season) are above or below the strike price, the Group makes an
additional payment to or receives additional income from LCCC equivalent to the difference between that market power price and the
strike price, for each MWh produced from the relevant generating unit. Such payments/receipts are in addition to amounts received
from the sale of the associated power in the wholesale market.
Gas sales
To support the Group’s ambition to be carbon negative by 2030, a decision was made in January 2023 to phase out the Group’s gas
supply contracts in the Customers business. Having already ceased acquiring new gas customers, following internal processes and a
regulatory driven 60-day grace period, no renewal contracts have been offered since May 2023. It is anticipated that the portfolio will
be fully phased out by 2027.
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2.2 Revenue continued
Further analysis of revenue for the year ended 31D1 December 2023 is provided in the table below:
Pellet sales
391.3
424.6
815.9
Other income
6.5
–
6.5
Total Pellet Production
397.8
424.6
822.4
Electricity sales
1,600.3
3,817. 2
5,417.5
Renewable certificate sales
842.6
434.8
1, 277.4
CfD payment
(63.0)
–
(63.0)
Ancillary services
55.4
–
55.4
Other income
51.0
48.7
99.7
Total Generation
2,486.3
4,300.7
6 ,787. 0
Electricity and gas sales
4,554.4
–
4,554.4
EBRS and EBDS income
365.8
–
365.8
Renewable certificate sales
37.9
–
37.9
Other income
0.2
–
0.2
Total Customers
4,958.3
–
4,958.3
Elimination of inter-segment sales
–
(4,725.3)
(4,725.3)
Total consolidated revenue in Adjusted results
7,8 42 .4
–
7, 8 42 .4
Certain remeasurements
282.9
–
282.9
Total consolidated revenue in Total results
8,125. 3
–
8
,12 5.3
Revenue recognised in Adjusted results of £7,842.4 million differs from revenue recognised in Total results of £8,125.3 million due to
certain remeasurements gains of £282.9 million (2022: losses of £383.9 million), comprised of gains and losses on derivative contracts
that are used to manage risk exposures associated with the Group’s revenue, not designated into hedge accounting relationships
under IFRS 9.
Revenue recognised in the period that was included within contract liabilities at the start of the year was £28.5 million (2022: £6.6 million).
See note 3.7 for further details on contract liabilities.
Revenue recognised in the period from performance obligations satisfied or partly satisfied in the previous period was £nil (2022: £nil).
The following is an analysis of the Group’s revenues for the year ended 31D1 December 2022:
Pellet sales
369.3
425.2
794.5
Other income
7.9
0.2
8.1
Total Pellet Production
377.2
425.4
802.6
Electricity sales
2,633.1
3,293.3
5,926.4
Renewable certificate sales
851.5
426.0
1, 277.5
CfD payment
(45.7)
–
(45.7)
Ancillary services
73.0
–
73.0
Other income
127.0
–
127.0
Total Generation
3,638.9
3,719.3
7,358.2
Electricity and gas sales
3,853.1
–
3,853.1
EBRS Income
289.2
–
289.2
Other income
0.8
–
0.8
Total Customers
4,143.1
–
4,143.1
Elimination of inter-segment sales
–
(4,14
4.7)
(4,14
4.7)
Total consolidated revenue in Adjusted results
8,159.2
–
8,159.2
Certain remeasurements
(383.9)
–
(383.9)
Total consolidated revenue in Total results
7,775.3
–
7,775.3
Section 2: Financial performance continued
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2.2 Revenue continued
The Group is eligible for, and applies, the practical expedient available under IFRS 15 and has not disclosed information related to the
transaction price allocated to remaining performance obligations. The right to receive consideration from a customer is at an amount
that corresponds directly with the value to the customer of the Group’s performance completed to date.
For accounting policies and other disclosures related to contract assets and liabilities, see notes 3.5 and 3.7.
For accounting policies and other disclosures related to costs incurred to acquire customer contracts, see note 3.6 .
2.3 Operating and administrative expenses
This note sets out certain components of operating and administrative expenses in the Consolidated income statement and a detailed
breakdown of the fees paid to the Group’s external auditor, Deloitte LLP, in respect of services provided to the Group during the year.
The following expenditure has been charged in arriving at operating profit:
Staff costs (note 6.1)
294.0
248.9
Repairs and maintenance expenditure on property, plant and equipment
173.9
110.3
Other operating and administrative expenses
243.8
183.6
Total operating and administrative expenses
711.7
542.8
Auditor’s remuneration
Fees payable for the audit of the Group’s Consolidated financial statements
1,500.0
1,375.0
Fees payable for the audit of the Company’s subsidiaries’ statutory accounts
40.0
40.0
Total audit fees
1,540.0
1,415.0
Review of the Group’s half-year Condensed consolidated financial statements
140.0
115.0
Assurance services provided to non-material affiliates
18.3
18.0
Other services
47.0
46.2
Other assurance services
130.0
65.0
Total non-audit fees
335.3
244.2
Total auditor’s remuneration
1,875.3
1,659.2
The fees payable for the audit of the Group’s Consolidated financial statements above, relates to the audit of all of the Group’s
subsidiaries to a statutory materiality. In addition, the audit of certain head office companies are not required for the Group audit
opinion. The audit fee allocation of these companies is included in fees payable for the audit of the Company’s subsidiaries’ statutory
accounts disclosed above.
Other assurance services provided by Deloitte LLP in the current and prior year consist of corporate refinancing fees.
See the Audit Committee report on page1e 132 for further details.
2.4 Impairment review of fixed assets and goodwill
Accounting policy
Goodwill is tested for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s
cash-generating units (CGUs) or group of CGUs expected to benefit from the synergies of the business combination.
A CGU is the smallest identifiable group of assets that generates cash inoflows that are largely independent of the cash innflows from
other assets or groups of assets. CGUs are identified consistently from period to period unless there is a change in the period that
would impact the Group’s CGUs. The Group’s CGUs are reassessed should any such changes occur.
The Group reviews its fixed assets (or, where appropriate, groups of assets combined into a CGU) whenever there is an indication
thataat an impairment loss may have been suffered. The Group assesses the existence of indicators of impairment at the end of each
reporting period.
If an indication of potential impairment exists, the recoverable amount of the asset or CGU in question is assessed with reference to
the present value of the future cash ash flows expected to be derived from the continuing use of the asset or CGU (value in use), or the
expected price that would be received if the asset or CGU were sold to a market participant (fair value less costs to sell). The initial
assessment of the recoverable amount is normally based on value in use.
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2.4 Impairment review of fixed assets and goodwill continued
The assessment of future cash ash flows is based on the approved long-term forecasts used to support the Board’s strategic planning process.
It includes all of the necessary costs expected to be incurred to generate the cash inonflows from the CGU’s assets in their current state
and condition, including an allocation of centrally managed costs. Future cash sh flows include, where relevant, contracted cash sh flows
arising from the Group’s forward hedging activities and as a result the carrying amount of each CGU includes the fair value of those
hedges. Assessments of future cash ows cons flows consider relevant environmental and climate change factors. In particular, macro-economic,
commodity price and third-party cost assumptions reect considerations in reflect considerations in respect of the impact of climate change, growth in
renewable technologies, electrification and the impact of relevant policies on longer-term supply and demand profiles.
As required by IAS 36, the additional value that could be obtained from enhancing the Group’s assets and the potential benefit
ofanyfof any future restructuring or reorganisation that the Group is not yet committed to, is not reeflected in the value in use calculation.
IndeIn determining value in use, the estimated future cash oh flows are discounted to present value using a pre-tax nominal discount rate
rereflecting the specific risks attributable to the asset or CGU in question.
The recoverable amount of an asset or CGU is the higher of its fair value less costs to sell, based on what a market participant would
pay, and its value in use. If the recoverable amount is less than the carrying amount in the Consolidated financial statements, an
impairment charge is recognised to reduce the carrying amount of the asset or CGU to the estimated recoverable amount. Any
impairment loss is recognised immediately in the Consolidated income statement.
Individual assets are considered for impairment where possible. If individual assets do not generate cash inows generate cash inflows that are largely
independent, the recoverable amount is determined for the CGU to which the asset belongs. Where possible, corporate assets are
allocated to an individual CGU on a reasonable and consistent basis. Where corporate assets cannot be allocated to an individual CGU
on a reasonable and consistent basis, they are included in the carrying amount of the smallest group of CGUs to which they can be
allocated on a reasonable and consistent basis.
An impairment loss relating to a CGU is allocated first to the carrying amount of any goodwill allocated to the CGU and then to the
other assets pro-rata on the basis of the carrying amount of each asset. When allocating an impairment loss to the other assets in the
CGU, if the recoverable amount of an individual asset within that CGU is determinable, the impairment loss allocated to the individual
asset is limited to reducing the assets carrying value to its individual recoverable amount. If this results in the impairment loss allocated
to an asset being less than its pro-rata share, the excess is allocated on a pro-rata basis to the remaining assets in the CGU. An
impairment loss recognised for goodwill is not reversed in a subsequent period. Non-financial assets other than goodwill that have
anian impairment loss recognised are reviewed in subsequent reporting periods for possible reversal of the impairment. Where an
impairment reversal is identified, this is reversed immediately in the Consolidated income statement.
The below table details the Group’s reportable segments, the CGUs within those segments and the value of any goodwill allocated
totto them. See note 5.2 for further details on goodwill.
CGUs
Segment name
CGUs contained within segment
Pellet Production
Pellet Operations
17 7.0
Generation
Drax Power Station
–
Lanark
11.3
Galloway
4 0.1
Cruachan
26.9
OCGTs
–
Daldowie
–
Customers
Drax Energy Solutions
161.4
Opus Energy
–
The Pellet Production business previously consisted of two CGUs – Northern Operations and Southern Operations. Goodwill
recognised on the acquisition of Pinnacle in 2021 was allocated to the Pellet Production segment due to the segment as a whole being
expected to benefit from the synergies of the larger, combined Pellet Operations. Re. Reflecting the continued integration and increased
interdependence between the Group’s pellet plants across Northern and Southern Operations since acquisition, the Pellet Production
business is now considered to be a single CGU.
In respect of the Generation business, the Group generally considers the smallest groups of assets that generate independent cash
ininflows to be the individual sites that share common infrastructure and control functions. There are no changes to any of the
Generation CGUs from the prior year.
The OCGT assets are still under construction. Once complete, the three OCGT plants are expected to be operated as a portfolio with
significant interdependence around the decisions, activities and resulting cash inows. Therefore cash inflows. Therefore the Group continues to treat the
OCGTs as one CGU.
Section 2: Financial performance continued
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2.4 Impairment review of fixed assets and goodwill continued
The Customers business has undergone a reorganisation in recent years, which substantially completed during 2023. Certain activities
that were previously part of the Opus Energy CGU have transferred to the Drax Energy Solutions CGU. The Customers business is still
deemed to consist of two CGUs equivalent to the operating entities within it, Opus Energy and Drax Energy Solutions, however the
activities and resulting cash inh inflows that are attributed to each CGU have changed due to the reorganisation. Principally, the
renewables activities, being the purchase and subsequent sale of power from Power Purchase Agreements (PPAs), that were part
ofthof the Opus Energy CGU in the prior year are now operated through Drax Energy Solutions and therefore form part of that CGU in
thecue current year. The Opus Energy CGU now consists solely of electricity and gas supply activities.
The Opus Energy CGU had £159.2 million of goodwill allocated to it at 31 December 2022. As the composition of the Opus Energy CGU
changed during 2023, the goodwill previously allocated has been reallocated to the CGUs affected by the reorganisation in accordance
with IAS 36. This reallocation has been performed using a relative value approach as specified in IAS 36, resulting in £144.7 million of
goodwill being reallocated to the Drax Energy Solutions CGU, leaving £14.5 million of goodwill remaining within the Opus Energy CGU.
During the year, Drax Energy Solutions Limited acquired 100% of the issued share capital of BMM Energy Solutions Limited (BMM) for
consideration of £9.0 million. This resulted in the recognition of £6.0 million of goodwill. See note 5.1 for further details. BMM installs
and maintains electric vehicle charging points. The Drax Energy Solutions CGU provides a full-service energy supply and energy
services offering to customers which includes the installation and maintenance of electric vehicle charging points. As such the BMM
activities form part of the Drax Energy Solutions CGU. The Drax Energy Solutions CGU had £10.7 million of existing goodwill prior to
the reallocation of the Opus Energy CGU goodwill and the BMM acquisition. Subsequent to the reallocation and the acquisition, the
Drax Energy Solutions CGU now has goodwill amounting to £161.4 million (see note 5.2 for further details on goodwill).
The Innovation, capital projects and other segment does not have any external cash inowsy external cash inflows and therefore does not meet the definition
of a CGU. However, as explained above, corporate assets are considered for impairment individually where possible or as part of a CGU,
and relevant centrally managed costs are allocated to each CGU.
Assessment of indicators of impairment for CGUs to which no goodwill is allocated
Full impairment reviews were performed on all CGUs to which goodwill had been allocated (see Impairment review section below).
ForCGr CGUs to which no goodwill is allocated, impairment reviews are only performed if impairment indicators are identified. The review
of the Group’s CGUs to which no goodwill is allocated did not give rise to any such impairment indicators in the current year.
In determining whether impairment indicators existed in respect of these CGUs, the Group considered changes in market prices for
commodities, foreign currency exchange rates, changes in macro-economic conditions, potential impacts of climate change and
regulatory requirements since the previous reporting date, and their potential impact on the Group’s long-term planning models and
future forecast cash ows.ecast cash flows. In particular, consideration was given to the changes in the economic environment, including interest rates
and ination, andand inflation, and changes in market prices.
The market price of certain commodities (e.g. power and gas) have fallen since the prior year but still remain above historical averages.
This was not an impairment indicator for the Drax Power Station and OCGT CGUs as they are less sensitive to power price changes
due to certain generation income being under a CfD, or generation activities being more dependent on the spread between gas and
power prices. Also, a high proportion of their income is not linked to power prices, such as renewable certificates, system support and
ancillary services. The Drax Power Station CGU also has a high hedged power position. Gas prices are a key input cost for Daldowie
and therefore this CGU has benefited as these prices have reduced during 2023.
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2.4 Impairment review of fixed assets and goodwill continued
In considering the economic environment, management concluded that the Drax Power Station, OCGTs and Daldowie CGUs tend to
be less sensitive to changes in the economy, as energy is required to power and heat homes and businesses in the UK and waste water
treatment is a necessity, and therefore these activities are generally considered essential spend.
Interest rates were also considered, including their impact on discount rates. During the current year interest rates have increased
slightly, however, the impact on discount rates was not significant enough to be considered an impairment indicator.
Consideration was also given to assumptions regarding biomass generation and biomass prices post March 2027, when current
subsidies for biomass generation at Drax Power Station are due to end, and whether that was an indicator of impairment (see the
Principal risks and uncertainties section starting on page 94 for further details). Whilst management’s forecasts extend beyond 2027,
they indicate that the carrying amount of the Drax Power Station CGU is supported by pre-2027 cash sh flows. Accordingly, the end of
current subsidies in 2027 was not deemed to be an indicator of impairment. Drax Power Station is currently deemed to have a useful
life until at least 2039 and an expectation of continuing to be in operation until that time.
Impairment review
For the purpose of impairment reviews the recoverable amounts of the CGUs, or groups of CGUs, were measured based on value in
use calculations using the Group’s established planning models. These calculations depend on a broad range of assumptions, the most
significant of which are outlined below for each CGU, or Group of CGUs, to which an impairment test has been performed in the
current year. Management’s bases for these estimates are also outlined below.
calculation
Management’s bases for determining estimates used in value in use calculation
Pellet Operations
•
Production costs
•
Future production costs are estimated based on current year actual
•
Production volumes
•
Sales prices
•
Production volumes are estimated based on the current capacity of the
•
Discount rate
•
Sales prices are estimated based on contractual sales agreements
•
See below for details of the basis used to estimate discount rates
•
Power prices
•
Future wholesale energy price estimates are based on market traded power
•
Sources of stability income
•
Volume of generation (hydro
•
Discount rate
•
Stability income assumptions are based on past performance and current
•
Volume of generation for the hydro assets is derived from historical rainfall
•
See below for details of the basis used to estimate discount rates
•
Customer margins
•
Customer margin estimates are based on previously achieved profitability
•
Supply volumes
•
The expectation of future organic volumes is based on past performance
•
Collection rates
•
Power prices
•
Collection rates are estimated based on historical data and adjusted for
•
Third-party cost estimates
•
Discount rate
•
Future wholesale energy price estimates are based on market traded power
•
Third-party cost estimates are based on a combination of externally
•
See below for details of the basis used to estimate discount rates
Section 2: Financial performance continued
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2.4 Impairment review of fixed assets and goodwill continued
For the Drax Energy Solutions CGU and Opus Energy CGU, management has projected detailed cash sh flows based on a period of
fiveyfive years. For all other CGUs, management has projected detailed cash ash flows based on a period of 15 years. This is longer than the
five-year period specified by IAS 36, and the period the Group assesses viability over in the Viability statement, to align to the Group’s
long-term strategic planning, which is relevant to take into account future structural changes forecast within the industries in which
the Group’s Generation and Pellet Production businesses operate. These longer-term structural changes are mainly linked to climate
change and the transition to more renewable forms of energy and net zero. They are explained in more detail in each section below.
Where possible, for relevant commodities, forecasts are based on either contracted prices, particularly for Pellet Operations where
theGre Group has a number of longer term contracts to support the prices used, or observable market curves. Beyond the liquid portion
ofof forward curves, internally constructed price curves are benchmarked against third-party market analysis to validate the
reasonableness of the assumptions used. Management also periodically reviews forecasting accuracy and after considering the impact
of changes in circumstances and events that could not reasonably be foreseen between the date of the forecast and the forecast
period, these reviews support the accuracy of management’s forecasts. This supports management’s ability to forecast reliably over
the 15-year periods and the use of a detailed forecast period of longer than five years.
Cash ash flows beyond the five or 15-year period are innflated into perpetuity using a growth rate of 2% in all models. This growth rate
isis based on prudent expectations of market share and profitability along with more general macro-economic factors which were
obtained from the Group’s established planning model along with external macro-economic forecasts. The growth rate does not
exceed the relevant long-term average growth rate for each of the industries in which the Group operates.
The discount rates used reeeflect the weighted average cost of capital derived using the Capital Asset Pricing Model (CAPM). The
estimations use a risk-free rate based on government bonds, market participant capital structures and beta estimates adjusted for
thespe specific industry and markets in which the CGU operates (taking into account relevant peer data sets). This calculation uses the
relevant tax rates to calculate a pre-tax discount rate.
Further details on the assessments for each group of CGUs as well as sensitivities for reasonably possible changes in key assumptions
are given below. Where reasonably possible changes would result in a material adjustment to the carrying value, these are disclosed
asa key sas a key source of estimation uncertainty.
Pellet Operations
The recoverable amount of the Pellet Operations CGU is measured at least annually due to the goodwill allocated to it. The CGU is
principally engaged in the production and sale of biomass pellets. Management has projected detailed cash ash flows based over a period
of 15 years. This is longer than the five-year period specified by IAS 36, and the period the Group assesses viability over in the Viability
statement. This is to align to the Group’s long-term strategic planning, which is relevant to take into account future structural changes
forecast within the pellet industry, such as climate change and the impact of changing weather patterns, the impact of decarbonisation
and the expected growth in the biomass industry as economies transition to more renewable forms of energy and net energy and net zero. Using
apea period of only five years for detailed cash sh flows could materially overstate or understate the value in use of the CGU as the impact
ofthof these factors in periods after five years can be significant.
The carrying amount, discount rate and the perpetuity growth rate applied to the Pellet Operations CGU is set out in the table below:
Pellet Operations
1,069.0
10.3%
2%
The pre-tax nominal discount rate of 10.3% (2022: 10.5%) was calculated based on third-party analysis from external specialists that
the Group commissioned.
The value in use for the Pellet Operations CGU was in excess of its carrying amount. For the Pellet Operations CGU, a reasonably
possible increase in production costs of $10 per tonne in the value in use calculation, with no corresponding increase in sales price,
would result in a £105.1 million impairment and a reasonably possible 12% decrease in production volumes would result in a
£47. 2 million impairment. Accordingly, reasonably possible changes in assumptions within the value in use calculation could result in
amaa material adjustment to the carrying value of the Pellet Operations CGU. Therefore, the assumptions in the value in use calculation
ofthof the Pellet Operations CGU has been identified as a key source of estimation uncertainty.
Drax Energy Solutions and Opus Energy
The recoverable amounts of the Drax Energy Solutions and Opus Energy CGUs are measured at least annually due to the existence
ofgoof goodwill allocated to these CGUs. These businesses are principally focused on renewable electricity sales, with Opus Energy also
selling gas to some existing customers, and therefore, consideration of climate and environmental impacts are already a key feature
ofthof the business models. Management has projected detailed cash sh flows over a period of five years, consistent with the period specified
by IAS 36, and the period the Group assesses viability over in the Viability statement.
The carrying amounts, discount rates and the perpetuity growth rates applied to each CGU are set out in the table below:
Drax Energy Solutions
17 7.7
10.4%
2%
Opus Energy
12.0
10.2%
2%
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Annual report and accounts 2023
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2.4 Impairment review of fixed assets and goodwill continued
The expected future cash ash flows of the Drax Energy Solutions CGU and Opus Energy CGU were discounted using a pre-tax nominal
discount rate of 10.4% (2022: 10.3%) and 10.2% (2022: 10.3%) respectively, calculated based on third-party analysis from external
specialists that the Group commissioned, adjusted to the specific circumstances and risk factors affecting the Group’s Customers
business. The Group believes that these rates res reflect the prospects for well-established Customers businesses, re, reflecting the
comparatively long trading record and customer bases these businesses hold.
Drax Energy Solutions CGU
The value in use of the Drax Energy Solutions CGU was in excess of its carrying amount. A reasonably possible increase in the discount
rate to 11.3% combined with factoring in a 1% perpetuity growth rate in the calculation would reduce the headroom by £51.2 million,
which would not result in an impairment. Whilst reasonably possible changes in assumptions would reduce the headroom, they would
not result in the recoverable amount being lower than the carrying value. As such the Group does not believe that any reasonably
possible changes in the key assumptions would result in an adjustment to the carrying value of the Drax Energy Solutions CGU.
Opus Energy CGU
A full impairment review was carried out on the Opus Energy CGU. The carrying amount of £81.1 million was higher than the calculated
value in use and so an impairment charge of £69.1 million was recognised in the Consolidated income statement. The value in use has
reduced in the current year due to the strategic decision to offboard the gas portfolio, which also resulted in the loss of some
electricity customers who were supplied both gas and electricity. The value in use was also impacted by reduced demand as some
customers have changed their behaviour in response to higher energy prices.
The Opus Energy CGU’s goodwill of £14.5 million was fully impaired. The Opus Energy head office property was impaired by
£8.9 million down to its recoverable amount of £6.0 million. The remaining £45.7 million impairment was allocated to the remaining
non-current assets on a pro rata basis (see the table below for details of this pro rata allocation). A reasonably possible decrease in the
discount rate to 9.4% would have reduced the impairment by £1.1 million. No reasonably possible change in assumptions would result
in a materially different impairment charge in the year. Whilst reasonably possible changes to assumptions would result in an
adjustment to the carrying value of the Opus Energy CGU, they would not result in a material adjustment to its carrying value and so
itis nit is not considered a key source of estimation uncertainty as defined by IAS 1.
Goodwill (note 5.2)
14.5
(14.5)
–
Freehold land and buildings (note 3.1)
14.9
(8.9)
6.0
Property, plant and equipment (note 3.1)
0.1
(0.1)
–
Intangible assets: customer related assets (note 5.2)
35.6
(31.5)
4 .1
Intangible assets: brand assets (note 5.2)
3.5
(3.0)
0.5
Intangible assets: computer software (note 5.2)
12.5
(11.1)
1.4
Total
81.1
(69.1)
12.0
Lanark, Galloway and Cruachan
The Group tests the Lanark, Galloway and Cruachan CGUs for potential impairment at least annually due to the existence of goodwill
allocated to these CGUs. These CGUs are engaged in hydro and pumped storage power generation. Management has projected
detailed cash oh flows based on a period of 15 years. This is longer than the five-year period specified by IAS 36, and the period the Group
assesses viability over in the Viability statement. This is to align to the Group’s long-term strategic planning, which is relevant to take
into account future structural changes forecast within the electricity generation industry in the models used. These include climate
change, changing weather patterns (increased rain fall from storms and drier summer months), the impact of decarbonisation and the
continued transition to renewable forms of energy and net zero, the impact of subsidy and support regimes, and the impact of repairs
and maintenance expenditure which is not uniform across the lives of the assets. Using a period of only five years for detailed cash
oflow forecasting could materially overstate or understate the value in use of the CGUs as the impact of these factors in periods after
five years can be significant.
The carrying amounts, discount rates and the perpetuity growth rates applied to each CGU are set out in the table below:
Lanark
47.4
10.1%
2%
Galloway
172.7
10.1%
2%
Cruachan
251.2
10.1%
2%
The expected future cash ash flows of these CGUs were discounted using a pre-tax nominal discount rate of 10.1% (2022: 8.5%).
Thedihe discount rates were calculated based on third-party analysis from external specialists that the Group commissioned, adjusted
toto the specific circumstances and risk factors affecting the Group’s hydro and pumped storage generation operations .
Section 2: Financial performance continued
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2.4 Impairment review of fixed assets and goodwill continued
The value in use for all three CGUs (Lanark, Galloway and Cruachan) were in excess of their carrying amounts. A reasonably possible
1% increase in the discount rate to 11.1% for Galloway and Cruachan would reduce the headroom by £21.1 million and £58.6 million
respectively and would not result in an impairment. A reasonably possible decrease in power prices of 10% in each of the value in use
calculations would reduce the headroom for Galloway and Cruachan by £29.5 million and £17.0 million respectively but would not
result in an impairment. Whilst reasonably possible changes in assumptions for the Galloway and Cruachan CGUs would reduce the
headroom, they would not result in the recoverable amount being lower than the carrying value. As such the Group does not believe
that any reasonably possible changes in the key assumptions would result in an adjustment to the carrying value of the Galloway or
Cruachan CGUs.
A reasonably possible 1% increase in the discount rate for Lanark would result in a£1.6n a £1.6 million impairment. A reasonably possible
10%decr10% decrease in power prices for Lanark would result in an impairment of £2.5 million. The Lanark CGU is sensitive to reasonably
possible changes in the key assumptions. Whilst reasonably possible changes to assumptions would result in an adjustment to the
carrying value of the Lanark CGU, they would not result in a material adjustment to its carrying value and so it is not considered a
keyskey source ofece of estimation uncertainty as defined by IAS 1.
Drax Power Station, Daldowie and OCGTs
For the Drax Power Station, Daldowie and OCGTs CGUs, there were no impairment indicators identified and none of these CGUs
havealle allocated goodwill. Therefore, value in use calculations to determine the recoverable amount of these CGUs were not required.
Impairment of non-current assets
The recoverable amount of the Opus Energy head office property was assessed and an impairment charge of £8.9 million was
recognised to reduce the carrying value to its recoverable amount of £6.0 million. The value in use calculation of the Opus Energy CGU
resulted in recognising a full impairment of the £14.5 million allocated goodwill and a further £45.7 million impairment charge across
the remaining non-current assets. The total impairment charge recognised in the Consolidated income statement in relation to the
non-current assets in the Opus Energy CGU was £69.1 million.
Other impairments of non-current assets in the year totalled £1.7 million and were charged to the Consolidated income statement.
Due to a change in accounting policy in the prior year an impairment charge of £5.7 million was recognised during 2022 on intangible
assets relating to Software as a Service (SaaS) costs previously capitalised. An impairment charge of £19.2 million was also recognised
on a billing system where the Group had stopped development as it no longer expected future economic benefits would be recovered
as an ongoing intangible asset. A legal claim in respect of this was settled during the current year. See notes 2.7 and 5.2 for further
details.
It is the Group’s policy that any impairments of land or assets that have not yet been brought into use and depreciated or amortised
arerare reeflected in the cost of the asset being impaired. For impairments of assets that have already been brought into use and are
subject to depreciation or amortisation charges, the impairment is reected in is reflected in the accumulated depreciation or accumulated
amortisation of the asset.
Year ended 31 December 2023
Year ended 31 December 2022
Goodwill – cost
14.5
–
14.5
–
–
–
–
–
Freehold land and buildings – cost
1.0
–
1.0
–
0.2
–
–
0.2
depreciation
7.9
–
7.9
0.5
–
–
–
0.5
Plant and equipment – accumulated depreciation
0.1
–
0.1
7.5
–
–
–
7.5
Assets under the course of construction – cost
–
1.7
1.7
–
6.7
–
–
6.7
Intangible assets – cost: computer software
–
–
–
–
1.7
19.2
–
20.9
Customer related assets: acquired separately
31.5
–
31.5
–
–
–
–
–
Brand assets: acquired separately
3.0
–
3.0
–
–
–
–
–
Computer software: internally generated
11.1
–
11.1
–
–
–
5.7
5.7
Total impairment of non-current assets
69.1
1.7
70.8
8.0
8.6
19.2
5.7
41.5
The total impairment charge for the year of £70.8 million (2022: £41.5 million) is recognised in the impairment of non-current assets
line in the Consolidated income statement. The £69.1 million impairment of Opus Energy was treated as an exceptional item (2022: the
impairment of SaaS intangible assets and the Customers billing system totalling £24.9 million were treated as exceptional items). See
note 2.7 for further details.
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2.5 Net finance costs
Net finance costs reeflect expenses incurred in managing the capital structure (such as interest payable on bonds) as well as foreign
exchange gains and losses, the unwinding of discounts on provisions for reinstatement of the Group’s sites at the end of their useful
economic lives (see note 5.3), and interest on lease liabilities (see note 3.2). These are offset by interest income that the Group
generates through use of short-term cash surpluses, for example through investment in money market funds, and interest income
onon the Group’s defined benefit pension scheme surplus (see note 6.3).
A reconciliation of net finance costs is shown in the table below:
Interest payable
(108.9)
(75.4)
Unwinding of discount on provisions (note 5.3)
(1.9)
(1.1)
Amortisation of deferred finance costs
(4.3)
(6 .1)
Other financing charges
(0.1)
(0.5)
Total interest payable and similar charges included in Adjusted results
(115.2)
(83.1)
Interest income on bank deposits
11.0
3.3
Interest income on defined benefit pension surplus (note 6.3)
2.1
1.0
Total interest receivable included in Adjusted results
13.1
4.3
Foreign exchange (losses)/gains included in Adjusted results
(14.3)
14.8
Net finance costs included in Adjusted results
(116.4)
(64.0)
Certain remeasurements on financing derivatives
4.6
(4.2)
Net finance costs included in Total results
(111.8)
(68.2)
Interest payable and similar charges is stated net of £8.1 million (2022: £5.2 million) of capitalised interest within the cost of qualifying
assets in property, plant and equipment during the year (see note 3.1). These charges represent fees payable on deferred letters of
credit that have been used specifically to finance the construction of the qualifying assets and therefore no capitalisation rate has
been applied.
Foreign exchange gains and losses in net finance costs arise on the retranslation of non-derivative balances denominated in foreign
currencies to prevailing rates at the reporting date.
Changes in the Group’s financing structure during 2023 are described in note 4.2.
The Group has a number of intercompany loans denominated in the functional currency of certain foreign subsidiaries, that are owed
to a sterling functional currency entity. Due to the strengthening of sterling during the year, this has resulted in a foreign exchange loss
of £17.0 million (2022: gain of £29.0 million) on the retranslation of intercompany loans in the sterling functional currency entity. This
loss (2022: gain) is recognised within the Consolidated income statement and within the foreign exchange gains or losses included in
Adjusted results line in the table above. Conversely, within the net gain or loss on translating the net assets of the foreign subsidiaries
into the Group’s sterling presentational currency there is a foreign exchange gain (2022: loss) relating to the translation of the foreign
subsidiaries’ intercompany loans. This impacts the translation reserve with the movement recognised in other comprehensive income.
2.6 Current and deferred tax
The tax charge (2022: credit) includes both current and deferred tax. It reeflects the estimated tax on the profit before tax for the
Group for the year ended 31Deced 31 December 2023 and the movement in the deferred tax balance in the year, so far as it relates to items
recognised in the Consolidated income statement, in line with IAS 12.
Accounting policy
Current tax includes UK corporation tax, corporate income tax in Canada and US income tax. It is based on the taxable profit or loss
fortfor the year in the relevant jurisdiction. Taxable profit or loss differs from profit or loss before tax as reported in the Consolidated
income statement, because it excludes items of income or expenditure that are either taxable or deductible in other years or never
taxable or deductible. The Group’s liability (or asset) for current tax is provided at amounts expected to be paid (or recovered) using
thete tax rates and laws that have been enacted or substantively enacted by the reporting date.
A provision is made for those matters for which the tax determination is uncertain, but it is considered probable that there will be a
future outflow of funds to a tax authority. The provisions are measured at the best estimate of the amount expected to become
payable. The assessment is based on the judgement of tax professionals within the Group supported by previous experience in respect
of such activities and in certain cases is based on specialist third-party tax advice. No uncertain tax provisions have been recognised
intin the current or prior year.
Section 2: Financial performance continued
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2.6 Current and deferred tax continued
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
intin the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable
thattat taxable profits will be available against which deductible temporary differences can be utilised.
Current and deferred taxes are credited or charged against profit or loss in the Consolidated income statement, except when they
relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred taxes
are recognised in the Consolidated statement of comprehensive income or directly in the Consolidated statement of changes in equity
respectively.
The Group has utilised the relief available under the Research and Development Expenditure Credit (RDEC) regime. Under this regime,
research and development tax credits are accounted for as development grants in line with IAS 20 and are recorded in operating profit
within the Consolidated income statement. The credit is subject to corporation tax with the corresponding receivable offset against
total corporation tax payable.
In accounting for tax, the Group makes assumptions regarding the treatment of items of income and expenditure for tax purposes.
TheGhe Group believes that these assumptions are reasonable, based on prior experience and consultation with advisers where deemed
necessary. These assumptions are consistent with other assumptions used in these Consolidated financial statements. Full provision is
made for deferred tax at the rates of tax prevailing at the reporting date unless future rates have been substantively enacted. Deferred
tax assets are recognised where it is considered more likely than not that they will be recovered. The recoverability of the deferred tax
asset is considered an estimate as it relies on the future profitability of the Group’s businesses. See table on page 205 for a breakdown
of the net deferred tax asset or liability position for each jurisdiction.
– UK tax
(186.5)
(66.0)
– Overseas tax
(1.6)
–
– Adjustments in respect of prior periods
2.0
1.9
– Before impact of tax rate changes
(46.7)
61.9
– Adjustments in respect of prior periods
0.3
(0.1)
– Effect of changes in tax rate
(3.0)
6.7
Total tax (charge)/credit
(235.5)
4.4
Deferred tax on remeasurement of defined benefit pension surplus
7.2
6 .1
Deferred tax on cash flow hedges
(130.7)
(5.6)
Deferred tax on cost of hedging
(1.9)
2.2
Total tax (charge)/credit
(125.4)
2.7
Current tax on share-based payments
6.9
–
Deferred tax on cost of hedging
9.0
7.2
Deferred tax on cash flow hedges
10.9
4.8
Deferred tax on share-based payments
(2.4)
7.4
Total tax credit
24.4
19.4
UK corporation tax is the main income tax applicable on the Group’s taxable profits and is calculated at 23.5% (2022: 19.0%) of the
assessable profit or loss for the year. This follows the rate increase to 25.0% from 1 April 2023 that was included within the Finance
Bill2021l 2021.
Due to the Group’s overseas operations, the US income tax rate of 21.0% (2022: 21.0%) and the Canadian corporate income tax rate
of27of 27.0% (2022: 27.0%) are also relevant to the Group’s UK corporation tax charge.
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2.6 Current and deferred tax continued
The effective tax rate for the full year, before the impact of changes in tax rates, is higher than the standard corporation tax rate
applicable in the UK, principally due to the introduction of the non-deductible Electricity Generator Levy from 1 January 2023 (see
theElee Electricity Generator Levy section on page 179 for further details). The primary current tax rate benefits arise from research and
development credits, UK Patent Box claims and the UK super-deduction introduced in the Finance Act 2021, which allowed for a
130%in-ye0% in-year deduction for tax purposes against the cost of qualifying capital expenditure on plant and machinery incurred between
1Ap1 April 2021 and 31 March 2023.
Drax Power Limited was granted a patent to protect certain intellectual property it owns and which attaches to the technology
developed to manage the combustion process in generating electricity from biomass. Under UK tax legislation, the company is
entitledto aed to apply a lower tax rate of 10% to profits derived from utilisation of the patented technology.
The Group tax charge for the year can be reconciled to the profit before tax as follows:
Year ended 31Ded 31 December 2023
Year ended 31Decd 31 December 2022
Profit/(loss) before tax
665.2
131.2
796.4
405.4
(327.3)
78 .1
Profit/(loss) before tax multiplied by the rate of
corporation tax in the UK of 23.5% (2022: 19.0%)
156.3
30.8
187.1
77.0
(62.2)
14.8
Adjustments in respect of prior periods
(2.3)
–
(2.3)
(1.8)
–
(1.8)
Expenses not deductible for tax purposes
5.2
6.5
11.7
4.5
–
4.5
Electricity Generator Levy
4 8 .1
–
4 8 .1
–
–
–
Impact of tax rate change
0.6
2.4
3.0
2.9
(9.6)
(6.7)
Share-based payments recognised in equity
8.1
–
8 .1
–
–
–
Difference in overseas tax rates
(0.7)
–
(0.7)
(1.3)
–
(1.3)
UK Patent Box benefit
(17. 4)
–
(17.4)
(9.6)
–
(9.6)
Tax effect of RDEC
(0.9)
–
(0.9)
(0.8)
–
(0.8)
UK super-deduction
(1.2)
–
(1.2)
(3.5)
–
(3.5)
Total tax charge/(credit)
195.8
39.7
235.5
67.4
(71.8)
(4.4)
Section 2: Financial performance continued
Drax Group plc
Annual report and accounts 2023
204
Financial statements
Contents

