Today (24 April 2013), Drax Group Plc has announced that private funding for the conversion of their coal-fired power station to biomass will be the first to be underpinned by a UK Guarantee.
Drax was offered a £75 million guarantee as it sought finance in February, just four months after fast-track legislation put UK Guarantees on the statute books. The government guarantee was seen as “critical” to the financing and enabled Drax to reach a wider group of investors than would have been possible without a UK Guarantee.
This agreement is the first of many projects being considered as part of the government’s UK Guarantees Scheme, which was launched last year to provide up to £40 billion of guarantees to kick start infrastructure projects struggling to access finance.
UK Guarantees will allow projects to benefit from the strength of the government’s balance sheet and form part of the government’s work to pass on its fiscal credibility, alongside the Funding for Lending Scheme – which the government and Bank of England have extended today – and the Help to Buy scheme announced at Budget 2013.
The Chancellor of the Exchequer, George Osborne, said:
I am very pleased that the development of Drax has been able to benefit from the UK Guarantees Scheme. This is another example of how we are using the credibility Britain has earned through its determination to deal with its deficit to support investment in the economy.
The Chief Secretary to the Treasury, Danny Alexander, said:
The UK Guarantee scheme enables private sector investment to be supported by the strength of the UK balance sheet, secured by the tough decisions this government has taken.
The Drax conversion will be the first project of many to be enabled by this radical, innovative new approach. I would strongly encourage any other investor who thinks a guarantee may help them to talk to the Treasury – the door is open.
The Commercial Secretary to the Treasury, Lord Deighton, said:
Today, we’ve seen the impact that a government guarantee can have, giving Drax the security it needed to raise the finance and get on with delivering this major project.
The power station is critical to the country’s energy needs, and our UK Guarantee is a demonstration of the support that this government is prepared to give to infrastructure.
Tony Quinlan, Finance Director of Drax Group said:
We are delighted with the show of support from Infrastructure UK through the award of a UK Guarantee, which is a critical component of the financing for our project to transform the largest coal-fired power station in the UK into an electricity generator fuelled predominantly by sustainable biomass.
Notes for Editors
In July 2012, the government announced the UK Guarantees Scheme to avoid delays to investment in major UK infrastructure projects that may have stalled because of adverse credit conditions. The legislation underpinning the Guarantee Scheme (the Infrastructure (Financial Assistance) Act 2012) received Royal Assent on 31 October 2012. Guarantees for up to £40 billion in aggregate can be offered.
The Scheme works by providing a sovereign-backed Guarantee to help infrastructure projects raise debt finance by removing project risk.
Accessing the scheme is straightforward. Sponsors/Developers can contact Infrastructure UK within HM Treasury to arrange a commercially confidential discussion about how a Guarantee might be able to help raise finance for their project.
Media enquiries should be addressed to the Treasury Press Office on 020 7270 5238.
Non-media enquiries should be made to the Treasury Correspondence Unit on 020 7270 5000 or by email.