Drax : 29 July 2020 - Half year results presentation and webcast for six months ended 30 June 2020

2020

Half Year Results

29 July 2020

Agenda

Presenters

Operational Review

Will Gardiner, CEO

Financial Review

Andy Skelton, CFO

Biomass Strategy Update

29 July 2020

2

Our Purpose

Enabling a zero carbon, lower cost energy future

Our Strategy

We will build a long-term future for sustainable biomass We will be the leading provider of power system stability We will give our customers control of their energy

Our Ambition

To be a carbon negative company by 2030

29 July 2020

3

Operational Review

29 July 2020

4

2020 Half Year Performance Highlights

Robust performance, delivering for stakeholders, progressing biomass strategy

Financial

• 30% increase in Adjusted EBITDA to £179m
• No change to estimated full year impact of Covid-19 on Adjusted EBITDA - c.£60m
• High level of contracted revenues 2020-2022
• Strong balance sheet and liquidity
• Sustainable and growing dividend - 7.5% expected increase for 2020
• Impairment of coal assets - end of commercial coal generation March 2021

Operational

• Increased biomass production, improved quality, reduced cost
• Strong Generation portfolio performance
• Increased demand for system support services

Strategic

• Investment in biomass supply chain expansion and cost reduction
• Development of BECCS technical options

29 July 2020

5

Covid-19

Supporting all stakeholders

Supporting the energy system

• Flexible, renewable and low-carbon electricity 24/7
• System support services
• Maintained fully operational international supply chain

Employees

• No furloughing
• Implemented established business continuity plan for social distancing at operational sites and work from home

Supporting customers

• Additional customer support and debt management
• Restructuring of payment plans for certain customers

Communities

• 853 laptops with pre-paid internet donated to 50 schools
• Free energy supply to 189 independent care homes
• £150K to Money Advice Trust's Business Debtline
• Charitable donations to communities in US

Shareholders

• No change to full year Adjusted EBITDA expectations
• Strong balance sheet
• Investment in growth
• Sustainable and growing dividend

29 July 2020

Customers

Supporting customers, managing impact of Covid-19, focus on underlying strength in portfolio

Principal impact of Covid-19 reflected in SME business in H1-20

• Reduction in demand
• MtM cost to exit previously hedged power contracts
• Increased bad debt provisions

Development of portfolio

• Substantial forward power sales
• New I&C supply contracts with large water utilities - five-year revenue visibility
• New SME credit thresholds introduced to drive higher quality customers

Support Group's flexible, renewable and low-carbon proposition

• Helping customers meet ESG objectives
• Providing route to market for 2,000 renewable generators
• Demand-sidemanagement - system support services
• EV fleet services opportunities

Adjusted EBITDA

£(37)m

(H1-19: £9m)

Power sales

7.3TWh

(H1-19: 8.0TWh)

Gas sales

1.5TWh

(H1-19: 1.7TWh)

Bad debt

£26m

(H1-19: £13m)

29 July 2020

7

Safety, Sustainability and ESG

Achieving a positive long-term economic, social and environment impact

Safety

• TRIR 0.32 (H1-19: 0.30) - implemented campaign to improve risk assessment, awareness and correct use of PPE

Environment

• Participant in Carbon Disclosure Project
• Development of TCFD disclosure

Social

• Covid-19- supporting colleagues, customers and communities

Governance

• CEO quarterly report to Board on ESG matters
• CDP scorecard target linking sustainability to remuneration

Positive momentum in ESG ratings

UN Sustainable Development Goals (SDGs)

• Six SDGs where Drax can have greatest impact

29 July 2020

8

Progress Towards a Carbon Negative Future

>85% reduction in Scope 1 & 2 CO2e	End of commercial coal generation in	Pioneering options for
emissions since 2012	March 2021	negative emissions by 2030

Drax Group historic CO2e & negative emissions potential (Mt)

25

20

15Potential for up to

10	16Mt of negative
emissions via BECCS
5

0

(5)

(10)

(15)

(20)

2012 2013 2014 2015 2016 2017 2018 2019

2030 2040

Scope 1 & 2 Mt CO2

European utility CO2 intensity (tCO2/GWh)

1,000							Enel
900							Engie
800							Iberdrola
700							Orsted
600							Drax
500
400
300
200
100
0
2012	2013	2014	2015	2016	2017	2018	2019

29 July 2020	Source: Bloomberg	9

Generation

UK's largest single source of renewable power and fourth largest generator

Multi-technologyUK-wide portfolio

• Sustainable biomass, hydro and gas

Strong operational performance

• High level of operational availability

Strong performance in system support market

• Flexible operation of portfolio to support power system

Hydro and gas generation

• £54m Adjusted EBITDA (H1 2019: £36m)
• Cruachan synchronous compensation contract commenced July 2020 - six-year contract, up to £5m pa

