(Reuters) - British power producer Drax (DRX.L) has agreed to buy a group of Scottish gas, hydro and pumped storage power plants from Spain’s Iberdrola for 702 million pounds ($922 million) as it strives to end coal-based production before a 2025 government deadline.
The plants run by Iberdrola’s (IBE.MC) Scottish Power arm include the massive Cruachan pumped storage hydro facility, built inside a mountain near Loch Lomond, as well as a biomass-from-waste facility, which have helped Scotland creep closer to generating all of its power from renewable sources.
The sale, included in Iberdrola’s 2018-2022 strategy to rotate assets worth 3 billion euros ($3.5 billion), leaves the Spanish group with only wind power generators in Britain.
Drax CEO Will Gardiner said the deal was a part of his company’s strategy to exit coal and provide flexible electricity generation to back-up Britain’s growing renewable capacity.
“We see an energy system in 2050 when 85 percent of the electricity comes from wind and solar but there will need to be another 15 percent which we see coming from gas and biomass,” he told Reuters in an interview on Tuesday.
Drax, which generates about 6 percent of Britain’s electricity, has converted four of its former coal-fired plants to biomass wood pellets, often made from compressed sawdust.
Gardiner said longer term plans to replace the remaining two coal units with gas plants and up to 200 megawatts of battery storage, would be unchanged by the acquisitions.
Drax hopes to end all coal production ahead of the UK government’s target of 2025 as it seeks to reduce fossil fuel emissions.
“We are really committed to moving beyond coal ... but at the same time we do have to react to what the market is saying,” Gardiner said.
Earlier in October, Britain’s National Grid said coal-fired power generation was likely to rise over the winter as high gas prices made coal power plants more profitable.
Scottish Power has already closed all of its coal plants, and following the sale will generate 100 percent of its electricity from wind power.
“This is a pivotal shift for Scottish Power as we realise a long-term ambition. We are leaving carbon generation behind for a renewable future powered by cheaper green energy,” Scottish Power chief executive Keith Anderson said in a statement.
Drax hopes to complete the deal by the end of the year, subject to shareholder approval.
Drax said it had secured bridge funding of 725 million pounds to finance the deal, and expects no impact on its previous guidance for full-year earnings before interest, tax, depreciation and amortisation (EBITDA).
Drax expects the acquired facilities to contribute 90-100 million pounds to the company’s EBITDA in 2019.
Shares in UK-listed Drax were up around 4 percent,, while shares in Spain-listed Iberdrola were little changed.
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Reporting by Susanna Twidale in London, Karina Dsouza in Bengaluru and Paul Day in Madrid; Editing by Patrick Graham and Mark Potter