2.6 Current and deferred tax continued
The movements in deferred tax assets and liabilities during each year are shown below.
At 1JaAt 1 January 2022
38.8
(292.6)
2.3
(19.9)
60.0
(18.7)
33.5
(196.6)
statement
77.3
(24.9)
(1.8)
7.0
15.7
(20.7)
16.0
68.6
Credited to other comprehensive
income inrespect of respect of actuarial gains
–
–
–
–
–
6.1
–
6.1
Charged to other comprehensive
income inree in respect of cash flow
hedges
(5.6)
–
–
–
–
–
–
(5.6)
Credited to other comprehensive
income inree in respect of cost of hedging
2.2
–
–
–
–
–
–
2.2
flow hedges
4.8
–
–
–
–
–
–
4.8
ofof hedging
7.2
–
–
–
–
–
–
7. 2
Credited to equity in respect of
share-based payments
–
–
–
–
–
–
7.4
7.4
Impact of acquisition
–
(0.8)
–
–
–
–
–
(0.8)
exchange rates
–
(3.0)
–
–
4.4
–
1.0
2.4
At 1JaAt 1 January 2023
124.7
(321.3)
0.5
(12.9)
8 0.1
(33.3)
57.9
(104.3)
statement
(51.2)
9.0
(0.5)
12.3
(21.0)
(0.6)
2.6
(49.4)
Credited to other comprehensive
income inrespect of respect of actuarial gains
–
–
–
–
–
7. 2
–
7. 2
Charged to other comprehensive
income inre in respect of cash flow
hedges
(130.7)
–
–
–
–
–
–
(130.7)
Charged to other comprehensive
income inre in respect of cost of hedging
(1.9)
–
–
–
–
–
–
(1.9)
flow hedges
10.9
–
–
–
–
–
–
10.9
of hedging
9.0
–
–
–
–
–
–
9.0
Charged to equity in respect of
share-based payments
–
–
–
–
–
–
(2.4)
(2.4)
Impact of acquisition
–
–
–
(1.3)
–
–
–
(1.3)
exchangerates rates
–
1.8
–
–
(2.5)
(0.1)
(0.5)
(1.3)
At 31DecAt 31 December 2023
(39.2)
(310.5)
–
(1.9)
56.6
(26.8)
57.6
(264.2)
Net Canadian deferred tax asset at
31D1 December 2023
–
(18.8)
–
0.4
16.8
(0.2)
28.2
26.4
Net US deferred tax asset at
31D1 December 2023
–
(21.9)
–
–
39.8
–
8.6
26.5
Net UK deferred tax liability at
31D1 December 2023
(39.2)
(269.8)
–
(2.3)
–
(26.6)
20.8
( 317.1)
Net Canadian deferred tax asset at
31D1 December 2022
–
(49.6)
–
0.2
27.1
(1.0)
32.7
9.4
Net US deferred tax asset at
31D1 December 2022
–
(30.6)
–
–
53.0
–
5.5
27.9
Net UK deferred tax liability at
31D1 December 2022
124.7
(241.1)
0.5
(13.1)
–
(32.3)
19.7
(141.6)
Drax Group plc
Annual report and accounts 2023
205
Financial statements
Contents

2.6 Current and deferred tax continued
Deferred tax assets and liabilities are offset where the Group has both a legally enforceable right to offset the recognised amounts
andthd the intention to settle on a net basis, otherwise they are shown separately in the Consolidated balance sheet. Within the above
trade losses deferred tax asset of £56.6 million (2022: £80.1 million) there is £39.8 million (2022: £53.0 million) in relation to losses
intin the USPhe US Pellet Production business. The remaining £16.8 million relates to losses of the Canadian Pellet Production business
(2022:£27(2022: £27.1 million).
On 31 August 2023 the Group acquired BMM Energy Solutions Limited, a UK-based electric vehicle charge point installer (see note 5.1
for further details). A deferred tax liability of £1.3 million has been recognised on customer relationships included within this
acquisition, as noted above in the ‘impact of acquisition’ line. This liability will unwind as the intangible asset is amortised.
The future expected reversal of accelerated capital allowances and other timing differences, coupled with the profitability (inclusive
ofof the impact of transfer pricing adjustments), stable output and forecast improvement in operational performance, mean that the
USanUS and Canadian businesses expect to generate sufficient profits in the short to medium term against which to utilise the deferred tax
assets. The estimates used when assessing the future profitability of the US and Canadian businesses have been approved by the
Board and are consistent with estimates used in the going concern assessment and in the Viability statement on page 92.
As at 31 December 2023 the Group held £78.8 million (2022: £79.2 million) of UK capital losses available for offset against future
chargeable gains. These losses are unrecognised for deferred tax purposes as the Group does not currently expect UK taxable gains
toato arise that would be eligible to offset against these losses.
The Group is within scope of the Organisation for Economic Co-operation and Development’s (OECD’s) Global Anti-Base Erosion Rules,
which provide for an internationally co-ordinated system of taxation to ensure that large multinational groups pay a minimum level of
corporate income tax in countries in which they operate, referred to as Pillar Two. The legislation implementing the rules in the UK was
substantively enacted on 20 June 2023 and will apply to the Group from the financial year ending 31 December 2024 onwards.
TheGhe Group has applied the temporary exemption under IAS 12 in relation to the accounting for deferred taxes arising from the
implementation of the Pillar Two rules, so that the Group neither recognises nor discloses information about deferred tax assets and
liabilities related to Pillar Two. Based on an initial review of 2023 and the medium term forecasts up to and including the year ending
31D1 December 2026, the Group would fall within the Transitional Country by Country Reporting Safe Harbour, such that the expected
top up tax payable over this period under the Pillar Two rules is expected to be £nil.
The Group continues to monitor developments in the UK and outside of the UK and will undertake a detailed review in 2024 to ensure
ongoing compliance with its administrative obligations under these rules.
2.7 Alternative performance measures
The alternative performance measures (APMs) glossary to these Consolidated financial statements on page 285 provides details of
allAall APMs used, each APM’s closest IFRS equivalent, the reason why the APM is used by the Group and a definition of how each APM
iscis calculated.
The Group presents Adjusted results in the Consolidated income statement. Management believes that this approach is useful as it
provides a clear and consistent view of underlying trading performance. Exceptional items and certain remeasurements are excluded
from Adjusted results and are presented in a separate column in the Consolidated income statement. The Group believes that this
presentation provides useful information about the financial performance of the business and is consistent with the way the Board
and Executive management assess the performance of the business.
The Group has a policy and framework for the determination of transactions to present as exceptional. Exceptional items are excluded
from Adjusted results as they are transactions that are deemed to be one-off or unlikely to reoccur in future years due to their nature,
size, the expected frequency of similar events or the commercial context. By excluding these amounts this provides users of the
Consolidated financial statements with a more representative view of the results of the Group and enables comparisons with other
reporting periods as it excludes amounts from activities or transactions that are not likely to reoccur. All transactions presented as
exceptional are approved by the Audit Committee. See the Audit Committee report on page 132 for further details.
In these Consolidated financial statements, the following transactions have been designated as exceptional items and presented
separately:
• Impairment charges related to the Opus Energy CGU (2023, Customers). See note 2.4 for further information.
• Proceeds from a legal settlement relating to a supplier’s failure to perform under their contract (2023, Customers). See note 5.2
forfor further information.
• Change in the fair value of contingent consideration (2023, Generation). See note 7.1 for further information.
• Impact of the UK tax rate change on deferred tax balances (2023, Generation and Customers; 2022, Generation and Customers).
See note 2.6 for further information.
• Impairment charges incurred on the application of the Group’s new accounting policy for Software as a Service (SaaS) costs,
consistent with the IFRIC agenda decision (2022, All segments), and on costs associated with the Customers billing system (2022,
Customers). See note 5.2 for further details.
Section 2: Financial performance continued
Drax Group plc
Annual report and accounts 2023
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Financial statements
Contents

2.7 Alternative performance measures continued
Certain remeasurements comprise gains or losses on derivative contracts to the extent that those contracts do not qualify for hedge
accounting, or hedge accounting is not effective, and those gains or losses are either i) unrealised and relate to derivative contracts
with a maturity in future periods, or ii) are realised in relation to the maturity of derivative contracts in the current period. Gains and
losses on derivative contracts prior to maturity generally reect the difference between the contracted price and the currflect the difference between the contracted price and the current market
price, which management does not believe provides meaningful information as the Group is not entering contracts with the intention
of creating value from changes in market prices. The Group is entering forward contracts as economic hedges to secure prices and
rates, and lock in value for its future expected pellet production, generation or energy supply activities. The effect of excluding certain
remeasurements from Adjusted results is that commodity sales and purchases are recognised in the period they are intended to hedge
at their contracted prices i.e. at the all-in-hedged amount paid or received in respect of the delivery of the commodity in question. It
also results in the total impact of financial contracts being recognised in the period they are intended to hedge. Management believes
this better reects the per reflects the performance of the business as it more accurately represents the intention for entering derivative contracts.
2022 saw high prices and volatility in financial and commodity markets. As prices increased this resulted in significant movements in
the remeasurement gains and losses on certain derivative financial instruments which do not qualify for hedge accounting, or where
hedge accounting is ineffective, as shown in the table below, principally relating to gas, certain foreign currency contracts, in, inflation
and oil. In the current year prices have reduced compared to the 2022 highs, and therefore certain gains and losses recognised in the
prior year have reversed.
Further details on the Group’s derivative financial instruments are provided in Section 7.
Impairment of non-current assets
(69.1)
(24.9)
Net credit from legal claim
13.7
–
Change in fair value of contingent consideration
(18.2)
–
Exceptional items included within operating profit and profit before tax
(73.6)
(24.9)
Tax on exceptional items
10.8
4.7
Impact of tax rate change
0.7
(9.8)
Exceptional items after tax
(62.1)
(30.0)
Net fair value remeasurements on derivative contracts included in revenue
70.7
(441.4)
Net remeasurements realised on maturity of derivative contracts included in revenue
228.6
107.7
Net hedge ineffectiveness reclassified to profit or loss included in revenue
(16.4)
(50.2)
Net fair value remeasurements on derivative contracts included in cost of sales
(127.0)
32.6
Net remeasurements realised on maturity of derivative contracts included in cost of sales
44.3
53.1
Certain remeasurements included within operating profit
200.2
(298.2)
Net remeasurements on maturity of derivative contracts included in interest payable and similar charges
(0.3)
(0.4)
Net fair value remeasurements on derivative contracts included in foreign exchange gains/(losses)
4.9
(3.8)
Certain remeasurements included in profit before tax
204.8
(302.4)
Tax on certain remeasurements
(4 8.1)
57.5
Impact of tax rate change
(3.1)
19.4
Certain remeasurements after tax
153.6
(225.5)
Adjusted profit after tax
469.4
338.0
Exceptional items after tax
(62.1)
(30.0)
Certain remeasurements after tax
153.6
(225.5)
Total profit after tax
560.9
82.5
Drax Group plc
Annual report and accounts 2023
207
Financial statements
Contents

2.7 Alternative performance measures continued
For each item designated as exceptional or as a certain remeasurement, the table below summarises the impact of the item on
Adjusted and Total profit after tax, Basic EPS and net cash ash flow from operating activities.
Total results IFRS measure
8 ,125. 3
1,953.6
908.2
796.4
(235.5)
560.9
142.8
835.6
Net fair value remeasurement on
derivative contracts
(282.9)
(200.2)
(200.2)
(204.8)
4 8 .1
(156.7)
(39.7)
–
Impact of tax rate change
–
–
–
–
3.1
3.1
0.8
–
Impairment of non-current assets
–
–
69.1
69.1
(13.5)
55.6
14 .1
–
Proceeds from legal claim
–
–
(13.7)
(13.7)
2.7
(11.0)
(2.8)
(9.3)
consideration
–
–
18.2
18.2
–
18.2
4.6
–
Impact of tax rate change
–
–
–
–
(0.7)
(0.7)
(0.2)
–
Total
(282.9)
(200.2)
(126.6)
(131.2)
39.7
(91.5)
(23.2)
(9.3)
Adjusted results totals
7,8 42.4
1,753.4
781.6
665.2
(195.8)
469.4
119.6
826.3
Total results IFRS measure
7,7 75.3
1,023.3
146.3
78.1
4.4
82.5
21.3
207.7
Net fair value remeasurement on
derivative contracts
383.9
298.2
298.2
302.4
(57.5)
244.9
61.2
–
Impact of tax rate change
–
–
–
–
(19.4)
(19.4)
(4.8)
–
Impairment of non-current assets
–
–
24.9
24.9
(4.7)
20.2
5.0
–
Impact of tax rate change
–
–
–
–
9.8
9.8
2.4
–
Total
383.9
298.2
323.1
327.3
(71.8)
255.5
63.8
–
Adjusted results totals
8 ,159.2
1,321.5
469.4
405.4
(67.4)
338.0
85.1
207.7
A cost of £204.6 million has been recognised in relation to EGL for the year. The cost has been recognised within the Electricity
Generator Levy line in the Consolidated income statement. The liability for EGL has been recognised within Trade and other payables
and contract liabilities within the Consolidated balance sheet.
Section 2: Financial performance continued
Drax Group plc
Annual report and accounts 2023
208
Financial statements
Contents

2.7 Alternative performance measures continued
Both Adjusted EBITDA including EGL and Adjusted EBITDA excluding EGL are presented below. Management believes that providing
both measures provides useful information, as it enables readers to compare, on a consistent basis, the current period Adjusted
EBITDA to prior periods in which the EGL was not applicable, and also to see the impact of EGL, which is relevant for comparison
infin future periods.
Adjusted operating profit
782.9
(1.3)
781.6
Depreciation and amortisation
223.7
1.3
225.0
Other gains
(0.7)
–
(0.7)
Share of losses from associates
1.6
–
1.6
Impairment of non-current assets
1.7
–
1.7
Adjusted EBITDA including Electricity Generator Levy
1,009.2
–
1,009.2
Electricity Generator Levy
204.6
–
204.6
Adjusted EBITDA excluding Electricity Generator Levy
1,213.8
–
1,213.8
Adjusted operating profit
472.0
(2.6)
469.4
Depreciation and amortisation
237. 2
2.2
239.4
Other losses
5.7
0.1
5.8
Share of profits from associates
(0.5)
–
(0.5)
Impairment of non-current assets
16.6
–
16.6
Adjusted EBITDA
731.0
(0.3)
730.7
Pellet Production
88.9
133.7
Generation
1,13
8 .1
695.5
Customers
71.8
25.8
Innovation, capital projects and other
(78.1)
(113.6)
Intra-group eliminations
(6.9)
(10.4)
Total Adjusted EBITDA excluding Electricity Generator Levy
1,213.8
731.0
(204.6)
–
Total Adjusted EBITDA including Electricity Generator Levy
1,009.2
731.0
(1)
(1) The Electricity Generator Levy relates wholly to the Generation segment, therefore Adjusted EBITDA including Electricity Generator Levy for the Generation segment is £933.5 million.
Net debt
Net debt is calculated by taking the Group’s borrowings (note 4.2), adjusting for the impact of associated hedging instruments,
andsubd subtracting cash and cash equivalents (note 4.1). Net debt excludes the share of borrowings and cash and cash equivalents
attributable to non-controlling interests.
Borrowings includes external financial debt, such as loan notes, term loans and amounts drawn in cash under revolving credit facilities
(RCFs) (see note 4.2), net of any deferred finance costs. Borrowings does not include other financial liabilities such as pension
obligations (see note 6.3), trade and other payables (see note 3.7), lease liabilities calculated in accordance with IFRS 16 (see note 3.2)
and working capital facilities (such as credit cards and deferred letters of credit) linked directly to specific payables that provide short
extension of payment terms of less than 12 months (see note 4.3). The Group does not include balances related to supply chain
financing in Net debt as there are no changes to the Group’s payment terms under this arrangement, nor would there be if the
arrangement was to cease (see note 3.7). Net debt includes the impact of any cash collateral receipts from counterparties or cash
collateral posted to counterparties.
The Group does not include lease liabilities, calculated in accordance with IFRS 16, in the definition of Net debt. This reflects the
nature of the contracts included in this balance which are predominantly entered into for operating purposes rather than as a way to
finance the purchase of an asset. The exclusion of lease liabilities from the calculation of Net debt is also consistent with the Group’s
covenant reporting requirements.
Drax Group plc
Annual report and accounts 2023
209
Financial statements
Contents

2.7 Alternative performance measures continued
The Group has entered into cross-currency interest rate swaps, fixing the sterling value of the principal repayments and interest in
respect of the Group’s US dollar (USD) and euro (EUR) denominated debt. The Group has also entered a fixed rate foreign exchange
forward to fix the sterling value of the principal repayment of the Canadian (CAD) denominated debt (see note 4.2). For the purpose
ofcof calculating Net debt, USD, EUR and CAD balances are translated at the hedged rate, rather than the rate prevailing at the reporting
date, which impacts the carrying amount of the Group’s borrowings. See the APMs glossary and the APMs section within the Basis
ofprof preparation for further details on the calculation of Net debt.
Cash collateral is sometimes paid or received in relation to the Group’s commodity and treasury trading activities. When derivative
positions are out of the money for the Group, cash collateral may be required to be paid to the counterparty. When derivative positions
are in the money, cash collateral may be received from counterparties. These positions reverse when contracts are settled and the
cash collateral is returned.
At 31DeceAt 31 December 2023, net cash postings of £78.6 million had been made to counterparties (2022: £234.0 million) to support
commodity hedging activity. Cash collateral payments of £98.9 million (2022: £234.0 million) are recognised in other receivables and
£20.3 million (2022: £nil) of cash collateral receipts are recognised in other payables. The decrease in cash collateral payments is due
to the settlement of trades from the prior year as well as a reduction in commodity prices seen in the power, gas and carbon markets.
See note 4.3 for details on collateral requirements the Group has met through its available non-cash credit facilities.
The Group’s definition of Net debt includes the impact of cash collateral. In the table below, Net debt excluding collateral is also
presented and reconciled to Net debt.
Borrowings (note 4.2)
(1,425.3)
(1,440.9)
Cash and cash equivalents
379.5
238.0
Net cash and borrowings
(1,045.8)
(1,202.9)
NCI’s share of cash and cash equivalents in non-wholly owned subsidiaries
(0.3)
(0.7)
Impact of hedging instruments
(37.8)
(2.4)
Net debt
(1,083.9)
(1,206.0)
Net cash collateral posted
78.6
234.0
Net debt excluding collateral
(1,005.3)
(972.0)
The table below reconciles Net debt in terms of changes in these balances across the year:
Net debt at 1 January
(1,206.0)
(1,10
8 .0)
Increase/(decrease) in owners of the parent company’s share of cash and cash equivalents
146.3
(85.6)
Increase in borrowings
(19.8)
(8.6)
Effect of changes in foreign exchange rates
31.0
(65.8)
Movement in the impact of hedging instruments
(35.4)
62.0
Net debt at 31D1 December
(1,083.9)
(1,206.0)
A reconciliation of the change in borrowings during the year is set out in the table in note 4.2.
As explained in the Basis of preparation, the Group has a long-term target for Net debt to Adjusted EBITDA including EGL of around
2.0t2.0 times.
2023
2022
Adjusted EBITDA including EGL (£m)
1,009.2
731.0
Adjusted EBITDA excluding EGL (£m)
1,213.8
731.0
Net debt (£m)
(1,083.9)
(1,206.0)
Net debt excluding collateral (£m)
(1,005.3)
(972.0)
Net debt to Adjusted EBITDA including EGL ratio
1.1
1.6
Net debt to Adjusted EBITDA excluding EGL ratio
0.9
1.6
Section 2: Financial performance continued
Drax Group plc
Annual report and accounts 2023
210
Financial statements
Contents

2.7 Alternative performance measures continued
Cash and committed facilities
The below table reconciles the Group’s available cash and committed facilities:
Cash and cash equivalents (note 4.1)
379.5
238.0
RCF available but not utilised
(1)
259.9
26 0.1
–
200.0
Total cash and committed facilities
639.4
698 .1
(2)
(1) The Group’s available balance on the RCF facility (includes £300 million and C$10 million RCF, see note 4.2) is reduced by letters of credit drawn under the RCF.
At31DeAt 31 December 2023, £46.1 million letters of credit were drawn (2022: £46.0 million).
(2) In December 2022, the Group secured a new £200 million committed liquidity facility with banks within its lending group. This facility provided an additional source
ofliof liquidity to the Group’s existing undrawn RCFs, until December 2023. This facility was undrawn at 31 December 2022 and as at 31 December 2023 has matured.
Further commentary on total cash and committed facilities is contained within the Financial review starting on page 22.
2.8 Earnings per share
Earnings per share (EPS) represents the amount of earnings (post-tax profit or losses) attributable to the weighted average number
oforof ordinary shares outstanding in the year. Basic EPS is calculated by dividing the Group’s earnings attributable to owners of the parent
company (profit or loss after tax, excluding amounts attributable to non-controlling interests) by the weighted average number of
ordinary shares that were outstanding during the year. Diluted EPS demonstrates the impact of all outstanding share options that
would vest on their future maturity dates if the conditions at the end of the reporting period were the same as those at the end of the
vesting period (such as those to be issued under employee share schemes – see note 6.2), and the options were exercised and treated
as ordinary shares as at the reporting date. Repurchased shares of 40.3 million (2022: 13.8 million) held in the treasury shares reserve
are not included in the weighted average calculation of shares. See note 2.11 for details of the shares repurchased in the current year
as part of the £150 million share buyback programme and note 4.4 for further details on the treasury shares reserve. For the purpose of
calculating diluted EPS, the weighted average calculation of shares excludes any share options that would have an anti-dilutive impact.
2023
2022
Weighted average number of ordinary shares for the purposes of calculating Basic earnings per share
393.8
400.4
Effect of dilutive potential ordinary shares under share plans
9.3
14.0
Weighted average number of ordinary shares for the purposes of calculating Diluted earnings per share
4 03.1
414.4
2023
2022
Adjusted results
Total results
Adjusted results
Total results
Earnings – profit after tax (£m)
470.7
562.2
340.6
85.1
Earnings per share – Basic (pence)
119.6
142.8
85.1
21.3
Earnings per share – Diluted (pence)
116.8
139.5
82.2
20.5
2.9 Dividends
Interim dividend for the year ended 31De1 December 2023 paid on 3 October 2023
9.2
35.7
–
Final dividend for the year ended 31Deced 31 December 2022 paid on 19 May 2023
12 . 6
50.6
–
Interim dividend for the year ended 31De1 December 2022 paid on 7 October 2022
8.4
–
33.7
Final dividend for the year ended 31Deced 31 December 2021 paid on 13 May 2022
11.3
–
45.2
Total distributions
86.3
78.9
At the forthcoming Annual General Meeting, the Board will recommend to shareholders that a resolution is passed to approve
payment of a final dividend for the year ended 31D1 December 2023 of 1 3.9 pence per share (equivalent to approximately £53 .5 million)
payable on 17 May 2024. The final dividend has not been included as a liability as at 31D1 December 2023. This would bring total
dividends payable in respect of the 2023 financial year to approximately £89.2 million.
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2.9 Dividends continued
The Group has a long-standing capital allocation policy. This policy is based on a commitment to robust financial metrics that underpin
the Group’s strong credit rating: investment in the core business; paying a sustainable and growing dividend; and returning surplus
capital to shareholders. The Board is confident that the dividend is sustainable and expects it to grow as the implementation of the
Group’s strategy generates an increasing proportion of stable earnings and cash ash flows. In determining the rate of growth in dividends,
the Board will take account of future investment opportunities and the less predictable cash owh flows from the Group’s commodity-linked
revenue streams.
In future years, if there is a build-up of capital in excess of the Group’s investment needs, the Board will consider the most appropriate
mechanism to return this to shareholders.
Consideration of sustainability, including a link to the Group’s dividend, can be found in the Market context section on pages 4 and 5.
2.10 Retained profits
Retained profits are a component of equity reserves. The overall balance reeflects the total profits the Group has generated over its
lifetime that are attributable to the equity holders of the parent company, reduced by the amount of that profit distributed to
shareholders. The table below sets out the movements in retained profits during the year:
At 1 January
193.8
198.3
Profit for the year attributable to the owners of the parent company
562.2
85.1
Remeasurement of defined benefit pension scheme (note 6.3)
(28.8)
(24.4)
Deferred tax on remeasurement of defined benefit pension scheme (note 2.6)
7. 2
6 .1
Tax on share-based payments (note 2.6)
4.5
7.4
Equity dividends paid (note 2.9)
(86.3)
(78.9)
Movements in equity associated with share-based payments
13.4
9.5
Acquisition of NCI without a change in control (note 4.5)
–
(9.3)
Gain on equity investments
0.4
–
At 31DecAt 31 December
666.4
193.8
Distributable reserves
The capacity of the Group to make dividend payments is primarily determined by the availability of retained distributable profits and
cash resources.
The parent company’s financial statements, set out on pages 275 to 281 of these Annual report and accounts, disclose the basis of
thepae parent company’s distributable reserves. Sufficient reserves are available across the Group as a whole to make future distributions
in accordance with the Group’s dividend policy for the foreseeable future.
The majority of the Group’s distributable reserves are held in holding and operating subsidiaries. Management actively monitors
thelee level of distributable reserves in each company in the Group, ensuring adequate reserves are available for upcoming dividend
payments and that the parent company has access to these reserves.
The immediate cash resources of the Group of £379.5 million are set out in note 4.1 and the recent history of cash generation within
note 4.3. The majority of these cash resources are held centrally within the Group by Drax Corporate Limited for treasury management
purposes and are available for funding the working capital and other requirements of the Group.
The Group’s financing facilities (see note 4.2) place customary conditions on the amount of dividend payments that can be made
inain any given year. The Group expects to be able to make dividend payments, in line with its policy, within these conditions for the
foreseeable future. See note 4.2 for further details on the covenants relating to the financing facilities.
2.11 Share buyback programme
On 26 April 2023, the Group announced the commencement of a £150 million share buyback programme. The buyback programme
commenced on 18 May 2023 and concluded on 15 September 2023. The shares were acquired at an average price of 567.5 pence
pershar share, with prices ranging from 521.6 pence to 637.7 pence. In total the Group repurchased 26.5 million ordinary shares at a total
net cost of £149.2 million. These shares are held in a separate treasury shares reserve awaiting reissue or cancellation and have no
voting rights attached to them. See note 4.4 for a reconciliation of the movement in the treasury shares reserve.
Section 2: Financial performance continued
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This section gives further information on the operating assets the Group uses to generate revenue and the short-term assets and
liabilities, managed during day-to-day operations, that comprise the Group’s working capital balances.
3.1 Property, plant and equipment
This note shows the cost, accumulated depreciation and net book value of the physical assets controlled by the Group.
Accounting policy
Property, plant and equipment is stated at net book value, which is its cost less any accumulated depreciation and accumulated
impairment losses, if required, charged to date. Property, plant and equipment assets are initially measured at cost.
Cost comprises: thephe purchase price (after deducting trade discounts and rebates); any directly attributable costs of bringing the asset
to the location and condition necessary for it to be capable of operating in the manner intended by management; and the estimate of
the present value of the costs of dismantling and removing the item and restoring the site, where required. Depreciation reeflects the
usage of the asset over time and is calculated by taking the cost of the asset, net of any expected residual value, and charging it to the
Consolidated income statement on a straight-line basis from the date that the asset is available for use and over its useful economic life
(UEL). Where relevant, this is limited to the estimated decommissioning date of the site where the asset is located.
The Group constructs many of its assets as part of long-term development projects. Assets that are under the course of construction
are not depreciated until they are ready for use in the manner intended by management.
The table below shows the weighted average remaining UELs of the main categories of assets held at the reporting date:
Freehold buildings
22
Drax Power Station plant
15
Hydro plants (including pumped storage)
38
Pellet production plant
7
Other plant, machinery and equipment
13
Reinstatement asset
16
Plant spare parts
16
Freehold land held at cost is considered to have an unlimited UEL and is not depreciated. The value of freehold land held at
31D1 December 2023 is £35.6 million (2022: £37.5 million).
Section 3: Operating assets and working capital
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Section 3: Operating assets and working capital continued
3.1 Property, plant and equipment continued
An impairment charge is recognised immediately if the net book value of an asset exceeds its recoverable amount, which is the
higherof an ar of an asset’s value in use and its fair value less costs to sell. The Group’s policy is to recognise an impairment charge through
accumulated depreciation if the asset will continue to be used by the Group or if the asset will be subsequently sold. However,
iftif theahe asset is land that is not depreciated, or if the asset is still under construction and so no depreciation has yet been charged,
theime impairment charge is recognised within cost. Assets that will no longer be used by the Group are disposed of by removing both
thecosthe cost and any accumulated depreciation and impairment.
Electricity generation assets are grouped according to the fuel type of the relevant plant.
Pellet production plant includes the US and Canada based assets of the Group’s Pellet Production business and the assets at the
Daldowie fuel plant near Glasgow.
Plant spare parts are depreciated over the remaining UEL of the relevant power station or plant.
Plant spare parts can be used within maintenance projects which are operating in nature (in addition to capital maintenance projects).
In this instance the net book value of the part is transferred from the property, plant and equipment balance and recognised as an
expense in the Consolidated income statement within operating and administrative expenses. These issues are reected ineflected in the issues
to maintenance projects line in the table below.
Costs relating to major inspections, overhauls and upgrades to assets are included in the carrying amounts of existing assets or
recognised as separate assets, as appropriate, if the recognition criteria are met; namely, when it is probable that future economic
benefits associated with theexe expenditure will flow to the Group and the cost can be measured reliably. All other repairs and
maintenance costs are expensed asincurred. incurred.
Estimated UELs and residual values are reviewed as a minimum at the end of each reporting period, taking into account regulatory
changes, climate change (see note 3.8 for further details) and commercial and technological obsolescence, as well as normal wear and
tear. Residual values are based on prices prevailing at the reporting date. Any changes to estimated UELs or residual values are applied
prospectively.
At each reporting date the Group reviews its property, plant and equipment to determine whether there is any indication that these
assets may be impaired. The Group’s accounting policy in respect of impairment, along with details of the impairment review
conducted during the year are set out in note 2.4.
During the year, the Group has capitalised £18.3 million (2022: £19.1 million) of costs relating to the UK BECCS project at Drax Power
Station resulting in a total amount of £42.8 million capitalised in relation to this project as at 31Decs at 31 December 2023 (2022: £24.5 million).
The capitalisation of development project costs has been classified as a critical accounting judgement due to the judgements required
in determining whether costs incurred meet the criteria to be capitalised or not, and should expectations around development projects
change then the amounts capitalised may need to be impaired.
The Group has also continued construction of the three OCGT projects that have obtained Capacity Market contracts. The amount
capitalised to date relating to these projects totals £323.5 million (2022: £134.9 million). Of this, £188.6 million (2022: £90.2 million)
was capitalised during the year.
The Group’s total commitment for future capital expenditure is disclosed in note 7.7.
Significant estimation uncertainty
As disclosed on page 180, the Group has made an estimate regarding the UEL of Drax Power Station. Given the continued focus on
climate change, renewable sources of energy and transitioning to a net zero economy, the power generation industry is going through
a period of transformation, which can impact on the UELs of assets. As the UK Government’s net zero strategy becomes clearer,
particularly in relation to biomass and BECCS, the Group will continue to assess any potential impact of these developments on the
UEL of Drax Power Station.
The rate of change in these areas increases the risk that the UEL of Drax Power Station will be updated in the future as new
information becomes available. As such, a change in UELs in relation to Drax Power Station’s assets has been disclosed as a key source
of estimation uncertainty. If UK BECCS is deployed at Drax Power Station this could result in an extension of the end of station life
beyond the current assumed end date of 2039. If the UELs of Drax Power Station assets that are currently limited to 2039 were to
increase by a further 10 years, the annual depreciation charge would decrease by approximately £16.6 million. If the assumed end
ofstof station life of 2039 were to decrease by 10 years to202s to 2029 the annual depreciation charge would be increased by approximately
£72.9 million.
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Annual report and accounts 2023
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3.1 Property, plant and equipment continued
At 1JaAt 1 January 2022
453.8
3
,16 0 .5
72.3
304.3
3,990.9
Additions at cost
8.2
2.2
3.8
231.8
246.0
Acquired in business combinations
3.3
4.6
–
–
7.9
Impairment
(0.2)
–
–
(6.7)
(6.9)
Disposals
(1.3)
(23.7)
–
(0.9)
(25.9)
Movement in reinstatement asset
–
(22.4)
–
–
(22.4)
Issues to maintenance projects
–
–
(3.3)
–
(3.3)
Transfers from inventories
–
–
0.5
–
0.5
Transfers from/(to) intangibles
–
0.3
–
(0.3)
–
Transfers between PPE categories
22.3
202.6
7.7
(232.6)
–
Effect of changes in foreign exchange rates
17.2
52.6
–
13.3
83.1
At 1JaAt 1 January 2023
503.3
3,376.7
81.0
308.9
4,269.9
Additions at cost
–
0.4
8.1
500.7
509.2
Acquired in business combinations (see note 5.1)
–
0 .1
–
–
0.1
Impairment
(1.0)
–
–
(1.7)
(2.7)
Disposals
(0.3)
(27.8)
–
–
(28.1)
Movement in reinstatement asset (see note 5.3)
–
22.7
–
–
22.7
Issues to maintenance projects
–
–
(6.5)
–
(6.5)
Transfers to intangibles
–
(0.1)
–
(0.5)
(0.6)
Transfers between PPE categories
0.4
168.0
0.5
(168.9)
–
Effect of changes in foreign exchange rates
(9.5)
(33.8)
–
(4.2)
(47.5)
At 31DecAt 31 December 2023
492.9
3,506.2
83.1
634.3
4,716.5
At 1JaAt 1 January 2022
118.2
1,534.1
27.9
–
1,680.2
Depreciation charge for the year
21.5
171.6
2.5
–
195.6
Impairment
0.5
7.5
–
–
8.0
Disposals
(1.7)
(19.7)
–
–
(21.4)
Issues to maintenance projects
–
–
(0.4)
–
(0.4)
Transfers between PPE categories
(0.3)
(3.2)
3.5
–
–
Effect of changes in foreign exchange rates
4.1
15.8
–
–
19.9
At 1JaAt 1 January 2023
142.3
1
,70 6 .1
33.5
–
1,881.9
Depreciation charge for the year
19.3
145.2
2.6
–
167.1
Impairment
7.9
0 .1
–
–
8.0
Disposals
(0 .1)
(25.1)
–
–
(25.2)
Issues to maintenance projects
–
–
(0.7)
–
(0.7)
Effect of changes in foreign exchange rates
(2.7)
(10.7)
–
–
(13.4)
At 31DecAt 31 December 2023
166.7
1,815.6
35.4
–
2 ,017.7
At 31DeceAt 31 December 2022
361.0
1,670.6
47.5
308.9
2,388.0
At 31DecAt 31 December 2023
326.2
1,690.6
47.7
634.3
2,698.8
Included within the cost of assets under the course of construction are capitalised interest of £13.3 million (2022: £5.2 million) relating
to the construction of the three OCGT projects. See note 2.5 for further details of borrowing costs capitalised during the year.
See note 2.4 for further details of the Group’s accounting policy and presentation of impairments of non-current assets.
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Annual report and accounts 2023
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Contents

