The Signal Interview
The simmering backlash to ESG that has boiled over in the Trump era has seen many companies retreat from their environmental commitments, like UK oil major BP, which this week cut its spending on renewables by 70%. Will Gardiner, chief executive of UK power generator Drax, is planning no such change, of course. But his overhaul of the UK’s largest producer of renewable energy shows the complexities and controversies that accompany the energy transition’s trillion-dollar investment opportunities.
It has been a decade since the expat American got a call from a headhunter asking, “Would you like to work at a power station in Yorkshire?” The former finance director of Sky, Rupert Murdoch’s satellite broadcaster, had no experience in power generation. But what he saw intrigued him.
Drax had no M&A or strategy teams at the time, and little self-confidence. But “it had a purpose, it was right in the middle of this energy transition, it had some real skills… so I felt, there’s something you can build on,” Gardiner recalls, noting that he also spotted opportunity in its healthy balance sheet.
Acquisitions have played a big part in his reshaping of the group.
In 2015, when he came in as chief financial officer, Drax was partway through a process of converting its coal-fired units to instead burn biomass — pellets of compressed wood from sawmills or forests. Soon after he became CEO in 2018, he set a 2030 deadline for Drax to become carbon negative.
That made the company a pioneer in its industry, and its overhaul has been accompanied by a transformation in earnings, which topped £1 billion on an adjusted basis last year, Drax announced this week. But its stock has not seen a similar boost, and Drax still depends on billions in UK government subsidies, which remain contentious even after they were extended this month to 2031.
‘We’ve made some mistakes’
That has not been Drax’s only controversy. Environmental campaigners question whether wood pellets can be deemed sustainable, and last year Drax agreed to pay a £25m penalty after a regulator faulted its collection of data on the wood it imported. Internal emails suggested that it was “highly likely” that some came from environmentally important old forests in Canada.
“I think, probably, we have been slow to react to the strong emotions around primary forests,” Gardiner admits, adding that it is now “limiting what we do in those spaces.” The business Drax acquired in Canada had been right to follow the Canadian government’s “sensible” principles on harvesting and replanting forests, he says in an interview in Drax’s London office. But the company should have better understood “the context over here.”
“To be honest, I mean, we’ve made some mistakes,” he says. “So I need to work better to fix those, and we are.” But he remains adamant that Drax is doing the right thing by burning biomass while developing a system to capture its CO2 emissions and store them.
“The idea that somehow it’s better to not emit than it is to remove… I don’t really buy that,” he says. “I don’t really believe there’s a moral argument for not emitting.”
The removal man
A new stage of Gardiner’s transformation took shape last September, when he announced plans to invest up to $12.5 billion in the US over the next decade in so-called bioenergy with carbon capture and storage (BECCS) power plants, which capture the emissions from the biomass they burn.
He did so not under the Drax name, but through a new, Houston-based carbon removals business called Elimini. Gardiner is now the longest-serving member of Drax’s executive team. But even after overhauling its top ranks and corporate culture, he concluded that he needed to create a separate company “to be agile, entrepreneurial and quick enough.”
Elimini, which Gardiner chairs, launched when Joe Biden was still in office, and the billions of dollars of subsidies the former president provided for clean energy investments under the Inflation Reduction Act are now in question under Donald Trump. Drax sees carbon removal as a potential $1 trillion market, but such incentives are likely critical to rolling out technologies that remain expensive and unproven at scale.
“My personal views on this will not get me anywhere positive,” Gardiner says carefully, before confirming that he is less confident that the Biden-era subsidies will remain available under Trump.
Two types of volatility
Gardiner’s strategy was shaped by his belief in two trends: First, that power demand will grow as net zero emissions goals require greater electrification; and second, that volatility will increase as more of that power comes from inconsistent sources like solar and wind — reinforcing the need for Drax’s backup supply.
His confidence in the demand side of that thesis is rising in the US as Big Tech companies seek ever-larger power sources to meet their AI growth plans. But this has not changed his expectations for other markets. “Everybody’s extrapolating that what’s going to happen in the US is going to happen [everywhere]. And I’m still medium-confident on that, but I’m not more confident.”
His confidence that power market volatility will increase, meanwhile, has only grown. But he cites another type of instability that has risen simultaneously.
“If you asked me, did I expect that the new president of the US would create more volatility, I was very confident that would happen,” Gardiner says. “Has he created more volatility than I thought he would create? Absolutely.”
“The problem and the challenge” in the carbon removal market “is that the whole thing seems to be slowing down,” he says. One reason, he thinks, is the rise of populism and “the idea that the whole climate change issue is a rich person’s issue… and makes everything more expensive.”
Even so, he adds, he does not need to win over the man in the street. “CEOs have decarbonization plans and believe in this stuff anyway,” he observes. His task is to convince big corporate energy buyers that Drax’s carbon removal solution can work, and work at the right price.
Widening the lens
Less than six months after launching Elimini, Gardiner is already floating ideas for broadening its focus beyond BECCS. “We want to do things more quickly,” he says, adding that it could look at other technologies like biochar, a charcoal-like product made from biomass, or consider buying a small-scale biomass power station to which it could add carbon capture and storage technology.
It could also build its own carbon credits trading desk, to capture some of the value in trading the credits that its plants will one day be generating. Nothing is decided, he says, but such an operation “could be up and running in six months.”
Gardiner’s bet on the US market with Elimini is at an early stage, but it is shifting the center of gravity of a company that was once synonymous with the set of cooling towers that loom over the North Yorkshire countryside. Could Drax follow other UK public companies that, frustrated by valuations in their home market, have looked to move their listings to New York?
“The way I’ll answer that question is that we do not have any current plans,” he replies. “When the value, or the perceived value of the company is more American, then I think it’s an important question.”