Drax’s 2025 trading update: top-end EBITDA and a bigger growth canvas
Drax has delivered a strong second half and now expects 2025 Adjusted EBITDA to land around the top end of consensus. For context, analyst consensus as of 4 December was £902 million, with a range of £892-£909 million. That’s a solid finish in a choppy power market and underlines the earnings power of FlexGen, pellet production and biomass generation.
The headline strategy is unchanged: maximise cash from the existing fleet and deploy selectively into flexible, renewable energy and – intriguingly – data centres at the Drax Power Station site. Management is targeting around £3 billion of free cash flow over 2025-2031, supporting more than £1 billion in shareholder returns and up to roughly £2 billion for growth.
Key numbers at a glance
| Metric | Detail |
|---|---|
| 2025 Adj. EBITDA | Around the top end of consensus (£892-£909 million) |
| Post-2027 Adj. EBITDA target | £600-700 million per year (before development expenditure) |
| Free cash flow (2025-2031) | c.£3 billion (pre-dividend) |
| Capital returns | >£1 billion (2025-2031), including a £450 million three-year buyback and growing dividend |
| Growth capital | Up to c.£2 billion into flexible, renewable energy and Drax site options |
| Buybacks in 2025 (to 9 Dec) | c.33 million shares for c.£216 million; interim dividend 11.6p per share (c.£40 million) |
| Contracted forward power sales | c.£2.3 billion between 2025 and Q1 2027; RO fully hedged for 2025 and 2026 with over £1 billion of associated ROCs |
| Capacity Market at Cruachan | 15-year agreements worth over £220 million (~£15 million Adj. EBITDA per year) |
| BESS acquisition | 260MW across three projects for £157.2 million (staged 2025-2028) |
| Biomass CfD (2027-2031) | c.6TWh per year, strike price £109.90/MWh (2012 real), c.30% of baseload output |
What’s driving the beat: FlexGen, biomass and hedging
“FlexGen” is Drax’s flexible generation portfolio – pumped storage, hydro, soon-to-be-operational open cycle gas turbines (OCGTs), and an Energy Solutions business. This piece of the puzzle is growing in importance as intermittent renewables rise and system volatility creates more value for fast, dispatchable assets.
Adjusted EBITDA includes the Electricity Generator Levy (EGL), and the company still expects to reach £600-700 million per year post-2027, before development spend. That’s underpinned by disciplined cost control and a new low-carbon, dispatchable Contract for Difference (CfD) agreement on the power station from April 2027, which stabilises a chunk of earnings while retaining some merchant upside.
Contracted power sales and hedges underpin visibility
As at 9 December 2025, Drax had roughly £2.3 billion of contracted forward sales through to Q1 2027 for RO biomass, pumped storage and hydro. RO generation is fully hedged for 2025 and 2026, with over £1 billion of associated Renewables Obligation Certificates (ROCs). That’s robust coverage and reduces earnings volatility.
| 2025 | 2026 | 2027 | Total | |
|---|---|---|---|---|
| Net RO, hydro and gas (TWh) | 10.7 | 10.9 | 2.2 | 23.7 |
| Average achieved £/MWh | 117.1 | 76.7 | 79.4 | 95.1 |
| CfD (TWh) | 4.8 | 1.8 | – | 6.5 |
Jargon check: CfD is a UK support scheme that sets a fixed “strike price” for low-carbon generators – if market prices are lower, the scheme tops up; if higher, generators pay back. It smooths revenues. ROCs are certificates earned by renewable generators under the older Renewables Obligation scheme.
Capital returns: buybacks and dividend
Drax completed a £300 million buyback and launched a £450 million three-year programme, with £216 million spent year-to-date on c.33 million shares. An interim dividend of 11.6p per share (c.£40 million) was paid in October. With >£1 billion earmarked for returns through 2031, capital discipline is front and centre.
2027-2031 roadmap: £3 billion free cash flow and how it’s used
Drax is targeting c.£3 billion of free cash flow over 2025-2031 (pre-dividend), factoring in post-2027 Adj. EBITDA, a c.£0.5 billion working capital inflow from the end of the RO scheme, maintenance capex, interest, taxes and EGL. The capital ranking is straightforward: sustainable and growing dividends, buybacks, then growth where risk-adjusted returns stack up.