High proportion of non-commodity related earnings

• Renewables, system support and Capacity Market payments
• Strong contracted power position 2020-2022

End of commercial coal generation March 2021

Adjusted EBITDA

£214m

(H1-19: £148m)

Portfolio availability(3)

91%

(H1-19: 87%)

Gas generation

1.3TWh

(H1-19: 1.4TWh

System support(1)

£66m

(H1-19: £61m)

Biomass generation

7.4TWh

(H1-19: 6.4TWh)

Coal generation

1.0TWh

(H1-19: 0.4TWh)

• of UK renewables

11%(2)

(Q4 2018 to Q1 2019: 11%)

Hydro generation

0.3TWh

(H1-19: 0.2TWh)

CO2

0.2t/MWh

(H1-19: 0.2t/MWh)

29 July 2020

1)	Balancing mechanism, Ancillary Services and portfolio optimisation
2)	Q4 2019 to Q1 2020	10
3) Availability of each generation asset weighted by EBITDA contribution

Trading and Optimisation

Forward power sales protect from weaker merchant prices, while retaining flexibility to provide system support services

Strong contracted power sales for Generation 2020-2022

• 34TWh contracted at £51.4/MWh

Portfolio restricts exposure to lower merchant power prices post 2022

• Biomass CfD - fixed price, index-linked contract to 2027
• Biomass ROC - index-linked to 2027, power largely hedged 2020-21
• Gas - peak power and system support
• Pumped storage and hydro - system support and peak power

Covid-19 - increased demand for system support services

• Additional system balancing actions required to manage lower demand and high levels of intermittent renewables
• Wide range of system services provided by Drax portfolio

29 July 2020

Contracted Generation power position

Contracted Power at 22 July 2020	2020	2021	2022
Fixed price power sales (TWh)	17.6	11.4	4.8
At an average achieved price (£ per MWh)	53.8	49.0	48.2

System support (£m)

60

40

61	66

20	38
				20
0
	H1-17	H1-18	H1-19	H1-20	11
		Balancing mechanism, Ancillary Services & portfolio optimisation

Pellet Production

Increased production, improved quality, reduced costs

Strong operational performance

• 15% increase in production
• Improved pellet quality
• 9% reduction in cost

Programme of cost reduction and increased self-supply

• Expect to deliver $27m pa of savings by end of 2020 - a saving of $18/t (versus 2018 base)
• 0.35Mt low-cost expansion - first plant commissioning late 2020

New investment in satellite plants

Strong fibre baskets

• Actively managed commercial forestry driving increased forest stock, fibre yield and carbon abatement

29 July 2020

Adjusted EBITDA	Pellet production	Production cost
£25m	0.75Mt	$154/t(1)
(H1-19: £8m)	(H1-19: 0.65Mt)	(H1-19: $170/t)

Expanding US Gulf capacity

Operational:	Developments:
- 1.5Mt operational	-	0.35Mt expansion of existing sites
	-	0.12Mt - satellite plants

Satellite plants

Three 40Kt plants:	Low production cost:
- $40m investment	-	Utilise sawmill residues
- Potential for 500kt in US Gulf	-	Leverage on Drax infrastructure

1. • c.20% below current production cost
2. Cost of production in US biomass self-supply business - raw fibre, processing into a wood pellet, delivery to port of Baton Rouge and loading to vessel for shipment to UK and overheads - Free

on Board (FOB)	12
Cost of ocean freight, UK port and rail cost reflected in UK generation business accounts in
addition to price paid to US business for the wood pellet

Financial Review

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13

Financial Summary

Strong financial performance

	Interim Dividend	Cash Generated from	Adjusted Basic Earnings
Adjusted	6.8p/share (£27m)	Operations	Per Share(1)
(H1-19: 6.4p/share, £25m)	£226m		10.8p/share(2)
EBITDA(1)		(H1-19: £229m)	(H1-19: 2.0p/share)
£179m
Expected Full Year Dividend	Net Debt		Coal Obsolescence Charge
(H1-19: £138m)	17.1p/share (£68m)	June 2020	(3)	£224m
	(2019: 15.9p/share, £63m)	£792m		No impact on Adjusted EPS

(December 2019: £841m)

1. Adjusted results are stated after adjusting for exceptional items (including acquisition and restructuring costs, asset obsolescence charges and debt restructuring costs), and certain derivative financial instruments fair value remeasurements
2. Includes £6 million adjusted impact of UK Government's reversal of corporation tax rate reduction resulting in revaluation of deferred tax asset and increased current tax charge
3. Cash and short-term investments of £482m less borrowings of £1,274m

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14

Group Adjusted EBITDA Bridge H1-19 - H1-20

£m

19

48

6

200

7

4

17

46

100

179

138

Hydro - pumped storage

0

& run of river

H1 2019

Pellet

Drax Power

Pumped

Run of

Gas

Customers

Central

H1 2020

Group

Production

Station

Storage

River

Generation

Costs and

Group

Adjusted EBITDA

Other(1)

