Drax Group (LSE:DRX) has lifted its 2026 earnings outlook after a solid summer and the completion of its £561m takeover of Bluefield Solar Income Fund, though the deal will temporarily push borrowing above the group's preferred ceiling.

Drax Group, the North Yorkshire-based power generator best known for its biomass-fired power station, enters the final quarter of 2026 with a firmer earnings picture than it had at the start of the year. In a trading update on 17 September, the company said it now expects adjusted earnings for 2026 to land near the top of the analyst consensus range of £680m to £711m. In late April, by comparison, it had guided only to results in line with a consensus figure of around £665m.

The market reaction on the day was muted. The shares edged up by roughly 0.7% to about 825.5p in mid-morning trading on 17 September, suggesting that much of the improvement had already been anticipated by investors following the group's operational performance over the summer months.

Summer trading and a new solar and wind arm

Management attributed the upgrade to three factors: solid operational delivery through the summer, the contribution from Bluefield Solar Income Fund (BSIF) from 1 August, and further cost savings, mainly in warehousing. The Bluefield acquisition, which has now completed at a total cost of £561m, brings in roughly 0.9GW of operational solar and wind capacity together with a development pipeline of around 2.9GW.

The deal lifts the total capacity Drax manages to approximately 6.1GW and broadens a business that has long been defined by its biomass units. From 2027, Bluefield will be reported as a dedicated Solar & Wind segment. Drax expects what it describes as significant synergies, drawing on its expertise in power contract management and route-to-market services, as well as lower running costs now that BSIF has been delisted.

Balance sheet and capital returns

The transaction has been financed with £800m drawn from a bridge facility, which was used in part to repay around £300m of Bluefield's existing debt, while £200m of BSIF's facilities have been retained. As a result, Drax expects net debt to sit above its long-term target of 2x EBITDA during 2026, before falling back towards that level by the end of 2027. The pace of deleveraging is likely to be watched closely, given the group's commitments to shareholder returns.

Those commitments are substantial. Drax has been running a £450m share buyback, delivered in tranches; the first £75m tranche completed in April and a second began in May. The company also proposed a final dividend of 17.4p for 2025, which was put to shareholders at its annual meeting. Earnings visibility is supported by more than £1bn of forward power sales contracted across 2026 to 2028 and Capacity Market agreements worth around £650m stretching to 2043.

Operational issues and policy backdrop

Not every part of the portfolio has run smoothly. In its April update, Drax said two of the four units at its Cruachan pumped storage plant in Scotland were in a forced outage following a grid connection failure involving third-party network assets. The group also has a strategic review of its Canadian pellet operations under way, while it continues to focus on reducing costs in its US pellet plants.

On the policy front, the company said the removal of the Carbon Price Support did not alter its expectations and that it did not anticipate paying the Electricity Generator Levy in 2026. Drax (LSE:DRX) has also been building out its flexible generation business, including battery storage and gas-fired peaking plants, having completed the acquisition of Flexitricity earlier this year. For a mid-cap that has often been judged on the future of biomass subsidies, the push into solar, wind and flexible capacity marks a clear diversification.