Section 3: Operating assets and working capital continued
3.1 Property, plant and equipment continued
At 1JaAt 1 January 2022
2 ,117. 8
476.0
5 47.3
19.4
3,16
0.5
Additions at cost
1.0
–
0.9
0.3
2.2
Acquired in business combinations
–
–
4.6
–
4.6
Disposals
(0.1)
–
(21.1)
(2.5)
(23.7)
Movement in reinstatement asset
(22.4)
–
–
–
(22.4)
Transfers from intangibles
–
–
0.3
–
0.3
Transfers between PPE categories
45.0
3.4
154.2
–
202.6
Effect of changes in foreign exchange rates
–
–
52.6
–
52.6
At 1JaAt 1 January 2023
2 ,141. 3
479.4
738.8
17. 2
3,376.7
Additions at cost
–
–
–
0.4
0.4
Acquired in business combinations (see note 5.1)
–
–
–
0 .1
0 .1
Disposals
–
–
(27.6)
(0.2)
(27.8)
Movement in reinstatement asset (see note 5.3)
20 .1
–
2.6
–
22.7
Transfers between PPE categories
117.1
–
50.9
–
168.0
Transfers to intangibles
–
–
(0 .1)
–
(0 .1)
Effect of changes in foreign exchange rates
–
–
(33.8)
–
(33.8)
At 31DecAt 31 December 2023
2,278.5
479.4
730.8
17. 5
3,506.2
At 1JaAt 1 January 2022
1,356.5
41.2
122.6
13.8
1,534.1
Depreciation charge for the year
64.3
12.1
92.9
2.3
171.6
Impairment
–
–
7.5
–
7.5
Disposals
–
–
(17.3)
(2.4)
(19.7)
Transfers between PPE categories
(3.5)
–
0.3
–
(3.2)
Effect of changes in foreign exchange rates
–
–
15.8
–
15.8
At 1JaAt 1 January 2023
1,417.3
53.3
221.8
13.7
1,7 0 6 .1
Depreciation charge for the year
66.2
12.9
64.2
1.9
145.2
Impairment
–
–
–
0 .1
0.1
Disposals
–
–
(24.9)
(0.2)
(25.1)
Effect of changes in foreign exchange rates
–
–
(10.7)
–
(10.7)
At 31DecAt 31 December 2023
1,483.5
66.2
250.4
15.5
1,815.6
At 31DeceAt 31 December 2022
724.0
426.1
517.0
3.5
1,670.6
At 31DecAt 31 December 2023
795.0
413.2
480.4
2.0
1,690.6
The depreciation expense in the Consolidated income statement comprises the following:
Depreciation charged on property, plant and equipment
167.1
195.6
Depreciation charged on right-of-use assets (note 3.2)
26.9
20.3
Movement on depreciation included in closing inventories
1.6
(7.9)
Total depreciation expense
195.6
208.0
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Annual report and accounts 2023
216
Financial statements
Contents

3.2 Leases
Accounting policy
IFRS 16 determines a control model to distinguish between lease agreements and service contracts on the basis of whether the
useofan ie of an identified asset is controlled by the Group for a period of time. If the Group is deemed to have control of an identified asset,
then a right-of-use asset and corresponding lease liability are recognised on the Consolidated balance sheet.
The lease liability is initially measured at the present value of the future lease payments discounted using the discount rate that is
implicit in the lease. If this discount rate cannot be determined from the agreement, the liability is discounted using an incremental
borrowing rate. Incremental borrowing rates are updated biannually. The borrowing rate for leased property is derived with reference
to property yields specific to the location of the leased property and property type. For non-property leases, the borrowing rate is
derived from a series of inputs including counterparty specific proxies for risk-free rates, such as UK Gilt curves, and an adjustment for
credit risk based on the Group’s credit rating. The liability is subsequently adjusted for interest, repayments and other modifications.
The right-of-use asset is initially measured at cost and is subsequently measured at cost less accumulated depreciation and
accumulated impairment losses. Cost comprises the initial calculation of the lease liability, estimated costs for dismantling or restoring
the asset, any initial direct costs, and lease payments made or incentives received prior to commencement of the lease.
Lease modifications are accounted for as a separate lease where the scope of the lease increases through the right to use one or more
underlying assets, and where the consideration of the lease increases by an amount that is equivalent to the standalone price of the
increase in scope. Where a modification decreases the scope of the lease, the carrying amount of the right-of-use asset and lease
liability are adjusted, and a gain or loss is recognised in proportion to the decrease in scope of the lease. All other modifications are
accounted for as a reassessment of the lease liability with a corresponding adjustment to the right-of-use asset.
Lease extension or termination options are included within the lease term when the Group, as the lessee, has the discretion to exercise
the option and where it is reasonably certain that the option will be exercised.
Leases with a term shorter than 12 months, or where the identified asset has a value below £3,500, are expensed to the Consolidated
income statement on a straight-line basis over the term of the agreement.
Lease remeasurements, lease modifications, and disposals of leased assets are included within other movements in the table below.
Right-of-use assets
At 1JaAt 1 January 2022
27.9
15.2
30.2
68.5
141.8
Additions at cost
5.1
4.7
2.2
19.8
31.8
Other movements
( 3.1)
4.0
(0.8)
–
0 .1
Effect of changes in foreign exchange rates
0.5
0.9
2.1
2.5
6.0
At 1JaAt 1 January 2023
30.4
24.8
33.7
90.8
179.7
Additions at cost
9.9
5.6
0.6
–
16 .1
Acquired in business combinations (note 5.1)
–
0.1
–
–
0 .1
Other movements
(1.1)
(3.2)
(4.6)
(0.4)
(9.3)
Effect of changes in foreign exchange rates
(0.5)
(0.5)
(1.3)
(2.9)
(5.2)
At 31DecAt 31 December 2023
38.7
26.8
28.4
87.5
181.4
At 1JaAt 1 January 2022
8.5
4.8
5.6
3.1
22.0
Depreciation charge for the year
3.9
6.0
4.6
5.8
20.3
Other movements
(1.1)
(0.4)
–
–
(1.5)
Effect of changes in foreign exchange rates
0.2
0.2
0.4
(0.2)
0.6
At 1JaAt 1 January 2023
11.5
10.6
10.6
8.7
41.4
Depreciation charge for the year
6.7
6.6
5.0
8.6
26.9
Other movements
(0.3)
(3.3)
(4.3)
0.3
( 7.6)
Effect of changes in foreign exchange rates
(0.2)
(0.3)
(0.5)
(0.5)
(1.5)
At 31DecAt 31 December 2023
17.7
13.6
10.8
17.1
59.2
At 31DeceAt 31 December 2022
18.9
14.2
23.1
82.1
138.3
At 31DecAt 31 December 2023
21.0
13.2
17.6
70.4
122.2
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Annual report and accounts 2023
217
Financial statements
Contents