Adjusted EBITDA

29 July 2020

Pellet Production	Generation	Customers	Central costs and Other(1)
H1-20: £25m	H1-20: £214m	H1-20: £(37)m	H1-20: £(23)m
H1-19: £8m	H1-19: £148m	H1-19: £9m	H1-19: £(27)m	15

1) Includes innovation

Financial Impact of Covid-19

No change to estimated full year impact of Covid-19 on Adjusted EBITDA in 2020, mostly reflected in H1 2020

Pellet Production

Generation

Customers

Other

Total

Assumptions

H1-20	FY-20	Impact
Nil	Nil	- Supply chain continuing to perform well
		- Strong contracted position protects from lower power demand and prices
5	15	- Lower end user demand leading to small reduction in ROC recycle fees
- Increased system support services and higher system costs
		- Additional outage costs associated with social distancing measures
14	60	- Reduction in demand and increased third party costs
15	- MtM cost to exit previously hedged power contracts
combined
15	- Increased expectation of business failure
(5)	(15)	- Reduced opex costs
44	60

• Easing of lockdown in line with Government announced plans, continued social distancing for remainder of 2020
• Impacts continue to evolve - potential changes in Government policy, macroeconomic policy and the behaviours of individuals and markets may impact risks

29 July 2020

16

Development of Biomass Self-supply to Expand Capacity and Reduce Cost

Plans for existing capacity to reduce costs by $64m ($35/t, £13/MWh(1)) by 2022 on 1.85Mt vs. 2018 base

Savings from projects delivered

• Low-costfibre
• LaSalle - rail spur, woodyard and sawmill co-location
• Relocation of HQ from Atlanta to Monroe

Savings from projects to be delivered 2020-2022

• 0.35Mt capacity expansion - LaSalle, Amite and Morehouse
• Low-costfibre
• Improved logistics

Additional benefits from development of satellite plants

Savings versus 2018 base year	2019	2020	2021	2022
Annual savings from projects delivered to date
- Low-cost fibre, LaSalle improvements	19	8	1	1
and HQ relocation ($m)
Cumulative annual savings ($m)	19	27	28	29
Annual savings from projects to be delivered 2020-2022
- Capacity expansion, low-cost fibre, logistics			18	17
and other ($m)
Cumulative annual savings ($m)	-	-	18	35
Total cumulative annual savings ($m)	19	27	46	64
Total cumulative annual savings ($/t)	13	18	31	35

29 July 2020

1) At a constant FX rate of $1.45/£

17

Capital Investment

Investment to drive operational efficiency, strategic initiatives and growth

2020 current estimates	Key projects	Investment
Maintenance	Maintain operational performance	£60-70m
Acquired assets	Hydro and gas	£30m
Enhancement	Efficiency and operational improvements	£10m
Strategic	Biomass self-supply	£80-90m
Other		£10m
Total		£190-210m

£78m investment in H1 2020

Reduced full year investment includes:

• Delay of non-essential maintenance works as a result of Covid-19
• Delay of some biomass investments

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18

Balance Sheet

Long-term structures in place to support growth

Net debt / Adjusted EBITDA

• Remain on track for c.2x at end of 2020

£694m cash and total committed facilities

Maturity profile to 2029

• ESG facility maturity extended three years to 2025

Group cost of debt <4%

Strong credit profile

• S&P/Fitch - BB+ stable
• DBRS investment grade rating - BBB stable

Target opportunities for balance sheet efficiency and reduced cost of debt

InstrumentMaturityDescription

Infrastructure private	2024-2029	£375m
placement (2019)
Bonds	2025	$500m
2022	£350m
ESG facility	2025	£125m
Revolving Credit Facility	2021	£350m
(including index-linked term loan)

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Clear Capital Allocation Policy

Implemented in 2017, designed to support strategy

Maintain credit	Invest in core
rating	business

Commitment to robust	£190-210m in 2020
financial metrics	-	£60-70m maintenance
- (BB+ / BBB range)	- £50m enhancement and other
	-	£80-90m strategic

Net debt / Adjusted EBITDA - Target c.2x at end of 2020

Sustainable and	Return surplus
growing dividend	capital beyond
	investment
	requirement

2020 expected full year dividend

Investment in strategy

• Up 7.5% to 17.1 pence per share
• Subject to good operational performance and impact of Covid-19 in line with expectations

Interim dividend

• 6.8 pence per share, 40% of full year

11% pa average growth 2017-2020

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20

Biomass Strategy Update

29 July 2020

21

Biomass Strategy

Ensure the long-term future of biomass power generation through world leading safety and sustainability, ongoing cost reduction and the delivery of negative emissions

