Press Release

Drax revises terms with Iberdrola for UK power generation portfolio

Drax revises terms with Iberdrola for UK power generation portfolio StockMarketWire.com - Drax said Monday it had reached agreement with Iberdrola on revised terms for the acquisition of Scottish Power's portfolio of pumped storage, hydro and gas-fired generation at the previously agreed price of £702m in cash.

Drax and Iberdrola agreed a risk sharing mechanism in respect of capacity payments for the period 1 January 2019 to 30 September 2019, worth £36m.

The revised terms were designed to mitigate the risk to 2019 capacity payments, which make a significant share proportion of the earnings of the portfolio, arising from the recent suspension of the Capacity Market, Drax said.

For the period from 1 January 2019 to 30 September 2022, the Cruachan pumped storage hydro asset had contracted capacity payments of £29m, the Galloway run-of-river hydro assets had contracted capacity payments of £5m, and the Combined Cycle Gas Turbine assets had contracted capacity payments of £122m in aggregate.

Under the revised terms, If less than 100% of the payments were received and the 2019 gross profit of the portfolio comes in below £155m then Iberdrola would make a payment of up to £26m to Drax. Drax would make a payment to Iberdrola if the 2019 gross profit exceeded £165m.

The payment to Drax would be an amount equal to 72% of any amount by which the 2019 gross profit exceeds £165m. The payment to Iberdrola would be an amount equal to 72% of any shortfall in the 2019 gross profit below £155m, the company said. The acquired portfolio was expected, based on recent power and commodity prices, to generate earnings (EBITDA) in a range of £90m to £110m, from gross profits of £155m to £175m.

If the contracted capacity payments payable in 2019 were not received or accrued in 2019, the expected earnings (EBITDA) for the portfolio in 2019 would be reduced by up to £47m to a range of £43m to £63m, Drax said. Story provided by StockMarketWire.com