Section 3: Operating assets and working capital continued
3.2 Leases continued
Lease liabilities
At 1 January
153.1
125.9
Additions
16 .1
30.2
Acquired in business combinations (note 5.1)
0.1
–
Interest charge for the year
7. 2
6.8
Payments
(33.0)
(24.8)
Other movements
(1.0)
3.4
Effect of changes in foreign exchange rates
(6.7)
11.6
At 31DecAt 31 December
135.8
153.1
The existence of termination, extension and purchase options has not had a material impact on the determination of the lease
liabilities.
In addition to the payments disclosed above, the Group made payments of £0.3 million during the year (2022: £0.1 million) in relation
toshto short-term and low value leases.
The maturity of the gross undiscounted lease liabilities at 31D1 December is as follows:
Within one year
33.4
30.3
Within one to two years
28.6
26.7
Within two to five years
52.5
64.3
After five years
57. 0
72.0
Total gross lease liabilities
171.5
193.3
Effect of discounting
(35.7)
(40.2)
Lease liabilities recognised in the Consolidated balance sheet
135.8
153.1
Current
25.1
22.7
Non-current
110.7
130.4
The Group recognised the following charges relating to leases in the Consolidated income statement:
Expense relating to short-term leases
0.3
0.1
Interest charge for the year
7. 2
6.8
Depreciation charge for the year
26.9
20.3
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Annual report and accounts 2023
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Financial statements
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3.3 Renewable certificate assets
The Group earns renewable certificate assets, including Renewables Obligation Certificates (ROCs) and Renewable Energy Guarantees
of Origin (REGOs), which are accredited by the Office for Gas and Electricity Markets (Ofgem), as a result of generating electricity using
biomass at Drax Power Station and generating renewable energy at the Group’s hydro plants. The Group’s ROCs and REGOs are sold
bilaterally to counterparties, including external suppliers, and also internally for utilisation by the Customers business.
This note sets out the value of renewable certificate assets that the Group held at the reporting date.
Accounting policy
Renewable certificates, principally ROCs and REGOs, are first recognised as current assets in the period they are generated. The Group
uses their fair value at initial recognition, based on anticipated sales prices, as deemed cost.
The value of renewable certificates earned is a by-product of renewable generation and is deducted from the cost of generation.
Thisis rhis is recognised in the Consolidated income statement as a reduction to cost of sales.
Where the Customers business incurs an obligation to deliver renewable certificates, that obligation is provided for in the period
incurred within cost of sales.
ROC and REGO valuations are comprised of the expected value to be obtained in a sales transaction with a third-party supplier at the
point of generation. If the Group has already agreed sales contracts covering the renewable certificates generated in a period, then
they are recognised at the contracted price. Any renewable certificates generated above this, or to be utilised by the Customers
business, are recognised at an estimate of the expected market value, which is generally based on the amount to be obtained in a sales
transaction with a third-party supplier. This estimate is made using various sources of information including recently achieved sales
prices, ongoing sales negotiations and published forecasted prices from external third parties.
ROC valuations are comprised of two parts: the expected value to be obtained in a sales transaction with a third-party supplier relating
to the buy-out price; and an estimate of the future benefit that may be obtained from the ROC recycle fund at the end of the
Compliance Period (CP), which runs from April to March each year. The recycle fund provides a benefit where supplier buy-out charges
(incurred by suppliers who do not procure sufficient ROCs to satisfy their obligations) are redistributed to the suppliers who presented
ROCs in a CP on a pro-rata basis. The estimate of the recycle value is based on assumptions about likely levels of renewable generation
and also the demand for ROCs over the CP, and is thus subject to some uncertainty. The Group utilises external sources of information
in addition to its own forecasts in making these estimates. Historical experience indicates that the assumptions used in the valuations
are reasonable, but the recycle value remains subject to possible variation and may subsequently differ from assumptions at
31December1 December.
At each reporting date, the Group reviews the carrying value of renewable certificate assets held against updated anticipated sales
prices or anticipated obligation requirements, and the estimated recycle value. Where relevant, this takes account of agreed forward
sales contracts, the likely utilisation of renewable certificates generated to settle the Group’s own obligations, and any relevant
information about the levels of wider renewable generation in the market. Any impairment loss on these assets is recognised in the
Consolidated income statement in the period incurred within cost of sales.
At 1 January
187. 8
301.4
Earned from generation
749.7
652.5
Purchased from third parties
673.8
486.3
Utilised by the Customers business
(435.7)
( 39 4 .1)
Sold to third parties
(883.4)
(858.3)
At 31DecAt 31 December
292.2
187.8
Recognition of revenue from the sale of renewable certificates is described in further detail in note 2.2.
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Section 3: Operating assets and working capital continued
3.4 Inventories
The Group holds inventories of fuels and other consumable items that are used in the process of generating electricity, and raw
materials used in the production of biomass pellets and waste pellets. This note shows the cost of biomass, other fuels and
consumables held at the reporting date.
Accounting policy
The Group’s inventories are valued at the lower of cost and net realisable value. The costs of items of inventory are determined using
weighted average costs.
The cost of purchased inventories includes all direct costs incurred in bringing the raw material or fuel to its present location and
condition, including the purchase price, import duties and other taxes, and transport and handling costs. The Group uses forward
foreign exchange contracts to hedge the costs of fuel denominated in foreign currencies. Where these contracts are designated into
hedge relationships in accordance with IFRS 9, the inventory cost is recognised at the hedged value, to the extent these hedges are
effective, and all such gains and losses are included in cost of sales when they arise.
Biomass inventories are weighed when entering, moving within or exiting the Group’s sites using technology regularly calibrated to
industry standards. Fuel burn in the electricity generation process is calculated using a combination of weights and thermal efficiency
calculations to provide closing inventory volumes. Both calibrated weighers and efficiency calculations are subject to a range of
tolerable error. All fuel inventories are subject to regular surveys to ensure these measurements are sufficiently accurate.
The characteristics of biomass require specialist handling and storage. Biomass at Drax Power Station is stored in sealed domes with
aca carefully controlled atmosphere for fire prevention purposes and thus cannot be surveyed using traditional methods. Instead, this
inventory is surveyed using regularly calibrated radar scanning technology to validate the accuracy of the weights and efficiency
methods outlined above.
The cost of manufactured inventories includes all direct costs as well as conversion costs including labour, direct overheads and
anaan allocation of indirect overheads, including depreciation. The cost of inventories includes other costs incurred in bringing the
inventories to their existing condition and location.
Costs that do not contribute to bringing inventories totho their present condition and location, such as storage and administration
overheads, are excluded from the cost of inventories and expensed as incurred. Abnormal amounts of wasted materials, labour
oroor other production costs are also excluded from the cost of inventories.
The valuation of fibre inventory involves estimations of conversion rates to determine the volume of residual fibre stockpiles and
logilog inventory. Third-party surveys are performed regularly to assess the volume of inventory and appropriate adjustments are made,
ifif required, using conversion factors estimated by management. Internal inventory counts are performed periodically at all locations.
Biomass – finished goods
266.0
294.5
Biomass – fibre and other raw materials
20.0
16.5
Other fuels and consumables
42.4
37.1
Total inventories
328.4
34 8.1
Total inventories of £328.4 million (2022: £348.1 million) are stated net of a provision of £3.4 million (2022: £5.1 million).
The cost of inventories recognised as an expense in the Consolidated income statement in the year ended 31Deced 31 December 2023 was
£1,745.4 million (2022: £1,587.9 million). This includes the value of write downs of inventory in the year.
3.5 Trade and other receivables and contract assets
Trade receivables represents amounts owed by customers for goods or services provided that they have been invoiced for but have
not yet been paid. Accrued income represents income earned in the period but not yet invoiced, largely in respect of power delivered
to customers that will be invoiced the following month. Prepayments represent amounts paid in respect of goods or services not yet
received. Other receivables include collateral posted in relation to the Groups commodity and treasury trading activities, and other
amounts for goods or services provided that have been invoiced for but not yet paid that do not fall under trade receivables.
Contingent consideration relates to amounts receivable dependent on certain triggers in respect of the option to develop the
Damhead Creek 2 land disposed of as part of the sale of the CCGT generation portfolio in 2021.
Accounting policy
Trade and other receivables are initially measured at the transaction price and subsequently measured at amortised cost.
The Group has access to a receivables monetisation facility under which amounts receivable can be sold to a third-party on a non-
recourse basis. Receivables sold under this facility are accounted for at fair value through other comprehensive income (FVOCI) in
accordance with IFRS 9, due to the objective of the business model being achieved by both collecting contractual cash sh flows and the
selling of the financial assets. These receivables are derecognised from the Consolidated balance sheet at the point of sale, which is
shortly after the initial recognition of the receivable balance, as the significant risks and rewards of ownership are deemed to have
been transferred. Due to the short period between recognising the receivables and them being derecognised, no fair value gains or
losses have been recognised. Fees are recognised in the Consolidated income statement as incurred within interest payable and similar
charges. At 31D1 December 2023, the receivables sold under this facility were £400.0 million (2022: £400.0 million). Refer to note 4.3 for
further information about the facility.
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3.5 Trade and other receivables and contract assets continued
The UK Government introduced the Energy Bills Discount Scheme (EBDS) running from 1 April 2023 to 31 March 2024. Under this
scheme, energy supplied to eligible non-domestic customers in this period has a discount applied. The discount provided can then
becbe claimed back from the UK Government by the supplier. The amount the Group is entitled to claim from the Government is either
recognised in other receivables, if it has been claimed but has not yet been received, ored, or accrued income if not yet claimed at the
reporting date.
The EBDS replaced the Energy Bill Relief Scheme (EBRS) which supported non-domestic customers between 1 October 2022 and
31March1 March 2023 by capping their energy tariffs. Amounts recognised under the EBDS are significantly smaller than under the EBRS
dueto te to the reduced level of support provided, and lower market prices in the period since its introduction.
See note 2.2 for details of amounts relating to EBDS and EBRS within the Consolidated income statement.
Contingent consideration receivable is a financial asset. As the cash ash flows are not solely payments of principal and interest, it does
notmet meet the criteria for recognition at either amortised cost or FVOCI, and is therefore recognised at fair value through profit and
loss(Fs (FVTPL).
Trade receivables
336.0
276.6
Accrued income
420.7
522.5
Prepayments
77.2
127.7
Other receivables
133.8
272.8
Contingent consideration
9.2
27.4
Total trade and other receivables and contract assets
976.9
1, 227.0
At 31DeceAt 31 December 2023, the Group had no amounts receivable from significant counterparties which represented 10% or more of total
trade receivables and accrued income (2022: no significant counterparty).
Of total trade receivables and accrued income at 31Decme at 31 December 2023, £558.9 million (2022: £587.0 million) relates to the Customers
business, £172.3 million (2022: £168.0 million) relates to the Generation business, and £25.5 million (2022: £44.1 million) relates to the
Pellet Production business.
Accrued income includes contract assets which relate to amounts for goods or services provided under customer contracts, where
the entitlement to consideration is contingent on something other than the passage of time. The Group has recognised a contract
asset for any services provided where the Group does not yet have the unconditional right to receive payment and the condition is
notsot solely the passage of time. Any amount previously recognised as a contract asset is reclassified to trade receivables at the point
atwat which all the performance obligations have been met and it is invoiced to the customer, usually in the following financial period.
Contract assets at 31Decs at 31 December 2023 were £4.1 million (2022: £20.0 million).
Included in the prepayments balance is an amount of £1.9 million (2022: £2.4 million) relating to the prepayment of a service contract
for services due to be received after more than one year. Prepayments also includes £21.1 million (2022: £29.8 million) relating to
broker fees paid which have been capitalised as contract costs, of which £8.6 million (2022: £14.2 million) are due to be received after
more than one year. See note 3.6 for further details.
The contingent consideration relates to the Group’s disposal of the CCGT generation portfolio in January 2021. Should the acquirer
satisfy certain triggers in respect of the option to develop the land at the Damhead Creek 2 site, which was disposed of as part of this
sale, £29.0 million of contingent consideration would become payable to the Group from the acquirer. The estimated fair value of this
contingent consideration is £9.2 million (2022: £27.4 million). This has reduced by £18.2 million during the year as a result of updated
inputs to the fair value calculation. The charge is an exceptional item within the Consolidated income statement, as described in note
7.1. Contingent consideration is disclosed within current assets, however, the timing of receipt would be dependent on when a trigger
was to occur, which may be in a period greater than 12 months from the end of the reporting period. See note 7.1 for further details
onon the contingent consideration.
Impairment of financial assets
Accounting policy
The Group applies the impairment model in IFRS 9 to provide for expected credit losses on the Group’s financial assets including trade
receivables, accrued income, contract assets and other financial assets. The provision for impairment of trade receivables and accrued
income (including contract assets) is measured at an amount equal to the lifetime expected credit loss. Contract assets relate to
amounts for goods or services provided under customer contracts and, therefore, have substantially the same risk characteristics
astas trade receivables for the same types of contracts.
For other financial assets, the Group recognises a lifetime expected credit loss provision when there has been a significant increase
incin credit risk since initial recognition. If the credit risk of the financial instrument has not increased significantly since initial recognition,
the Group recognises a 12-month expected credit loss provision .
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Section 3: Operating assets and working capital continued
3.5 Trade and other receivables and contract assets continued
The greatest concentration of credit risk exists in the Customers business. For the larger consumers within the Customers business
(and also customers within the Generation and Pellet Production businesses) a provision matrix method is adopted. For the smaller
consumers within the Customers business, the risk is higher due to the wide range of customer characteristics within the portfolio.
The loss provisioning for these customers is more complex and requires a provisioning tool that is more dynamic than the provision
matrix method and so a combined probability method is applied. Both of these approaches are described in more detail below.
Under the Group’s debt recovery strategy, a breach in terms could lead to the customer being disconnected or pursued legally for
recovery of an outstanding balance. The Group considers a financial asset to be in default when the full amount due from a debtor is
unlikely to be received in full, or when contractual payments are 90 days past due. The Group writes off a financial asset when there
isno ris no realistic prospect of recovery and all attempts to recover the balance have been exhausted. An indication that all credit control
activities have been exhausted is where the debt on an account is exclusively greater than 365 days past due and active recovery
attempts have failed, or where there are known insolvency issues relating to the customer.
Combined probability method
The Group uses a machine learning algorithm to calculate expected credit losses for its customer base of smaller sized consumers.
Thealhe algorithm predicts the future performance of debt on an individual account basis using a broad range of indicators that are
specific to the customer. Theahe algorithm forms predictions, based on historical experience, of the debt on each account reaching
greater than 365 days past due. A timeframe of 24 months is the normal period of historical data to which the algorithm is trained.
Thecustomer’sThe customer’s behaviours and performance in this period inform the current provisioning for the existing debt portfolio.
As required by IFRS 9, the calculation of expected credit losses incorporates both historical and forward-looking information.
Management considers the 24-month period on which the algorithm is trained and determines whether any change in the provision
isreis required as a result of specific factors or forward-looking macro-economic conditions. At 31D1 December 2023, these factors included,
but were not limited to, expectations around future innflation and changes in interest rates and customer pricing. This has not resulted
in any additional provision being recognised.
Provision matrix method
Larger consumers within the Customers business and customers within the Generation and Pellet Production businesses are grouped
according to the age of the debt based on the number of days past due. The provision rates are based on historical collection rates and
an expectation of future cash collection.
The movement in the overall allowance for expected credit losses on trade receivables is presented in the following table:
2023
2022
At 1 January
54.9
6.0
60.9
44.4
2.2
46.6
Amounts written off
(44.2)
(5.0)
(49.2)
(39.7)
(2.6)
(42.3)
Net additional amounts provided against
39.9
7. 8
47.7
50.2
6.4
56.6
At 31DecAt 31 December
50.6
8.8
59.4
54.9
6.0
60.9
Gross trade receivables
155.8
239.6
395.4
189.1
148.4
337.5
Expected credit loss provision
(50.6)
(8.8)
(59.4)
(54.9)
(6.0)
(60.9)
Trade receivables
105.2
230.8
336.0
134.2
142.4
276.6
Average expected credit loss %
32%
4%
15%
29%
4%
18%
The provision in the table above relates only to trade receivables in the Customers business. If the calculated provision rates were
10%highe10% higher than the provision rates calculated at the reporting date, the impact to the provision would be an increase of £6.0 million.
The provision matrix method has resulted in a £nil provision applied to both the Generation and Pellet Production businesses in both
the current and prior years.
The risk of default within the Generation and Pellet Production businesses is considered to be remote, supported by strong historical
collection rates, high credit quality counterparties and short payment terms with timely receipts resulting in negligible aged debt.
The economic environment and pressure on energy markets in 2022 resulted in significant increases to commodity prices, which in
turn resulted in higher bills raised to some of the Group’s energy supply customers, particularly those on deemed supply. Deemed
supply is where electricity or gas is supplied to a site or customer that is yet to enter into a contract and, as a result, they are charged
on a standard variable tariff based on merchant power and gas prices. The higher prices resulted in an increase in the total gross value
of trade receivables and thus increased the value of the expected credit loss provision, particularly for smaller customers.
Standard variable prices have fallen during 2023, and debt relating to the live customer base has significantly reduced as a result of this.
From October 2022 to March 2023, in response to the significant increase in energy prices, the UK Government provided support for
non-domestic customers through the EBRS. From 1 April 2023 the UK Government changed to providing support for non-domestic
customers under the EBDS. These schemes have provided financial support to customers during this period as described in more
detail in note 2.2. The Group received no incremental revenue over that to which it was contractually entitled, due to these schemes.
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3.5 Trade and other receivables and contract assets continued
The net charge to the Consolidated income statement in 2023 for impairment losses on financial assets was £32.5 million
(2022: £48.0 million). This is the net of the additional amounts provided against in relation to trade receivables of £47.3 million
(2022: £56.6 million) less a £14.8 million (2022: £8.6 million) benefit in the period in respect of the resolution of legacy credit balances.
The value of provisions calculated using the combined probability model is set out below. This shows the trade receivables balances
forfor smaller consumers within the Customers business grouped by the combined probability assigned by the model.
The following table shows the comparative risk profile of amounts due based on the combined probability model at 31Decl at 31 December:
2023
2022
80–100
42 .1
36.7
50.0
40.4
50–79
14.3
8.0
16.8
8.9
26–49
17.9
5.8
18.2
5.5
0–25
81.5
0.1
10 4 .1
0 .1
Total
155.8
50.6
189.1
54.9
The value of provisions calculated using the Group’s provision matrix method is set out below. This shows the ageing profile in 30-day
increments of the trade receivables within the Pellet Production and Generation businesses, the trade receivables of the Group’s larger
consumers within the Customers business, and accrued income (including contract assets) of the Group at each reporting date.
As at 31Des at 31 December 2023
As at 31Det 31 December 2022
Accrued income balances not yet due
9.4
382.5
2%
7.6
530.1
1%
Balances not yet due
2.1
183.6
1%
1.8
115.0
2%
Between 0–30 days
0.9
32.6
3%
0.8
22.1
4%
Between 31–60 days
0.7
7.1
9%
0.7
3.3
21%
Between 61–90 days
0.5
2.7
19%
0.6
1.5
42%
Over 90 days
4.6
13.6
34%
2.1
6.5
33%
Trade receivables total
8.8
239.6
4%
6.0
148.4
4%
Total
18.2
6 22.1
3%
13.6
678.5
2%
The expected credit loss provision of £18.2 million (2022: £13.6 million) in the table above wholly relates to the Customers business.
The expected credit loss rates above are expressed as a percentage of the gross carrying amount of all of the Group’s trade receivables
and accrued income balances that are subject to the provision matrix method.
The expected credit loss provision calculated for other financial assets of the Group was negligible.
Credit and counterparty risk are disclosed in further detail in note 7.2.
3.6 Contract costs
The Group incurs costs of obtaining contracts in the Customers business.
Accounting policy
Management expects that incremental broker fees paid to intermediaries as a result of obtaining electricity and gas contracts are
recoverable. The Group has therefore capitalised them as contract costs at the point the fee is paid. The fees are amortised over the
contract period in line with the recognition of revenue and are charged to cost of sales. The balance is included within prepayments
innoin note 3.5. This amount includes both current and non-current balances. The reconciliation from opening to closing contract costs
isas fis as follows:
At 1 January
29.8
23.7
Additions
17.6
30.7
Amortisation
(26.3)
(24.6)
At 31DecAt 31 December
21.1
29.8
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Section 3: Operating assets and working capital continued
3.7 Trade and other payables and contract liabilities
Trade and other payables represents amounts the Group owes to its suppliers for trade purchases and ongoing costs, taxes and social
security amounts due in relation to the Group’s role as an employer, and other creditors that are due to be paid in the ordinary course
of business. The Group makes accruals for amounts that will fall due for payment in the future as a result of the Group’s activities in
thecue current period (e.g. fuel received but for which the Group has not yet been invoiced). Contract liabilities represents the Group’s
obligation to transfer goods and services to its customers whereby the Group has already received the consideration in advance or
where the amount is due from the customer at the reporting date.
Accounting policy
Trade and other payables are financial liabilities that are initially measured at fair value. Trade and other payables are subsequently
measured at amortised cost using the effective interest rate method. Financial liabilities are derecognised when the contractual
obligations are discharged, cancelled or expire. If the terms of a financial liability are significantly modified, the existing financial liability
is derecognised and a new financial liability based on the modified terms is recognised at fair value. The difference between the
carrying value of the financial liability based on the terms pre-modification and post-modification is recognised in the Consolidated
income statement.
Trade payables
145.2
152.9
Fuel accruals
71.4
107.7
Energy supply accruals
5 87.4
511.4
Other accruals
306.6
370.9
Other payables
389.6
351.0
Contract liabilities
39.4
34.0
Total trade and other payables and contract liabilities
1,539.6
1,527.9
Trade payables are unsecured and are usually paid within 60 days of recognition. The carrying amounts of trade and other payables
approximates their fair values, due to their short-term nature.
The Group facilitates a supply chain finance scheme, a form of reverse factoring, under which certain suppliers can obtain early access
to payments from a bank and the Group pays the bank based on the original payment terms. The Group has assessed the supply chain
finance arrangement, considering the nature and specific terms of the arrangement and has determined that it is appropriate for the
amount to continue to be recognised within trade payables. This conclusion is based on the fact that there are no changes to the
Group’s payment terms under this arrangement, nor would there be if the arrangement was to cease. Trade payables includes
£48.6 million (2022: £53.9 million) relating to supply chain finance. Cash sh flows relating to supply chain finance are included within
Netcat cash from operating activities. See note 4.3 for further details.
The Group also has access to payment facilities, utilised to leverage scale and efficiencies in transaction processing. Under these
facilities the Group benefits from an extension to payment terms of less than 12 months for a small fee. The original liability is
derecognised from trade payables and the amount due to the facility provider is recognised in other payables. Fees are either
recognised in the Consolidated income statement, or capitalised if they are directly attributable to the construction of a qualifying
asset, in the period incurred. Other payables includes £225.1 million (2022: £214.5 million) due under other payment facilities of which
£224.7 million (2022: £181.2 million) related to deferred letters of credit and £0.4 million (2022: £33.3 million) related to credit cards.
OftOf the total deferred letters of credit, £155.1 million (2022: £133.8 million) were utilised for capital expenditure and £69.6 million
(2022:£4(2022: £47.4 million) were utilised for trade payables. See note 4.3 for further details.
The Group does not include trade and other payables and contract liabilities in its definition of borrowings or Net debt where they
arelare linked to a specific payable and give an extension in payment terms of less than 12 months (see note 2.7).
Energy supply accruals includes £444.4 million (2022: £315.0 million) in relation to the Group’s obligation to deliver renewable
certificates arising from activities in the Customers business. The increase is due to the higher value of renewable certificates
compared to the prior year. The remaining balance principally comprises third-party grid charge accruals of £75.1 million
(2022: £108.5 million) and Feed-in-Tariff accruals of £19.4 million (2022: £46.8 million).
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3.7 Trade and other payables and contract liabilities continued
Contract liabilities primarily relate to the advance consideration received from customers for fixed price electricity and gas contracts,
for which revenue is recognised based on the stage of completion of the contract. The balance reduces as revenue is subsequently
recognised in the following periods, offset by further advanced consideration received. The reconciliation of opening to closing
contract liabilities is as follows:
At 1 January
34.0
14.6
Revenue recognised in the year that was included in the contract liability at the start of the period
(28.5)
(6.6)
Additions as a result of cash received from customers in the period not yet recognised in revenue
33.9
26.0
At 31DecAt 31 December
39.4
34.0
3.8 Climate change
Climate change, and tackling it, is closely linked to the Group’s purpose, as set out in the Strategic report on pages 1 to 107. The
Sustainable development report, starting on page 42, sets out how the Group’s ambition is to be climate positive and the TCFD
disclosures, starting on page 78, set out the Group’s approach to managing climate risks and opportunities, including scenario analysis.
The Group aims to be a leader in the UK’s transition to net zero and its strategy is aligned to this purpose. Climate change is factored
into short, medium and long-term forecasts and estimates used by the Group. In the Viability statement on page 92 and TCFD report
on page 78, quantitative risk analysis on the Group’s operational Generation and Pellet Production assets indicates that asset exposure
to impacts arising from physical climate-related risks currently remains low.
Climate change and the transition to net zero have been considered in the preparation of these Consolidated financial statements.
Theimhe impact of future climate change regulation could have a material impact on the currently reported amounts of the Group’s assets
and liabilities. In preparing these financial statements, the following climate change related risks have been considered:
Area
Description
Page reference
Impairment of assets
The Group’s expectations around the impacts of climate change,age, and in particular the
In
2023,
the Opus business within the Customers segment announced it was exiting the
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3.8 Climate change continued
Area
Description
Page reference
Fixed asset UELs
The potential impact of climate change is one of the factors assessed in determining how
Section 3: Operating assets and working capital continued
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This section provides further information about the Group’s capital structure (equity and debt financing) and cash generated from
operations during the year.
4.1 Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, short-term bank deposits with a maturity of three months or less, and money
market funds. The carrying amount of these assets is approximately equal to their fair value. It is the Group’s policy to deposit available
cash in low-risk bank accounts or short-term deposit accounts.
Cash at bank
77.5
102.1
Short-term deposits
130.9
19.5
Money market funds
171.1
116.4
Total cash and cash equivalents
379.5
238.0
4.2 Borrowings
Accounting policy
The Group measures all debt instruments initially at fair value, which equates to the principal value of the consideration received.
Subsequent to initial measurement, debt instruments are measured at amortised cost using the effective interest method. Transaction
costs (any such costs incremental and directly attributable to the issue of the financial instrument) are included in the calculation of
the effective interest rate and are amortised over the expected life of the instrument.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that
some or all of the facility will be drawn down. Loan commitment fees may be payable to the lender to entitle the Group to draw down
at any time over a fixed period. Where there is a fixed repayment date, regardless of when the loan is drawn down, the commitment
fees are recognised on a systematic basis over the period the Group is able to draw down. Where the loan has the same fixed term,
regardless of when the loan is drawn down, if drawdown is probable, then the commitment fees are deferred until drawn down and
arerare recognised over the life of the instrument as part of the effective interest rate. If drawdown is not probable, then loan commitment
fees are recognised on a systematic basis over the period the Group is able to draw down.
Fees that are paid for the availability of a facility where the amount and timing of drawdown can vary at the Group’s discretion,
suchasa rh as a revolving credit facility (RCF), are recognised on a systematic basis over the life of the facility.
Debt instruments denominated in foreign currencies are revalued using period end exchange rates, with any exchange gains and
losses being recognised as a component of foreign exchange gains or losses in the period they arise. The Group hedges foreign
currency risk and interest rate risk in accordance with the policies set out in note 7.2. Where hedging instruments are used to fix cash
ows associated withflows associated with debt instruments, the debt instrument and the hedging instrument are measured and presented separately
onton the Consolidated balance sheet. Where hedge accounting is applied to foreign exchange risk and interest rate risk on debt
instruments, gains and losses are recycled to the Consolidated statement of comprehensive income within either foreign exchange
gains or losses or interest payable and similar charges, to match the exposure they are hedging, where effective. The borrowings
amounts disclosed in the tables below exclude any impact of hedging instruments.
Debt instruments are derecognised when the contractual obligations are discharged, cancelled or expired. If the terms of a debt
instrument are significantly modified, the existing liability is derecognised and a new liability based on the modified terms is recognised
at fair value. The difference between the carrying value of the debt instrument based on the terms pre-modification and post-
modification is recognised in the Consolidated income statement.
Section 4: Financing and capital structure
Drax Group plc
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4.2 Borrowings continued
The Group’s net borrowings at each reporting date were as follows:
215.7
219.8
391.5
412.8
251.4
372.5
184.7
207.9
117. 8
183.6
122.5
–
21.7
–
–
44.3
120.0
–
Total borrowings
1,425.3
1,440.9
Current
264.2
44.3
Non-current
1,161.1
1,396.6
(1)
(2)
(3)
(4)
(5)
(3)
(4)
(6)
(7)
(1) These loan notes mature in 2025. Cross-currency interest rate swaps have been used to fix the sterling value of interest payments. This instrument also fixed the sterling
repayment of the principal. This equates to an effective sterling interest rate of 4.6%.
(2) These loan notes mature in 2025. Cross-currency interest rate swaps have been used to fix the sterling value of interest payments. This instrument also fixed the sterling
repayment of the principal. This equates to an effective sterling interest rate of 6.1%.
(3) These comprise committed facilities totalling £375.0 million with a range of maturities extending out to between 2024 and 2029. Interest rate swaps have been used to
fixfix floating rates. This equates to an effective sterling interest rate of 3.3%.
(4) These comprise committed facilities totalling £98.0 million and €126.5 million with a range of maturities extending out to between 2024 and 2030. Interest rate swaps
have been used to fix sterling ng floating rates on sterling facilities. Cross-currency interest rate swaps have been used to fix the sterling value of interest payments on euro
facilities. This instrument also fixed the sterling repayment of the principal. This equates to an effective sterling interest rate of 2.6%.
(5) This facility matures in 2026 and has a customary margin rate over the Canadian Dollar Offered Rate (CDOR). The Group has used a foreign currency forward contract to
hedge the 2026 principal repayment on the loan at a fixed amount in sterling. The average fixed interest rate on this facility is 7.1%.
(6) This is an uncommitted short-term facility with a maturity term of one month. The average fixed interest rate for this facility while it was drawn during 2022 was 2.4%.
(7) This is a short-term margin facility with a current repayment date of July 2024. The interest rate on the current outstanding amount of £120.0 million is fixed to maturity
at 7.1% .
In the prior year, the Group secured a new £200.0 million committed liquidity facility with banks within its lending group. This facility
provided an additional source of liquidity to the Group’s existing undrawn RCFs. The Group did not draw on this facility in 2023 and
itmait matured on 31 December 2023. The Group also has a €50.0 million uncommitted facility to support optimisation of generation
andasd associated cash collateral postings. This facility was undrawn as at 31 December 2023 (2022: fully drawn).
In September 2023, the Group secured a new uncommitted £200.0 million short-term facility with the main purpose of supporting
cash collateral margin requirements of the Group’s exchange-based commodity trading. It is expected that utilisation of this facility
willchl change based on cash collateral margin requirements. As at 31 December 2023, £120.0 million is outstanding under the facility
with a maturity date in July 2024.
In November 2023, the Group agreed with lenders of the CAD term facility to exercise the extension option within the facility
toexto extend the final maturity date from January 2024 to January 2026. As part of this extension, the Group chose to repay
C$100.0 million (£6 0 .1 million) ofthf the outstanding loan, reducing the outstanding principal value to C$200.0 million (£118.5 million)
asaas at 31 December 2023.
The CAD term facility had ad floating interest rates linked to the Canadian dollar offered rate (CDOR). As part of the extension, the Group
agreed with lenders to transition the he floating rate to the Canadian Overnight Repo Rate Average (CORRA) plus a credit adjustment
spread (CAS). The CAS per the amended agreement is consistent with the International Swaps and Derivatives Association (ISDA)
spread adjustments as calculated and published by Bloomberg. The base margin rate of the loan remained unchanged. This
amendment will become active in the first interest period starting in January 2024.
The Group has a committed £300.0 million RCF and C$10.0 million RCF. No cash was drawn on either facility as at 31D1 December 2023
or 31De1 December 2022. The Group has never drawn cash on the £300.0 million RCF since its inception in 2020. In January 2024, the
Group agreed with lenders of the £300.0 million RCF to exercise the extension option within the facility to extend the final maturity
date from January 2025 to January 2026. Subsequent to the reporting date, in January 2024, the C$10.0 million RCF has matured.
Seenoe note 2.7 for further details on the Group’s cash and committed facilities.
Subsequent to the reporting date and prior to the signing date of the Consolidated financial statements, £122.5 million of the 2019
UKinfUK infrastructure private placement facility has been repaid, as well as €25.0 million (£21.7 million) of the 2020 UK infrastructure
private placement facility. Both of these amounts are included within current borrowings in the table above.
On 22 February 2024, the Group signed a new secured committed term loan facility with five banks for £208.5 million (sterling
equivalent). This comprised of three euro denominated tranches totalling €135.0 million due to mature in 2027 and a further two
tranches of €50.0 million and £50.0 million due to mature in 2029. The three tranches totalling €135.0 million due to mature in 2027
contain options to extend for up to a further two years, subject to lender approval.
Section 4: Financing and capital structure continued
Drax Group plc
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4.2 Borrowings continued
The term loan facility includes an option to establish an incremental facility for up to £50.0 million under the same terms and
conditions as the other tranches of the Term Loan. Interest on the term loans is set at a margin over EURIBOR or SONIA. On 27
February 2024, the Group established an additional £50.0 million facility under this option with a tenor maturity date in 2027 with
options to extend for a further two years, subject to lender approval, and with interest set at a margin over SONIA. The Group expects
to draw the term loan facilities within three months from the signing date.
The Group’s secured borrowings are secured against the assets of a number of the Group’s subsidiaries, with the exception of property
owned by the North American subsidiaries.
The weighted average interest rate payable, at the reporting date, on the Group’s borrowings was 4.79% (2022: 4.14%).
Reconciliation of borrowings
The table below shows the movement in borrowings during the current and prior year:
Borrowings at 1 January
1,449.8
(8.9)
1,440.9
Repayment of uncommitted short-term loan facility
(43.4)
–
(43.4)
Extension of existing facilities
–
(0.2)
(0.2)
Drawdown of margin facility loan
140.0
–
140.0
Repayment of CAD term facility
(60.1)
–
(6 0 .1)
Repayment of margin facility loan
(20.0)
–
(20.0)
Borrowings acquired in business combinations (note 5.1)
1.8
–
1.8
Repayment of borrowings acquired in business combinations
(1.8)
–
(1.8)
Amortisation of deferred finance costs (note 2.5)
–
4.3
4.3
Amortisation of USD loan note premium
(0.4)
–
(0.4)
Extension of existing facilities
–
(0.4)
(0.4)
Effect of changes in foreign exchange rates
(35.4)
–
(35.4)
Borrowings at 31December1 December
1,430.5
(5.2)
1,425.3
Borrowings at 1 January
1,376.2
(15.2)
1,361.0
Repayment of index-linked loan
(41.4)
–
(41.4)
Drawdown of facilities
188.5
–
188.5
Repayment of facilities
(145.0)
–
(145.0)
Indexation of index-linked loan
0.8
–
0.8
Amortisation of deferred finance costs (note 2.5)
–
6 .1
6.1
Amortisation of USD loan note premium
(0.4)
–
(0.4)
Effect of changes in foreign exchange rates
71.1
0.2
71.3
Borrowings at 31December1 December
1,449.8
(8.9)
1,440.9
As disclosed above, the Group has a number of cross-currency interest rate swaps that fix the sterling value of the principal repayment
of certain foreign currency denominated borrowings. Accordingly, the foreign exchange gains (2022: losses) on borrowings disclosed
in the above tables have been offset by £29.5 million of foreign exchange losses (2022: £62.0 million of gains) on cross-currency
interest rate swaps that have been recycled to profit and loss as part of the hedging relationship. See note 2.7 for further details
ofthof theime impact of the Group’s cash osh flow hedging relationships on Net debt.
Compliance with loan covenants
The Group has customary financial covenants, principally in relation to consolidated Adjusted EBITDA and the consolidated net
leverage ratio. The consolidated net leverage ratio broadly equates to a Net debt to Adjusted EBITDA calculation (see note 2.7), and
isis calculated in line with the Group’s financial covenant requirements in the loan facility agreements
(1)
. The Group also has conditions
placed on its dividend payments as a result of the financing facilities. The Group is required to test its financial covenants every six
months at financial full-year and half-year reporting periods, and has complied with all financial covenants during the current and
prioryear year. The Group hassias significant headroom and expects to continue to comply with these financial covenants for the foreseeable
future, including the five-year viability period. See the Viability statement on page92 for fe 92 for further details on the scenarios considered.
(1) The net debt calculation for financial covenants is based on Net debt including cash and borrowings attributable to non-controlling interests, but excludes the impact
ofhof hedging.
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Annual report and accounts 2023
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Section 4: Financing and capital structure continued
4.2 Borrowings continued
Letters of credit and surety bonds
As at 31 December 2023, the Group had issued letters of credit totalling £180.3 million (2022: £85.9 million) of which £14.5 million
(2022: £54.5 million) were utilised to cover commodity trading collateral requirements and £120.0 million (2022: £nil) were utilised
tocto cover the Margin Facility described above. As at 31 December 2023, the Group had surety bonds with a number of insurers totalling
£119.0 million (2022: £202.0 million) of which £70.0 million (2022: £165.0 million) were utilised to cover commodity trading collateral
requirements.
4.3 Notes to the Consolidated cash ow statement to the Consolidated cash flow statement
Accounting policy
In accordance with IAS 7 the Group has elected to classify cash owh flows from interest paid and interest received as cash ash flows from
operations, dividends paid as cash ows fr cash flows from financing activities, and dividends received as cash o as cash flows from investing activities.
Theinhe interest repayment on lease liabilities is included within interest paid, and the lease principal repayment is presented within cash
ows fromflows from financing activities.
Cash generated from operations
Cash generated from operations is the starting point of the Group’s Consolidated cash sh flow statement on page 187. The table below
makes adjustments for any non-cash accounting items to reconcile the Group’s net profit for the year to the amount of cash generated
from the Group’s operations.
Profit for the year
560.9
82.5
Interest payable and similar charges
115.2
83.1
Interest receivable
(13.1)
(4.3)
Tax charge/(credit)
235.5
(4.4)
Research and development tax credits
(2.0)
(5.5)
Share of losses/(profits) from associates
1.6
(0.5)
Depreciation of property, plant and equipment
168.7
187.7
Amortisation of intangible assets
29.4
31.4
Depreciation of right-of-use assets
26.9
20.3
Impairment of non-current assets
70.8
41.5
Losses on disposal of fixed assets
2.6
5.5
Other losses
18.2
0.3
(222.0)
288.7
Non-cash charge for share-based payments
13.9
9.6
Effect of changes in foreign exchange rates
6.2
(2.2)
Operating cash flows before movement in working capital
1,012.8
733.7
Decrease/(increase) in inventories
20.6
(133.4)
Decrease/(increase) in receivables
71.4
(379.0)
(Decrease)/increase in payables
(30.8)
431.8
Net movement in collateral
155.4
(406.8)
Decrease in provisions
(4.4)
(29.1)
(Increase)/decrease in renewable certificate assets
(104.4)
113.7
Total cash released from/(absorbed by) working capital
107.8
(402.8)
Net movement in defined benefit pension obligations
(9.6)
(10.6)
Cash generated from operations
1,111.0
320.3
(1)
(1) Certain remeasurements of derivative contracts includes the effect of non-cash unrealised gains and losses recognised in the Consolidated income statement and their
subsequent cash realisation. It also includes the cash and non-cash impact of deferring and recycling gains and losses on derivative contracts designated into hedge
relationships under IFRS 9, where the gain or loss is held in the hedge reserve and then released to the Consolidated income statement in the period the hedged
transaction occurs. At 31De1 December 2023, the Group had accelerated £nil of cash oh flows through the use of rebasing (2022: £43.1 million).
The Group has generated cash from operations of £1,111.0 million during the year (2022: £320.3 million). This resulted from a cash
ininflow from operating activities before working capital of £1,012.8 million (2022: £733.7 million) and a net working capital cash inh inflow
of £107.8 million (2022: cash outoflow of £402.8 million). This was offset by a £9.6 million (2022: £10.6 million) cash outflow in respect
of pension obligations. The most significant factors making up these cash movements are explained in further detail below.
The £222.0 million outow due to outflow due to the adjustment for certain remeasurements of derivative contracts in the current year
(2022: £288.7 million inow) mai inflow) mainly relates to a net cash outoflow due to realised losses on maturing trades. The adjustment
forrfor realised losses was in part offset by unrealised losses recognised within the Consolidated income statement.
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Annual report and accounts 2023
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4.3 Notes to the Consolidated cash ow statement continued
Prices in power and commodity markets have reduced in 2023 compared to 2022, but remain elevated compared to historical norms.
Cash collateral is sometimes paid or received in relation to the Group’s commodity and treasury trading activities. When derivative
positions are out of the money for the Group, collateral may be required to be paid to the counterparty. When derivative positions
areiare in the money, collateral may be received from counterparties. These positions reverse when mark-to-market positions reduce,
orcor contracts are settled, and the collateral isrets returned.
The Group actively manages its liquidity requirements. This includes managing collateral associated with the hedging of power
andand other commodities, as well as other contractual arrangements. Under certain arrangements the Group is able to use non-cash
collateral, such as letters of credit and surety bonds, that may otherwise have required cash collateral.
The Group has had a net cash inoflow of £155.4 million from collateral during the year, as trades have matured and mark-to-market
positions have reduced (2022: £406.8 million outoflow). As at 31D1 December 2023, the Group held £20.3 million in cash collateral
receipts (2022: £nil) recognised in payables, and had posted £98.9 million (2022: £234.0 million) of cash collateral payments recognised
in receivables. The Group had also utilised £14.5 million (2022: £54.5 million) of letters of credit and £70.0 million (2022: £165.0 million)
of surety bonds to cover commodity trading collateral requirements. Letters of credit and surety bonds utilised at the reporting date
have reduced the requirement for cash collateral payments, which has increased the amount by which receivables have decreased.
The Group has a strong focus on cash sh flow discipline and managing liquidity. The Group enhances its working capital position by
managing payables, receivables, inventories and renewable certificate assets to make sure the working capital committed is closely
aligned with operational requirements. The impact of these actions on the cash ash flows of the Group is included within the further detail
explained below.
The table below sets out the key arrangements utilised by the Group to manage elements of its working capital:
Receivables monetisation
400.0
400.0
–
ROC monetisation sales
298.4
331.2
(32.8)
Supply chain finance
(48.6)
(53.9)
(5.3)
Deferred letters of credit
(224.7)
(181.2)
43.5
Credit cards
(0.4)
(33.3)
(32.9)
None of the balances in the table above are included within the Group’s definition of Net debt or borrowings (see note 2.7 for further
details on Net debt and note 4.2 for further details on borrowings). The receivables monetisation facility is non-recourse in nature and
therefore there is no future liability associated with these amounts. Through standard ROC sales and ROC purchase arrangements the
Group is able to manage the working capital cycle of innflows and outflows of these assets. The supply chain finance, deferred letters
of credit and credit card facilities are linked directly to specific payables that provide a short extension of payment terms of less than
12 months. The impact of these facilities on the cash oh flows of the Group is explained further below.
The overall cash inow oflow of £71.4 million (2022: outoflow of £379.0 million) due to lower receivables in the current year, is primarily a
result of a reduction in energy prices compared to the prior year.
The Customers business has access to a receivables monetisation facility which enables it to accelerate cash sh flows associated with
amounts receivable from energy supply customers on a non-recourse basis. The Group refinanced this facility during the prior year, to
increase the size of the facility to £400.0 million from £200.0 million for the period to March 2025, and then reducing to £300.0 million
until the facility matures in January 2027. Utilisation of the facility was £400.0 million at 31D1 December 2023 (2022: £400.0 million).
Asths the facility was fully utilised at 31D1 December 2023 and 31Dec3 and 31 December 2022 there has been no cash ash flow impact in the period
(2022:£200.02022: £200.0 million cash inh inflow, as the facility was increased in size from £200.0 million to £400.0 million).
Payables have largely remained consistent year on year, with a cash outflow of £30.8 million (2022: £431.8 million inow). inflow). Certain
ofthof the Group’s suppliers are able to access a supply chain finance facility provided by a bank, for which funds can be accelerated in
advance of normal payment terms. At 31De1 December 2023, the Group had trade payables of £48.6 million (2022: £53.9 million) related
to this reverse factoring. The facility does not directly impact the Group’s working capital, as payment terms remain unaltered with
theGre Group and would remain the same should the facility fall away.
The Group also has access to other payment facilities which enable it to leverage scale and efficiencies in transaction processing,
whilst providing a working capital benefit due to a short extension of payment terms of less than 12 months. The amount outstanding
under these facilities at 31Deces at 31 December 2023 was £225.1 million (2022: £214.5 million), of which £224.7 million (2022: £181.2 million)
related to deferred letters of credit and £0.4 million (2022: £33.3 million) related to credit cards. Of the total deferred letters of credit,
£155.1 million (2022: £133.8 million) were utilised for capital expenditure and £69.6 million (2022: £47.4 million) were utilised for trade
payables. Utilisation of these payment facilities impacted the purchases of property, plant and equipment line in the Consolidated cash
ow statement andflow statement and the movement in payables line above.
The movement in renewable certificate assets during the year includes a combination of generation, utilisation, purchases and sales,
as described in note 3.3. The £104.4 million cash outflow (2022: £113.7 million in inflow) is predominantly due to an increase in the value
of renewable certificates generated and still held by the Group compared to the prior year, and a reduced level of ROC monetisation
sales. Cash from renewable certificates, and in particular ROCs, is typically realised several months after they are earned; however,
through standard ROC sales and ROC purchase arrangements the Group is able to manage the working capital cycle of innflows and
outoflows of these assets. At 31D1 December 2023 the Group had cash inh inflows of £298.4 million from using these standard renewable
certificate sales (2022: £331.2 million).
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Annual report and accounts 2023
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Section 4: Financing and capital structure continued
4.3 Notes to the Consolidated cash ow statement continued
Changes in liabilities arising from financing cash owsing cash flows
A reconciliation of the movements in liabilities arising from financing activities for both cash and non-cash movements is provided below:
At 1 January 2023
1,440.9
153.1
(2.2)
1,591.8
Cash flows from financing activities
14.5
(25.8)
–
(11.3)
Effect of changes in foreign exchange rates
(35.5)
(6.6)
29.8
(12.3)
Other movements
5.3
15.1
–
20.4
Other movements from operating activities
–
–
4.9
4.9
At 31DecAt 31 December 2023
1,425.2
135.8
32.5
1,593.5
At 1 January 2022
1,361.0
125.9
62.5
1,549.4
Cash flows from financing activities
2.1
(18.0)
–
(15.9)
Effect of changes in foreign exchange rates
71.3
11.5
(56.2)
26.6
Other movements
6.5
33.7
–
40.2
Other movements from operating activities
–
–
(8.5)
(8.5)
At 31DecAt 31 December 2022
1,440.9
153.1
(2.2)
1,591.8
Other movements principally relate to the amortisation of deferred finance costs, debt acquired through the acquisition of BMM,
discounting of lease liabilities and lease additions inthn the year.
Hedging instruments includes cross-currency interest rate swaps that are hedging both principal and interest payments on
borrowings. Interest payments are classified as operating cash oh flows in the Consolidated cash sh flow statement, as such movements
relating to interest payments are recognised within the Other movements from operating activities line above.
4.4 Equity and reserves
The Group’s ordinary share capital reeeflects the total number of shares in issue, which are publicly traded on the London Stock
Exchange.
Accounting policy
Ordinary shares are classified as equity as evidenced by their residual interest in the assets of the Company after deducting its
liabilities. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
Issued equity
424,923,406 ordinary shares of 11
16
⁄29 pence each (2022: 414,872,491)
49.1
47.9
The movement in allotted and fully paid share capital of the Company during the year was as follows:
At 1 January
414,872,491
413,068,027
Issued under employee share schemes
10,050,915
1,804,464
At 31DecAt 31 December
424,923,406
414,872,491
The Company has only one class of shares, which are ordinary shares of 11
16
⁄29 pence each, carrying no right to fixed income.
NoshNo shareholders have waived their rights to dividends. Throughout the year, shares were issued in satisfaction of options vesting
inin accordance with the rules of the Group’s employee share schemes (see note 6.2).
Share buyback programme
On 26 April 2023, the Group announced the commencement of a £150 million share buyback programme. The buyback programme
was concluded on 15 September 2023. The shares purchased by the Group have not been cancelled and so continue to be included
intin the issued shares in the above table. See note 2.11 for further details on the share buyback programme.
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Annual report and accounts 2023
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4.4 Equity and reserves continued
Share premium
The share premium account ret reflects amounts received in respect of issued share capital that exceeds the nominal value of the shares
issued, net of incremental transaction costs and tax, that are directly attributable to the issue of new shares. Movements in the share
premium reserve during the year rer reflect amounts received above the nominal value on the issue of shares under employee share
schemes.
At 1 January
433.3
432.2
Issue of share capital
7.9
1.1
At 31 December
441.2
433.3
Other reserves
At 1 January 2022
1.5
4 4.1
710.8
(50.4)
706.0
Exchange differences on translation of foreign operations
–
42.4
–
–
42.4
Pellets LLC
–
(0.7)
–
–
(0.7)
At 1 January 2023
1.5
85.8
710.8
(50.4)
747.7
Exchange differences on translation of foreign operations
–
(10.3)
–
–
(10.3)
Repurchase of own shares (see note 2.11)
–
–
–
(149.2)
(149.2)
At 31 December 2023
1.5
75.5
710.8
(199.6)
588.2
The capital redemption and treasury shares reserves arose when the Group completed previous share buyback programmes. A further
share buyback at a net cost of £149.2 million has taken place during the year (see note 2.11). The 40.3 million (2022: 13.8 million)
shares held in the treasury shares reserve have no voting rights attached to them.
Exchange differences relating to the translation of the net assets of the Group’s US and Canadian subsidiaries from their functional
currencies (USD and CAD) into sterling for presentation in these Consolidated financial statements are recognised in the translation
reserve.
Hedge reserve and Cost of hedging reserve
Movements in the hedge reserve and the cost of hedging reserve, which reeflect the change in fair value of derivative financial
instruments designated into hedge accounting relationships in accordance with IFRS 9, are set out in notes 7.3 and 7.4.
4.5 Non-controlling interests
Accounting policy
In accordance with IFRS 3, the Group elects on an acquisition-by-acquisition basis whether to measure non-controlling interests (NCIs)
at their proportionate share of the identifiable net assets of the acquiree at the acquisition date, or at fair value. The Group treats
transactions with NCIs that do not result in a loss of control as transactions with equity owners of the parent company. A change in
ownership interest results in an adjustment between the carrying amounts of the controlling interests and NCIs to reeflect their relative
interests in the subsidiary. Any difference between the amount of the adjustment to NCIs and the fair value of any consideration paid
or received is recognised in equity, within retained profits.
At 31 December 2023, the Group has two (2022: two) subsidiary undertakings with NCIs. These subsidiaries were acquired during
2021 through the acquisition of Pinnacle. During the prior year, the Group purchased the remaining 10% of the NCI in Alabama Pellets
LLC increasing the Group’s interest in the subsidiary to 100%. See the Transactions with NCI section below for further information.
Summarised financial information
The summarised financial information disclosed is shown on a 100% basis. It represents the results of each entity below that would be
shown in the subsidiaries’ own financial statements prepared in accordance with IFRS, modified for Group level fair value adjustments
at acquisition. All amounts are presented before intercompany eliminations.
As at 31 December 2023
As at 31 December 2022
Alabama Pellets LLC
North America
0%
0%
Lavington Pellet Limited Partnership
North America
25%
6.5
25%
7.7
Smithers Pellet Limited Partnership
North America
30%
5.5
30%
5.7
Total
12.0
13.4
No dividends were paid to NCIs in the current or prior reporting period.
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Financial statements
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4.5 Non-controlling interests continued
Summarised statement of total comprehensive income
Year ended 31 December 2023
Year ended 31 December 2022
Loss
for the year
attributable
attributable
to the
to the
non-controlling
Loss
interests
Revenue
for the year
£m
£m
£m
39.5
(9.5)
(1.0)
(9.5)
(1.0)
Limited Partnership
31.6
(1.7)
(0.4)
(2.5)
(0.5)
36.5
(1.7)
(0.7)
(1.7)
(0.7)
Partnership
14.5
(2.8)
(0.9)
(3.3)
(1.2)
13.0
(3.0)
(0.9)
(3.0)
(0.9)
Total
4 6 .1
(4.5)
(1.3)
(5.8)
(1.7)
89.0
(14.2)
(2.6)
(14.2)
(2.6)
(1)
(1) The 2022 Summarised statement of total comprehensive income for Alabama Pellets LLC is for the period up to acquisition of the remaining NCI on 30 September 2022.
Summarised balance sheet
As at 31 December 2023
As at 31 December 2022
Limited Partnership
24.9
4.5
(2.0)
(1.4)
26.0
27.7
6.8
(3.1)
(0.6)
30.8
Partnership
15.8
3.1
(1.5)
–
17.4
17.3
1.8
(1.1)
–
18.0
Total
40.7
7.6
(3.5)
(1.4)
43.4
45.0
8.6
(4.2)
(0.6)
48.8
(1)
(1) The remaining NCI of Alabama Pellets LLC was acquired by the Group on 30 September 2022, accordingly no balance sheet values have been presented in the above
table as at 31 December 2022 or 31 December 2023.
Summarised cash owSummarised cash flow
Year ended 31 December 2023
Year ended 31 December 2022
Limited Partnership
2.2
(1.3)
(2.3)
(1.4)
3.5
(0.7)
(2.2)
0.6
Partnership
(2.2)
(0.7)
2.7
(0.2)
(1.9)
(0.2)
1.8
(0.3)
Total
–
(2.0)
0.4
(1.6)
1.6
(0.9)
(0.4)
0.3
(1)
(1) The remaining NCI of Alabama Pellets LLC was acquired by the Group on 30 September 2022, accordingly no cash h flow values have been presented in the above table as
at 31 December 2022 or 31 December 2023.
Transactions with NCI
At the beginning of the prior year, the NCI in Alabama Pellets LLC (APLLC) was 10%. On 30 September 2022, the Group acquired the
remaining 10% of NCI in APLLC for £20.2 million ($22.2 million), resulting in the Group now owning 100% of APLLC. This resulted in
a£9.3a £9.3 million charge recognised in equity, within retained profits, for the difference between the adjustment to NCI and the fair value
ofany cof any consideration paid, and a decrease in the translation reserve of £0.7 million.
The following table summarises the impact of changes in the Group’s ownership of APLLC during 2022:
Carrying amount of non-controlling interest acquired
10.2
Consideration paid to non-controlling interest
(20.2)
Decrease in equity attributable to owners of the parent company
(10.0)
Further information on changes during the prior year in the Group’s NCIs is given in the Consolidated statement of changes in equity.
Section 4: Financing and capital structure continued
Drax Group plc
Annual report and accounts 2023
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This section provides information on the assets and liabilities in the Consolidated balance sheet that are not covered in other sections,
including goodwill, other intangible assets and provisions.
5.1 Business combinations
Accounting policy
Business combinations are transactions or other events in which the Group obtains control of one or more businesses. Business
combinations are accounted for using the acquisition method. Acquisitions of businesses are recognised at the point the Group obtains
control of the target (the acquisition date). The consideration transferred, the identifiable assets acquired, and the liabilities assumed
are measured at their fair value on the acquisition date. Amounts relating to the settlement of pre-existing relationships are recognised
in the Consolidated income statement with a corresponding adjustment to the consideration transferred to reeflect the fact that part
ofthof the consideration is deemed to relate to the settlement of the pre-existing relationship.
From the acquisition date, the assets and liabilities of acquired businesses are recognised in the Consolidated balance sheet, and the
revenues and profits or losses of the acquired businesses are recognised in the Consolidated income statement. Acquisition-related
costs are recognised as an expense in the Consolidated income statement in the period that they are incurred.
Goodwill is measured as the excess of the:
• consideration transferred; less
• amount of any non-controlling interest in the acquired entity; and
• acquisition date fair value of any previous equity interest in the acquired entity;
over the fair value of the identifiable net assets acquired.
Share-based payment awards held by employees of the acquired business that are voluntarily replaced are recognised as
post-acquisition remuneration. Share-based payment awards held by employees of the acquired business that are obliged to be
replaced are allocated between post-acquisition remuneration, which is treated as an expense, and pre-acquisition remuneration,
which is treated as part of the overall consideration.
Bonuses paid to employees of the acquired entity that are dependent upon the employee remaining in continuous employment
post-acquisition are treated as post-acquisition remuneration.
Acquisition of BMM
On 31 August 2023, Drax Energy Solutions Limited, a wholly owned subsidiary of the Group, acquired 100% of the issued share capital
of BMM Energy Solutions Limited (BMM). BMM specialises in the installation and maintenance of electric vehicle charge points and
has been the Group’s primary installation partner since 2018. The acquisition strengthens the Group’s end-to-end electric vehicle
charging proposition to UK businesses.
Total consideration payable was £9.0 million. Following the acquisition the Group repaid borrowings acquired of £1.8 million. There was
no contingent or deferred consideration.
The Group has a one year measurement period, from the acquisition date, to finalise the acquisition accounting. Provisional fair values
of the identifiable assets acquired and liabilities assumed as at 31 August 2023 were as follows:
Property, plant and equipment
0.1
Intangible assets
5.0
Right-of-use assets
0.1
Inventories
0.3
Trade and other receivables
1.3
Trade and other payables
(0.6)
Lease liabilities
(0.1)
Deferred tax liabilities
(1.3)
Borrowings
(1.8)
Identifiable net assets acquired
3.0
Add: Goodwill
6.0
Net assets acquired
9.0
The Group recognised an identifiable intangible asset on the acquisition date for customer relationships of £5.0 million (see note 5.2
forffor further details). Goodwill of £6.0 million arose on this transaction. The goodwill relates to future uncontracted revenues expected
to be realised and has been allocated to the Drax Energy Solutions CGU.
No contingent liabilities or indemnification assets have been recognised.
The Group acquired receivables with a fair value of £1.3 million. These receivables had a gross contracted value of £1.7 million.
AproA provision of £0.4 million was recognised in relation to expected credit losses.
The Group acquired inventories with a gross value of £0.4 million. A provision of £0.1 million was recognised in relation to these
inventories.
As the transaction is immaterial in its entirety, the full IFRS 3 disclosures are not presented in these Consolidated financial statements .
Section 5: Other assets and liabilities
Drax Group plc
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Financial statements
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Section 5: Other assets and liabilities continued
5.1 Business combinations continued
Acquisition of Princeton pellet plant
On 3 August 2022, the Group announced that it had signed an agreement with Princeton Standard Pellet Corporation (PSPC) to
acquire its pellet plant in Princeton, British Columbia, Canada for consideration of C$11.5 million (£ 7.6 million), subject to customary
working capital adjustments. The sale subsequently completed on 1 September 2022. The plant has nameplate capacity to produce
90kt of biomass pellets a year from sawmill residuals and will contribute to the Group’s strategy to increase pellet production capacity.
In addition to the pellet plant itself, the Group also acquired certain other assets from PSPC including inventories and other working
capital balances. As part of the transaction, the employees of PSPC joined the Group. Although the legal structure of the transaction
was that of an asset purchase agreement, it was concluded that the substance of the transaction met the criteria of a business
combination as defined by IFRS 3 and therefore the Group accounted for the transaction under the acquisition method.
The fair value of the assets and liabilities acquired were as follows:
Property, plant and equipment
7.9
Inventories
1.0
Trade and other receivables
0.8
Trade and other payables
(1.2)
Deferred tax liabilities
(0.9)
Identifiable net assets acquired
7.6
No goodwill arose from this transaction and no contingent liabilities or indemnification assets have been recognised.
The Group acquired receivables with a fair value and gross contracted value of £0.8 million.
No provision was recognised due to the risk of default within the Princeton business, as well as the wider Pellet Production business,
being considered to be remote.
As the transaction is immaterial in its entirety, the full IFRS 3 disclosures are not presented in these Consolidated financial statements.
5.2 Goodwill and intangible assets
Intangible assets are not physical in nature but are identifiable from other assets. Goodwill arises on the acquisition of a business when
the consideration paid exceeds the fair value of the net assets acquired. Intangible assets other than goodwill can be acquired in
business combinations, acquired separately or internally generated.
Accounting policy
Goodwill is measured as the excess of the:
• consideration transferred; less
• amount of any non-controlling interest in the acquired entity; and
• acquisition date fair value of any previous equity interest in the acquired entity;
over the fair value of the identifiable net assets acquired.
Goodwill arising on the acquisition of a foreign operation is treated as an asset of that operation and therefore denominated in the
functional currency of the operation to which it is allocated. Goodwill denominated in a foreign currency is subsequently translated at
the rate prevailing at each reporting date. Exchange differences arising on retranslation are recognised in the Consolidated statement
of comprehensive income.
Goodwill is allocated to the cash-generating units (CGUs), or groups of CGUs, that are expected to benefit from the synergies of the
acquisition. If one or more CGU, or group of CGUs, to which goodwill is allocated are restructured, then the goodwill is reallocated
totto the CGUs impacted by the restructure. Goodwill is considered to have an indefinite useful life, is not amortised, and is assessed
annually for impairment (see note 2.4). Any impairment charge is recognised against the carrying value of goodwill in cost.
Intangible assets acquired in business combinations are measured at fair value on the acquisition date. Other intangible assets are
measured initially at cost. Cost comprises the purchase price (net of any discount or rebate) and any directly attributable costs of
preparing the asset for use in the manner intended by management.
The carrying amounts of intangible assets are assessed for indicators of impairment at each reporting date. The Group’s policy is
toreto recognise an impairment charge through accumulated amortisation if the asset will continue to be used by the Group. However,
iftif the asset is still under construction, as no amortisation has yet been charged, the impairment charge is recognised in cost.
Intangible assets are amortised over their anticipated useful economic lives (UELs), which are reviewed at least at each financial year
end. When reviewing UELs the assessment takes into account regulatory changes, climate change and commercial and technological
changes. Any changes to estimated UELs are applied prospectively. During the current year this review has resulted in a change to the
UELs of the Opus Energy customer-related asset and brand asset. These intangible assets are now being amortised to December 2024
to reeflect the estimated period over which the value will be recognised.
Drax Group plc
Annual report and accounts 2023
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5.2 Goodwill and intangible assets continued
Pinnacle
Straight line
7
Opus Energy
Reducing balance
1
BMM
Straight line
9
Other
Straight line
10
Brand
Straight line
1
Computer software and licences
Straight line
5
Other intangibles
Straight line
4
Carrying amounts are assessed for indicators of impairment at each reporting date. The customer-related assets are attributable to
thePee Pellet Operations CGU, the Opus Energy CGU, and the Drax Energy Solutions CGU following the acquisition of BMM. The brand
isatis attributable to the Opus Energy CGU. Details of the impairment assessments relating to these CGUs are included in note 2.4.
At 1 January 2022
255.5
11.3
147.2
1.7
0.3
416.3
832.3
Additions at cost – internally generated
–
–
9.4
–
–
–
9.4
Disposals
–
–
(8.2)
–
–
–
(8.2)
Impairment
–
–
(19.2)
(1.7)
–
–
(20.9)
Transfers between categories
–
–
(0.5)
0.5
–
–
–
Transfers from/(to) property, plant and
equipment
–
–
0.5
(0.5)
–
–
–
exchangerates rates
2.1
–
0.3
–
–
7.9
10.3
At 1 January 2023
257.6
11.3
129.5
–
0.3
424.2
822.9
Additions at cost – internally generated
–
–
7.7
–
–
–
7.7
Additions at cost – acquired separately
–
–
2.2
–
–
–
2.2
Acquired in business combinations
5.0
–
–
–
–
6.0
11.0
Impairment
–
–
–
–
–
(14.5)
(14.5)
andand equipment
–
–
0.6
–
–
–
0.6
exchangerates rates
(1.5)
–
(0.2)
–
–
1.0
(0.7)
At 31 December 2023
261.1
11.3
139.8
–
0.3
416.7
829.2
At 1 January 2022
149.4
5.6
72.4
–
–
–
227.4
Charge for the year
21.2
1.2
9.0
–
–
–
31.4
Disposals
–
–
(8.2)
–
–
–
(8.2)
Impairment
–
–
5.7
–
–
–
5.7
exchangerates rates
–
–
0.1
–
–
–
0.1
At 1 January 2023
170.6
6.8
79.0
–
–
–
256.4
Charge for the year
17. 2
1.1
11.0
–
0.1
–
29.4
Impairment
31.5
3.0
11.1
–
–
–
45.6
exchangerates rates
(0.3)
–
(0.1)
–
–
–
(0.4)
At 31 December 2023
219.0
10.9
101.0
–
0.1
–
331.0
At 31 December 2022
87.0
4.5
50.5
–
0.3
424.2
566.5
At 31 December 2023
42.1
0.4
38.8
–
0.2
416.7
498.2
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Annual report and accounts 2023
237
Financial statements
Contents

Section 5: Other assets and liabilities continued
5.2 Goodwill and intangible assets continued
The Group has incurred research and development expenditure of £22.8 million (2022: £12.5 million), which is included within
operating and administrative expenses in the Consolidated income statement.
Customer-related assets
Customer-related assets reflects the value of customer contracts acquired on the acquisition of Opus Energy in February 2017,
theace acquisition of Pinnacle in April 2021, the Pacific BioEnergy sales contracts purchased by Pellet Operations in December 2021,
andthd thecue customer asset acquired on acquisition of BMM in August 2023.
The Opus Energy asset had an acquisition date fair value of £211.0 million reflecting the estimated value of the future cash flows
associated with this customer base at the acquisition date and is dependent upon estimates of both current and expected future
contract margins and assumed customer retention rates. The cash flows were discounted using an asset specific discount rate of
10.7%. The asset had an estimated UEL from acquisition of 11 years, calculated based on customer churn-rate analysis which shows
how many customers are expected to leave the business in a given year, and was being amortised on a reducing balance basis to
reflect the diminishing rate of contract renewals over time. During the current year the Opus Energy CGU has been tested for
impairment and an impairment charge of £31.5 million was allocated to the Opus Energy customer-related asset as part of this (see
note 2.4 for further details on this impairment assessment). At 31 December 2023, the Opus Energy customer-related asset had a
carrying value of £3.8 million (2022: £47.8 million) and a remaining UEL of approximately one year (2022: five years). The UEL has been
reduced due to increased customer churn rates, in part due to the announced exit and offboarding of gas customers in February 2023.
The Pinnacle asset provided the Group with access to customer bases with contracted cash flows. The asset had an acquisition date
fair value of C$62.1 million (£35.9 million) which was estimated based upon a multi-period excess earnings method. This was based
onton thephe present value of the incremental after-tax cash flows attributable to the customer-related asset, after deducting a contributory
asset charge that represented the required return for fixed assets, net working capital and the assembled workforce thatahat are required
to generate the cash flows. The valuation estimates an appropriate margin to apply to the contracts. No customer retentions were
assumed as part of the valuation. The cash flows were discounted using an asset specific discount rate of 10.0%. Theaf 10.0%. The asset had an
estimated UEL from acquisition of 10 years, supported by the distribution of value, with around 90% of the value to be derived from
the contracts provided in this period. The Pinnacle customer-related asset is being amortised on a straight-line basis tores to reflect the
evenspn spread of contract maturities over the UEL. At 31 December 2023, the Pinnacle asset had a carrying value of £26.8mi.8 million
(2022:£3(2022: £31.5 million) and a remaining UEL of approximately seven years (2022: eight years).
On acquisition of BMM in August 2023 a customer-related asset with a fair value of £5.0 million was recognised reflecting the
estimated future cash flows from existing customer relationships that were not yet contracted. The fair value was estimated based
upon a multi-period excess earnings method. At 31 December 2023, the BMM asset had a carrying value of £4.8 million and a
remaining UEL of nine years.
The other customer-related assets relate to pellet sales contracts acquired from Pacific BioEnergy on 31 December 2021. At
31D1 December 2023 this asset had a carrying value of £6.7 million (2022: £7.7 million) and a remaining UEL of 10 years (2022: 11 years).
Opus Energy brand
The Opus Energy brand was acquired as part of the Opus Energy acquisition in February 2017 and valued at £11.3 million using a
relief-from-royalty method. During the current year the Opus CGU has been tested for impairment and an impairment charge of
£3.0m£3.0 million was allocated to the Opus Energy brand as part of this (see note 2.4 for further details on this impairment assessment).
Theche carrying value of the Opus Energy brand at 31 December 2023 was £0.4 million (2022: £4.5 million) and had a remaining UEL of one
year (2022: four years). The UEL of the brand asset was accelerated during the year in line with the Opus Energy customer-related asset.
Computer software and licences
Additions in the period include those in the ordinary course of business, which principally reeeflect ongoing investment in business
systems to support the Customers segment. Software assets are amortised on a straight-line basis over their estimated UELs ranging
from 2–10 years.
From 1 January 2022, following an agenda decision from the International Financial Reporting Interpretations Committee (IFRIC), the
Group applied a new accounting policy for Software as a Service (SaaS) costs. SaaS costs capitalised by the Group at 1 January 2022,
and impacted by this change in accounting policy, had a net book value of £5.7 million. These assets were impaired during 2022, with
the charge being recognised against accumulated amortisation in the table above, and recorded as an exceptional cost in the
Consolidated income statement (see note 2.7). SaaS costs incurred from 1 January 2022 have been recognised in operating and
administrative expenses in the Consolidated income statement .
As at 31 December 2023, computer software assets under the course of construction amounted to £19.7 million (2022: £18.3 million).
During the prior year the Group recognised a £19.2 million impairment relating to a new billing system in the Customers business
where the Group had stopped development as it no longer expected future economic benefits to be recovered as an ongoing
intangible asset. The impairment charge was recognised against cost in the table above, and recorded as an exceptional cost in the
Consolidated income statement. Alt. A legal claim in respect of this project was settled with the supplier during the current year. This has
resulted in a credit to the Consolidated income statement amounting to £13.7 million. This has also been recognised as an exceptional
item in the Consolidated income statement (see note 2.7).
See note 2.4 for a summary of impairment charges recognised on fixed assets during the year.
Drax Group plc
Annual report and accounts 2023
238
Financial statements
Contents