Ambition: to create a large, low-cost sustainable biomass supply chain

Increase self-supply to 5Mt	Reduce biomass self-supply cost to
£50/MWh(1) by 2027

World leading	Optimisation and trading	Development of carbon
sustainability policy	of biomass supply	negative technology

29 July 2020	1) From c.£75/MWh in 2018 to £50/MWh, assuming a constant FX rate of $1.45/£ and 5Mt pa by 2027	22
Targeting savings from established projects of $64m by 2022 vs. 2018 base (£35/t / £13/MWh on 1.85Mt)

Biomass Opportunities Post-2027

All opportunities underpinned by development of large, low-cost sustainable biomass supply chain

Generation model

• Low-costbiomass generation including 5Mt from self-supplied biomass
• Flexible operation targeted on periods of higher demand
• System support services
• Opportunity for capacity payments
• Operational efficiencies and lower operating cost

BECCS model

• As above
• Up to 16Mt of negative emissions at Drax Power Station alongside renewable power generation
• Subject to right support from UK Government

Pellet production model

• 5Mt of low-costself-supplied biomass available to sell in an under-supplied global market
• Evaluating opportunities to service growing global biomass demand
• Development of capability for optimisation and trading of biomass globally to achieve best value
  - Drax Generation in UK, other biomass markets or both

29 July 2020

23

Global Wood Pellet Market Outlook

Growing global demand

Market development

• Growing Asian demand, long-term contracts post 2027 and premium to European pricing

>60% increase in global demand (Mt) in next decade(1)

• Growth in European (non-UK) demand

Drax position in global market

• 4th largest pellet producer
• • 1.5Mt operational capacity (0.5Mt in development)
  • Ambition to expand to 5Mt
  • Current annual demand for Generation >7Mt
• Offtake agreements with three largest suppliers

	16	20
5	3	3
3
28	34	36

2019			2024	2029
		Europe		North America		Asia

29 July 2020

Source: Hawkins Wright - The Outlook for Wood Pellets (Q1 2020) / Drax

24

1) Assumes closure of Lynemouth Power Station in UK and Drax demand maintained at 7Mt

Why BioEnergy Carbon Capture and Storage (BECCS)?

A key part of the path to net zero

BECCS required to achieve UK net zero carbon emissions by 2050 (UK Committee on Climate Change)

• UK is committed by law to net zero by 2050
• ~90Mt of negative emissions p.a. required to offset residual UK emissions in 2050
• BECCS most scalable negative emissions technology - Drax could deliver ~16 million tonnes p.a.

National Grid Future Energy Scenarios (FES)

• UK cannot achieve Net Zero in any scenario without negative emissions from BECCS
• BECCS in the 2020s can help power system go carbon negative as early as 2033
• All FES feature at least one Drax-size unit by 2027

BECCS is the most cost-effective way to deliver negative emissions globally

• UK has ~80,000Mt of CO2 storage accessible offshore
• Humber region is largest area of carbon intensity - opportunity for economies of scale
  Supporting UK Government green recovery
• Support job retention and creation in Humber region and North of England

The UK can become a global leader in BECCS

• Drax is a pioneer in large-scale renewable power from sustainably sourced biomass

Globally there is an abundance of sustainable biomass available to support BECCS

29 July 2020

25

BECCS Technologies

Continued development of technology options

Technology test zone at Drax Power Station

BECCS process illustration

Developing proven and innovative technology options

• Mitsubishi Heavy Industries
• • Proven post-combustion solvent treatment
  • Operating at over 13 sites globally including Petra Nova, USA (1.4Mt pa)
• C-Capture
• • Organic and potentially lower cost alternative solvent treatment
  • Testing programme at Tiller facility, Norway
• Expect to conduct further trials

Assessing alternative uses for CO2

• Trials to assess use of biogenic CO2 in plastic and animal food use
• Synthetic zero-carbon fuels from hydrogen

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26

Investment Framework for BECCS Will Continue to Develop Throughout 2020

Emerging clarity on milestones for regulatory support

Q1

Q2

Q4

- Spring Statement: at least £800m committed by UK Government to CCS infrastructure	✓
- Launch of BEIS Expert Groups on CCS business models (power, industry and CO2 transport & storage)	✓
- Committee on Climate Change report to Parliament recommendations:	✓
- UK Government should publish BECCS support scheme by H1 2021
- BECCS should happen in second half of 2020s
- Bioenergy, power, CCS and hydrogen addressed as priority issues in Q4 Energy White Paper

- Energy White Paper: UK Government position paper on energy market design through to 2030 and 2050

- 'Cost of net zero' review: HM Treasury assessment of technologies to deliver net zero, costs and support schemes

- Draft heads of terms: UK Government to publish T&Cs for future support contracts for CCS projects

- Greenhouse gas removals: UK Government to publish call for evidence on support options for BECCS and other negative emissions technologies

