Drax Shares Soar to 20-Year Highs on Strong 2025 Earnings
Drax Group, the owner of the Yorkshire power plant, has seen its shares climb to their highest levels in two decades following the announcement of better-than-expected full-year earnings for 2025. The company reported earnings of £947 million and raised shareholder dividends by 11.5%, boosting its market value to approximately £3 billion.
Ending Canadian Wood Pellet Imports
In a significant move, Drax has begun reducing its use of controversial Canadian wood pellets and will cease burning trees from British Columbia entirely within the next year. This decision is linked to Ottawa's imposition of tariffs on biomass exports, according to the company. The Canadian pellet production plants, which once supplied millions of tonnes of biomass to the North Yorkshire plant, cost Drax nearly £200 million in financial impairments last year and now face a challenging outlook.
The shift comes amid growing scrutiny of the sustainability of Drax's Canadian supply chain. Environmentalists have raised concerns, with claims that the company may have burned wood from some of British Columbia's most environmentally important forests, including 250-year-old trees, as recently as last summer. Drax has denied these allegations, stating that its sourcing policy avoids designated old-growth areas and uses only well-managed, sustainable forests.
Subsidy and Sustainability Controversies
Britain's largest power plant has received over £7 billion in subsidies from household energy bills, contingent on using biomass pellets made from waste or low-value wood from sustainable sources. However, its sustainability credentials were first questioned in a 2022 BBC documentary, which Drax dismissed as inaccurate and ill-informed. A former top lobbyist later claimed in an employment tribunal that she was fired after warning Drax's CEO that the company's denials were misleading the public, government, and regulators.
The UK government is now moving to curtail subsidies by offering a new contract for 2027 to 2031, supporting limited biomass generation at a set price. Drax has proposed generating extra electricity for AI datacentres on its North Yorkshire site. Originally, the subsidy extension was intended as a bridging mechanism before carbon capture technology implementation, but Drax has paused these plans due to a lack of government certainty, resulting in a £48 million impairment.
Future Directions and Market Impact
Despite the writedowns and controversies, Drax's shares have surged, reflecting investor confidence in its financial performance. The company may continue producing pellets in Canada for export to third-party buyers, primarily in Asia. This strategic shift highlights the ongoing tensions between energy production, environmental sustainability, and economic factors in the biomass sector.