5.2 Goodwill and intangible assets continued
Goodwill
The table below shows the carrying amount of goodwill by CGU:
At 1 January 2023
10.7
159.2
11.3
4 0 .1
26.9
176.0
424.2
Acquisitions
6.0
–
–
–
–
–
6.0
Reallocations
144.7
(144.7)
–
–
–
–
–
Impairment
–
(14.5)
–
–
–
–
(14.5)
exchangerates rates
–
–
–
–
–
1.0
1.0
At 31 December 2023
161.4
–
11.3
4 0.1
26.9
17 7.0
416.7
Following a reorganisation of the Customers business, which included the transfer of certain activities from the Opus Energy CGU
totto the Drax Energy Solutions CGU, goodwill of £144.7 million has been reallocated between the two CGUs on a relative fair value
approach. Of the £159.2 million of goodwill allocated to the Opus Energy CGU in the prior year, £144.7 million has been allocated
totto theDhe Drax Energy Solutions CGU. The remaining £14.5 million was subsequently impaired as a result of the impairment assessment
described in note 2.4.
5.3 Provisions
The Group makes provisions for reinstatement to cover the estimated costs of decommissioning and demolishing or remediating
thesite sites of its Generation and Pellet Production assets at the end of their UELs. The Group has recognised a restructuring provision
inrein respect of coal closure. Other provisions primarily relate to dilapidation provisions for leased assets.
Accounting policy
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that
the Group will be required to settle that obligation and a reliable estimate can be made of the amount required to settle the obligation.
Specifically, a provision is made for the estimated decommissioning costs at the end of the UELs of the Group’s generation assets and
pellet plants, when a legal or constructive obligation arises, on a discounted basis. The amount provided is calculated on a site-by-site
basis and represents the present value of the expected future costs. An amount equivalent to the discounted provision is capitalised
within property, plant and equipment, with the capitalisation shown in the movement in reinstatement asset line in note 3.1 and is
depreciated over the UELs of the related assets. The unwinding of the discount is included in interest payable and similar charges
inin the Consolidated income statement.
The Group recognises a restructuring provision when it has developed a detailed formal plan for the restructuring and has raised
avaa validelid expectation that it will carry out the restructuring either by starting to implement the plan or announcing its main features
toto those affected by it. The restructuring provision includes only the direct expenditures arising from the restructuring programme.
Thesease are costs that would have been avoided if the restructuring programme did not go ahead. Any costs to be incurred relating
toto the ongoing activities of the Group are excluded from the provision.
A provision for termination benefits is recognised at the earlier of when the Group can no longer withdraw the offer of the termination
benefit and when the Group recognises any related restructuring costs.
Other provisions include a provision in respect of dilapidation costs for leased offices and rail cars.
At 1 January 2023
44.0
12.7
1.9
58.6
Additional provision charged to PPE (note 3.1)
22.7
–
–
22.7
Transfer between provision categories
1.2
–
(1.2)
–
Additional provision recognised
–
–
0.3
0.3
Utilised
(1.4)
(2.8)
–
(4.2)
Released
–
–
(0.5)
(0.5)
Unwinding of discount
1.9
–
–
1.9
At 31 December 2023
68.4
9.9
0.5
78.8
Current
5.1
1.3
0.2
6.6
Non-current
63.3
8.6
0.3
72.2
Decommissioning provisions are made in respect of Drax Power Station (£64.5 million) and certain pellet plants (£3.9 million).
Drax Group plc
Annual report and accounts 2023
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Financial statements
Contents

5.3 Provisions continued
The decommissioning provision in respect of Drax Power Station is based on the assumption that the initial decommissioning work,
relating to coal operations, will be completed between 2024 and 2026, with the remainder beginning at the end of station life, which
iscuis currently estimated to be 2039. The decommissioning provision relating to certain pellet plants is based on the assumption that the
decommissioning and reinstatement will take place at the end of the expected UEL of each site, which are estimated to be between
2027 and 2040. The provisions have been estimated using existing technology at current prices based upon specialist, third-party
advice, updated on a triennial basis as a minimum, but more regularly when deemed appropriate due to changes that might
significantly impact the estimated cost, such as changes in prices, or changes in expected decommissioning plans. The most recent
update for the Drax Power Station and pellet plant provisions took place inDce in December 2023.
The cost of the Drax Power Station decommissioning is estimated, based on the midpoint of the range calculated by the third-party
experts, to be £93.6 million at current prices. An innflation curve was then applied to estimate the separate elements of the
decommissioning cost at the dates that they are expected to occur. These values were then discounted to calculate the present value
of the provision to be recognised.
The discount rates used are nominal risk-free rates that ret reflect the duration of the liabilities. These discount rates are estimated using
forward UK Gilt curves as a proxy for risk-free rates. The use of a risk-free rate rete reflects the fact that the estimated future cash sh flows
have built-in risks specific to the liability. The average discount rates used for the Group’s decommissioning provisions range from
3.02%–5.03% (2022: 4.05%).
The additional provision recognised in the year is predominantly due to the change in the assumptions around the timing and method
of the decommissioning at Drax Power Station. It was previously assumed the decommissioning would all take place at the end of the
station life in 2039. Due to the UK BECCS development project, certain parts of the site will be required to be decommissioned before
the end of station life, which has resulted in an increase in the provision due to the higher estimated costs of decommissioning work
taking place around a live power station. The timing of these costs being earlier has also resulted in an increase to the provision once
the changes in assumptions around ination and di around inflation and discounting are factored in.
The Drax Power Station decommissioning provision is not considered a key source of estimation uncertainty to which there is a
significant risk of a material adjustment to the carrying amount within the next financial year. Decommissioning provisions are based
on costs sufficiently far in the future that, given the length of time, it is not anticipated that any new, more reliable, or accurate
information will be available within the next financial year to update this estimate that would result in a material adjustment.
The estimated cost of decommissioning Drax Power Station based on specialist, third-party advice using existing technology at
current prices had a range of £65.5 million to £121.6 million. Applying ing inflation and discounting assumptions consistent with those
applied to the provision recognised would result in an estimated provision range of £45.3 million to £8 4.1 million. An increase of
100b100 basis points in the inflation and discount rates used would result in a £9.6 million (2022: £9.5 million) increase and a £7.9 million
(2022:£7(2022: £7.0 million) decrease respectively in the amount recognised. The relationship between the change in basis points and
changein ae in amount recognised is relatively linear, therefore the impact of similar sensitivities may be extrapolated from these amounts.
The cost of decommissioning a site the size of Drax Power Station will be impacted by things such as the exact composition and
volumes of materials used in the structures to be decommissioned, and the presence of contaminants. Full site surveys and
investigations will need to be performed once the site ceases operation to ascertain further information necessary to decommission
the site which could impact the potential costs. The costs being estimated are also several years in the future. All of these factors
increase the estimation uncertainty of the decommissioning provision. The impact of climate change, both physical and transitional,
extending over the medium term, was also considered by the third party when determining the provision. The Group has concluded
that climate change is unlikely to have a significant impact on the future decommissioning costs, however this risk will continue to
berebe reassessed and the impact of any changes will be reeeflected in the valuation.
The restructuring provision includes redundancy costs relating to the formal closure of the coal units at Drax Power Station which
wasinis initially planned for September 2022. It also includes costs for engineering works required to make the coal units and related
assets safe following cessation of operating. At the request of the UK Government, the Group entered into an agreement with National
Grid to keep the two coal units available to provide a “winter contingency” service to the UK power network from October 2022 until
the end of March 2023, which delayed the formal closure of the coal units and resulted in the utilisation of certain amounts of the
restructuring provision also being delayed. This has not materially impacted the expected costs. The formal closure of the coal units
commenced at the end of the winter contingency service in March 2023.
The amount of the restructuring provision utilised in the year predominantly relates to engineering and redundancy costs. Of the
£9.9 million remaining at 31 December 2023, £8.9 million relates to engineering works, of which £0.7 million is expected to be utilised
in 2024 with the remaining amounts expected to be utilised in the period from 2025 to 2027. A further £0.6 million relates to
redundancy costs, which are expected to be utilised in 2024, and the remaining £0.4 million relates to other costs, which are expected
to be utilised in the period from 2025 to 2027.
Section 5: Other assets and liabilities continued
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The notes in this section relate to the remuneration of the Directors and employees of the Group, including the Group’s obligations
under retirement benefit schemes.
6.1 Colleagues including directors and employees
This note provides a more detailed breakdown of the cost of employees, including Executive directors of the Group. The average
monthly number of employees in Operations (staff based at Pellet Production and Generation sites), Customers (employees in the
Group’s Customers segment) and Central corporate and commercial functions are also provided.
Further information in relation to pay and remuneration of the Executive directors can be found in the Remuneration Committee
report, starting on page 144.
Staff costs (including Executive directors)
Wages and salaries
240.4
201.8
Social security costs
22.3
21.6
Defined benefit pension service cost (note 6.3)
2.3
4.7
Defined contribution pension cost (note 6.3)
21.4
16.7
Share-based payments (note 6.2)
13.8
9.6
Termination benefits
1.5
1.4
Total staff costs
301.7
255.8
Staff costs capitalised
(7.7)
(6.9)
Staff costs included in operating and administrative expenses (note 2.3)
294.0
248.9
Average monthly number of people employed (including Executive directors)
Operations (Pellet Production)
781
696
Operations (Generation)
675
685
Customers
892
866
Central corporate and commercial functions
1,072
880
Total average monthly number of people employed
3,420
3,127
6.2 Share-based payments
The Group operates five share option schemes for employees: the Long Term Incentive Plan (LTIP) for Executive directors and senior
employees (which replaced the Performance Share Plan (PSP) from 2020), the Deferred Share Plan (DSP) for Executive directors,
OneDraxOne Drax Awards which are recognition and retention awards granted to certain employees below senior management, the Employee
Stock Purchase Plan (ESPP) for all qualifying US and Canada-based employees, and the Save As You Earn (SAYE) scheme for all UK
qualifying employees. The Group incurs a non-cash charge in respect of these schemes in the Consolidated income statement, which
is set out below along with a description of each scheme and the number of options outstanding at the reporting date.
Accounting policy
The LTIP, PSP, DSP, One Drax Awards, ESPP and SAYE share-based payment schemes are equity-settled. In accordance with IFRS 2,
equity-settled share-based payments are measured at the fair value of the equity instrument at the date of grant. The corresponding
expense is recognised in the Consolidated income statement on a straight-line basis over the relevant vesting period, based on an
estimate of the number of shares that will ultimately vest as a result of the effect of non-market based vesting conditions, which is
revised at each reporting date. Market based vesting conditions are factored into the calculation of the fair value of options granted
atat the date of grant and are not subsequently remeasured.
If share options are cancelled due to non-vesting conditions not being met, for example employees withdrawing (by choice) part way
through the vesting period or not exercising their options in the exercise period after they vest, the charge for such options is
accelerated at the point of cancellation.
If share options are forfeited due to employees failing to meet continuing service conditions of a grant, or failing to meet non-market
performance conditions, then these options do not attract a charge and any previously recognised charge is reversed, in accordance
with IFRS 2.
Section 6: People costs
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Section 6: People costs continued
6.2 Share-based payments continued
Costs recognised in the Consolidated income statement in relation to share-based payments during the year were as follows:
LTIP (granted from 2020)
8.7
5.6
PSP (granted from 2017 to 2019)
–
0.5
DSP (granted from 2017)
0.5
0.4
One Drax Awards
1.4
1.0
ESPP
0.1
–
SAYE
3.1
2.1
Total share-based payment expense included within staff costs (note 6.1)
13.8
9.6
Movements in the number of share options outstanding at the reporting date for each scheme is shown below.
The following schemes are bonus award schemes and therefore have no exercise price.
At 1 January 2022
4,570,228
716,422
567,426
216,066
Granted
1,399,952
–
71,399
143,439
Forfeited
(238,121)
(46,716)
(5,598)
(11,235)
Exercised
–
(622,989)
(265,482)
(211,265)
Expired
(32,688)
(46,717)
–
(258)
At 1 January 2023
5,699,371
–
367,745
136,747
Granted
2,282,798
–
101,657
262,526
Forfeited
(123,776)
–
–
(2,738)
Exercised
(2,750,860)
–
(208,627)
(140,669)
Expired
(14,370)
–
–
–
At 31 December 2023
5,
0
93,163
–
260,775
255,866
The following schemes are share purchase schemes and therefore weighted average exercise prices are presented.
ESPP
SAYE
At 1 January 2022
–
–
149
8,376,823
140
2,539,710
Granted
–
–
563
700,799
563
107,122
Forfeited
–
–
176
(222,311)
154
(80,928)
Exercised
–
–
206
(545,220)
188
(72,097)
Expired
–
–
304
(146,423)
254
(28,945)
At 1 January 2023
–
–
178
8 ,163,6 6 8
155
2,464,862
Granted
469
64,497
498
1
,9
9 6 ,117
498
19
7,
82 5
Forfeited
–
–
327
(46,063)
432
(8,228)
Exercised
–
–
127
(6,831,232)
219
(15,727)
Expired
–
–
509
(395,588)
496
(52,923)
At 31 December 2023
469
64,497
470
2,886,902
173
2,585,809
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Annual report and accounts 2023
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6.2 Share-based payments continued
Key information about each active scheme for options granted and exercised in the current and prior year is presented below.
LTIP
DSP
One Drax Awards
ESPP
SAYE three-year
SAYE five-year
ofof exercise (pence)
621
621
621
–
554
604
date
119,102
13,351
–
–
25,207
712
outstanding at reporting date (pence)
469
contractuallifcontractual life (months)
17
14
3
2
22
20
LTIP
PSP
DSP
One Drax Awards
SAYE three-year
SAYE five-year
of exercise (pence)
–
711
729
729
729
722
date
–
–
17,058
–
605
–
127
and 563
contractual life (months)
13
–
11
3
8
30
The fair value of share options is calculated using a Monte-Carlo simulation if the scheme vests subject to market conditions, or
theBle Black-Scholes model otherwise. The Monte-Carlo simulation takes into account the estimated probability of different levels
ofof vesting for share options with market based conditions and produces a probability-based fair value calculation.
The key inputs to both the Monte-Carlo and Black-Scholes valuation models are the share price at the date of grant, exercise price
where applicable, dividend yield on the underlying share, time to expiry of the option, expected volatility and risk-free interest rate.
Expected volatility is determined by calculating the historical volatility of the Group’s share price. The expected life used in the
valuations is based on the length of the vesting period, adjusted, based on management’s best estimate, for the effects of non-
transferability, exercise restrictions and behavioural considerations. The risk-free interest rate is determined using the rate for the
equivalent length zero-coupon UK Government bond for each scheme.
Information about the valuation models used for options granted during the current and prior year, and relevant inputs to those models
is set out in the tables below.
LTIP
LTIP
DSP
One Drax Awards
ESPP
SAYE three-year
SAYE five-year
Share price at grant date (pence)
608
545
608
608
547
641
641
Exercise price (pence)
–
–
–
–
469
498
498
Dividend yield
2.50%
2.50%
–
3.94%
3.57%
4.10%
4.54%
Vesting period of options granted
3 years
3 years
3 years
1 year
6 months
3 years
5 years
Expected volatility
39.92%
39.92%
36.35%
37.25%
26.95%
36.35%
38.95%
Annual risk-free interest rate
3.56%
3.56%
4.94%
5.17%
4.97%
4.94%
4.62%
granted at measurement date (pence)
481
481
608
585
110
205
220
Fair value of all options granted (£m)
9.4
1.5
0.6
1.5
0 .1
4.1
0.4
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6.2 Share-based payments continued
LTIP
DSP
One Drax Awards
SAYE three-year
SAYE five-year
Valuation model used
Monte-
Share price at grant date (pence)
726
726
726
783
783
Exercise price (pence)
–
–
–
563
563
Dividend yield
4.24%
–
–
2.85%
3.15%
Vesting period of options granted
3 years
3 years
1 year
3 years
5 years
Expected volatility
40.19%
4 0.19%
4 0.19%
40.98%
38.29%
Annual risk-free interest rate
1.20%
1.20%
1.20%
2.46%
2.38%
atat measurement date (pence)
697
726
726
293
291
Fair value of all options granted (£m)
9.8
0.5
1.0
2.1
0.3
LTIP
The LTIP was introduced in 2020 for Executive directors and senior employees. This replaced the PSP scheme (see below). Under the
LTIP, annual awards of performance and service-related shares are made for no consideration to Executive directors and other senior
employees up to a maximum of 200% of their annual base salary. Vesting of 50% of the shares is conditional upon whether the Group’s
Total Shareholder Return (TSR) matches or outperforms an index (determined in accordance with the scheme rules) over three years,
and vesting of the remaining 50% of shares is conditional upon performance of cumulative Adjusted EPS (defined to be derived from
Adjusted results) over three years. Additionally, each time a dividend is paid during the vesting period of the scheme, participants
areeare entitled to receive further share options of equivalent value to the dividends, determined by the market value of shares on the
ex-dividend date, which are formally granted on the vesting date for each scheme. The fair value of LTIP options is calculated
withth theshe support of external IFRS 2 specialists due to the TSR vesting condition being market based and therefore requiring a
Monte-Carlo simulation.
PSP
The PSP was in place for Executive directors and senior employees from 2017 to 2019. Under the PSP, annual awards of performance
and service-related shares were made for no consideration up to a maximum of 175% of their annual base salary. Vesting of 50% of
shares was conditional upon whether the Group’s TSR matched or outperformed an index (determined in accordance with the scheme
rules) over three years and vesting of the remaining 50% of shares was conditional upon performance against the Group Scorecard
(see page 151). The last of the outstanding PSP options expired during 2022.
DSP
The Group operates the DSP, under which Executive directors receive 40% of their annual bonus in share options. DSP awards are
granted at nil cost and vest after three years subject to continued employment or “good leaver” termination provisions. Each time a
dividend is paid during the vesting period of the scheme, participants are entitled to receive further share options of equivalent value
to the dividends, determined by the market value of shares on the ex-dividend date, which are formally granted on the vesting date
forefor each scheme. As such, a dividend yield of 0% is input into the Black-Scholes calculation to reeflect that the fair value of each share
option is not reduced by dividends paid out over the vesting period.
One Drax Awards
One Drax Awards are granted to certain employees below senior management and vest after one year subject to continuous
employment. The number of shares awarded to the employee is equivalent to 10% of their base salary based ontd on the Group’s share
price at the grant date.
ESPP
From September 2023, participation in the new ESPP scheme is offered to all US and Canada qualifying employees biannually. Under
the ESPP, employees are granted the option to purchase shares at a 15% discount to the market price of Drax Group plc shares, based
on the lower of the market price at the grant date and the market price at the vesting date. The options are exercisable at the end
ofsix-moof six-month savings contracts, under which an employee selects a fixed percentage of their salary to be put towards the scheme.
SAYE
Participation in the SAYE scheme (Sharesave) is offered to all UK qualifying employees every April. Options are granted for employees
to acquire shares at a discount of 20% to the market price of Drax Group plc shares, based on the average closing price for the five
days immediately preceding the grant date, determined in accordance with the scheme rules. The options are exercisable at the end
ofthof three or five-year savings contracts.
Additional information in relation to the Group’s share-based incentive plans is included in the Remuneration Committee report
onpon pages 153 and 154 .
Section 6: People costs continued
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6.3 Retirement benefit obligations
The Group operates one defined benefit and three defined contribution pension schemes. Up until 31 January 2023, the Group also
operated an additional defined benefit pension scheme, the Drax Power Group (DPG) section of the Electricity Supply Pension Scheme
(ESPS). As at 1 February 2023, the Group replaced its three UK Group Personal Pension Plans with the My Drax Retirement Savings
Section of the Aon MasterTrust.
Name of scheme
Type of benefit
Status
Country
DPG section of ESPS (DPG ESPS)
Defined benefit final salary
Closed on 31 January 2023
UK
Drax 2019
Scheme
Defined benefit final salary
onton transfer in 2019
UK
Drax Group Personal Pension Plan
Defined contribution
January 2023
UK
Pension Plan
Defined contribution
January 2023
UK
PensionPlon Plan
Defined contribution
January 2023
UK
Open to new members
UK
Drax Biomass Inc. 401(K) Plan
Defined contribution
Open to new members
US
Savings Plan
Defined contribution
Open to new members
Canada
On 31 January 2023 the DPG ESPS’s assets and liabilities were transferred to the Drax 2019 Scheme, and the DPG ESPS was wound
up on 17 April 2023. The Drax 2019 Scheme continues to provide the same level of pension benefits to current and former employees
as they were previously entitled to, with the combination allowing the resulting scheme to operate in a more efficient and focused
manner, with a reduced administrative burden and associated cost.
Trustee governance (defined benefit pension schemes)
The Drax 2019 Scheme is administered by a sole Trustee (PAN Trustees UK LLP), which was appointed on 30 November 2022 and is
legally separate from the Group. The Trustee is required by law to act in the interest of all relevant beneficiaries and is responsible for
the investment policy for the assets and the day-to-day administration of the defined benefit scheme. Prior to 30 November 2022,
theDre Drax 2019 Scheme was administered by a board of Trustees composed of representatives of both the employer and employees.
AseA separate board of Trustees also administered the DPG ESPS while it was active.
Accounting policy
Payments to defined contribution schemes are recognised as an expense when employees have rendered services that entitle them to
the contributions. The Consolidated income statement charge for the defined contribution schemes represents the total contributions
to be paid by the Group in respect of the current period.
For the defined benefit pension schemes, the cost of providing benefits is determined using the projected unit credit method, with
actuarial valuations being carried out at the end of each reporting period. Remeasurement of the obligation, comprising actuarial gains
and losses, the effect of the asset ceiling (if applicable) and the return on scheme assets (excluding interest), is recognised immediately
in the Consolidated balance sheet with a charge or credit to the Consolidated statement of comprehensive income in the period in
which it occurs. Defined benefit costs, including current service costs, past service costs and gains and losses on curtailments and
settlements, are recognised in the Consolidated income statement as part of operating and administrative expenses in the period
inwhin which they occur. The net interest expense or credit is recognised in interest payable and similar charges or interest receivable.
Significant estimation uncertainty
Measurement of the defined benefit pension obligation using the projected unit credit method involves the use of key assumptions,
including discount rates, ination rates, salary and pension discount rates, inflation rates, salary and pension increases and mortality rates. These actuarial assumptions are reviewed
annually and modified as appropriate. The Group believes that the assumptions utilised in measuring obligations under the schemes
are reasonable based on prior experience, market conditions and the advice of pension scheme actuaries. However, actual results
maydmay differ from such assumptions.
The assumptions applied in 2023 have been prepared in accordance with specialist, third-party actuarial advice received and are
consistent with those applied in the prior period.
Defined contribution schemes
The Group operates five defined contribution schemes for all qualifying employees. Pension costs for the defined contribution
schemes are as follows:
Total included in staff costs (note 6.1)
21.4
16.7
As at 31 December 2023, contributions of £0.4 million (2022: £1.5 million) due in respect of the current reporting period had not been
paid over to the schemes. This has been recognised within Trade and other payables and contract liabilities within the Consolidated
balance sheet. The Group has no further outstanding payment obligations in respect of the current reporting period once these
contributions have been paid.
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6.3 Retirement benefit obligations continued
Defined benefit schemes
The Group currently operates one defined benefit scheme, following the closure of the DPG ESPS in January 2023. Previously, any
pension surplus or obligation within each scheme was shown gross on the Consolidated balance sheet, as there was no legal right of
offset between the two schemes. On 31 January 2023, all assets and liabilities of the DPG ESPS were transferred to the Drax 2019
Scheme and are no longer segregated from the existing assets and liabilities of the Drax 2019 Scheme for funding purposes. Therefore
a combined net surplus will be presented going forward. The net pension surplus is as follows (shown separately for the two schemes
at the prior reporting date):
DPG ESPS
–
32.4
Drax 2019
Scheme
18.4
6.1
Total net surplus recognised in the Consolidated balance sheet
18.4
38.5
The Drax 2019 Scheme is referred to as “the Scheme” below. The DPG ESPS and the Drax 2019 Scheme are collectively referred to as
“the Schemes”. At 31 December 2023, application of the accounting assumptions used in relation to the Scheme, which are described
in further detail below, continued to result in a net position of surplus assets over liabilities.
The Scheme was set up following a transaction on 31 December 2018, when the Group acquired assets from Scottish Power Limited.
Under the terms of the sale and purchase agreement, employees with defined benefit pension rights who moved to the Group as part
of the transaction were able to build up a future defined benefit pension and were also able to transfer their defined benefits they had
already built up to the Group. The Scheme was set up to facilitate this from 1 January 2020. From this date, 96 members joined the
Scheme and continued to build up a future defined benefit pension. Of these, 81 members agreed to transfer their past service
benefits into the Scheme.
The DPG ESPS was closed to new members as of 1 January 2002 unless they had qualified through being existing members of another
part of the ESPS. Employed members who joined before this date continued to build up pension benefits. All members of the DPG
ESPS transferred to the Scheme during 2023.
The Scheme is a defined benefit final salary plan, where employees are entitled to retirement benefits based on final salary on
attainment of retirement age (or earlier withdrawal or death). Pensions are payable for life and updated in line with innflationary increases.
No other post-retirement benefits are provided. The Scheme is open to future accrual of benefits but closed to new members.
The Group and Trustee have agreed a long-term strategy for reducing investment risk as and when appropriate. This includes an
asset-liability matching policy which aims to reduce the volatility of the funding level of the Scheme by investing in assets that
performirm in line with the liabilities to protect against interest rates being lower or innflation being higher than expected, for example.
The Scheme exposes the Group to actuarial and other risks, the most significant of which are considered to be:
Investment risk
The Scheme’s liabilities are calculated using a discount rate set with reference to corporate bond yields; if
Discount rate risk
A decrease in corporate bond yields will increase the value placed upon the Scheme’s liabilities, although
Longevity risk
The majority of the Scheme’s obligations are to provide benefits for the life of the member, so increases
Inflation risk
The majority of the Scheme’s obligations to pay benefits are linked to RPI inflation and, as such, higher inflation
Credit risk
Around 95% of the Scheme’s overall funded liabilities are currently hedged against interest rates and inflation
Other risks include operational risks (such as paying out the wrong benefits), legislative risks (such as the Government increasing
theburthe burden on pension schemes through new regulation) and other demographic risks (such as making a higher proportion of
members with dependents eligible to receive pensions from the Group). The Trustee ensures certain benefits are payable on death
before retirement.
Section 6: People costs continued
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6.3 Retirement benefit obligations continued
A qualified third-party actuary, Aon, carried out the most recent funding valuation of the Drax 2019 Scheme as at 31 March 2022.
Thevhe valuation made allowance for the DPG ESPS assets and liabilities that were transferred into the Drax 2019 Scheme on
31 January 2023. The actuarial review at 31 December 2023 is based on the same membership and other data as this funding
valuation. The Scheme’s Board accepted the advice of the actuary and approved the use of these assumptions for the purpose
ofasof assessing the Scheme’s costs.
The result of the latest funding valuation has been adjusted to 31 December 2023, taking into account experience over the period
since 31 March 2022, changes in market conditions and differences in financial and demographic assumptions. The present value
ofthof the defined benefit obligation and the related current service costs were measured using the projected unit credit method.
The principal assumptions for the Schemes across the current and prior year are set out below. Where absolute assumptions differed
between the Schemes in the prior year, reecting differences in the, reflecting differences in the expected duration of the Schemes’ liabilities, a weighted average
is shown.
Discount rate
4.6
4.8
Inflation (RPI)
2.8
3.0
Rate of increase in pensions in payment and deferred pensions
2.7
2.8
Rate of increase in pensionable salaries
3.2
3.6
Whilst actual inl inflation has been high during 2023, long-term expectations as at 31 December 2023 are slightly lower than long-term
expectations as at 31 December 2022. The defined benefit obligation for the Scheme as at 31 December 2023 allows for expected
benefit increases that will be awarded in 2024, based on known 2023 indices.
Mortality assumptions are based on recent actual mortality experience of the Scheme’s members and allow for expected future
changes in mortality rates. The assumptions are that a member aged 60 in 2023 will live, on average, for a further 25 years if they
aremare male (2022: 26 years) and for a further 27 years if they are female (2022: 28 years). Life expectancy at age 60 for male and female
non-pensioners currently aged 45 is assumed to be 26 and 28 years respectively (2022: 27 and 29 years respectively).
The DPG ESPS liabilities were transferred into the Drax 2019 Scheme in 2023 and the weighted average duration of the Drax 2019
Scheme (including DPG ESPS) at 31 December 2023 based on the IAS 19 position was 16 years. The weighted average duration of
theDPe DPG ESPS and the Drax 2019 Scheme at 31 December 2022 based on the IAS 19 position was 18 years and 21 years respectively.
The Drax 2019 Scheme defined benefit obligation includes benefits for current employees of the Group (28%), former employees
ofthof the Group who are yet to retire (10%) and retired pensioners (62%).
The net surplus recognised in the Consolidated balance sheet in respect of the Schemes is the excess of the fair value of the plan
assets over the present value of the defined benefit obligation, determined as follows:
Fair value of plan assets
220.3
219.6
Defined benefit obligation
(201.9)
(181.1)
Net surplus recognised in the Consolidated balance sheet
18.4
38.5
The total charges and credits recognised in the Consolidated income statement, within other operating and administrative expenses
and interest receivable, are as follows:
Current service cost
2.3
4.7
Interest income on net defined benefit surplus
(2.1)
(1.0)
Total amount recognised in the Consolidated income statement
0.2
3.7
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6.3 Retirement benefit obligations continued
Changes in the present value of the defined benefit obligation of the Schemes is as follows:
Defined benefit obligation at 1 January
181.1
320.9
Current service cost
2.3
4.7
Interest cost
8.0
5.7
Actuarial losses/(gains)
21.8
(123.6)
Benefits paid
(11.3)
(26.6)
Defined benefit obligation at 31 December
201.9
181.1
The actuarial losses of £21.8 million (2022: gains of £123.6 million) reeflect losses of £0.3 million (2022: gains of £133.3 million) arising
from changes in financial assumptions, losses of £22.4 million (2022: £9.9 million) arising from scheme experience and gains of
£0.9 million (2022: £0.2 million) arising from changes in demographic assumptions.
The losses due to changes in financial assumptions principally rey reflect the increase in the present value of the Scheme’s liabilities
arising as a result of the movement in discount rate assumption to 4.6% p.a. (2022: 4.8% p.a.) following a decrease in corporate bond
yields. This was partly offset by a slight decrease in overall long-term inm inflationary assumptions, reeflecting market pricing, and a
decrease in the real salary assumption adopted relative to in inflation.
Changes in the fair value of plan assets are as follows:
Fair value of plan assets at 1 January
219.6
369.8
Interest on plan assets
10 .1
6.7
Remeasurement losses on fair value of plan assets
(7.0)
(148.0)
Employer contributions
8.9
17.7
Benefits paid
(11.3)
(26.6)
Fair value of plan assets at 31 December
220.3
219.6
Employer contributions included payments totalling £4.3 million (2022: £7.6 million) to reduce the actuarial deficit related to the
legacyDPcy DPG ESPS. There were contributions of £0.2 million outstanding at the end of the year relating to the Drax 2019 Scheme
(2022: £3.2 million for both Schemes).
The actual return on plan assets in the period was a gain of £3.1 million (2022: loss of £141.3 million).
Remeasurement losses on the defined benefit pension scheme of £28.8 million (2022: £24.4 million) were recognised in the
Consolidated statement of comprehensive income. These are made up as follows:
Actuarial (losses)/gains on defined benefit obligation
(21.8)
123.6
Remeasurement losses on fair value of plan assets
(7.0)
(148.0)
Total remeasurement losses recognised in other comprehensive income
(28.8)
(24.4)
Section 6: People costs continued
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6.3 Retirement benefit obligations continued
The fair values of the major categories of plan assets were as follows:
Gilts
110.3
117. 2
24.1
6.5
5.0
4.8
Property
15.1
28.6
Investment funds
4.5
4.3
61.3
58.2
Fair value of total plan assets
220.3
219.6
(1)
(2)
(3)
(1) As at 31 December 2023, the Scheme’s target long-term asset strategy was: (34%) in multi-asset funds (with the key underlying asset strategies being equities, listed real
assets and credit), direct lending (12%), hedge funds (3%), long-lease property (7%) and liability driven investing/cash (44%). There is a plan to transition the current asset
holding to the long-term strategy by April 2024, noting that the precise allocations between the different asset classes may be adjusted as market conditions change.
Asat 31 Des at 31 December 2022, DPG ESPS’s long-term asset strategy was: diversified growth funds (37%), direct lending (10%), absolute return bonds (3%), liability driven
investing (40%) and long-lease property (10%). The Drax 2019 Scheme’s long-term investment strategy and strategic asset allocation was (70%) in gilts and cash to
support liability hedging and equity derivative overlay strategies, (15%) allocated to synthetic credit and (15%) to credit opportunities.
(2) Fixed interest bonds include a mixture of corporate, Government and absolute return bonds.
(3) Other assets include £25.8 million (2022: £29.9 million) of investments in direct lending, a type of private equity vehicle which is not quoted in an active market. The fair
value of these investments is derived in accordance with International Private Equity and Venture Capital Valuation (IPEV) Guidelines. All other assets are quoted in an
active market.
The pension plan assets do not include any ordinary shares issued by Drax Group plc or any property occupied by the Group.
The valuation of the pension liabilities has been disclosed as a key source of estimation uncertainty due to the assumptions used in the
valuation. The assumptions for discount rate, inflation rate (and related ind inflation linked benefits) and life expectancy have a potentially
significant effect on the measurement of the Scheme’s surplus. The following table provides an indication of the sensitivity of the net
pension surplus at 31 December to changes in these assumptions, considering the impact on the defined benefit obligation only. If a
combination of the below reasonably possible changes to key assumptions were used in the valuation of the pension obligations, this
could result in a material change to the amount recognised.
Discount rate
– Increase
0.25%
7.9
8.0
– Decrease
0.25%
(8.2)
(8.5)
– Increase
0.25%
(6.5)
(7.0)
– Decrease
0.25%
6.3
6.6
Life expectancy
– Increase
1 year
(7.2)
(6.2)
– Decrease
1 year
7.4
6.4
(1)
(1) The sensitivity of the Scheme’s liabilities to salary and pension increases is closely correlated with innflation, therefore separate sensitivities have not been performed
onon salary and pension increases and the inationar inflationary sensitivity incorporates these.
The Group is exposed to investment and other risks. However, these risks are mitigated by the Scheme being around 95% hedged
against movements in Government bonds and in inflation of appropriate duration. This means from a discount rate perspective that
theSce Scheme is broadly only exposed to changes in credit spreads plus around 5% of changes in underlying gilt yields and, for inr inflation,
the Scheme’s exposure is around 5% of any actual changes.
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6.3 Retirement benefit obligations continued
Future contributions
UK legislation requires that pension schemes are funded prudently (i.e. to a level in excess of the current expected cost of providing
benefits). This funding is carried out with reference to actuarial valuations which are required by law to take place at intervals of no
more than three years. Following each valuation, the Trustee and the Group must agree the contributions required (if any) such that
the Scheme is fully funded over time on the basis of suitably prudent assumptions.
The Group expects to make total contributions of £1.9 million to the Scheme during the 12 months ending 31 December 2024.
The latest actuarial valuation of the Drax 2019 Scheme (which included the DPG ESPS) which was carried out as at 31 March 2022
resulted in a funding surplus of £13.9 million and so no deficit recovery plan was required.
The Group agreed to make additional contributions to the Drax 2019 Scheme from February 2023 to June 2023 and an additional
payment in 2026 to fully fund the Scheme on a low-risk basis, as agreed between the Group and Trustee at the time, through the
provision of a surety bond. At this point, the Scheme is expected to be self-sufficient, unless material adverse changes in economic
conditions arise compared to those assumed in the valuation. The Group is satisfied that the additional contributions are manageable
within the Group’s business plan.
The Trust Deeds of the Scheme provide the sponsors of the Scheme with an unconditional right to a refund of surplus assets assuming
the gradual settlement of plan liabilities over time. Based on these rights, any net surplus in the Scheme is recognised in full in the
Consolidated balance sheet.
In June 2023, the UK High Court issued a ruling in the case of Virgin Media Limited v NTL Pension Trustees II Limited and others
relating to the validity of certain historical pension changes. This case may have implications for other defined benefit schemes in
theUKe UK, although is subject to possible appeal in 2024. The Group are aware of this legal ruling and are monitoring developments.
TheGhe Group will assess whether there is any potential impact related to the Drax 2019 Scheme once the case is concluded and as
suchsuch no related quantification has been determined.
Section 6: People costs continued
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This section provides disclosures around financial risk management, including the financial instruments the Group uses to mitigate
such risks.
7.1 Financial instruments and their fair values
The Group holds a variety of derivative and non-derivative financial instruments, including cash and cash equivalents, borrowings,
payables and receivables arising from operations.
Accounting classifications and fair values
IFRS 13 requires categorisation of the Group’s financial instruments in accordance with the following hierarchy in order to explain
thebae basis on which their fair values have been determined:
• Level 1 – Fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or
liabilities;
• Level 2 – Fair value measurements are those derived from inputs, other than quoted prices, included within Level 1, that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 – Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that
areare not based on observable market data (unobservable inputs).
Categorisation within this fair value measurement hierarchy has been determined on the basis of the lowest level input that is
significant to the fair value measurement of the relevant asset or liability.
The table below shows the carrying amounts and fair values of financial assets and liabilities, including their levels in the fair value
hierarchy as defined by IFRS 13. It does not include fair value information for lease liabilities, or for financial assets and financial
liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. Cash and cash equivalents
(note4.note 4.1), trade and other receivables (note 3.5) and trade and other payables (note 3.7) generally have a short time to maturity.
Forthr this reason, their carrying values, on the historical cost basis, are approximate to their fair values. The Group’s borrowings relate
principally to the publicly traded high-yield loan notes and amounts drawn against term loans (note 4.2). These financial liabilities
aremare measured at amortised cost.
Carrying amount
Fair value
others
FVOCI
cost
Total
Level 1
Level 2
Level 3
Total
Commodity contracts
402.7
125.4
–
–
–
528 .1
–
528 .1
–
528 .1
exchange contracts
37.7
70.8
–
–
–
108.5
–
108.5
–
108.5
Interest rate and cross-
currency contracts
25.4
–
–
–
–
25.4
–
25.4
–
25.4
Contingent consideration
–
9.2
–
–
–
9.2
–
–
9.2
9.2
Trade and other receivables
–
–
242.2
–
–
242.2
–
242.2
–
242.2
Cash and cash equivalents
–
171.1
–
–
–
171.1
–
171.1
–
171.1
Trade and other receivables
–
–
–
644.2
–
644.2
Cash and cash equivalents
–
–
–
208.4
–
208.4
Commodity contracts
(58.8)
(134.4)
–
–
–
(193.2)
–
(193.2)
–
(193.2)
exchange contracts
(23.7)
(35.8)
–
–
–
(59.5)
–
(59.5)
–
(59.5)
Interest rate and cross-
currency contracts
( 35.1)
–
–
–
–
( 35.1)
–
(35.1)
–
( 35.1)
Inflation rate contracts
(250.4)
–
–
–
–
(250.4)
–
(250.4)
–
(250.4)
Secured bank loans
–
–
–
–
(698 .1)
(698.1)
–
(704.8)
–
(704.8)
Unsecured bank loans
–
–
–
–
(120.0)
(120.0)
–
(120.0)
–
(120.0)
Secured loan notes
–
–
–
–
(6 07.2)
(6 07.2)
(596.4)
–
–
(596.4)
Lease liabilities
–
–
–
–
(135.8)
(135.8)
Trade and other payables
–
–
–
–
(919.2)
(919.2)
Section 7: Risk management
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Section 7: Risk management continued
7.1 Financial instruments and their fair values continued
(1)
Carrying amount
Fair value
others
FVOCI
cost
Total
Level 1
Level 2
Level 3
Total
Commodity contracts
322.8
84.0
–
–
–
406.8
–
406.8
–
406.8
exchange contracts
166.5
130.6
–
–
–
297.1
–
2 97.1
–
2 97.1
Interest rate and cross-
currency contracts
54.0
–
–
–
–
54.0
–
54.0
–
54.0
Contingent consideration
–
27.4
–
–
–
27.4
–
–
27.4
27.4
Equity investments
–
–
1.5
–
–
1.5
–
–
1.5
1.5
Trade and other receivables
–
–
98.4
–
–
98.4
–
98.4
–
98.4
Cash and cash equivalents
–
116.4
–
–
–
116.4
–
116.4
–
116.4
Trade and other
receivables
–
–
–
973.5
–
973.5
–
–
–
121.6
–
121.6
Commodity contracts
(577.2)
(296.5)
–
–
–
(873.7)
–
(873.7)
–
(873.7)
exchange contracts
(0.4)
(69.0)
–
–
–
(69.4)
–
(69.4)
–
(69.4)
Interest rate and cross-
currency contracts
(14.3)
–
–
–
–
(14.3)
–
(14.3)
–
(14.3)
Inflation rate contracts
(307.3)
–
–
–
–
(307.3)
–
(307.3)
–
(307.3)
Secured bank loans
–
–
–
–
(764.0)
(764.0)
–
(759.9)
–
(759.9)
Unsecured bank loans
–
–
–
–
(44.3)
(44.3)
–
(44.3)
–
(44.3)
Secured loan notes
–
–
–
–
(632.6)
(632.6)
(593.9)
–
–
(593.9)
Lease liabilities
–
–
–
–
(153.1)
(153.1)
Trade and other payables
–
–
–
–
(1,065.9)
(1,065.9)
(2)
(2)
(1) Comparative amounts have been restated to reect the reflect the Group’s revised application of the offsetting criteria to physically settled derivative contracts. This has impacted
the presentation of derivative assets and liabilities recognised in the Consolidated balance sheet. The valuation of derivatives and the overall net asset position remain
unchanged. See the offsetting section on page 178 for further details on this restatement.
(2) Comparative amounts have been re-presented to show certain trade and other receivables as FVOCI and certain cash and cash equivalents as FVTPL. This has had no
impact on the total trade and other receivables and cash and cash equivalents amounts presented.
The derivative financial instruments used by the Group and not subject to the own-use exemption have been categorised as follows:
• Commodity contracts – forward contracts for the sale or purchase of a commodity which may or may not be settled through
physical delivery of the commodity, as well as weather-related contracts.
• Foreign currency exchange contracts – currency related contracts including forwards, swaps, vanilla options and structured
optionoption products.
• Interest rate and cross-currency contracts – contracts which swap one interest rate for another in a single currency, including
ofloating-to-fixed interest rate swaps, and contracts which swap interest and principal cash osh flows in one currency for another
currency, including fixed-to-fixed and oating-to-ed and floating-to-fixed cross-currency interest rate swaps.
• Inflation rate contracts – swap contracts, such as h as floating-to-fixed, which are linked to an innflation index such as the UK Retail Price
Index (RPI) or the UK Consumer Price Index (CPI).
Fair value measurement
• Commodity contracts – the fair value of open commodity contracts that do not qualify for the own-use exemption, or are otherwise
within the scope of IFRS 9, is calculated by reference to forward market prices at the reporting date.
• Foreign currency exchange contracts – the fair value of foreign currency exchange contracts is determined using forward currency
exchange market rates at the reporting date.
• Interest rate contracts – the fair value of interest rate swaps is calculated by reference to forward market curves at the reporting
date for the relevant interest index. The fair value of cross-currency interest rate swaps is calculated using the relevant forward
currency exchange market rates for fixed-to-fixed swaps and by using the relevant forward currency exchange market rates and
interest index for oating-to-fixed swapsinterest index for floating-to-fixed swaps.
• Inflation rate contracts – the fair value of ine of inflation rate swaps is calculated by reference to forward market curves at the reporting
date for the relevant int inflation index.
Given the maturity profile of all these contracts, liquid forward market price curves are available for the duration of the contracts.
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7.1 Financial instruments and their fair values continued
The fair values of all derivative financial instruments are discounted to reeflect both the time value of money and credit risk inherent
within the instrument.
The assessment of fair value is derived in part by reference to a market price or rate for the instrument in question. The Group bases
itsassessmentits assessment of market prices or rates upon forward curves that are largely derived from readily obtainable prices or rates published
from third-party sources. However, any forward curve is based at least in part upon assumptions about future transactions and market
movements. Due to the nature of the derivative financial instruments the Group holds, minor differences in the inputs, assumptions
ormor methodologies used can result in appropriate, but different, estimates of fair values to those recognised by the Group. There may
becbe choices to be made of which methodology or data source to use in the calculation of fair value for each derivative contract.
Assumptions may also need to be made where forward curves are not an exact match for the Group’s derivative contracts (e.g. due
toquto quoted product types, maturity dates or time periods not exactly matching the terms of the Group’s derivative contracts), or where
different forward curves are available. Where such instruments extend beyond the liquid portion of the forward curve, the level of
estimation increases as the number of observable transactions decreases. However, given the maturity profile of the Group’s
contracts, liquid forward market price curves are usually available for the duration of the contracts. The fair value of derivatives is not,
however, considered akey sd a key source of estimation uncertainty as reasonably possible changes in assumptions are not expected to result
in a materially different value within the next financial year.
Also, whilst there is a significant risk that the carrying amount of derivative assets and liabilities will change materially within the
nextnext financial year, as a result of movements in market prices or rates, the Group is not expecting to change its methodology or input
sources in the next financial year. Any such changes are not as a result of assumptions or other sources of estimation uncertainty
asaas at3t 31 December 2023 and therefore do not meet the definition of a key source of estimation uncertainty as defined by IAS 1.
Sensitivities are provided in note 7.2 for the impact of changes in inputs on the fair value.
The Group has reviewed all significant contracts for the presence of embedded derivatives. The USD loan notes, the EUR loan notes,
and the 2020 UK infrastructure private placement facilities (see note 4.2) all contain early repayment options that meet the definition
of embedded derivatives. However, in all cases, these do not require separate valuation as they are deemed to be closely related to the
host contract.
The fair value of commodity contracts, foreign currency exchange contracts, interest rate swaps, cross-currency contracts and
ination swaps areinflation swaps are largely determined by comparison between observable, liquid, forward market prices or rates, and the trade price
or rate; therefore, these contracts are categorised as Level 2. Credit risk is not a significant input to the fair value calculations.
There have been no transfers during the current or prior year between Level 1, 2 or 3 category inputs.
The Group is responsible for determining the policies and approach to valuations required for financial reporting purposes, including
Level 3 fair values. No external specialists have been utilised for the valuation of the current or prior year derivative financial
instruments. Valuation policies, approaches and the results are discussed with and approved by the CFO and the Audit Committee
asreas required, based on the size, complexity and judgement required with each valuation.
Level 3 fair values
The contingent consideration receivable by the Group relates to the sale of the CCGT generation portfolio in 2021. The gross nominal
value of £29.0 million is contingent on certain triggers in respect of the option to develop the Damhead Creek 2 land disposed of as
part of the sale of these assets. The fair value measurement of the contingent consideration has been categorised as Level 3 based
onton the inputs to the valuation techniques used .
•
higher/(lower) forecasted Capacity
•
lower/(higher) estimated bid price
During the year, inputs to the fair value calculation have been updated to red to reflect increases in both forecasted future Capacity Market
clearing prices and the estimated bid price at which Damhead Creek 2 is expected to be entered into the Capacity Market auction.
Dueto ine to increased expectations relating to the cost to develop the project, the estimated bid price has increased from £40.00/kW to
£67.50/kW. This, alongside the impact of updating the calculation with recent forecasts of future Capacity Market clearing prices,
hasress resulted in an £18.2 million decrease to the fair value of the contingent consideration.
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7.1 Financial instruments and their fair values continued
As the change in fair value ree reflects the reversal of a previous credit recorded within exceptional items, and the current year decrease
in fair value is above the Group’s threshold to be considered exceptional, the £18.2 million has been excluded from Adjusted results
and presented as an exceptional item included within other gains or losses in the Consolidated income statement (see note 2.7).
A reconciliation of the contingent consideration is detailed below:
Balance at 1 January
27.4
27.7
Net change in fair value (unrealised)
(18.2)
(0.3)
Balance at 31 December
9.2
27.4
Sensitivities are disclosed below for reasonably possible changes to the unobservable inputs that would have a significant impact on
the fair value measurement:
Forecasted future Capacity Market clearing prices (10%)
(9.2)
7.0
Estimated bid price (10%)
7. 0
(4 .1)
Forecasted future Capacity Market clearing prices (25%)
(3.7)
0.7
Estimated bid price (25%)
1.0
(3.2)
Accounting for derivatives
Derivatives (subject to certain exemptions described below) must be measured at fair value, which represents the difference between
the price the Group has secured in the contract, and the price the Group could achieve in the market at the reporting date.
Changes in fair value are recognised either within the Consolidated income statement or the hedge reserve and cost of hedging
reserve within the Consolidated statement of changes in equity, dependent upon whether the contract in question qualifies as an
effective hedge under IFRS 9 (see note 7.2).
The own-use exemption applies to certain contracts for physical commodities entered into and held for the Group’s own purchase,
sale or usage requirements. The Group’s own-use contracts, such as certain power purchase agreements (PPAs) and the Group’s
energy supply contracts, are excluded from fair value mark-to-market accounting.
Contracts for non-financial assets which do not qualify for the own-use exemption (principally power, gas, financial oil and carbon
emissions allowances) are accounted for as derivatives in accordance with IFRS 9 and are recorded in the Consolidated balance sheet
at fair value. Changes in fair value are reeflected through the hedge reserve (see note 7.3) to the extent that the contracts are
designated as effective hedges in accordance with IFRS 9, or the Consolidated income statement where the hedge accounting
requirements are not met, or the hedges are ineffective. To ensure these derivatives are not reected not reflected in the underlying performance
of the Group, they are excluded from Adjusted results in the Consolidated income statement until the contract matures (see note 2.7
for further details).
The Group’s biomass risk management policy permits some ee flexibility in trading activity to optimise the overall portfolio position and
potentially release value in certain, limited circumstances. The nature of these contracts means they cannot be readily net settled
incin cash or other financial instruments and, as a result, they remain outside of the scope of IFRS 9 and are excluded from fair value
mark-to-market accounting.
Section 7: Risk management continued
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7.1 Financial instruments and their fair values continued
Derivative balances are classified in the Consolidated balance sheet as current or non-current based on the final maturity date of the
contracts. The derivative financial instruments recognised in the Consolidated balance sheet at the reporting date are:
Non-current derivative financial instrument assets
293.6
361.0
Current derivative financial instrument assets
368.4
396.9
Total derivative financial instrument assets
662.0
757.9
Non-current derivative financial instrument liabilities
(306.6)
(674.7)
Current derivative financial instrument liabilities
(231.6)
(590.0)
Total derivative financial instrument liabilities
(538.2)
(1,264.7)
Total net derivative financial instruments
123.8
(506.8)
(1)
(1) Comparative amounts have been restated to reect the reflect the Group’s revised application of the offsetting criteria to physically settled derivative contracts. This has impacted
the presentation of derivative assets and liabilities recognised in the Consolidated balance sheet. The valuation of derivatives and the overall net asset position remain
unchanged. See the offsetting section on page 178 for further details on this restatement.
The gains and losses recognised in the period relating to derivative financial instruments mandatorily measured at fair value through
profit or loss (FVTPL) are detailed below. The Group had no financial assets or financial liabilities voluntarily designated at FVTPL.
InadIn addition to the amounts disclosed below, gains and losses relating to derivatives qualifying for hedge accounting are disclosed
innoin notes 7.2 to 7.4.
Gains/(losses) on derivative financial instruments not qualifying for hedge accounting – recognised in
revenue
70.7
(441.4)
(Losses)/gains on derivative financial instruments not qualifying for hedge accounting – recognised in
cost of sales
(127.0)
32.6
payable and similar charges
(0.3)
(0.4)
Gains/(losses) on derivative financial instruments not qualifying for hedge accounting – recognised in
foreignexn exchange (losses)/gains
4.9
(3.8)
Total losses on derivative financial instruments not qualifying for hedge accounting
(51.7)
(413.0)
Rebasing is explained in the glossary. When the Group rebases derivative contracts, the Group retains the contractual rights to the
cash ash flows, the risks and rewards, and control of the derivative asset. The Group does not assume any obligation to pay the cash ash flows
to another recipient. Accordingly, the derivative asset is not derecognised.
The cash owh flows received at the point of rebasing reduce the cash sh flows to be received on maturity of the trade, and as such the cash
oflows over the life of the instrument are the same whether a trade is rebased or not, minus fees and the impact of discounting.
At the point of rebasing, the Group recognises a reduction in the fair value of the derivative asset, equivalent to the fair value
difference between the original rate per the contract and the rebased rate. The Group also recognises the cash received, or due, as
aresa result of the rebasing. No gains or losses are recognised at the point of rebasing. Any difference between the reduction in the fair
value of the derivative asset, and the cash received, is recognised as a fee charged for rebasing and is recognised within operating
andand administrative expenses.
The total gain or loss recognised in the period on rebased derivative contracts is included within Total results. No amounts are
recognised in Adjusted results at the point of rebasing. On rebased derivative contracts which do not qualify for hedge accounting,
orwor where hedge accounting is ineffective, the total gain or loss, including the cash received on rebasing, is recognised in Adjusted
results on the contractual maturity date of the contract. If a rebased trade is hedge accounted, the rebased amount is deferred or
released from the hedge reserve in line with the hedge accounting requirements of IFRS 9.
7.2 Financial risk management
The Group’s activities expose it to a variety of financial risks, including commodity price risk, foreign currency risk, interest rate risk,
ination risk, liquidity risk, counterpartinflation risk, liquidity risk, counterparty risk and credit risk. The Group’s overall risk management programme focuses on the
unpredictability of commodity and financial markets and seeks to manage potential adverse effects on the Group’s financial
performance.
The Group uses derivative financial instruments to hedge certain risk exposures. Risk management is overseen by the Risk
management committees as explained in the Principal risks and uncertainties section (page 94). The Financial Risk Management
Committee identifies, evaluates and manages financial risks in close co-ordination with the Group’s trading and treasury functions
under policies approved by the Board of directors.
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7.2 Financial risk management continued
7.2.1 Commodity price risk
The Group is exposed to the effect of ct of fluctuations in commodity prices, particularly the price of power, gas, other fuels and the price
ofcof carbon emissions allowances. Price variations and market cycles have historically iny influenced the financial results of the Group and
are expected to continue to do so.
Commodity price sensitivity
The sensitivity analysis below has been determined based on the exposure to commodity prices and the impact on profit after tax
andotd other components of equity of reasonably possible increases or decreases in commodity prices as at 31 December. The analysis
assumes all other variables were held constant.
Financial and commodity markets saw significant volatility and high prices in 2022. During 2023 the high prices seen in the prior year
have generally reversed, but in the most part prices are still above historical averages. See the Principal risks and uncertainties section
on page 94 for further details on UK energy market conditions. As a result of these se fluctuating market conditions, the valuation of
theGroupthe Group’s derivative financial instruments, in particular power, gas, foreign currency contracts, ination and oil,s, inflation and oil, have seen large
reversals of the amounts recognised in the prior year.
Sensitivities for a 10% change in prices have been included in the current and prior year. The impact of smaller and larger price
changes can be extrapolated from the below table as changes in prices have a relatively linear relationship with the impact on profit
after tax and on the hedge reserve.
Power
–
–
34.9
(34.9)
Carbon
2.8
(2.8)
(0.2)
0.2
Gas
11.1
(11.1)
–
–
Oil
(7.9)
7.9
–
–
Power
–
–
33.8
(33.8)
Carbon
2.5
(2.5)
(0.8)
0.8
Gas
0.8
(0.8)
–
–
Oil
(10.6)
10.6
–
–
The Group designates certain derivatives as hedging instruments under cash owuments under cash flow hedge accounting. As such, other components
ofeqof equity are sensitive to increases or decreases in commodity price risk and the impact on the hedge reserve resulting from these
movements. Profit after tax is sensitive to increases or decreases in commodity prices as a result of the impact on the fair value of
derivative financial instruments not designated as hedging instruments under cash ows under cash flow hedge accounting.
Commodity risk management
The Group has a policy of securing forward power sales and purchases of fuel when it is profitable to do so and is in line with specified
limits under approved policies. Forward power sales can be secured up to 100% of forecast availability two years ahead, after taking
account of the volume held back for operational risk management purposes. All commitments to sell power under fixed price contracts
are designated as cash sh flow hedges as they reduce the Group’s cash osh flow exposure resulting from um fluctuations in the price of power.
The Group purchases biomass pellets and other fuels under either a fixed or variable priced contract with different maturities,
principally from a number of international sources.
The Group considers all such commodity contracts to be economic hedges. If either the contracts cannot be readily net settled or
iftif the Group is able to demonstrate these contracts were entered into and continue to be held for the purpose of receipt or delivery
ofof the non-financial item in accordance with the Group’s expected purchase, sale or usage requirements and the own-use exemption
applies, then these contracts are not within the scope of IFRS 9. For other contracts that are within the scope of IFRS 9 the Group
applies hedge accounting were possible. If the contracts are within the scope of IFRS 9 and hedge accounting is not applied then the
contracts are recognised at FVTPL.
Where forward power curves are less liquid, the Group uses financially settled gas sales as a proxy for power to mitigate the risk of
power price uctuations. The Group also fluctuations. The Group also purchases gas under fixed-price contracts to meet the demand of the Customers business
and for its Daldowie fuel plant. To support the Group’s ambition to be carbon negative by 2030, a decision was made in January 2023
to phase out the Group’s gas supply contracts in the Opus Energy part of the Group, within the Customers business.
The Group purchases carbon emissions allowances under fixed price contracts to cover the Group’s purchase requirements under the
UK Emissions Trading Scheme (UK ETS) in relation to the Group’s carbon emissions. These are designated as cash sh flow hedges as they
reduce the Group’s cash sh flow exposure resulting from om fluctuations in the price of carbon emissions allowances. Carbon emissions
allowances are also purchased as part of proxy power hedges in the same way as financial gas described above. These proxy hedges
are not designated as cash sh flow hedges.
Section 7: Risk management continued
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7.2 Financial risk management continued
Hedge accounting
The Group has cash sh flow hedges relating to commodity contracts, principally commitments to sell power and purchase carbon.
Amounts are recognised in the hedge reserve as the designated contracts are marked-to-market at each reporting date for the
effective portion of the hedge, which is generally 100% of the relevant contract. Amounts held within the hedge reserve are then
released to the Consolidated income statement as the related contract matures. For power sales contracts, this is at the point that
theunderlyingthe underlying power is delivered.
Included in amounts released from equity are gains and losses on financial instruments that matured in a previous period, released
totto the Consolidated income statement in the period the hedged transaction has occurred. No ineffectiveness was recognised in the
Consolidated income statement on continuing commodity hedges in the current or prior year. Due to the use of ‘all-in-one’ hedges, this
results in the movement in fair value for the hedged items and hedging instruments being identical. The only source of ineffectiveness
regarding the ‘all-in-one’ hedges would be if delivery of the commodities was no longer expected tood to occur, which would result in hedge
accounting being discontinued.
The reconciliation of the reserves and time period when the hedge will affect the Consolidated income statement are disclosed in
note7te 7.3.
The summary of the amounts relating to the hedging instruments and any related ineffectiveness in the period is presented in the
table below.
The average forward rates quoted below only reeflect the rates applicable to the portion of the Group’s commodity contracts that
qualify for hedge accounting in accordance with IFRS 9. The rates do not reeeflect the overall average rate of the Group’s total portfolio
of commodity contracts that are used to protect the value of future cash owh flows.
Sale of power
5,580,931
129.4
413.3
402.3
(58.8)
257.4
–
emissionsallowancesns allowances
62,000
37.4
1.4
0.4
–
0.3
(0.7)
Sale of power
(413.3)
413.3
–
Revenue
–
183.4
–
Revenue
emissionsallowancesns allowances
(1.4)
1.4
–
sales
–
1.6
–
Sale of power
2,135,90
9
218.0
(534.4)
322.8
(576.2)
(19 0.1)
–
emissionsallowancesns allowances
148,000
77.5
(4.2)
–
(1.0)
(0.8)
(1.9)
(1)
(1) Comparative amounts have been restated to reeflect the Group’s revised application of the offsetting criteria to physically settled derivative contracts. This has impacted
the fair values of assets and liabilities recognised in the Consolidated balance sheet, but not the overall net asset position. See the offsetting section on page 178 for
further details on this restatement.
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7.2 Financial risk management continued
Sale of power
534.4
(534.4)
–
Revenue
–
459.8
–
Revenue
emissionsallowancesns allowances
4.2
(4.2)
–
sales
–
0.1
–
7.2.2 Foreign currency risk
The Group is exposed to d to fluctuations in foreign currency rates as a result of committed and forecast transactions in foreign currencies,
principally in relation to purchases of fuel for use in the Generation business and principal and interest payments relating to foreign
currency denominated debt. These fuel purchases are typically denominated in US dollars (USD), euros (EUR) or Canadian dollars
(CAD), and the foreign currency debt is also denominated in USD, EUR and CAD (see note 4.2 for further details on the Group’s
borrowings).
The Group also has an exposure to translation risk in relation to its net investment in its US and Canadian subsidiaries within the
PelletPellet Production business.
Foreign currency sensitivity
The analysis below shows the impact on profit after tax and other components of equity of reasonably possible strengthening or
weakening of currencies against GBP. The sensitivity analysis below shows the impact of a change in foreign exchange rates as at
31December1 December on outstanding monetary items denominated in foreign currency and the valuation of foreign currency derivative
instruments. For foreign currency derivatives designated into hedge relationships the analysis includes the impact of recycling
amounts from the hedge reserve if as part of the sensitivity the item they are hedging impacts profit or loss. The analysis assumes
alloall other variables were held constant.
USD
84.5
(53.5)
125.3
(100.8)
EUR
15.9
(13.2)
3.9
(3.6)
CAD
0.3
–
4.8
(4.0)
USD
41.7
(59.0)
102.6
(83.9)
EUR
12.2
(20.5)
11.8
(9.6)
CAD
(6.2)
9.9
7. 8
(13.0)
Prior year foreign currency sensitivities have been re-presented to fully reect the to fully reflect the foreign currency impact on borrowings and their
related hedges.
The Group designates certain foreign currency derivatives as hedging instruments under cash ow hedge cash flow hedge accounting. As such,
othercomponents ofother components of equity are sensitive to the strengthening or weakening of other currencies in relation to the impact on the hedge
reserve of these movements. Profit after tax is sensitive to the strengthening or weakening of other currencies as a result of the
impact on the fair value of foreign currency derivatives not designated as hedging instruments under cash ow as hedging instruments under cash flow hedge accounting.
Foreign currency risk management
It is the Group’s policy to hedge material transactional exposures using a variety of derivatives to protect the sterling values of foreign
currency cash ows,currency cash flows, except where there is an economic hedge inherent in the transaction. The Group enters into derivative contracts
in line with the currency risk management policy, including forwards and options, to manage the risks associated with its anticipated
foreign currency requirements over a rolling five-year period, covering contracted exposures and a proportion of highly probable
forecast transactions.
In addition, in order to optimise the cost of funding, the Group has issued foreign currency denominated debt in USD, EUR and CAD
(see note 4.2). The Group utilises derivative contracts, including cross-currency interest rate swaps and foreign exchange forward
contracts, to manage exchange risk on foreign currency debt.
Section 7: Risk management continued
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Contents

