Drax to Repurpose Yorkshire Power Station for 100MW Data Center by 2027

Britain's Drax Group PLC (DRX.L) is preparing to repurpose its Yorkshire power station for a data center by 2027, leveraging coal-era infrastructure and grid links to meet surging demand for digital infrastructure. The company plans to submit a planning application for a first-phase data center of around 100 megawatts. This initiative aligns with the UK's growing need for energy-efficient, large-scale computing infrastructure as data demand accelerates globally.

Drax expects to report full-year 2025 core profit near the top of market estimates, with analysts projecting adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) between £892 million and £909 million. The company is also targeting £600–700 million in annual EBITDA after 2027 and aims to generate £3 billion in free cash flow from its existing business through 2031. This will support over £1 billion in shareholder returns and up to £2 billion in growth investments.

Drax sees data centers as a key long-term growth opportunity, with ambitions to expand beyond the initial 100MW phase. The firm is assessing options to develop more than 1 gigawatt of data center capacity at the Drax Power Station site, leveraging its existing 4GW of capacity and grid access. The first phase could use front-of-the-meter power from the grid, enabling a data center to become operational as early as 2027 according to Reuters.

Why the Strategy Makes Sense

The UK is undergoing a major transformation in its energy system, with renewable sources gaining dominance while gas generation declines. This shift increases the need for dispatchable, reliable power to support the grid when renewable output fluctuates. Drax's plan to develop data centers using its existing infrastructure-cooling systems, secure site access, and skilled labor-positions it to meet these evolving needs.

The Drax Power Station site is uniquely suited for data centers due to its proximity to the UK fiber network and its existing dispatchable generation capabilities. The company is preparing a planning application for the first phase, which would use existing transformers and grid connections previously used for coal generation. This allows for a low-cost, high-impact transition that avoids the need for new infrastructure from scratch according to Drax.

Drax's move into data centers aligns with broader global trends in digital infrastructure demand. According to market research, the data center infrastructure market is projected to grow to USD 496.8 billion by 2035, driven by the expansion of cloud computing, AI, and hyperscale operations. Europe, in particular, is seeing strong growth due to sustainability mandates and data localization laws. Drax's data center strategy fits well within this context, offering a long-term revenue stream alongside its core energy generation business.

The company's recent earnings guidance also highlights its strong performance in 2025. Drax has already secured £2.3 billion in forward power sales through its Renewables Obligation biomass, pumped storage, and hydro assets, providing stability in a volatile energy market. Its CEO, Will Gardiner, emphasized the importance of balancing energy security with decarbonization goals, noting that dispatchable power will be essential as the UK transitions to a cleaner but more intermittent energy mix according to MarketWatch.

Drax is also pursuing other growth opportunities, including a gigawatt-scale pipeline of Battery Energy Storage System (BESS) projects. In October, it acquired three BESS sites totaling 260MW for £157.2 million. These projects will enhance Drax's ability to offer fast-response energy solutions to the grid, complementing its data center ambitions according to Investing.com.

Risks to the Outlook

Despite its ambitious plans, Drax faces potential challenges. The data center market is highly competitive, and converting the Drax Power Station site into a data center will require regulatory approvals, capital investment, and commercial agreements. Additionally, the company's existing businesses-such as its Canadian pellet production-face headwinds, contributing to its decision to pause new capacity investments in the short to medium term according to Drax.

The success of Drax's data center initiative will depend on several factors, including the speed of planning approvals, the cost of capital, and the demand for large-scale, energy-efficient computing solutions. The UK government's support for renewable and flexible generation will also play a role, as will the ability of Drax to leverage its existing infrastructure to reduce costs.

Analysts are watching closely whether Drax can scale its data center ambitions while maintaining its core earnings. The company's long-term free cash flow target of £3 billion between 2025 and 2031 will be critical in supporting both shareholder returns and new investments. Any delays in commissioning its OCGT assets or BESS projects could impact these forecasts according to Drax.

Market Reactions and Future Outlook

Drax's strategic pivot into data centers has been welcomed by investors, given the growing importance of digital infrastructure. The company's existing energy generation assets and grid access position it as a credible player in a market dominated by hyperscale operators. However, it remains to be seen whether it can compete effectively with firms that have already optimized their data center operations for energy efficiency.

In the near term, Drax is focused on delivering its 2025 financial targets and preparing for the transition to data centers. The firm expects to report its full-year 2025 results on February 26, 2026, and has already completed a £300 million share buyback program, signaling confidence in its capital allocation strategy. Going forward, the company will need to balance its energy security obligations with the growing demand for data, all while maintaining a disciplined approach to capital expenditure according to Drax.