THIS DOCUMENT AND ANY ACCOMPANYING DOCUMENTS ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own independent financial advice from your stockbroker, bank manager, solicitor,accountantorotherindependentfinancialadviserauthorisedundertheFinancialServicesand Markets Act 2000 if you are resident in the United Kingdom or, if not, from another appropriately authorisedindependentfinancialadviser. If youhavesoldor transferred allof yourholdingof Ordinary SharesinDraxGroupplc,pleaseforward this Circular and the accompanying documents (but not the personalised Form of Proxy or Form of Direction), as soon as possible, to the purchaser or the transferee or to the person through whom the saleortransferwaseffectedfortransmissiontothepurchaserorthetransferee. Any person (including, without limitation, custodians, nominees and trustees) who may have a contractual or legal obligation or may otherwise intend to forward this document to any jurisdiction outside the United Kingdom should seek appropriate advice before taking any action. The distribution ofthisCircularandanyaccompanyingdocumentsintojurisdictionsotherthantheUnitedKingdommay be restricted by law. Any person not in the United Kingdom into whose possession this Circular and any accompanying documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities lawsofanysuchjurisdiction. You should read the whole of this Circular and all documents incorporated into it by reference intheirentirety. YourattentionisdrawntotheletterfromPhilipCoxCBE,theChairmanofDrax Group plc, which is set out in Part I of this document and which contains a unanimous recommendation from the Board of Drax Group plc that you vote in favour of the Resolution to be proposed at the General Meeting referred to below. Part II of this document entitled “Risk Factors” includes a discussionof certain risk factors which shouldbetakeninto accountwhen consideringthemattersreferredtointhisdocument. DraxGroupplc (RegisteredinEnglandandWaleswithregisterednumber5562053) ProposedacquisitionbyDraxGroupplcofOpusEnergyGroupLimited and NoticeofGeneralMeeting A notice conveninga General Meeting of DraxGroup plcto beheldat TheGrand Hotel&Spa,Station Rise,YorkYO16GDon8February2017at10:00amissetoutattheendofthisdocument. For Shareholders, a Form of Proxy for use at the General Meeting is enclosed with this document. Whether or not you propose to attend the General Meeting, you are requested to complete and submit a Form of Proxy to the Company’s Registrars, Equiniti Limited, Proxy Department, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA to arrive by no later than 10:00am on 6 February 2017. If you holdshares in CREST,youmay appointaproxybycompletingandtransmitting aCRESTProxy Instruction to Equiniti Limited (CREST participant ID RA19) so that it is received by no later than 10:00amon6February2017. The return of a completed Form of Proxy or CREST proxy instruction will not prevent you from attendingtheGeneralMeetingandvotinginpersonifyouwishtodoso. For Share Incentive Plan (SIP) participants, a Form of Direction is enclosed with this document and, if used, should be sent to the Trustee, Equiniti Share Plan Trustees Limited, at Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA to arrive by no later than 10:00am on 3 February 2017. As a participant in the SIP you are unable to attend the General Meeting unless you hold shares registered inyourownname. This document is a circular relating to the Acquisition which has been prepared in accordance with the ListingRulesandapprovedbytheFinancialConductAuthority. No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied on as having been so authorised. The delivery of this document shall not, under any circumstances, create any implication that there has been no change in the affairs of Drax Group plc sincethedateofthisdocumentorthattheinformationinitiscorrectasofanysubsequenttime. J.P. Morgan Limited (which conducts its UK investment banking activities as J.P. Morgan Cazenove), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusivelyforDraxandfornooneelseinconnectionwiththeAcquisitionandwillnotregardanyother person(whetherornotarecipientofthisdocument)asaclientinrelationtotheAcquisitionandwillnot beresponsibletoanyoneotherthanDraxGroupplcforprovidingtheprotectionsaffordedtocustomers of J.P. Morgan Cazenove or for affording advice in relation to the Acquisition, the contents of this documentoranytransaction,arrangementorothermatterreferredtointhisdocument. This document contains forward-looking statements relating to the Drax Group, the Opus Group, the Enlarged Group and the Acquisition. Statements containing the words “intends”, “believes”, “anticipates”, “may”, “will”, “estimates” “expects” and “outlook” and words of similar meaning are forward looking. By their nature, all forward-looking statements are subject to assumptions, risks and uncertainties. Although Drax believes that the expectations reflected in these forward-looking statements arereasonable,there canbenoassurancethat theseexpectationswillproveto havebeen correct and because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by those forward-looking statements. The preceding sentence does not qualify the statement in paragraph 10 of Part VII (Additional Information) of this Circular. Each forward-looking statement speaks only as of the date of the particular statement. Drax does not undertake any obligation publicly to update or revise any forward-looking statement as a result of new information, future events or other information, althoughsuch forward-looking statements will be publicly updated if required by the Financial Conduct Authority, the Listing Rules and the DisclosureandTransparencyRules,therulesoftheLondonStockExchangeorbyapplicablelaw. Percentages in tables have been rounded and accordingly may not add up to 100%. Certain financial datahavealsobeenrounded.Asaresultofthisrounding,thetotalsofdatapresentedinthisdocument mayvaryslightlyfromtheactualarithmetictotalsofsuchdata. CapitalisedtermshavethemeaningascribedtotheminPartVIII(Definitions)ofthisCircular. 