29 July 2020

27

2020 Outlook and Priorities

We will build a long-term future for sustainable biomass

• Biomass cost reduction and expanded supply capability
• Trading and optimisation capability
• Options for carbon negative generation

We will be the leading provider of power system stability

• Flexible generation and I&C portfolio
• Options for new assets - hydro, synchronous compensators and gas (including hydrogen fuelling)

We will give our customers control of their energy

• Monitoring and optimisation of Customer to ensure alignment with strategy
• Help customers deliver their ESG objectives

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28

2020

Half Year Results

29 July 2020

Appendices

H1 2020 Group Adjusted EBITDA

Group Income Statement

Consolidated Adjusted EBITDA

Generation - Adjusted EBITDA

Pellet Production - Adjusted EBITDA

Customers - Adjusted EBITDA

Group Cash Flow Statement

Group Net Debt Bridge

Capacity Market Agreements

End of Coal Generation at Drax Power Station

Sustainable Biomass Sourcing and Carbon Life Cycle

Sources of Biomass Supply

Biomass Cost Reduction

US Satellite Plants

System Support Services

Positions Under Contract

Merchant Forward Power Prices

Merchant Forward Commodity Prices

Merchant Forward Spreads

Forward Looking Statements

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30

H1 2020 Group Adjusted EBITDA

High quality, enduring earnings from a multi-technology portfolio and integrated value chain

Business unit		Assets	Installed	EBITDA (£m)	% of EBITDA
	capacity
Pellet Production		Three pellet plants in US Gulf	1.5Mt	25	14%
	Export facility - Port of Baton Rouge	2.4Mt
	Drax Power Station	Biomass	2.6GW	161	90%
	Coal	1.3GW
		Cruachan Pumped Storage	0.4GW
	Hydro	Lanark and Galloway hydro schemes	0.1GW	35	20%
Generation		Daldowie - energy from waste
		Damhead Creek Power Station	0.8GW
	Gas	Ryehouse Power Station	0.7GW	18	10%
	Shoreham Power Station	0.4GW
		Blackburn Power Station	0.1GW
Customers		Haven Power - I&C		(37)	(21)%
	Opus Energy - SME
Central Costs & Other	Innovation & core services			(23)	(13)%
Total				179	100%

29 July 2020

31

Group Income Statement

		H1-20			H1-19
In £m	Adjusted	Exceptional	Total	Adjusted	Exceptional	Total
Revenue	2,205	14	2,219	2,227	5	2,232
Cost of sales	(1,804)	94	(1,709)	(1,863)	(4)	(1,867)
Gross profit	401	108	510	364	1	365
Adjusted EBITDA	179	-	-	138	-	-
Depreciation	(77)	-	(77)	(83)	-	(83)
Amortisation	(19)	-	(19)	(20)	-	(20)
Loss on disposal	1	-	1	-	-	-
Asset obsolescence charge	-	(224)	(224)	-	-	-
Acquisition and restructuring costs	-	-	-	-	(3)	(3)
Operating profit / (loss)	84	(116)	(32)	35	(1)	34
Foreign exchange gains	4	-	4	4	-	4
Net interest charge	(33)	-	(33)	(32)	(2)	(34)
Profit / (loss) before tax	56	(116)	(61)	7	(4)	4
Tax	(13)	18	5	1	(0)	(0)
Profit / (loss) after tax	43	(98)	(56)	8	(4)	4
Basic earnings per share (pence)	10.8	(24.8)	(14.0)	2.0	(1.0)	1.0

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32

Consolidated Adjusted EBITDA

	Power	Pellet	Customers	Adjustments	Consolidated
H1-20 £m	Generation	Production
Segment Adjusted EBITDA	214	25	(37)	-	202
Central Costs & Other(1)					(23)
Consolidated Adjusted EBITDA					179

	Power	Pellet	Customers	Adjustments	Consolidated
H1-19 £m	Generation	Production
Segment Adjusted EBITDA	148	8	9	(3)	162
Central Costs & Other(1)					(24)
Consolidated Adjusted EBITDA					138

29 July 2020

1) Includes innovation

33

Generation - Adjusted EBITDA

In £m	H1-20	H1-19
Revenue
Power sales	1,107	1,141	System support and optimisation
System support and optimisation	85	64	£m	H1-20	H1-19
ROC sales	328	310
CfD income	157	117	System support and optimisation
Capacity Market income	34	-	Balancing mechanism	85	64
			Ancillary Services
Gas sales to Customers business	33	29	(19)	(3)
Portfolio optimisation
Fuel sales	10	12
Margin from system support and optimisation	66	61
Other income	3	4
Advantaged fuels - coal		8
	1,757	1,677
	Value from flexibility	66	69
Cost of sales
Generation fuel costs	(669)	(589)
Cost of system support and optimisation	(19)	(3)
Fuel sold	(5)	(2)	Average achieved power price
ROC support	269	229
	H1-20	H1-19
Carbon tax	(25)	(17)
Carbon certificates	(32)	(14)	Gross power sales (£m)	1,107	1,141
ROCs sold or utilised	(328)	(307)	Cost of power purchases (£m)	(593)	(691)
Cost of power purchases	(593)	(691)	Net power sales (£m)	514	450
Grid charges	(37)	(21)	Net power sales (TWh)	10.0	8.3
	(1,439)	(1,415)	Average achieved price (£/MWh)	51.4	54.2
Gross profit	318	262
Operating costs	(104)	(114)
Adjusted EBITDA	214	148

