Drax Group has confirmed it will not take part in the UK Government’s first phase of the cap and floor scheme for long-duration energy storage for its proposed Cruachan II pumped storage expansion, citing uncertainty over capital recovery.
The company, which operates a portfolio of flexible and renewable generation assets including hydro and pumped storage, provided a trading update last week alongside its AGM. The report shows continued strong performance across its FlexGen, pellet production, and biomass generation businesses.
Cruachan II – a planned 600MW expansion of the existing Cruachan pumped storage facility – has completed its initial design and engineering phase. However, the cost of the project has increased, and Drax has indicated the current cap and floor mechanism does not provide a sufficiently clear path for return on investment.
“The projected cost of Cruachan II has risen over the past two years, whilst at the same time the recoverability of all capital invested in the project remains unclear. Therefore, Drax will not participate in this first phase of the cap and floor scheme but will retain the option for potential future development, subject to an appropriate balance of risk and return,” the company said.
Despite this, Drax continues to invest in its existing pumped storage and hydro assets. An £80 million refurbishment and upgrade programme at the original Cruachan Power Station is ongoing. Units 3 and 4 are undergoing a planned outage throughout 2025, and the project is expected to deliver an additional 40MW of capacity by 2027. The work is supported by a 15-year Capacity Market agreement valued at over £220 million, or approximately £15 million in adjusted EBITDA annually.
Units 1 and 2 are also scheduled for planned transformer upgrade outages this year.
Drax maintains that long-term trends – including the retirement of older thermal plants, growing power demand, and increasing reliance on intermittent renewables – will reinforce the strategic value of flexible generation and energy storage.
“We are working to create value and growth in the short, medium and long-term, aligned to the UK’s energy needs and underpinned by a strong balance sheet and cash generation,” said CEO Will Gardiner. “The UK’s target for a clean power system and increase in intermittent renewables means more dispatchable and reliable generation will be required to help keep the lights on when the wind isn’t blowing or the sun isn’t shining.”
The company expects full-year 2025 adjusted EBITDA to come in at the upper end of analyst consensus, assuming continued good operational performance.
Drax has also confirmed that its £300 million share buyback programme is progressing, with around £207 million completed to date.
