DRAX Group has completed an £80 million deal with Lloyds Bank for what has been described as a "first of its kind" receivables purchasing facility for renewable energy.
The agreement will see Lloyds Bank provide finance to the Drax, based near Selby, in lieu of payment from creditors to ease cash flow for the power station.
Electricity generators like Drax earn Renewables Obligation Certificates (ROCs) for every MWh of renewable electricity produced.
Generators then sell the certificates to electricity suppliers to enable them to meet the requirements of the Government’s Renewables Obligation.
However, the payment cycle for ROC sales can be more than 12 months, absorbing working capital for renewable generators.
Working closely with the Drax team, Lloyds Bank Commercial Finance has created a tailor-made ROC receivables purchasing facility that supports cash flow management in the Group’s growing sustainable biomass business.
Wayne Mills, Director for Lloyds Bank Commercial Finance who led the transaction, said: “The creation of this ROC monetisation facility was a complex transaction that provides an important cash flow management tool for this major UK power provider.
“Nothing like this had ever been done before and we had to ensure we got it right. While the ROC mechanism is a complex scheme, the new facility helps solve what was a significant business challenge for Drax.”
Drax owns and operates the largest power station in the UK, and is typically responsible for supplying seven to eight per cent of the UK’s electricity.
The company is committed to transforming itself into a predominantly biomass-fuelled power provider through burning sustainable biomass in place of coal.
Michael Scott, head of Corporate Finance at Drax, said: “We are very pleased to have put this facility in place. It is proving critical to delivering effective cash flow management and we are very grateful to the Lloyds Bank Commercial Finance team for its support.”
Jonas Persson, managing director of utilities for Lloyds Bank Global Corporates, added: “This is a ground-breaking transaction for Lloyds demonstrating our ability to create bespoke solutions for our clients in the renewables sector."
Legal advice for Lloyds was provided by Squire Sanders and Slaughter & May acted on behalf of Drax.