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34

Pellet Production - Adjusted EBITDA

In £m	H1-20	H1-19
Revenues	118	97
Cost of sales	(65)	(64)
Gross profit	53	33
Operating costs	(28)	(25)
Adjusted EBITDA	25	8

Revenues

• Free on Board price for biomass at port of Baton Rouge
• Drax Generation incurs cost of ocean freight, UK port and rail costs

Drax US production cost

	H1-20	H1-19
Cost of sales ($m)	82	83
Operating costs ($m)	36	33
Total cost ($m)	118	116
Other adjustments ($m)	(2)	(5)
Underlying cost of Drax pellets ($m)	116	111
Drax pellet production (Mt)	0.75	0.65
Cost per tonne ($/t)	154	170

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35

Customers - Adjusted EBITDA

In £m	H1-20	H1-19
Revenue	1,032	1,128
Cost of sales
Cost of power and gas purchases	(434)	(518)
Grid charges	(229)	(234)
Other costs	(339)	(304)
	(1,002)	(1,056)
Gross profit	30	72
Operating costs	(41)	(50)
Bad debt charge	(26)	(13)
Adjusted EBITDA	(37)	9

Estimated impact of Covid-19

£m	H1-20
Reduction in demand and increased third party costs	14
MtM cost to exit previously hedged power contracts	15
Increased expectation of business failure	15
Total	44

29 July 2020

36

Group Cash Flow Statement

In £m	H1-20	H1-19
Adjusted EBITDA	179	138
Working capital	47	91
Cash generated from operations	226	229
Debt service	(27)	(23)
Tax(1)	(31)	(7)
Net cash from operating activities	168	199
Capital investment	(59)	(68)
Capital investment - acquisition	-	(692)
Net refinancing	-	549
Dividend	(38)	(34)
Share buy back	-	(3)
Other	7	4
Net cash flow	78	(45)
Cash and cash equivalents at the beginning of the period	404	289
Net cash flow	78	(45)
Cash and cash equivalents at the end of the period	482	244

29 July 2020	1) HMRC changed payment on accounts from in arrears to in advance, therefore H1-20 has 4 payments rather than 2, including Q3 and Q4 2019	37

Group Net Debt Bridge

On track for 2 x net debt to Adjusted EBITDA by end of 2020

£m
				31	38
800
	59	27			25
841							792
600	179
400
200
0
31 Dec 2019	Adjusted	Capital	Debt	Tax	Dividend	Working capital	30 June 2020
Net debt	EBITDA	expenditure	service			& other(1)	Net debt

(incl. reinstated Capacity Market)

29 July 2020

1) Includes £25m in relation to revaluation of US denominated balances at end of June 2020 - non-cash

38

Capacity Market Agreements

Clear revenue profile to 2024 with option to develop new gas generation subject to future Capacity Market agreements

£m(1)	2020	2021	2022	2023		2024(2)	Total
Hydro	10	10	4		5		7	36
Gas	37	37	16		16		30	136
Coal	24	25	9		-		-	58
Total	71	72	29		21		37	230
	Oct-19 to	Oct-20 to		Oct-21 to	Oct-22 to	Oct-23 to
	Sept-20	Sept-21		Sept-22		Sept-23	Sept-24
£/KW(1)	19	24			9		7	17

1)	Nominal pricing
29 July 2020	39
2)	Nine months only, T-4 to take place in Q1 2021

End of Coal Generation at Drax Power Station

Progress to becoming a carbon negative company

Decision aligned with UK's 2050 net zero objective

Time scale

• End of commercial coal generation March 2021
• Completion of Capacity Market agreements September 2022

Financial impact

• Asset obsolescence charge of £224m
• Annualised reduction in D&A c.£30m
• Estimated cost of closure c.£25-35m
• Remaining inventories of c.£54m - used prior to September 2022
• Ongoing opex savings of c.£25-35m pa when complete

Development of lower cost operating model for biomass

• Coal closure represents progress towards profitable biomass generation at Drax Power Station post 2027

29 July 2020

40

Sustainable Biomass Sourcing and Carbon Life Cycle

Science-led biomass sourcing policy ensures long-term sustainability and contribution to natural environment