7.2 Financial risk management continued
Hedge accounting
The Group designates certain foreign currency exchange contracts as hedging instruments, predominantly forwards and swaps.
Gainsains and losses on foreign currency exchange contracts that are designated as hedges are transferred from equity to inventories
forhfor hedges of fuel purchases when the Group takes ownership of the fuel.
Cross-currency interest rate swap gains and losses that are effective at hedging the foreign exchange risk on the interest payments
are released to interest payable and similar charges when foreign exchange gains or losses are recognised on the interest payments.
Gains and losses that are effective at hedging the foreign exchange risk on the USD, EUR and CAD principal are released to foreign
exchange gains or losses to offset gains and losses on retranslating the USD, EUR and CAD denominated hedged borrowings.
The Group has taken out fixed-to-fixed cross-currency interest rate swaps to hedge the future cash sh flows associated with the
$500 million and €250 million 2025 fixed rate loan notes, effectively converting them to sterling fixed rate cash oh flows. The Group
hastas taken out a combination of fixed-to-fixed and nd floating-to-fixed cross-currency interest rate swaps in order to fix the sterling cash
oflows payable on the €126.5 million tranche of the 2020 UK infrastructure private placement facility (see note 4.2 for further details
onbon borrowings).
The main sources of ineffectiveness relating to foreign currency exchange contracts are timing differences and credit risk. The main
sources of ineffectiveness relating to cross-currency interest rate swaps are differences in the critical terms, differences in repricing
dates, foreign currency basis spread, and credit risk.
A reconciliation of reserves and the time period when the hedge will affect profit or loss, or will be transferred from equity and
included in the initial cost of the non-financial item, are disclosed in notes 7.3 and 7.4.
A summary of amounts relating to the hedging instruments, and any related ineffectiveness in the period, is presented in the table
below. Ineffectiveness on foreign currency exchange contracts is recognised in cost of sales if it relates to hedges of fuel purchases.
Ineffectiveness on cross-currency interest rate swaps that are hedging principal and interest payments is recognised in foreign
exchange gains or losses if it relates to the principal repayment, and interest payable and similar charges if the ineffectiveness relates
to interest payments.
There are €95 million of o of floating-to-fixed cross-currency interest rate swaps that are hedging both foreign currency risk and interest
rate risk. These swaps have been separated into synthetic ic floating-to-o-floating cross-currency interest rate swaps, that are hedging
foreign currency risk, and synthetic oc floating-to-fixed GBP interest rate swaps, that are hedging interest rate risk. The synthetic
ofloating-to-o-floating cross-currency interest rate swaps are disclosed in this section, and the synthetic oc floating-to-fixed GBP interest
rate swaps are disclosed in note 7.2.3 relating to interest rate risk.
The average forward rates quoted below only reeflect the rates applicable to the portion of the Group’s foreign currency hedging
instruments that qualify for hedge accounting in accordance with IFRS 9. The rates do not reeflect the overall average rate of the
Group’s total portfolio of derivatives that are used to fix the sterling value of future cash oh flows.
currency – USD
2 ,126.9
$1.29
(68.0)
35.6
(21.5)
( 7.3)
–
currency – EUR
47.0
€ 1.15
(3.3)
–
–
0.2
–
currency – CAD
116.6
C$1.68
(8.7)
2.1
(2.1)
(1.3)
–
repayments – USD
500.0
6.13%
(23.0)
2.7
(21.1)
(2.4)
–
repayments – EUR
376.5
137.2b p s
(11.8)
–
(14.0)
(2.6)
–
Principal repayments – CAD
200.0
C$1.68
(0.2)
–
(0 .1)
0.2
–
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Contents

7.2 Financial risk management continued
Exposure
currency – USD
68.0
(68.0)
–
of sales
(42.5)
–
–
Inventories
currency – EUR
3.3
(3.3)
–
of sales
(0.9)
–
–
Inventories
currency – CAD
8.8
(8.8)
–
of sales
–
–
–
Inventories
repayments – USD
28.9
(22.9)
–
charges
–
(3.3)
–
gains
–
22.0
–
repayments – EUR
13.7
(11.8)
–
charges
–
3.0
–
gains
–
7. 5
–
– CAD
0.2
(0.2)
–
–
–
–
Exposure
Purchases in foreign currency – USD
1,586.4
$1.38
187.2
149.3
–
75.6
–
Purchases in foreign currency – EUR
135.0
€1.16
17.9
3.3
(0.3)
3.3
–
Purchases in foreign currency – CAD
4 0 6.1
C$1.73
0.4
13.9
(0.1)
5.6
–
repayments – USD
500.0
4.90%
47.5
12.3
(6.2)
0.8
–
repayments – EUR
376.5
137.2bps
( 3.1)
4.2
(8.1)
(1.6)
–
Section 7: Risk management continued
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Contents

7.2 Financial risk management continued
currency – USD
(187. 2)
187. 2
–
sales
(34.2)
–
–
Inventories
currency – EUR
(17.9)
17.9
–
sales
5.9
–
–
Inventories
currency – CAD
(0.4)
0.4
–
sales
9.2
–
–
Inventories
repayments – USD
(47.5)
47.5
–
charges
–
(9.2)
–
gains
–
(44.7)
–
repayments – EUR
3.1
( 3.1)
–
charges
–
2.6
–
gains
–
(17.3)
–
7.2.3 Interest rate risk
The Group has exposure to interest rate risk, principally in relation to variable rate debt, cash and cash equivalents and the revolving
credit facility (RCF), should it be drawn. The Group has Sterling Overnight Index Average (SONIA) A) floating-to-fixed interest rate swaps
to fix the interest payments on the £375 million 2019 UK infrastructure private placement facility. For the 2020 UK infrastructure
private placement facility, the Group has fixed the interest rate payable on the £98 million GBP denominated facilities through
oating-to-floating-to-fixed SONIA interest rate swaps.
The Group has also fixed the interest rate payable on the variable rate EUR denominated €95 million tranche of the 2020 UK
infrastructure private placement facility, through Euro Interbank Offered Rate (EURIBOR) oat) floating-to-fixed cross-currency interest
rate swaps. As detailed in note 7.2.2 above, the oe floating-to-fixed cross-currency interest rate swaps are hedging both interest rate
riskansk and foreign currency risk, and as such the disclosures relating to interest rate risk are included in this section. See note 7.2.2 for
thefore foreign currency risk disclosures relating to the he floating-to-fixed cross-currency interest rate swaps.
At 31 December 2023, the Group has fixed interest rate payments in GBP on all of its debt instruments through the use of swaps, with
the exception of the Group’s CAD denominated debt, which is the only outstanding debt that remains variable and does not have fixed
interest rate payments. In January 2024, the Group entered into a to a floating-to-fixed cross-currency swap to fix the sterling value of
interest payments on the CAD denominated term loan.
The returns generated on the Group’s cash balance, or payable on amounts drawn on the RCF, are exposed to movements in short-term
interest rates. The Group actively manages cash balances to protect against adverse changes in interest rates whilst retaining liquidity.
Certain Group borrowings are at fixed rates, including the USD and EUR bonds, and are therefore not exposed to interest rate risk.
Further information about the Group’s instruments that are exposed to interest rate risk and their repayment schedules is provided
innoin note 4.2.
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Contents

7.2 Financial risk management continued
Interest rate benchmark reform
The only interest rate benchmark to which the Group is still exposed to, that is subject to interest rate benchmark reform, is the
Canadian Dollar Offered Rate (CDOR). The Group has a C$200 million term loan facility that is linked to a od to a floating-rate CDOR
benchmark. During the year the Group has extended the facility to a maturity date of January 2026. As part of the extension,
theGre Group agreed with lenders to transition the oe floating-rate to the Canadian Overnight Repo Rate Average (CORRA) plus a credit
adjustment spread (CAS). The CAS per the amended agreement is consistent with the International Swaps and Derivatives Association
(ISDA) spread adjustments as calculated and published by Bloomberg. The base margin rate of the loan remained unchanged.
Thisahis amendment will become active in the first interest period starting in January 2024.
‘Phase 2’ of the amendments requires that, for financial instruments measured using amortised cost measurement (that is, financial
instruments classified as amortised cost and debt financial assets classified as FVOCI), changes to the basis for determining the
contractual cash owh flows required by interest rate benchmark reform are reeflected by adjusting their effective interest rate. No
immediate gain or loss is recognised. The expedient is only applicable to changes that are required by interest rate benchmark reform,
which is the case if, and only if, the change is necessary as a direct consequence of interest rate benchmark reform and the new basis
for determining the contractual cash ash flows is economically equivalent to the previous basis (that is, the basis immediately preceding
the change).
The following table contains details of all of the financial instruments that the Group holds at 31 December 2023 which reference
CDOR and have not yet transitioned to the CORRA interest rate benchmark:
C$
Maturity date
applied
Transition progress
New benchmark rate
CAD term facility
CDOR
200.0
2026
Unhedged
post 31 December 2023
CORRA
Interest rate sensitivity
The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative
financial instruments at the reporting date. For oating rate liabi For floating rate liabilities, the analysis is prepared assuming the amount of the liability
outstanding at the reporting date was outstanding for the whole year.
The analysis below shows what the impact on the current years profit after tax and other components of equity would have been for a
reasonably possible increase or decrease in interest rates. For interest rate derivatives designated into hedge relationships the analysis
includes the impact of recycling amounts from the hedge reserve. The analysis assumes all other variables are held constant.
Variable rate debt – unhedged
(1.2)
1.2
–
–
Variable rate debt – hedged
(4.2)
4.2
–
–
Interest rate swaps
4.2
(4.2)
8.1
(8.1)
Net impact
(1.2)
1.2
8.1
(8.1)
Variable rate debt – unhedged
(1.4)
1.4
–
–
Variable rate debt – hedged
(4.2)
4.2
–
–
Interest rate swaps
4.2
(4.2)
10.1
(10 .1)
Net impact
(1.4)
1.4
10 .1
(10.1)
An increase or decrease in interest rates would affect profit after tax as a result of the impact on the interest payable in the period
onaon any variable rate debt. The Group has reduced its exposure to interest rate risk on variable rate debt through the use of floating-to-
fixed interest rate swaps and therefore a change in interest rates would not have a significant effect on profit after tax. The Group
designates certain floating-to-fixed interest rate swaps as hedging instruments under cash flow hedge accounting. As such, other
components of equity are sensitive to an increase or decrease in interest rates in relation to the impact on the hedge reserve of these
valuations.
Certain amounts of the Group’s variable rate debt and interest rate swaps have a floor of 0% for the benchmark interest rate. The
Group also has CAD denominated debt that has a variable rate based on CDOR. At 31 December 2023, no swaps were in place to
hedge the interest risk on the CAD denominated debt. Therefore, in relation to this debt a change in interest rate would have an impact
on profit after tax but not on other components of equity.
Interest rate risk management
The Group has a risk management policy in place relating to interest rate risk. The Group policy permits the use of hedging instruments
in order to hedge up to 100% of the Group’s current and forecast interest rate exposure.
Section 7: Risk management continued
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Contents