In plain terms: the legacy assets fund the next leg – flexible power and site-led opportunities that match where the UK grid is heading.
FlexGen growth options: pumped storage, OCGT and big batteries
Cruachan upgrade and Capacity Market cash flows
At Cruachan, an £80 million refurbishment of two units is underway with planned outages through 2025. It adds 40MW by 2027 and improves reliability. Crucially, 15-year Capacity Market agreements worth over £220 million (about £15 million Adj. EBITDA per year) underpin this investment. The Capacity Market pays providers to guarantee availability at peak times – helpful, bankable revenue.
OCGTs retained despite delays
Drax will retain its three OCGT plants within FlexGen. OCGTs are fast-start gas turbines used for grid balancing. The first, Hirwaun Power, should come under Drax’s commercial control in Q1 2026 and is already commissioning and receiving Capacity Market payments. The other two are expected to commence commissioning in 2026, later than planned due to grid connection delays. Management remains committed to its validated Science Based Targets initiative (SBTi) pathway.
BESS pipeline and the Apatura deal
Battery Energy Storage Systems (BESS) add ultra-fast response to complement long-duration pumped storage and OCGTs. Drax is building a gigawatt-scale BESS pipeline and signed to acquire three projects totalling 260MW for £157.2 million in staged payments to 2028. Marfleet and Neilston have completed; East Kilbride is expected in 2026.
Drax also optimises c.800MW of embedded third-party renewables (c.2,000 assets) via its Energy Solutions business, giving it routes to market, floors and tolling structures – valuable capabilities as more batteries and distributed assets connect.
Drax Power Station: from power plant to energy-and-data campus
The Drax site offers over 1,000 acres, 4GW of capacity and grid access, 2.6GW of active dispatchable generation, cooling infrastructure and proximity to the UK fibre network. Management is exploring a 100MW first-phase data centre, front-of-the-meter, using existing transformers, potentially operating as soon as 2027 subject to planning.
The November CfD for c.6TWh per year of biomass from April 2027 to March 2031 has a strike price of £109.90/MWh (2012 real), equal to about 30% of baseload output. Notably, there’s a mechanism for Drax to request up to 500MW to power a data centre during the CfD term, subject to government agreement on value for money, energy security and sustainability. Longer term, Drax is assessing >1GW of data centre capacity, potentially behind-the-meter with a long-term PPA for round-the-clock renewable power. Any data centre investment will depend on full commercial due diligence and structure (including joint ventures).
Pellet production: near-term caution, long-term optionality
US pellet operations are well supported by UK demand. Canada is tougher, contributing to the decision to close the Williams Lake plant. Drax does not expect to add pellet capacity in the short to medium term and the Longview project remains paused.
Longer term, Drax still sees biomass as key to industrial decarbonisation and carbon removals via its Elimini business, and is exploring third-party sales and new markets such as Sustainable Aviation Fuel from 2030 onwards.
Why this matters for investors: positives and watch-outs
- Positives: 2025 earnings tracking to the top end; strong contracted position; clear capital returns; tangible FlexGen growth (Cruachan, OCGTs, BESS); site optionality with data centres; CfD provides earnings stability from 2027.
- Watch-outs: OCGT commissioning is delayed by grid connections; FlexGen earnings can vary with weather and renewable output; Canadian pellets challenged; data centre plans need planning consent, capital partners and government agreement for any CfD power allocation; the EGL remains a headwind included in Adj. EBITDA.
Overall, this is a confident update with improving cash visibility and more levers for growth. Execution on grid connections, Cruachan outages, BESS delivery and planning will be the near-term proof points.
Dates to note
- Full year results: Thursday 26 February 2026
- Hirwaun OCGT: Drax expects commercial control in Q1 2026
- Cruachan upgrade: additional 40MW targeted by 2027
- Potential first-phase 100MW data centre: as soon as 2027 (subject to planning)
Jargon buster: Adj. EBITDA is earnings before interest, tax, depreciation and amortisation, adjusted for items like exceptional costs and certain remeasurements. FlexGen is Drax’s flexible generation portfolio. OCGT is open cycle gas turbines. BESS is battery energy storage. CfD is Contract for Difference. ROCs are Renewables Obligation Certificates. The Capacity Market pays for availability. The EGL is the Electricity Generator Levy.