Key principles	Biomass generation carbon life cycle

• No deforestation
• No carbon debt
• More standing volume in forest area than before

Objectives

• Reduce CO2 emissions
• Protect the natural environment
• Support people and societies
• Research, outreach and intervention

Policy

- Reflects Committee on Climate Change bioenergy review and Forest Research(1) recommendations

• Independent Advisory Board provides assurance

Strong regulatory mechanisms ensure biomass sustainability

• European Union Renewable Energy Directive II
• UK ROC and CfD reneweable schemes

29 July 2020	1) Forest Research is Great Britain's principal organisation for forestry and tree related research and is internationally renowned for the provision of evidence and scientific services in support	41
	of sustainable forestry

Sources of Biomass Supply

Drax Group sources of fibre by location - H1 2020

		Branches,		Low
	Sawmill		grade	Agri.
	tops and	Thinnings	Total
	residues	round	residues
	bark
			wood
USA	22%	5%	16%	21%	1%	65%
Canada	17%	1%	-	1%	-	19%
Latvia	3%	-	-	5%	-	8%
Estonia	-	-	-	-	-	-
Portugal	-	-	-	1%	-	1%
Brazil	-	-	-	2%	-	2%
Other European	2%	-	-	-	3%	5%
Total	44%	6%	16%	30%	4%	100%

Drax Group sources of fibre by location - H1 2019

		Branches,		Low
	Sawmill		grade	Agri.
	tops and	Thinnings	Total
	residues	round	residues
	bark
			wood
USA	19%	10%	18%	15%	1%	63%
Canada	15%	2%	-	-	-	17%
Latvia	4%	-	-	5%	-	9%
Estonia	1%	-	1%	-	-	2%
Portugal	-	-	1%	2%	-	3%
Brazil	-	-	-	2%	-	2%
Other European	2%	-	-	-	2%	4%
Total	41%	12%	20%	24%	3%	100%

Drax self-supply sources - H1 2020

		Branches,		Low
	Sawmill		grade	Agri.
	tops and	Thinnings	Total
	residues	round	residues
	bark
			wood
USA	20%	-	45%	35%	-	100%

Drax self-supply sources - H1 2019

		Branches,		Low
	Sawmill		grade	Agri.
	tops and	Thinnings	Total
	residues	round	residues
	bark
			wood
USA	12%	-	53%	35%	-	100%

29 July 2020

42

Biomass Cost Reduction

Increased control of supply chain to reduce overall cost of biomass generation to c.£50/MWh(1)

2019

2027

	Portfolio £/MWh			Initiatives
	75			Opportunities from existing self-supply business
				- Established programme of improvements and expansion to deliver $64m pa savings by 2022
	70				($35/t / £13/MWh(1) savings on 1.85Mt)
			- $27m pa of savings by 2020
(£/MWh)
65			Expansion of self-supply to deliver 5Mt of capacity
			- Satellite pellet plants in US Gulf - lower fibre and processing cost, shared infrastructure
cost					- Opportunity for up to 0.5Mt
				- 40kt plants, c.$10-15m per site, FID on three plants ($40m)
fuel
60				- Potential to replicate in other geographies
Delivered		-	Evaluating other opportunities

Expansion of fuel envelope

55	- Developing and scaling low-cost alternative biomass sourcing in multiple geographies

R&D into next generation cost reduction opportunities

50

Underpinned by further opportunities in logistics and operations and work with 3rd party suppliers

29 July 2020

1) At a constant FX rate of $1.45/£

43

US Satellite Plants

Development of up to 0.5Mt of new capacity

Investment in three new satellite pellet plants in US Gulf

• Low-costcontainerised plants solution
• • 40Kt plants, investment of $40m for three plants
  • Sited close to existing sawmills for access to lower cost fibre
  • Removes debarking, chipping and drying process
  • Production cost c.20% below current level
• Commissioning from 2021

Locational benefits of US Gulf

• Vast resources of sustainable forestry
• Carbon stocks increased >90% since 1950
• Well established commercial forestry industry and infrastructure
• Structural decline in incumbent users of low value fibre
• Established Drax infrastructure

29 July 2020

Containerised pellet plant

US forestry coverage

44

44

System Support Services

Decarbonisation leading to reduction in system support capable assets

Generation type	Biomass	Pumped	Gas	Hydro	Nuclear	Wind	Inter-	Batteries
Storage	connector
Frequency	Yes	Yes	Yes	Yes	Partial	Partial	Yes	Yes
response
Reactive power	Yes	Yes	Yes	Partial	Yes	Partial	Yes	Yes
Voltage	Yes	Yes	Yes	Partial	Yes	Partial	Yes	Yes
management
Inertia	Yes	Yes	Yes	Yes	Yes	No	No	No
Reserve power	Yes	Yes	Yes	No	No	Partial	Yes	Partial

Change in UK generation mix (GW)(1)