7.2 Financial risk management continued
Hedge accounting
The Group designates its floating-to-fixed SONIA interest rate swaps and the floating-to-fixed cross-currency interest rate swaps
ashas hedging instruments against interest rate risk. The SONIA interest rate swaps are hedges of the interest payments relating to
the£375me £375 million 2019 UK infrastructure private placement facility and the £98 million GBP denominated tranche of the 2020 UK
infrastructure private placement facility. The cross-currency interest rate swaps are hedges of both interest rate risk and foreign
currency risk relating to the variable rate €95mi95 million EUR denominated tranche of the 2020 UK infrastructure private placement
facility. As such this has been separated into synthetic floating-to-floating cross-currency interest rate swaps and synthetic floating-
to-fixed GBP interest rate swaps. The synthetic floating-to-floating cross-currency interest rate swaps swap the €95 million variable
rate EURIBOR linked debt to variable rate SONIA linked GBP debt with a principal of £86.8 million. The synthetic floating-to-fixed GBP
interest rate then swaps the variable interest rate for a fixed GBPid GBP interest rate. Details of the floating-to-fixed SONIA interest rate
swaps are included in the disclosures below.
Gains and losses on the interest payments on interest rate swaps are released to interest payable and similar charges at the same time
as the interest is expensed on the related hedged borrowings. The main sources of ineffectiveness relating to interest rate hedges are
differences in the critical terms, differences in repricing dates and credit risk.
A summary of the amounts relating to the sterling interest rate hedging instruments and any related ineffectiveness in the period
ispris presented in the table below.
Variable rate GBP debt
559.8
1.06%
(33.0)
22.7
–
18.9
–
Exposure
debt
33.0
(33.0)
–
charges
–
16.0
–
Exposure
Variable rate GBP debt
558.8
1.06%
39.9
37.5
–
31.7
–
Exposure
GBP debt
(39.9)
39.9
–
similar charges
–
(3.1)
–
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7.2 Financial risk management continued
7.2.4 Innflation risk
The Group is exposed to inflation risk on elements of its revenues and cost base. The Group’s ROC revenue is linked to UK RPI and its
CfD income is linked to UK CPI (see note 2.2 for further information on ROC and CfD income). In addition, a proportion of the Group’s
fuel costs are linked to either US or Canadian CPI. The Group has UK CPI and RPI swaps to hedge certain revenues linked to inflation.
InaInflation risk sensitivity
The sensitivity analysis below has been determined based on the exposure to ino inflation rates on inflation linked derivatives at the
reporting date.
The analysis below shows the impact on profit after tax and other components of equity of a reasonably possible increase or decrease
in inflation rates as at 31 December. The analysis assumes all other variables are held constant.
UK CPI inflation swaps
–
–
(31.3)
26.6
UK RPI inflation swaps
(5.6)
5.5
(24.3)
23.9
UK CPI inflation swaps
–
–
(34.8)
29.2
UK RPI inflation swaps
(0.7)
1.1
(52.8)
50.9
The Group designates the UK CPI and RPI inflation swaps as hedging instruments under cash ash flow hedge accounting. As such, other
components of equity are sensitive to the impact on inflation linked derivatives recognised in the hedge reserve of an increase or
decrease in UK innflation rates. Profit after tax is sensitive to an increase or decrease in UK inflation rates due to the impact these rate
changes would have on the over-hedged portion of the innflation swaps, with this impact being recognised directly in the Consolidated
income statement.
Ination risk managemenInflation risk management
The Group has a risk management policy in place relating to innflation risk. The Group policy permits the use ofhee of hedging instruments
inorin order to hedge up to 100% of the Group’s current and forecast inflation exposure.
Hedge accounting
The Group has contracts for which the revenue is contractually linked to UK CPI inflation. The Group has designated this risk
component as a hedged item. UK CPI and UK RPI inI inflation swaps are utilised as the hedging instruments for this inflation risk.
Gains and losses on the innflation swaps are held in the hedge reserve and reclassified to revenue in the Consolidated income
statement at the same time the revenue with inflation linked contracts impacts profit or loss or if the hedged item is no longer
expected to occur.
The main sources of ineffectiveness relating to the innflation swaps are the basis point difference between the RPI swaps and the
CPI-linked revenues they are hedging, calculation differences, and the hedged item no longer being expected to occur. Calculation
differences occur due to differences between the reference months used to calculate the inationar the inflationary increase per the swaps and
therefee reference months used to calculate the ine inflationary increase for the CPI-linked revenues.
During 2023, as a result of a decrease in the forecast CfD generation, the Group recycled £9.3 million of losses on hedge accounted
ininflation linked derivative contracts to the Consolidated income statement, due to the hedged item no longer being expected to occur.
The Group also recognised £10.7 million of ineffectiveness due to the basis difference between the RPI hedging instruments and the
CPI exposure.
Section 7: Risk management continued
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7.2 Financial risk management continued
The summary of the amounts relating to the hedging instruments and any related ineffectiveness in the period is presented in the
table below.
Inflation linked sales
30.4
CPI – 2.72%
3.3
–
(19.7)
(15.3)
13.6
contracts – CPI
440.0
RPI – 3.46%
(14 .2)
–
(230.7)
(53.6)
–
(3.3)
3.3
–
Revenue
–
(0.9)
–
Revenue
3.5
(3.5)
(10.7)
Revenue
–
17. 5
9.3
Revenue
30.4
CPI – 2.72%
(13.3)
–
(23.8)
(18 .1)
14.6
440.0
RPI – 3.45%
(144.0)
–
(283.5)
( 71.1)
–
13.3
(13.3)
–
Revenue
–
(2.0)
(3.5)
Revenue
125.5
(125.5)
(18.5)
Revenue
–
7.2
43.0
Revenue
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7.2 Financial risk management continued
7.2.5 Liquidity risk
The treasury function is responsible for liquidity, funding and settlement management under policies approved by the Board. Liquidity
needs are monitored using regular forecasting of operational cash ash flows and financing commitments. The Group maintains a mixture
of cash and cash equivalents, committed facilities and uncommitted facilities in order to ensure sufficient funding for business
requirements.
In managing liquidity risk, the Group has the ability to accelerate the cash osh flows associated with certain working capital items,
principally those related to ROC sales and Customers business power sales. In each case this is undertaken on a non-recourse basis
and, accordingly, the ROC assets and other items are derecognised from the Consolidated balance sheet at the point of sale. The
Group alsouto utilises standard purchasing facilities to extend the working capital cycle, whilst still paying suppliers on time. The impact
onton the Group’s cash ash flows is described in note 4.3. Such facilities are not included within the Group’s definition of Net debt, as outlined
in note 2.7.
The following tables set out details of the expected maturity profile of the undiscounted, contractual payments of non-derivative
financial liabilities. The tables include both interest and principal cash ash flows. To the extent that interest payments or receipts are
ofloating rate, the undiscounted amount is derived from interest rate curves at the reporting date.
Term loans, gross value
153.9
154.9
271.6
278.8
87.0
946.2
Loan notes, gross value
–
31.7
635.3
–
–
6 67.0
Borrowings, contractual maturity
153.9
186.6
906.9
278.8
87.0
1,613.2
Trade and other payables
763.8
150.7
3.2
1.5
–
919.2
Lease liabilities
8.6
24.8
28.6
52.6
57. 0
171.6
926.3
362.1
938.7
332.9
144.0
2,704.0
Trade and other payables of £919.2 million (2022: £1,065.9 million) excludes non-financial liabilities such as the Group’s obligation to
deliver ROCs and employee benefit related accruals.
Term loans, gross value
10.5
32.4
353.3
338.5
144.9
879.6
Loan notes, gross value
–
33.3
33.3
663.6
–
730.2
Borrowings, contractual maturity
10.5
65.7
386.6
1,002.1
144.9
1,609.8
Trade and other payables
920.0
143.3
2.0
0.6
–
1,065.9
Lease liabilities
8.3
22.0
26.7
64.3
72.0
193.3
938.8
231.0
415.3
1,067.0
216.9
2,869.0
The weighted average interest rate payable at the reporting date on the Group’s borrowings was 4.79% (2022: 4.14%).
The following tables set out details of the expected maturity profile of contractual payments of derivative financial liabilities. Where
the amount payable is not fixed, the amount disclosed has been determined by reference to projected commodity prices, foreign
currency exchange rates, inflation rates or interest rates, as illustrated by the yield or other forward curves existing at the reporting
date. Where derivatives are expected to be gross settled based on the trade value rather than the mark-to-market value, the gross
cash ash flows have been presented. Certain commodity contracts are expected to be gross settled through delivery or receipt of the
commodity and a subsequent cash settlement of the trade value. Vanilla foreign currency exchange contracts are expected to be
gross settled through delivery of one currency and receipt of another. Where derivatives are expected to be net settled, the
undiscounted net cash osh flows expected to occur based on the current fair value have been disclosed. Financial contracts and other
foreign exchange contracts (excluding forwards and swaps) are expected to be net settled. Interest rate contracts and ination rate inflation rate
contracts are presented based on net settlement of the interest rate and inflation rate differentials. Gross settlement of both the
interest and principal on cross-currency interest rate swaps is expected and as such this element of the swap is presented gross.
Section 7: Risk management continued
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7.2 Financial risk management continued
Commodity contracts
795.3
79.3
1.6
876.2
Foreign currency exchange contracts
952.4
497.1
39 4.1
1,843.6
Cross-currency contracts
763.7
2.5
31.2
797.4
Inflation contracts
81.6
85.2
107. 5
274.3
2,593.0
66 4 .1
534.4
3,791.5
Commodity contracts
1,328.8
173.8
4.6
1,507.2
Foreign currency exchange contracts
921.4
45.4
47. 8
1,014.6
Cross-currency contracts
776.3
2.5
3.8
782.6
Inflation contracts
67.3
83.1
203.8
354.2
3,093.8
304.8
260.0
3,658.6
7.2.6 Credit risk
The Group’s gross exposure to credit risk for financial instruments is limited to the carrying amount of financial assets recognised at
the reporting date. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets
disclosed in note 7.1.
Trade and other receivables are stated gross of the provision for expected credit losses on trade receivables of £59.4 million
(2022:£2022: £60.9 million) and expected credit losses on accrued income of £9.4 million (2022: £7.6 million). The balance excludes
non-financial receivables such as prepayments.
The Group‘s three reportable segments (Pellet Production, Generation and Customers) are exposed to different levels and
concentrations of credit risk, largely reeflecting the number, size and nature of their respective customers.
The Pellet Production segment sells biomass pellets both intra-group and to external parties. Credit risk for the Group relates to the
sales made to external parties. The majority of the Pellet Production segment’s external sales are with large utility customers in Europe
and Asia. The Pellet Production segment manages its credit risk by reviewing individual sales contracts, considering the length of the
contract, payment terms, and assessing the credit quality of counterparties prior to signing contracts and throughout the duration
ofcoof contracts.
For the Generation segment, the risk arises from treasury, trading and energy procurement activities. Wholesale counterparty credit
exposures are monitored by individual counterparty and by category of credit rating. Counterparty credit exposures are subject to
approved limits. The Group uses master netting agreements to reduce credit risk and net settles payments with counterparties where
net settlement provisions exist. In addition, the Group employs a variety of other methods to mitigate credit risk: margining, various
forms of parent company guarantee, deeds of charge, cash collateral, letters of credit and surety bonds. The majority of the Generation
business’s credit risk is with counterparties in related energy industries or with financial institutions. In addition, where deemed
appropriate, the Group has historically purchased credit default swaps.
The highest credit risk exposure is in the Customers segment, with a large number of customers of varying sizes operating in a variety
of markets. In particular, its smaller customers carry lower concentrations but higher levels of credit risk, owing to a customer base
comprised of smaller retail and commercial entities. Credit risk is managed by checking a company’s creditworthiness and financial
strength both before commencing trade and during the business relationship. Credit risk is monitored and managed by industry sector.
Further details on the impact of credit risk on trade and other receivables is disclosed in note 3.5.
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7.2 Financial risk management continued
The investment of surplus cash is undertaken with the objective of ensuring that there is sufficient liquidity at all times, so that funds
are available to meet liabilities as they fall due, whilst securing a return from invested funds and preserving the capital value of those
funds within Board-approved policies. These policies manage credit risk exposure by setting out minimum rating requirements and
maximum investments with any one counterparty based on their rating and the maturity profile.
The Group had cash and cash equivalents of £379.5 million at 31 December 2023 (2022: £238.0 million). Cash and cash equivalents
are subject to the impairment requirements of IFRS 9. The identified impairment loss, based on the 12-month expected credit loss
basis, was immaterial. Cash and cash equivalents are held with banks with external credit ratings between AAA and A.
The Group is exposed to credit risk on derivative contracts, to which the impairment requirements of IFRS 9 are not applied as the fair
value requirements of IFRS 13 are applicable. Credit risk is a factor in the determination of fair value. The carrying amount of these
financial assets, disclosed in note 7.1, represents the Group’s maximum credit risk exposure. Some derivative contracts are fully cash
collateralised, thereby minimising credit risk. At 31 December 2023 the Group held £20.3 million in cash collateral receipts (2022: £nil)
covering certain derivative assets and had posted £98.9 million (2022: £234.0 million) of cash collateral payments covering certain
derivative liabilities. The credit rating of counterparties to which the £98.9 million of cash collateral had been posted was A–.
Counterparty risk
As the Group relies on third-party suppliers and counterparties for the delivery of currency, biomass pellets and other goods and
services, it is exposed to the risk of non-performance by these third-party suppliers. For financial instruments this risk is limited to the
credit risk, as discussed above. The Group is also exposed to counterparty risk on non-financial instruments, such as the purchases of
biomass and capital expenditure. If a large supplier were to fall into financial difficulty and/or fail to deliver against its contract with the
Group, there would be additional costs associated with securing the lost goods or services from other suppliers.
The Group enters into purchase and sale contracts for a wide variety of goods and services, for example the sale of power to a number
of counterparties. The failure of one or more of these counterparties to perform under their contractual obligations may cause the
Group financial distress or increase the risk profile of the Group. The Group has acceptance procedures in place to ensure the
counterparties the Group contracts with are appropriate. The Group also has limits in place, and actively monitors its exposures to
individual counterparties to minimise this risk.
Capital management
The Group is disciplined in its management of capital to ensure it is able to continue as a going concern; maintain a strong credit rating
underpinned by robust financial metrics; invest in its core business; and pay a sustainable and growing dividend whilst maximising the
return to shareholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of
shareholders’ equity (excluding the hedge and cost of hedging reserves), plus Net debt. Net debt is comprised of borrowings, cash
andcad cash equivalents attributable to owners of the parent company and is inclusive of the impact of associated hedging instruments
asdias disclosed in note 2.7.
See note 4.2 for details of loan covenants, and the Viability statement on page 92 for details of scenario analysis performed on
covenant restrictions within the Group’s financing facilities.
Borrowings (note 4.2)
1,425.3
1,440.9
Cash and cash equivalents (note 4.1)
(379.5)
(238.0)
Non-controlling interests share of cash and cash equivalents in non-wholly owned subsidiaries
0.3
0.7
Impact of hedging instruments
37. 8
2.4
Net debt (note 2.7)
1,083.9
1,206.0
Total shareholders’ equity attributable to owners of the parent company, excluding hedge and cost of
hedging reserves
1,744.9
1,422.7
Section 7: Risk management continued
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7.3 Hedge reserve
The Group designates certain hedging instruments that are used to address commodity price risk, foreign exchange risk, interest rate
risk and ind inflation rate risk as cash ow hh flow hedges. At the inception of the hedge, the relationship between the hedging instrument and
hedged item is documented, along with its risk management objectives. Furthermore, at the inception of the hedge and on an ongoing
basis, the Group documents whether the hedging instruments used in hedging transactions are effective in offsetting changes in cash
oflows of the hedged items. Changes in fair value of contracts designated into such hedging relationships are recognised within the
hedge reserve to the extent they are effective. Amounts accumulated in the hedge reserve are reclassified in the periods when the
hedged item affects profit or loss. If the hedged item results in the recognition of a non-financial asset then the amount accumulated
in the hedge reserve is transferred and included within the initial cost of the asset.
The table below details the gains and losses recognised in the current and prior year on hedging instruments, the amounts reclassified
from equity due to the hedged item affecting the Consolidated income statement, and the amounts reclassified due to the hedged
future cash owh flows no longer being expected to occur. See section 7.2 for further details on these amounts.
At 1 January 2022
(138.2)
(39.3)
4.2
(4.1)
(17 7.4)
– Change in fair value of hedging instrument recognised in OCI
(538.6)
249.9
39.9
(138.8)
( 3 87.6)
incin cost of sales
0.1
–
–
–
0.1
inrein revenue
459.8
–
–
5.2
465.0
inin interest payable and similar charges
–
(6.6)
( 3.1)
–
(9.7)
inin foreign exchange (losses)/gains
–
(62.0)
–
–
(62.0)
– Reclassified from equity – included in revenue
–
–
–
39.5
39.5
Transferred from equity and included within the initial cost of a
non-financial asset:
– Transferred to cost of inventories
–
(19.1)
–
–
(19.1)
Related deferred tax, net (note 2.6)
24.1
(39.2)
(9.3)
23.6
(0.8)
At 1 January 2023
(192.8)
83.7
31.7
(74.6)
(152.0)
– Change in fair value of hedging instrument recognised in OCI
414.7
(115.0)
(33.0)
(0.2)
266.5
incin cost of sales
1.6
–
–
–
1.6
inrein revenue
183.4
–
–
16.6
200.0
inin interest payable and similar charges
–
(0.3)
16.0
–
15.7
inin foreign exchange (losses)/gains
–
29.5
–
–
29.5
– Reclassified from equity – included in revenue
–
–
–
9.3
9.3
Transferred from equity and included within the initial cost of a
non-financial asset:
– Transferred to cost of inventories
–
(43.4)
–
–
(43.4)
Related deferred tax, net (note 2.6)
(149.9)
32.3
4.2
(6.4)
(119.8)
At 31 December 2023
257.0
(13.2)
18.9
(55.3)
207.4
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7.3 Hedge reserve continued
The expected release profile from equity of post-tax hedging gains and losses is as follows:
Commodity risk
199.4
56.0
1.6
257.0
Foreign currency exchange risk
(4.9)
(6 .1)
(2.2)
(13.2)
Interest rate risk
11.5
6.3
1.1
18.9
Inflation risk
(19.4)
(15.2)
(20.7)
(55.3)
186.6
41.0
(20.2)
207.4
Commodity risk
(167.4)
(22.3)
(3.1)
(192.8)
Foreign currency exchange risk
49.6
23.3
10.8
83.7
Interest rate risk
11.2
11.9
8.6
31.7
Inflation risk
(3.3)
(17.1)
(54.2)
(74.6)
(109.9)
(4.2)
(37.9)
(152.0)
7.4 Cost of hedging reserve
The Group allocates unrealised gains and losses on the forward rate of hedge accounted foreign currency derivative contracts to
acoa cost of hedging reserve in accordance with IFRS 9.
A large proportion of the derivative contracts held relate to foreign currency exchange contracts, including forward contracts, options
and swaps. Consistent with prior periods, for foreign currency exchange contracts hedging the purchase of inventory denominated
infoin foreign currencies to which the Group has applied hedge accounting, the Group has continued to designate the change in the spot
rate as the hedged risk in the Group’s cash sh flow hedge relationships. The Group designates the cost of hedging – being the change
infin fair value associated with forward points including currency basis – to equity. All amounts within the cost of hedging reserve relate
to foreign currency exchange risk.
The table below details the cost of hedging gains or losses recognised in the year on hedging instruments and the amounts transferred
from equity and included within the initial cost of a non-financial asset:
At 1 January
40.1
78.5
– Change in fair value of hedging instruments recognised in the Consolidated statement of
comprehensive income
7.5
(19.0)
– Transferred to cost of inventories
(36.0)
(28.8)
Related deferred tax, net (note 2.6)
7.1
9.4
At 31 December
18.7
4 0.1
The expected release profile from equity of post-tax cost of hedging gains and losses is as follows:
Foreign currency exchange risk
16.6
4.3
(2.2)
18.7
Foreign currency exchange risk
21.7
13.0
5.4
4 0.1
Section 7: Risk management continued
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7.5 Offsetting financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount is reported in the Consolidated balance sheet where the Group has a
legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and
settle the liability simultaneously. The Group also has financial assets and liabilities with certain counterparties that are subject to
master netting agreements. Some financial assets and liabilities do not meet the criteria for offsetting at the reporting date but are
subject to an enforceable master netting agreement that in certain circumstances, such as a bankruptcy, would allow for the amounts
to be offset and a single net amount payable or receivable.
The table below shows the impact of financial assets and liabilities that are offset in the Consolidated balance sheet, and it also shows
the impact if the carrying amounts that are subject to these master netting agreements were also to be offset in certain
circumstances, such as a bankruptcy:
Derivative financial instruments
888.5
(226.5)
662.0
(220.9)
(20.3)
420.8
Trade and other receivables and
contractast assets
1,088.5
(111.6)
976.9
(4.9)
(95.9)
8 76 .1
Derivative financial instruments
(764.7)
226.5
(538.2)
215.3
95.9
(2 27.1)
liabilities
(1,651.2)
111.6
(1,539.6)
10.5
20.3
(1,508.8)
Derivative financial instruments
1,218.0
(4 6 0.1)
757.9
(608.6)
–
149.3
Trade and other receivables and
contractast assets
1,398.8
(171.8)
1, 227.0
(31.8)
(230.6)
964.6
Derivative financial instruments
(1,724.8)
4 60.1
(1,264.7)
619.6
230.6
(414.4)
Trade and other payables and
contractliabilitieract liabilities
(1,699.7)
171.8
(1,527.9)
20.7
–
(1,507.2)
The amounts at 31 December 2022 have been restated to reeflect the Group’s revised application of the offsetting criteria to physically
settled derivative contracts. This has impacted the presentation of derivative assets and liabilities recognised in the Consolidated
balance sheet. The valuation of derivatives and the overall net asset position remain unchanged. See the offsetting section on page
178 for further details on this restatement.
The above collateral assets and liabilities are recorded in other receivables and other payables respectively, see note 4.3.
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7.6 Contingencies
Contingent assets are potential future inflows of cash that are dependent on a future event that is outside of the control of the Group.
The amount or timing of any receipt is uncertain and cannot be measured reliably.
Contingent liabilities are potential future outflows of cash that are dependent on a future event that is outside of the control of the
Group. The amount or timing of any payment is uncertain and cannot be measured reliably.
Contingent liabilities
Ofgem investigation
On 31 May 2023, Ofgem announced the opening of an investigation into Drax Power Limited’s annual biomass profiling reporting
under the Renewables Obligation scheme. Ofgem’s announcement stated that the opening of an investigation does not imply any
finding of non-compliance. Ofgem separately confirmed that they have not established any non-compliance that would affect the
issuance of ROCs to Drax Power Limited, and therefore the associated financial benefit.
Like all energy generators, the Company receives regular requests from Ofgem. We continue to cooperate fully throughout the
investigation and have confidence in our compliance with the Renewables Obligation scheme criteria.
No amount has been provided in respect of this matter in the Consolidated financial statements, given the stage of the process
andand the uncertainty in future outcome.
Ofgem NIS declaration
As noted in the Audit Committee report on page 132, Drax Power Station is required to maintain a defined level of both physical
andcyd cyber resilience, as outlined within the Network and Information Systems Regulations (NIS Regulations). The Group submitted
arepa reportto Ot to Ofgem in January 2024 confirming that Drax Power Station had not fully achieved the level required by the deadline of
31D1 December 2023, but had a plan to address this during 2024. Ofgem will consider this matter in due course and decide on any
futureare action.
No amount has been provided in respect of this matter in the Consolidated financial statements, given the early stage of the process
and the uncertainty in future outcome.
7.7 Commitments
The Group has a number of financial commitments (i.e. a contractual requirement to make a cash payment in the future) that are not
recorded in the Consolidated balance sheet as the contract is not yet due for delivery. Such commitments include contracts for the
future purchase of biomass and contracts for the construction of assets.
Property, plant and equipment
221.6
267.9
Intangible assets
–
0.2
Future commitments to purchase ROCs
303.2
331.9
Future commitments to purchase biomass under fixed and variable priced contracts
3,092.5
3,250.0
Future commitments to purchase fibre under fixed and variable priced contracts
439.7
242.5
Commitments for future capital expenditure have decreased due to significant progression in the construction of the OCGTs during
2023. Future commitments to purchase biomass include long-term contracts, a majority of which match the period out to the end
ofUK Gof UK Government subsidies. Future commitments to purchase fibre have increased due to a combination of increasing fibre costs
andand increased production volumes.
The contractual maturities of the future commitments to purchase biomass are as follows:
Within one year
799.0
829.5
Within one to five years
1,867.8
2,378.2
After five years
425.7
42.3
3,092.5
3,250.0
Commitments to purchase fuel reect long-teflect long-term forward purchase contracts with a variety of international suppliers, primarily
fortfor thedhe delivery of biomass pellets for use in electricity generation at Drax Power Station. To the extent that these contracts relate
totto thephe purchase of biomass pellets, they are not ret reflected elsewhere in the financial statements as they are not within the scope
ofIFRof IFRS9, anS 9, and are not, therefore, required to be measured at fair value. See the Critical accounting judgements section in the Basis
ofprof preparation for further details on this judgement.
Section 7: Risk management continued
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This section details reference information relevant to the compiling of the Consolidated financial statements and provides general
information about the Group (e.g. operations and registered office). This section also sets out the basis of preparation of the accounts
and general accounting policies that are not specific to any one note.
8.1 General information
Drax Group plc (the Company) is a public company, limited by shares, incorporated in the United Kingdom under the Companies Act
2006 , and registered in England and Wales. The Company and its subsidiaries (collectively, the Group) have three principal activities:
• Production and subsequent sale of biomass pellets for use in electricity generation;
• Electricity generation; and
• Electricity and gas supply to non-domestic customers.
The Group’s activities are principally based within the UK, US and Canada.
The address of the Company’s registered office and principal establishment is Drax Power Station, Selby, North Yorkshire, YO8 8PH,
United Kingdom. A full list of the Company’s direct and indirect related undertakings is disclosed in note 5 to the Company’s separate
financial statements, which follow these Consolidated financial statements.
8.2 Adoption of new and revised accounting standards
The following amendments became effective for the first time in 2023. The Group adopted the following from 1 January 2023:
• IFRS 17 – Insurance Contracts – effective from 1 January 2023
• IAS 1 (amended) – Disclosure of Accounting Policies – effective from 1 January 2023
• IAS 8 (amended) – Definition of Accounting Estimates – effective from 1 January 2023
• IAS 12 (amended) – Income Taxes – Deferred Tax related to Assets and Liabilities arising from a Single Transaction – effective from
1Jan1 January 2023
• IAS 12 (amended) – International Tax Reform – Pillar Two Model Rules – effective from 1 January 2023
The adoption of these amendments in the current year has not had a material impact on the Consolidated financial statements.
At the date of approval of this report, the following new or amended standards and relevant interpretations, which have not been
applied in these Consolidated financial statements, were in issue but not yet effective:
• IFRS 10 (amended) – Consolidated Financial Statements – effective date deferred indefinitely
(1)
• IAS 28 (amended) – Investments in Associates and Joint Ventures (2011) – effective date deferred indefinitely
(1)
• IFRS 16 (amended) – Lease Liability in a Sale and Leaseback – effective from 1 January 2024
• IAS 1 (amended) – Classification of Liabilities as Current or Non-Current – effective from 1 January 2024
• IAS 1 (amended) – Non-current Liabilities with Covenants – effective from 1 January 2024
• IAS 7 (amended) and IFRS 7 (amended) – Supplier Finance Arrangements – effective from 1 January 2024
• IAS 21 (amended) – Lack of Exchangeability – effective from 1 January 2025
(1)
(1) Pending endorsement by the UK Endorsement Board (UKEB).
Adoption of these new or amended standards and relevant interpretations in future periods is not expected to have a material impact
on the Consolidated financial statements of the Group. The Group will continue to monitor the developments of these new or
amended standards as and when they are endorsed for use in the United Kingdom.
Section 8: Reference information
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Section 8: Reference information continued
8.3 Related party transactions
A related party is either an individual or entity with control or significant inufluence over the Group, or a company that is linked to the
Group by investment (such as an associated company or joint venture), that the Group has significant int influence over. The Group’s
related parties are primarily its associate and its key management personnel. Amounts below are the total amount of transactions that
have been entered into with any related parties in the year.
Houston Pellet Limited Partnership (HPLP)
HPLP is owned 30% by the Group and 70% by non-related third parties. The Group purchases biomass pellets from HPLP. The Group
manages and administers the business affairs of HPLP and charges a management fee. These transactions are at negotiated amounts
between the Group and the non-related third parties.
The transactions in the period and the balances at the reporting date with the related party are summarised below:
Transactions in the period to 31 December 2023
Balances as at 31 December 2023
(1)
Houston Pellet Limited Partnership
HPLP
30%
0 .1
14.6
1.1
1.2
Transactions in the period to 31 December 2022
Balances as at 31 December 2022
Houston Pellet Limited Partnership
HPLP
30%
0.1
18.2
1.7
0.4
(1)
(1) The amounts payable to and receivable from HPLP are unsecured and non-interest bearing.
Remuneration of key management personnel
The remuneration of the Directors and Executive management, who are considered to be the key management personnel of the
Group, is set out below in aggregate for each of the categories specified in IAS 24. Further information about the remuneration
ofinof individual directors, together with the Directors’ interests in the share capital of the Company, is provided in the audited section
ofof the Remuneration Committee report on pages 144–160.
Short-term employee benefits
7,326
7,531
Share-based payments
4,047
3,964
Post-employment benefits
414
489
Total remuneration
11,787
11,984
Compensation of the Group’s key management personnel includes short-term employee benefits, which includes salaries, other
short-term benefits, and contributions to post-employment money purchase pension schemes.
Share-based payments compensation represents the amounts receivable under share-based incentive schemes as disclosed in
notenote 6.2.
Amounts included in the table above reect the remuneration offlect the remuneration of the 18 (2022: 17) members of the Board and Executive management.
There were no other transactions with Directors for the periods covered by these Consolidated financial statements.
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Company financial statements
Company balance sheet
Notes
As at 31 December
2023
£000
2022
£000
Non-current assets
Investment in subsidiaries 5 755,377 742,016
Current assets
Other receivables 3 100
Amounts due from other Group companies 6 37,888 110,801
Cash and cash equivalents 649 2,056
38,540 112,957
Current liabilities
Amounts due to other Group companies (1,574) (719)
Net current assets 36,966 112,238
Net assets 792,343 854,254
Shareholders’ equity
Issued equity 7 49,086 47,925
Share premium 441,138 433,281
Treasury shares (199,660) (50,440)
Capital redemption reserve 1,502 1,502
Retained profits 500,277 421,986
Total shareholders’ equity 792,343 854,254
The Company reported a profit for the financial year ended 31 December 2023 of £151.6 million (2022: £186.5 million).
These financial statements were approved and authorised for issue by the Board of directors on 28 February 2024.
Signed on behalf of the Board of directors:
Andy Skelton
CFO
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Company statement of changes in equity
Issued
equity
£000
Share
premium
£000
Treasury
shares
(1)
£000
Capital
redemption
reserve
£000
Retained
profits
£000
Total
£000
At 1 January 2022 47,716 432,191 (50,440) 1,502 304,875 735,844
Issue of share capital (note 7) 209 1,090 – – – 1,299
Profit and total comprehensive income for the year – – – – 186,533 186,533
Movement in equity associated with share-based
payments – – – – 9,479 9,479
Equity dividends paid (note 8) – – – – (78,901) (78,901)
At 1 January 2023 47,925 433,281 (50,440) 1,502 421,986 854,254
Issue of share capital (note 7) 1,161 7, 857 – – – 9,018
Profit and total comprehensive income for the year – – – – 151,647 151,647
Movement in equity associated with share-based
payments – – – – 12,963 12,963
Equity dividends paid (note 8) – – – – (86,319) (86,319)
Repurchase of own shares – – (149,220) – – (149,220)
At 31 December 2023 49,086 4 41,138 (199,660) 1,502 500,277 792,343
(1) The 40.3 million (2022: 13.8 million) shares held in this reserve have no voting rights attached to them.
Section 8: Reference information continued
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Notes to the Company financial statements
1. Basis of preparation
The separate financial statements of the Company are presented as required by the Companies Act 2006.
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial
Reporting Council (FRC).
The principal activity of the Company is being the ultimate parent company of the Drax Group plc group of companies.
The Company financial statements have been prepared in accordance with FRS 101, ‘Reduced Disclosure Framework’.
The Company applied certain new and amended standards for the first time in 2023. The full list of standards adopted is set out in
theConsolidated financial statements in note 8.2. These updates and amendments have not had a material impact on the financial
statements of the Company.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation
topresentation of a cash ow statement, financial instruments, share-based payments, capital risk management, standards not
yeteffective and certain related party transactions. Where required, equivalent disclosures are given in the Consolidated financial
statements.
The Company financial statements have been prepared under the historical cost convention and are presented in pounds sterling
which is the functional currency of the Company and is rounded to the nearest thousand unless stated otherwise. The principal
accounting policies adopted are summarised below and have been consistently applied to both years presented.
2. Accounting policies
Investments in subsidiaries
Investments in subsidiaries are stated at cost less, where relevant, provision for impairment.
Financial instruments
Issued equity – Ordinary shares are classified as equity as evidenced by their residual interest in the assets of the Company after
deducting all of its liabilities. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds. The share premium account records amounts by which the proceeds from issuing shares
exceeds the nominal value of the shares issued unless merger relief criteria within the Companies Act 2006 are met, in which case
thedifference is recorded in retained profits.
Cash and cash equivalents – Cash and cash equivalents includes cash in hand, deposits held with banks, other short-term highly liquid
investments with original maturities of three months or less, and bank overdrafts.
Impairment of financial assets
The Company applies the impairment model in IFRS 9 to provide for expected credit losses on its financial assets including amounts
due from other Group companies and other financial assets. The provision for impairment on amounts owed by Group companies is
measured at an amount equal to the lifetime expected credit loss when there has been a significant increase in credit risk since initial
recognition. If there has not been a significant increase in credit risk since initial recognition, a 12-month expected credit loss provision
is recognised.
To assess whether there is a significant increase in credit risk, the Company compares the risk of a default occurring on a financial
asset as at the reporting date with the risk of default as at the date of initial recognition. The following information is considered
whenassessing if a significant increase in credit risk has occurred since initial recognition:
• changes in the external and internal credit ratings for the financial asset or counterparty to the financial asset;
• changes in credit default swap pricing or spreads for the financial asset or counterparty to the financial asset;
• actual or expected significant adverse changes in business, financial or economic conditions that are expected to impact the
counterparty’s ability to meet its contractual payments; and
• actual or expected significant changes in the operating results of the counterparty.
Regardless of the analysis factors, a significant increase in credit risk is presumed if a contractual payment due in respect of a financial
asset is more than 30 days past due.
3. Critical accounting judgements and key sources of estimation uncertainty
Critical judgements in applying the Company’s accounting policies
There were no critical accounting judgements made in the preparation of the Company’s financial statements.
Key sources of estimation uncertainty
There are no areas of significant estimation uncertainty within the Company’s financial statements.
4. Profit and loss account
As permitted by Section 408 of the Companies Act 2006, the Company has elected not to present its own profit and loss account
forthe years ended 31 December 2023 and 31 December 2022. The Company’s financial statements were approved by the Board
on28February 2024. The net profit attributable to the Company is £151.6 million (2022: £186.5 million).
The Company received dividend income from its subsidiary undertakings totalling £147.5 million in 2023 (2022: £185.0 million).
Drax Group plc
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4. Profit and loss account continued
The Company has no employees other than the Directors, whose remuneration was paid by a subsidiary undertaking and a proportion
was recharged to the Company.
The auditor’s remuneration for audit services provided to the Company for the year ended 31 December 2023 was £28,449
(2022:£26,078).
5. Fixed asset investments
Year ended 31 December
2023
£000
2022
£000
Carrying amount:
At 1 January 742,016 732,400
Capital contribution 13,361 9,616
At 31 December 755,377 742,016
Investments in subsidiary undertakings
The capital contribution in 2023 and 2022 relates to the share-based payment charges associated with the employee share schemes,
which arise because the beneficiaries of the schemes are employed by subsidiary companies. For more information see note 6.2 to the
Consolidated financial statements.
Full list of related undertakings
The table below lists the Company’s direct and indirect related undertakings as at 31 December 2023:
Name and nature of business Principal activity
Country of incorporation
and registration Type of share
Registered
number
Ownership
& voting %
Abbott Debt Recovery Limited*** Non-trading company England and Wales Ordinary 05355799 100
Abergelli Power Limited*** Power generation England and Wales Ordinary 08190497 100
Alabama Pellets LLC* Fuel supply Delaware, USA Common 7064679 100
Amite BioEnergy LLC* Fuel supply Delaware, USA Common 5128116 100
Arkansas Bioenergy LLC* Fuel supply Delaware, USA Common 7881707 100
Baton Rouge Transit LLC* Fuel supply Delaware, USA Common 5128759 100
BMM Energy Solutions Limited^*** Energy services Scotland Ordinary SC462201 100
C-Capture Limited Research and development England and Wales Ordinary 06912622 19
DBI O&M Company LLC* Non-trading company Delaware, USA Common 5305470 100
Demopolis Pellets LLC* Fuel supply Delaware, USA Common 6314280 100
Donnington Energy Limited Dormant England and Wales Ordinary 07109298 100
Drax Asia (Japan) K.K.> Provision of corporate services Japan Common
0100-01-
227551 100
Drax Biomass Acquisitions LLC* Non-trading company Delaware, USA Common 7897331 100
Drax Biomass Holdings Limited*** Holding company England and Wales Ordinary 08322715 100
Drax Biomass Holdings LLC* Dormant Delaware, USA Common 5128115 100
Drax Biomass Inc.* Biomass pellet manufacturing Delaware, USA Common 5068290 100
Drax Biomass International Holdings LLC* Holding company Delaware, USA Common 5250168 100
Drax Biomass Transit LLC* Holding company Delaware, USA Common 5128118 100
Drax CCS Limited Dormant England and Wales Ordinary 07885329 100
Drax Corporate Limited Group-wide corporate services England and Wales Ordinary 05562058 100
Drax Cruachan Expansion Limited*** Non-trading company England and Wales Ordinary 06657393 100
Drax Energy Solutions Limited Power retail England and Wales Ordinary 05893966 100
Drax Finco plc Finance company England and Wales Ordinary 10664639 100
Drax Fuel Supply Limited*** Non-trading company England and Wales Ordinary 05299523 100
Drax Generation Developments Limited*** Development company England and Wales Ordinary 07821368 100
Drax Group Holdings Limited Holding company England and Wales Ordinary 09887429 100
Drax Holdings Limited+ Holding company Cayman Islands Ordinary 92144 100
Drax Hydro Limited Holding company England and Wales Ordinary 08654218 100
Drax Innovation Limited*** Development company England and Wales Ordinary 10664715 100
Drax Netherlands B.V.~ Dormant Netherlands Ordinary 81848455 100
Drax North America BECCS, LLC* Provision of corporate services Delaware, USA Common 7216170 100
Drax Pension Trustees Limited Dormant England and Wales Ordinary 09824989 100
Drax Power Limited Power generation England and Wales Ordinary 04883589 100
Section 8: Reference information continued
Drax Group plc
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Financial statements
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Name and nature of business Principal activity
Country of incorporation
and registration Type of share
Registered
number
Ownership
& voting %
Drax Pumped Storage Limited Power generation England and Wales Ordinary 06657336 100
Drax Research and Innovation Holdco
Limited*** Holding company England and Wales Ordinary 06657454 100
Drax Retail Developments Limited Dormant England and Wales Ordinary 10711130 100
Drax River Hydro Limited Power generation England and Wales Ordinary 05956747 100
Drax Smart Generation Holdco Limited*** Holding company England and Wales Ordinary 07821911 100
Drax Smart Sourcing Holdco Limited*** Holding company England and Wales Ordinary 07821375 100
Drax Smart Supply Holdco Limited*** Holding company England and Wales Ordinary 10664625 100
Drax US BECCS Development, LLC* Non-trading company Delaware, USA Common 7234532 100
Drax US BECCS Holdings, LLC* Holding company Delaware, USA Common 7234548 100
East Texas Genco I, LLC* Project Development Delaware, USA Common 2595041 100
Farmoor Energy Limited*** Power retail England and Wales Ordinary 07111074 100
Haven Heat Limited Dormant England and Wales Ordinary 06657428 100
Haven Power Nominees Limited*** Non-trading company England and Wales Ordinary 07352734 100
Hirwaun Power Limited Power generation England and Wales Ordinary 08190283 100
Houston Pellet Inc.** General partner Richmond, Canada Common BC0730544 33
Houston Pellet Limited Partnership** Fuel supply Richmond, Canada Units LP0428310 30
Iberia Bioenergy LLC* Non-trading company Delaware, USA Common 7881704 100
Jefferson Transit LLC* Dormant Delaware, USA Common 6297176 100
LaSalle Bioenergy LLC* Fuel supply Delaware, USA Common 6297174 100
Lavington Pellet Inc.** General partner Richmond, Canada Common BC1022038 75
Lavington Pellet Limited Partnership** Fuel supply Richmond, Canada Units LP0649393 75
Louisiana Genco I, LLC* Non-trading company Delaware, USA Common 2595050 100
Millbrook Power Limited Power generation England and Wales Ordinary 08920458 100
Morehouse BioEnergy LLC* Fuel supply Delaware, USA Common 5128117 100
Northern Pellet Inc.** General partner Richmond, Canada Common BC1213828 50
Northern Pellet Limited Partnership** Fuel supply Richmond, Canada
Class A and
Class C LP781774 50
Opus Energy (Corporate) Limited Power retail England and Wales Ordinary 05199937 100
Opus Energy Group Limited*** Power retail England and Wales Ordinary 04409377 100
Opus Energy Limited Power retail England and Wales Ordinary 04382246 100
Opus Energy Marketing Limited*** Non-trading company England and Wales Ordinary 05030694 100
Opus Energy Renewables Limited Power retail England and Wales Ordinary 07126582 100
Opus Gas Limited*** Non-trading company England and Wales Ordinary 05680956 100
Opus Gas Supply Limited Power retail England and Wales Ordinary 06874709 100
Opus Water Limited Dormant England and Wales Ordinary 09425319 100
Pinnacle Renewable Energy Inc.** Fuel supply Richmond, Canada Common BC1300366 100
Pinnacle Renewable Holdings (USA) Inc.* Holding company Delaware, USA Common 7043656 100
Pirranello Energy Supply Limited Dormant England and Wales Ordinary 10769036 100
Progress Power Limited Power generation England and Wales Ordinary 08421833 100
Smithers Pellet Inc.** General partner Richmond, Canada Common BC1135983 70
Smithers Pellet Limited Partnership** Fuel supply Richmond, Canada Units LP730047 70
SMW Limited^ Fuel supply Scotland Ordinary SC165988 100
Sunflower Energy Supply Limited Dormant England and Wales Ordinary 09735929 100
Tyler Bioenergy LLC* Dormant Delaware, USA Common 6297175 100
Registered Office
Incorporated in England and Wales
The registered address of all the companies incorporated in England and Wales is Drax Power Station, Selby, North Yorkshire, YO8 8PH.
The exceptions to this are: Abbott Debt Recovery Limited, which is registered at Beaver House, 23-28 Hythe Bridge Street, Oxford,
OX1 2ET; and C-Capture Limited, which is registered at Windsor House, Cornwall Road, Harrogate, HG1 2PW.
*Incorporated in the USA
The registered address of all related undertakings incorporated in the USA is 850 New Burton Road, Suite 201, Dover DE 19904.
**Incorporated in Canada
The registered address of all related undertakings incorporated in Canada is 2800 Park Place, 666 Burrard Street, Vancouver,
BCV6C2Z7.
5. Fixed asset investments continued
Drax Group plc
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Financial statements
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^Incorporated in Scotland
The registered address of all related undertakings incorporated in Scotland is 13 Queen’s Road, Aberdeen, Scotland, AB15 4YL.
+Registered in Cayman Islands
The registered address of Drax Holdings Limited is c/o Intertrust Corporate Services (Cayman) Limited, One Nexus Way, Camana Bay,
George Town, Grand Cayman KY1 9005, Cayman Islands.
~Registered in Netherlands
The address of Drax Netherlands B.V. registered in Netherlands is Barbara Strozzilaan 101, Amsterdam, 1083HN.
>Registered in Japan
The address of Drax Asia (Japan) K.K. registered in Japan is Level 21, Marunouchi Nijubashi Building, 3-2-3 Marunouchi, Chiyoda-ku,
Tokyo, Japan 100-0005.
***Exempt from audit
These subsidiaries have taken advantage of the exemption from audit available under section 479A of the Companies Act 2006 for the
2023 statutory accounts. These companies are all incorporated in the UK.
Abbott Debt Recovery Limited and Opus Energy Marketing Limited have 30 December 2023 year ends. All other related undertakings
have 31 December 2023 year ends.
The Group consolidates all of the related undertakings disclosed above apart from:
• C-Capture Limited which is equity accounted;
• Northern Pellet Inc. and Northern Pellet Limited Partnership which are proportionately consolidated; and
• Houston Pellet Inc. and Houston Pellet Limited Partnership which are equity accounted.
6. Amounts due from other Group companies
The amounts due from other Group companies include short-term trading balances which are unsecured, interest free and settled
under normal payment terms. Amounts due from other Group companies also includes other funds advanced by the Company and
cash pool arrangements which accrue interest at a commercial rate. Cash pool balances are repayable on demand and interest is
settled quarterly. Other funds advanced by the Company are settled according to the terms of the agreement or, if shorter, the date
demanded by the Company as the lender. If interest is not paid on the due date it is rolled over and capitalised.
The expected credit loss provision calculated on amounts due from other Group companies was negligible in the current and prior year
due to the high credit quality of the counterparties and short time until expected receipt. As a result no provision has been recognised.
7. Issued equity
As at 31 December
2023
£000
2022
£000
Issued and fully paid:
424,923,406 (2022: 414,872,491) ordinary shares of 11
16
⁄29 pence each 49,086 47,925
The movement in allotted and fully paid share capital of the Company during the year was as follows:
Year ended 31 December
2023
(number)
2022
(number)
At 1 January 414,872,491 413,068,027
Issued under employee share schemes 10,050,915 1,804,464
At 31 December 424,923,406 414,872,491
The Company has only one class of shares, which are ordinary shares of 11
16
⁄29 pence each, carrying no right to fixed income. No
shareholders have waived their rights to dividends. During the year, shares were issued in satisfaction of options vesting in accordance
with the rules of the Company’s employee share schemes.
The total cash received, split between the nominal value of issued equity and share premium, is shown in the Company statement
ofchanges in equity on page 276.
Full details of share options outstanding are included in note 6.2 to the Consolidated financial statements.
5. Fixed asset investments continued
Section 8: Reference information continued
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Financial statements
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8. Dividends
Pence per share
Year ended 31 December
2023
£m
2022
£m
Amounts recognised as distributions to equity holders in the year (based on the number
of shares outstanding at the record date):
Interim dividend for the year ended 31 December 2023 paid on 3 October 2023 9.2 35.7 –
Final dividend for the year ended 31 December 2022 paid on 16 May 2023 12.6 50.6 –
Interim dividend for the year ended 31 December 2022 paid on 7 October 2022 8.4 – 33.7
Final dividend for the year ended 31 December 2021 paid on 13 May 2022 11.3 – 45.2
Total distributions 86.3 78.9
At the forthcoming Annual General Meeting the Board will recommend to shareholders that a resolution is passed to approve payment
of a final dividend for the year ended 31 December 2023 of 13.9 pence per share (equivalent to approximately £53.5 million) payable
on17 May 2024. The final dividend has not been included as a liability as at 31 December 2023.
9. Distributable reserves
The Company considers its distributable reserves to be comprised of the retained profits, less credits to equity in respect of share
schemes, less treasury shares. Accordingly, the Company considers itself to have sufficient distributable profits from which to pay
thecurrent proposed final dividend for 2023 of approximately £50 million. Based on a total dividend for 2023 of approximately
£89.2 million, the Company has sufficient distributable reserves to pay two years of dividend at the current level without generating
further distributable profits. In addition to its own reserves, the Company has access to the distributable reserves of its subsidiary
undertakings with which future dividend payments can be funded.
The Company is dependent upon its subsidiaries for the provision of cash with which to make dividend payments. The Group has
sufficient cash resources with which to meet the proposed dividend (see note 4.1 to the Consolidated financial statements for
additional information).
10. Guarantees
The Company has provided guarantees over the liabilities of its subsidiaries that have taken advantage of the audit exemption available
in section 479A of the Companies Act 2006. The list of subsidiaries who have taken this exemption can be found in note 5.
The possibility of an economic outow in relation to the above guarantees is considered remote.
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Financial statements
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Shareholder information
Key dates for 2024
At the date of publication of this document, the following are the proposed key dates in the 2024 financial calendar:
Ordinary shares marked ex-dividend 18 April
Record date for entitlement to the final dividend 19 April
Annual General Meeting 25 April
Payment of final dividend 17 May
Financial half year end 30 June
Announcement of half year results 26 July
Financial year end 31 December
Other significant dates, or amendments to the proposed dates above, will be posted on the Group’s website www.drax.com
as and when they become available.
Results announcements
Results announcements are issued to the London Stock Exchange and are available on its news service. Shortly afterwards,
theyareavailable under Regulatory News within the Investors section on the Group’s website.
Share price
Shareholders can access the current share price of Drax Group plc ordinary shares on the Company’s website. During London Stock
Exchange trading hours the price shown on the website is subject to a delay of approximately 15 minutes and outside trading hours
it is the last available price.
The table below provides an indication of the uctuations in the Drax Group plc share price during the course of 2023, and the graph
provides an indication of the trend of the share price throughout the year.
Closing price on
31 December 2022
Low during the year
4 October 2023
High during the year
16 February 2023
Closing price on
31 December 2023
703.0 pence 401.5 pence 681.5 pence 489.7 pence
January
2023
February
2023
March
2023
April
2023
May
2023
June
2023
July
2023
August
2023
September
2023
October
2023
November
2023
December
2023
0m
16m
20m
4m
8m
12m
0
100
300
500
700
200
400
600
900
800
Share price chart
Share price (GBX)
Trade Volume
Note:
The share prices given are the middle market closing prices as derived from the London Stock Exchange Daily Official List.
Market capitalisation
The market capitalisation, based on the number of shares in issue and the closing price at 31 December 2023, was approximately
£2,081 million (2022: £2,916 million).
Financial reports
Copies of all financial reports published by the Group are available from the date of publication and can be downloaded from the
Company’s website. Printed copies of reports can be requested by writing to the Company Secretary at the registered office,
by clicking on Contact Us on the website, or direct by e-mail to Drax.Enq@drax.com.
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Shareholder information
Contents