Generation type	2012	2018
Biomass and other	3.2	7.4
renewables
Pumped Storage	2.7	2.7
Hydro	1.6	1.6
Gas	66.0	48.0
Nuclear	9.9	9.3
Wind	3.9	9.4
Coal and other	32.5	17.3

29 July 2020

1) Digest of UK Energy , 2019

45

Positions Under Contract

	- Largely sold forward on ROC units 18-24 months
	- Portfolio optimisation to maximise margins
Power	- CfD unit neutral to power price, provides
	underlying firm volume
	- Upside to market tightness via gas and hydro units
	- Typical third party contracts operate on five year
Biomass	basis, with fixed formula pricing
- Hedge underlying freight exposure
	- Hedge indexation via ROC and CfD contacts
	- Managed on a rolling five-year basis to meet
FX	USD, CAD and Euro requirements
	- Effective rate of low 1.40sUSD/GBP

Contracted Generation power position

Contracted Power at 22 July 2020	2020	2021	2022
Fixed price power sales (TWh)	17.6	11.4	4.8
At an average achieved price (£ per MWh)	53.8	49.0	48.2

29 July 2020

46

Merchant Forward Power Prices

Seasonal Power Price (£/MWh)

80
70
60
50
40
30
Jul-18	Oct-18	Jan-19	Apr-19	Aug-19	Nov-19	Feb-20	Jun-20
	Summer20	Winter20	Summer21	Winter21	Summer22

Peak Power Price (£/MWh)

80
70
60
50
40
30
Jul-18	Oct-18	Jan-19	Apr-19	Aug-19	Nov-19	Feb-20	Jun-20
	Summer20	Winter20	Summer21	Winter21	Summer22

Source: ICE

Source: ICE

29 July 2020

47

Merchant Forward Commodity Prices

EU ETS Carbon (€/t)

40
30
20
10
0
Jul-18	Oct-18	Feb-19	Jun-19	Oct-19	Feb-20	Jun-20
		Dec20	Dec21	Dec22

Source: ICE

API2 Coal Price ($/t)

Power Price (£/MWh)
70
60
50
40
30
20
10
Jul-18	Oct-18	Feb-19	Jun-19	Oct-19	Feb-20	Jun-20
	Summer20	Winter20	Summer21	Winter21	Summer22

Source: ICE

NBP Gas Price (p/therm)

110							80
100							70
90							60
						50
80
						40
70							30
60							20
50							10
40							0
						Jul-18
Jul-18	Oct-18	Feb-19	Jun-19	Oct-19	Feb-20	Jun-20
		Cal-19	Cal-20	Cal-21

Oct-18		Feb-19	Jun-19	Oct-19	Feb-20	Jun-20
Summer20		Winter20		Summer21		Winter21			Summer22	48

Source: ICE	Source: ICE

Merchant Forward Spreads

Peak CSS (£/MWh)
20
10
-
Jul-18Oct-18Feb-19	Jun-19Oct-19Feb-20Jun-20
Summer20	Winter20	Summer21

Source: ICE, Reuters and Drax

Baseload CSS (£/MWh)
20
10
-
(10)
Jul-18Oct-18Feb-19	Jun-19Oct-19Feb-20Jun-20
Summer20	Winter20	Summer21

Peak DGS (£/MWh)
10
-
(10)
(20)
Jul-18Oct-18Feb-19	Jun-19Oct-19Feb-20Jun-20
Summer20	Winter20	Summer21

Source: ICE, Reuters and Drax

Baseload DGS (£/MWh)
-
(10)
(20)
Jul-18Oct-18Feb-19	Jun-19Oct-19Feb-20Jun-20
Summer20	Winter20	Summer21

Peak ROC Bark Spread (£/MWh)

60
50
40
30
20
10
-
Jul-18Oct-18Feb-19	Jun-19Oct-19Feb-20Jun-20
Summer20	Winter20	Summer21

Source: ICE, Reuters and Drax

Baseload ROC Bark Spread (£/MWh)

50
40
30
20
10
-
Jul-18	Oct-18	Feb-19	Jun-19	Oct-19	Feb-20Jun-20
	Summer20	Winter20	Summer21	49

Source: ICE, Reuters and Drax

Source: ICE, Reuters and Drax

Source: ICE, Reuters and Drax

Forward Looking Statements

This announcement may contain certain statements, statistics and projections 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 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 expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to be correct and because these statements involve risks and uncertainties, actual results 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 factors include, but are not limited to, factors such as: future revenues being lower than expected; increasing competitive pressures in the industry; and/or general economic conditions or conditions affecting the relevant industry, both domestically and internationally, being less favourable than expected. We do not intend to publicly update or revise these projections or other forward- looking statements to reflect events or circumstances after the date hereof, and we do not assume any responsibility for doing so.

29 July 2020

50

2020

Half Year Results

29 July 2020