Drax shareholder queries
The Company’s share register is maintained by Equiniti Limited (Equiniti), who are primarily responsible for updating the share register
and for dividend payments.
Shareholders should contact Equiniti directly if they have a query relating to their Drax shareholding, in particular queries regarding:
• transfer of shares;
• change of name or address;
• lost share certificates;
• lost or out-of-date dividend cheques;
• payment of dividends direct to a bank or building society account; and
• death of a registered shareholder.
Equiniti can be contacted as follows:
• Call Equiniti on 0371 384 2030 from within the UK. Lines are open from 8.30am to 5.30pm, Monday to Friday,
(excluding Bank Holidays) or +44 371 384 2030 from outside the UK.
• Write to Equiniti at Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA.
When contacting Equiniti by telephone or in writing it is advisable to have your shareholder reference to hand and quote DraxGroup
plc, as well as the name and address in which the shares are held.
Online communications
Registering for online communications allows you to have more control over the administration of your shareholding.
The registration process is easy via Equiniti’s secure website www.shareview.co.uk.
Once registered with Shareview you are able to:
• elect how Drax communicates with you;
• amend some of your personal details;
• amend the way you receive dividends; and
• buy or sell shares online.
Registering for electronic communications does not mean that you can no longer receive paper copies of documents. Equiniti are able
to offer a range of services and tailor the communications to meet your needs.
A range of frequently asked shareholder questions can also be found on the Company’s website at www.drax.com/investors/investor-
resources/equity-investors-faq/.
Tax on dividends
Below is a brief summary of the guidance provided by HMRC as it relates to the current tax year. If you are in any doubt as to the
impact on your personal circumstances, you are recommended to seek your own financial advice from a professional adviser
authorised under the Financial Services and Markets Act 2000.
There is a tax-free Dividend Allowance of £1,000 per annum in the 2023–2024 tax year (2022–2023: £2,000) This means that there
is no tax to pay on the first £1,000 of dividend income, no matter what non-dividend income a shareholder may have. Dividends paid
on shares held within pensions and ISAs are tax-free.
Non-taxpayers and basic rate taxpayers who receive dividend income of more than £2,001 but less than £10,000 are required to notify
HMRC that they have this source of income.
Non-taxpayers and basic rate taxpayers who receive dividend income of more than £10,001 are required to file a self-assessment
return with HMRC.
The above requirements apply to Share Incentive Plan participants receiving cash dividends on their plan shares.
Further information and updates on tax on dividends can be found on the Gov.UK website at www.gov.uk/tax-on-dividends
Beneficial owners and information rights
If your shares are registered in the name of a third party (i.e. an ISA provider or other nominee company) you may, if you wish, receive
information rights under Section 146 of the Companies Act 2006. In order for this to happen, you must contact the third-party
registered holder, who will then nominate you. All communications by beneficial owners of shares where the shares are held by
third-party registered holders must be directed to that registered holder and not to Drax or Equiniti.
ShareGift
ShareGift (registered charity No. 1052686) is an independent charity which provides a free service for shareholders wishing
to dispose charitably of small parcels of shares, which would most likely cost more to sell than they are worth. There are no capital
gains tax implications (i.e. no gain or loss) on gifts of shares to charity and it is possible to obtain income tax relief. Further information
can be obtained directly from the charity at www.sharegift.org.
Drax Group plc
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Share frauds (boiler room scams)
In recent years, many companies have become aware that their shareholders have received unsolicited phone calls or correspondence
offering to purchase their shares at apparently inated prices. It is often the case that the caller, or message in thecorrespondence,
claims that they represent a majority shareholder who is looking to take over the Company. At the time of this report, the Company
was not the subject of a take-over attempt, hostile or otherwise, and approaches such as those outlined are usually made
byunauthorised companies and individuals. Shareholders should be very wary of any unsolicited advice, offers to buyshares
atapremium or offers of free reports into the Company. Below is the advice from the Financial Conduct Authority (FCA).
Beware of share fraud
Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that turn out
to be worthless or non-existent, or to buy shares at an inated price in return for upfront payment. While high profits are promised,
if you buy or sell shares in this way you will probably lose your money.
How to avoid share fraud:
• Keep in mind that firms authorised by the FCA are unlikely to contact you out of the blue with an offer to buy or sell shares.
• Do not get into a conversation, note the name of the person and firm contacting you and then end the call.
• Check the Financial Services Register from www.fca.org.uk to see if the person and firm contacting you is authorised by the FCA.
• Beware of fraudsters claiming to be from an authorised firm, copying its website or giving you false contact details.
• Use the firm’s contact details listed on the Register if you want to call them back.
• Call the FCA on 0800 111 6768 if the firm does not have contact details on the Register or you are told they are out of date.
• Search the list of unauthorised firms to avoid at www.fca.org.uk/scams.
• Consider that if you buy or sell shares from an unauthorised firm you will not have access to the Financial Ombudsman Service
or Financial Services Compensation Scheme.
• Think about getting independent financial and professional advice before you hand over any money.
Remember, if it sounds too good to be true, it probably is!
Report a scam
If you are approached by fraudsters please tell the FCA using the share fraud reporting form at www.fca.org.uk/scams,
where you can find out more about investment scams.
You can also call the FCA Consumer Helpline on 0800 111 6768.
If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.
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The Alternative performance measures (APMs) described below are used throughout the Annual report and accounts and are
measures that are not defined within IFRS but provide additional information about financial performance and position that is used
bythe Board to evaluate the Group’s trading performance. These APMs have been defined internally and may therefore not be
comparable to APMs presented by other companies. Additionally, certain information presented is derived from amounts calculated
inaccordance with IFRS but is not itself a measure defined under IFRS. Such measures should not be viewed in isolation or as an
alternative to the equivalent IFRS measure.
APM
Closest IFRS
equivalent measure Purpose Definition
Adjusted results Total results The Group’s Adjusted results are consistent with
the way the Board and Executive management
assess the performance of the Group. Adjusted
results are intended to reect the underlying
trading performance of the Group’s businesses
and are presented to assist users of the
Consolidated financial statements in evaluating
the Group’s trading performance and
performance against strategic objectives on a
consistent basis.
Adjusted results excludes exceptional items and
certain remeasurements.
Exceptional items are those transactions that,
bytheir nature, do not reect the trading
performance of the Group in the period.
Certain remeasurements comprise fair value
gains and losses that do not qualify for hedge
accounting (or hedge accounting is not effective).
The Group regards all of its forward contracting
activity to represent economic hedges and
therefore by excluding the volatility caused by
recognising fair value gains and losses prior to
maturity of the contracts, the Group can reect
these contracts at the contracted prices on
maturity, reecting the intended purpose of
entering these contracts and the Group’s
underlying performance.
Adjusted results are the metrics used in the
calculation of Adjusted basic EPS and Adjusted
diluted EPS.
Total results measured in accordance with IFRS
excluding the impact of exceptional items and
certain remeasurements. Exceptional items and
certain remeasurements are defined in note 2.7.
Adjusted EBITDA
including EGL
and
Adjusted EBITDA
excluding EGL
Operating profit
(1)
Adjusted EBITDA including EGL is the primary
measure used by the Board and Executive
management to assess the financial performance
of the Group as it provides a more comparable
assessment of the Group’s year-on-year trading
performance. It is also a key metric used by the
investor community to assess the performance
ofthe Group’s operations.
The Group presents Adjusted EBITDA excluding
EGL to enable readers to compare, on a
consistent basis, the Adjusted EBITDA in prior
periods in which EGL was not applicable.
Earnings before interest, tax, depreciation,
amortisation, other gains and losses and
impairment of non-current assets, excluding
theimpact of exceptional items and certain
remeasurements (defined in note 2.7).
Adjusted EBITDA including EGL includes the cost
of EGL and excludes any earnings from associates
or attributable to non-controlling interests.
Adjusted EBITDA excluding EGL is consistent with
the definition of Adjusted EBITDA including EGL,
apart from it does not include the cost of EGL.
Adjusted
basic EPS
Basic EPS Adjusted basic EPS represents the amount of
Adjusted earnings (Adjusted post-tax earnings)
attributable to each ordinary share.
Adjusted basic EPS is calculated by dividing the
Group’s Adjusted earnings attributable to owners
of the parent company (Adjusted profit after tax)
by the weighted average number of shares
outstanding during the period.
Adjusted
diluted EPS
Diluted EPS Adjusted diluted EPS demonstrates the impact
upon the Adjusted basic EPS if all outstanding
share options, that are expected to vest on their
future maturity dates and where the shares are
considered to be dilutive, were exercised and
treated as ordinary shares as at the reporting date.
Adjusted diluted EPS is calculated by dividing the
Group’s Adjusted earnings attributable to owners
of the parent company (Adjusted profit after tax)
by the weighted average number of shares
outstanding during the period and dilutive
potential ordinary shares outstanding under
shareplans.
Alternative performance measures (APMs) glossary table
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APM
Closest IFRS
equivalent measure Purpose Definition
Borrowings n/a
(2)
Borrowings provide information relating to the
Group’s use of debt. It is a key measure of
leverage and provides information on the sources
of liquidity for the Group.
Borrowings include drawn debt facilities including
bonds, term loans, revolving credit facilities
(RCFs) (to the extent drawn in cash) and other
drawn debt facilities available for general use.
Borrowings does not include other financial
liabilities such as lease liabilities calculated in
accordance with IFRS 16 (see note 3.2), pension
obligations (see note 6.3) and trade and other
payables (see note 3.7). Borrowings do not
include working capital facilities that are linked
tospecific payables and give an extension in
payment terms of less than 12 months such as
supply chain finance, deferred letters of credit,
credit cards and factoring facilities.
Net debt Borrowings less
cash and cash
equivalents
Net debt is a key measure of the Group’s liquidity
and its ability to manage current obligations.
Net debt is used as a basis by debt rating agencies
to assess credit risk, and in the calculation of the
Group’s financial covenant requirements.
The impact of hedging instruments included
within Net debt shows the economic substance
of the Net debt position, in terms of actual
expected future cash ows to settle that debt.
Borrowings (as defined above) including the
impact of hedging instruments less cash and
cashequivalents.
Net debt excludes the proportion of cash and
borrowings in non-wholly owned entities that
would be attributable to the non-controlling
interests.
Net debt includes the impact of foreign currency
hedging instruments, meaning that any
borrowings that have associated hedging
instruments in place are adjusted to reect those
borrowings at the hedged rate.
Net debt includes the impact of any cash
collateral receipts from counterparties or
cashcollateral posted to counterparties.
Net debt to
Adjusted EBITDA
including EGL ratio
and
Net debt to
Adjusted EBITDA
excluding EGL ratio
Borrowings less
cash and cash
equivalents
divided by
operating profit
(1)
The Net debt to Adjusted EBITDA including EGL
ratio is a debt ratio that gives an indication of
howmany years it would take the Group to pay
back its debt if Net debt and Adjusted EBITDA
including EGL are held constant.
The Group has a long-term target for Net debt
toAdjusted EBITDA including EGL of around
2.0times.
The Group presents a Net debt to Adjusted
EBITDA excluding EGL ratio to enable readers to
compare, on a consistent basis, the Net debt ratio
in prior periods in which EGL was not applicable.
Net debt divided by Adjusted EBITDA including/
excluding EGL. Expressed as a multiple.
Cash and
committed
facilities
Cash and cash
equivalents
This is a key measure of the Group’s
availableliquidity and the Group’s ability
tomanage its current obligations.
It shows the value of cash available totheGroup
in a short period of time.
Total cash and cash equivalents plus the value
ofthe Group’s committed but undrawn facilities
(including the Group’s RCFs, loan facilities and
theCustomers non-recourse trade receivables
monetisation facility).
Capital
expenditure
Property, plant
and equipment
(PPE) additions
and intangible
asset additions
Used to show the Group’s total spend onPPEand
intangible assets in a year.
PPE additions plus intangible asset additions.
(1) Operating profit is presented on the Group’s Consolidated income statement; however, it is not defined per IFRS. It is a generally accepted measure of profit.
(2) Borrowings are presented in the Group’s Consolidated balance sheet; they are a commonly used balance sheet line item heading however borrowings are not defined
byIFRS, therefore the Group’s borrowings may not be comparable to borrowings presented by other companies.
Shareholder information continued
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Glossary
Ancillary services
Services provided to National Grid used for balancing supply
anddemand or maintaining secure electricity supplies within
acceptable limits, for example Black start contracts. They are
described in Connection Condition 8 of the Grid Code.
Availability
Average percentage of time the units were available
for generation.
BECCS
Bioenergy with carbon capture and storage, with carbon
resulting from power generation captured and stored.
Black start
Procedure used to restore power in the event of a total or partial
shutdown of the national electricity transmission system.
Biogenic carbon cycle
Biogenic refers to something that is produced by, or originates
from, a living organism. The biogenic carbon cycle is the natural
process of plants and animals releasing CO
2
into the atmosphere
through respiration and decomposition, and plants absorbing CO
2
via photosynthesis.
Biomass
Organic material of non-fossil origin, including organic waste,
thatcan be converted into bioenergy through combustion.
TheGroup uses sawmill and other wood industry residues and
forest residuals (which includes low grade roundwood, thinnings,
branches and tops) in the form of compressed wood pellets,
togenerate electricity at Drax Power station or sell the pellets
tothird parties.
Capacity Market
Part of the UK Government’s Electricity Market Reform, the
Capacity Market is intended to ensure security of electricity
supply by providing a payment for reliable sources of capacity.
Carbon capture and storage (CCS)
The process of trapping or collecting carbon emissions from
a large-scale source and then permanently storing them.
CCC
The UK’s Climate Change Committee.
Contracts for Difference (CfD)
A mechanism to support investment in low-carbon electricity
generation. The CfD works by stabilising revenues for generators
at a fixed price level known as the ‘strike price’. Generators will
receive revenue from selling their electricity into the market as
usual, however, when the market reference price is below the
strike price, they also receive a top-up payment for the additional
amount. Conversely, if the reference price is above the strike
price, the generator must pay back the difference.
Combined Cycle Gas Turbines (CCGT)
A form of highly efficient energy generation technology that
combines a gas-fired turbine with a steam turbine.
Department for Energy Security and Net Zero (DESNZ)
The UK Government Department provides dedicated leadership
focused on delivering security of energy supply, ensuring properly
functioning markets, greater energy efficiency and seizing the
opportunities of net zero to lead the world in new green industries.
Dispatchable power
An electricity generator produces dispatchable power when
thepower can be ramped up and down, or switched on or off,
atshort notice to provide (or dispatch) a exible response to
changes inelectricity demand. Biomass, pumped storage, coal,
oil, and gaselectricity generation can meet these criteria and
hence canbe dispatchable power sources. Nuclear can be
dispatched against an agreed schedule but is not exible.
Windand solar electricity cannot be scheduled and hence
arenotDispatchable. An electricity system requires sufficient
dispatchable power tooperate and remain safe.
EBDS
The UK Government’s Energy Bill Discount Scheme.
EBRS
The UK Government’s Energy Bill Relief Scheme.
ESG
Environmental, Social and Governance.
First Nations
Any of the groups of indigenous peoples in Canada.
Forced outage/Unplanned outage
Any reduction in plant availability, excluding planned outages.
FSC
®
Forest Stewardship Council: an international non-governmental
organisation which promotes responsible management of the
world’s forests.
Frequency response
The automatic change in generation output, or in demand,
tomaintain a system frequency of 50Hz.
GHG
Greenhouse Gas.
Grid charges
Includes transmission network use of system charges (TNUoS),
balancing services use of system charges (BSUoS) and
distribution use of system charges (DUoS).
IAB
Independent Advisory Board, comprising scientists, academics,
and forestry experts who provide independent challenge, insight
and advice into the Group’s activities.
IFRS
International Financial Reporting Standards.
Lost Time Incident Rate (LTIR)
The frequency rate is calculated on the following basis:
(fatalitiesand lost time injuries)/hours worked x 100,000.
Losttime injuries are defined as occurrences where the injured
party is absent from work for more than 24 hours.
NGO
Non-governmental organisation.
Near Miss and Hazard Identification Rate (NMHIR)
The total number of Near Miss and hazard identification reports
logged per 100,000 hours worked. Total includes both employees
and contractors.
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Open Cycle Gas Turbine (OCGT)
A free-standing gas turbine, using compressed air,
togenerateelectricity.
Planned outage
A period during which scheduled maintenance is executed
according to the plan set at the outset of the year.
PEFC
Programme for the Endorsement of Forest Certification: an
independent, non-profit, non-governmental organisation that
promotes sustainable forest management through independent
third-party certification.
Pulp wood
A low value and bulky product, generally produced from
thetopof trees or from production thinnings, with the principal
use of making wood pulp for paper production.
Rebasing
Rebasing is when the Group releases cash from an open
derivative contract that is in a mark-to-market asset position by
modifying the rate per the contract. A cash payment equivalent
to the reduction in the mark-to-market asset is received by the
Group from the counterparty, less any applicable fees.
Reserve
Generation or demand available to be dispatched by the
SystemOperator to correct a generation/demand imbalance,
normally attwo or more minutes’ notice.
Response
Automatic change in generator output aimed at maintaining
asystem frequency of 50Hz. Frequency response is required
inevery second of the day.
ROC
A Renewable Obligation Certificate (ROC) is a certificate issued
toan accredited generator for electricity generated from eligible
renewable sources.
Sawlog
A felled tree trunk suitable for being processed at a sawmill
forcutting up into lumber.
SBP
Sustainable Biomass Program: a certification system designed
forwoody biomass used in industrial energy production.
Summer
The calendar months April to September.
Sustainable biomass
Biomass which complies with the definition of “sustainable
source”, Schedule 3, LandCriteria, UK Renewables Obligation
Order 2015.
System operator
National Grid Electricity Transmission. Responsible for the
co-ordination of electricity ows onto and over the transmission
system, balancing generation supply and user demand.
TCFD
Task Force on Climate-related Financial Disclosures.
Thinning
Thinning operations correct overcrowding, and improve the
health and vigour of those trees which remain. Thinning targets
small, malformed, and diseased trees for removal, allowing the
healthier trees the space, light, and soil to reach maturity sooner.
Thinning also mitigates the risk of pest infestation and wildfire,
while speeding the development of a more mature forest with
increased plant diversity.
Total recordable incident rate (TRIR)
The frequency rate is calculated on the following basis:
(fatalities,lost time injuries and worse than first aid injuries)/hours
worked x 100,000.
Total results
Financial performance measures prefixed with ‘Total’
arecalculated in accordance with IFRS.
UK ETS
The UK Emissions Trading Scheme is a mechanism introduced
across the UK to reduce carbon emissions; the scheme is capable
of being extended to cover all greenhouse gas emissions.
Winter
The calendar months October to March.
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Cautionary note regarding forward looking statements
This Annual Report and Accounts may contain certain statements, expectations,
statistics, projections and other information that are, or may be, forward-looking.
The accuracy and completeness of all such statements, including, without limitation,
statements regarding the future financial position, strategy, projected costs, plans,
beliefs, andobjectives for the management of future operations of Drax Group plc
(“Drax”) and its subsidiaries (the “Group”), are not warranted or guaranteed. By their
nature, forward-looking statements involve risk and uncertainty because they relate
to events and depend on circumstances that may occur in the future. Although Drax
believes that the statements, expectations, statistics and projections and other
information reected in such statements are reasonable, they reect the Company’s
current view and no assurance can be given that they will prove to be correct.
Suchevents and statements involve risks and uncertainties. Actual results and
outcomes may differ materially from those expressed or implied by those
forward-looking statements. There are a number of factors, many of which are
beyond the control of the Group, which could cause actual results and developments
to differ materially from those expressed or implied by such forward-looking
statements. These include, but are not limited to, factors such as: future revenues
being lower than expected; increasing competitive pressures in the industry;
uncertainty as to future investment and support achieved in enabling the realisation
of strategic aims and objectives; and/or general economic conditions or conditions
affecting the relevant industry, both domestically and internationally, being less
favourable than expected, including the impact of prevailing economic and political
uncertainty, the impact of strikes, the impact of adverse weather conditions or
events such as wildfires. We do not intend to publicly update or revise these
projections or other forward-looking statements to reect events or circumstances
after the date hereof, and we do not assume any responsibility for doing so.
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Design and production
Company information Professional advisers and service providers
Drax Group plc
Registered office and trading address
Drax Power Station, Selby,
North Yorkshire YO8 8PH
United Kingdom
T +44 (0)1757 618381
www.drax.com
Registration details
Registered in England and Wales
Company Number: 5562053
Group Company Secretary
Brett Gladden
Enquiry e-mail address
Drax.Enq@drax.com
Auditor
Deloitte LLP
2 New Street Square,
London EC4A 3BZ
Bankers
Barclays Bank PLC
1 Churchill Place, Canary Wharf,
LondonE14 5HP
Brokers
Royal Bank of Canada
100 Bishopsgate,
London EC2N 4AA
J.P. Morgan Cazenove
25 Bank Street, Canary Wharf,
London E14 5JP
Financial PR
FTI Consulting LLP
200 Aldersgate, Aldersgate Street,
London EC1A 4HD
Registrars
Equiniti Limited
Aspect House, Spencer Road, Lancing,
West Sussex BN99 6DA
Remuneration advisers
Korn Ferry
Ryder Court, 14 Ryder Street,
London SW1Y 6QB
Solicitors
Slaughter and May
One Bunhill Row,
London EC1Y 8YY
Drax Group plc
Annual report and accounts 2023
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Shareholder information
Contents

Drax Group plc Annual report and accounts 2023
Drax Group plc
Drax Power Station,
Selby,
North Yorkshire
YO8 8PH
T +44(0)1757 618381
www.drax.com