2 CONTENTS ExpectedTimetableofPrincipalEvents 4 Directors,CompanySecretary,RegisteredOfficeandAdvisers 5 PartI–LetterfromtheChairmanofDraxGroupplc 6 PartII–RiskFactors 13 PartIII–InformationontheOpusGroup 19 PartIV–PrincipalTermsoftheAcquisition 22 PartV–HistoricalFinancialInformationrelatingtotheOpusGroup 25 PartVI–UnauditedProFormaFinancialInformationrelatingtotheEnlargedGroup 53 PartVII–AdditionalInformation 60 PartVIII–Definitions 78 PartIX–NoticeofGeneralMeeting 86 3 EXPECTEDTIMETABLEOFPRINCIPALEVENTS Dateofthisdocument 18January2017 LatesttimeanddateforreceiptofFormsofDirection 10:00amon3February2017 LatesttimeanddateforreceiptofFormsofProxyorCrestProxy 10:00amon6February2017 Instructions GeneralMeeting 10:00amon8February2017 ExpecteddateofCompletion 10February2017 AnnouncementofDraxpreliminaryresultsfortheyearended 16February2017 31December2016 NOTES: Unlessotherwisestated,referencestotimesinthisdocumentaretoLondontime. Future dates are indicative only and are subject to change by Drax, in which event details of the new times and dates will be notified to the Financial Conduct Authority and, where appropriate, Shareholders. 4 DIRECTORS,COMPANYSECRETARY,REGISTEREDOFFICEANDADVISERS Directors PhilipCoxCBE Chairman DorothyThompsonCBE ChiefExecutive WillGardiner ChiefFinancialOfficer AndyKoss ChiefExecutive,DraxPower DavidLindsell SeniorIndependentNon-ExecutiveDirector TimCobbold IndependentNon-ExecutiveDirector TonyThorne IndependentNon-ExecutiveDirector GeneralCounseland DavidMcCallum CompanySecretary Registeredoffice DraxPowerStation Selby NorthYorkshire YO88PH Sponsorandfinancial J.P.MorganCazenove adviser 25BankStreet CanaryWharf LondonE145JP Legaladviser SlaughterandMay OneBunhillRow LondonEC1Y8YY Reportingaccountants DeloitteLLP KPMGLLP 2NewStreetSquare ArlingtonBusinessPark LondonEC4A3BZ Theale ReadingRG74SD Registrars EquinitiLimited AspectHouse SpencerRoad Lancing WestSussex BN996DA InsuranceBroker WillisTowersWatson TheWillisBuilding 51LimeStreet LondonEC3M7DQ 5 PARTI LETTERFROMTHECHAIRMANOFDRAXGROUPPLC DRAXGROUPPLC (IncorporatedandregisteredinEnglandandWaleswithregisterednumber5562053) Registeredoffice: DraxGroupplc DraxPowerStation Selby NorthYorkshire YO88PH Directors: PhilipCoxCBE Chairman DorothyThompsonCBE ChiefExecutive WillGardiner ChiefFinancialOfficer AndyKoss ChiefExecutive,DraxPower DavidLindsell SeniorIndependentNon-ExecutiveDirector TimCobbold IndependentNon-ExecutiveDirector TonyThorne IndependentNon-ExecutiveDirector 18January2017 DearShareholder, ProposedAcquisitionofOpusEnergyGroupLimited 1. Introduction On 6 December 2016, Drax announced that it had entered into a binding conditional agreement withtheSellersinrespectofthepurchaseoftheentireissuedsharecapitalofOpusEnergyGroup Limited(“Opus”)forcashconsiderationof£340million(the“Acquisition”), subjecttoadjustments setoutinparagraph3below. The Acquisition constitutes a Class 1 transaction under the Listing Rules. As a consequence, completion of the Acquisition is conditional on, among other things, the Acquisition receiving the approval of Shareholders. Accordingly, you will find set out at the end of this document a notice convening a General Meeting to be held at The Grand Hotel & Spa, Station Rise, York YO1 6GD on8February2017at10:00am. Completion of the Acquisition is expected (subject to the approval by Shareholders of the Acquisition)tobe10February2017. I am writing to you on behalf of the Board to give you details of the Acquisition, including the background to and reasons for the Acquisition, and to explain why the Board considers the AcquisitiontobeinthebestinterestsofDraxanditsShareholdersasawhole. You should read the whole of this document and not rely solely on the summarised information containedinthisPartI(LetterfromtheChairmanofDraxGroupplc). 2. BackgroundtoandreasonsfortheAcquisition As previouslyoutlinedin our Half Year resultson26July2016,wehavebeenexploringoptionsto further improve earnings quality and deliver targeted long-term growth, evaluating opportunities to diversifyacrossthemarketsinwhichweoperate–pelletsupply,generationandretail. As part of this ongoing process, we announced on 6 December 2016 that we had entered into a conditionalagreementtoacquireOpusandanagreementtoacquirefourOpenCycleGasTurbine (“OCGT”) development projects for electricity generation (further details of which are set out in paragraph 7.1(L) of Part VII (Additional Information)). We are also pursuing selected potential opportunitiestoacquirefurtherwoodpelletplants. 6 These opportunities mark a significant milestone in the execution of Drax’s strategy, helping it to change the way energy is generated, supplied and used for a better future. We intend that this strategy of diversification will provide long term, sustainable value for the Drax Group extending pasttheclosureofUKcoalplantsandtheexpiryofcurrentrenewablegenerationsubsidies. FurtherdetailsontheOpusGrouparesetoutinPartIII(InformationontheOpusGroup). The Board believes that the Acquisition provides a unique opportunity and is strategically and financially compelling. Opus will enhance Drax’s retail offering by combining the leading “challenger” small and medium enterprise (“SME”) business with Haven Power’s strength in the industrial and commercial (“I&C”) market. The combination provides a robust platform for growth, bycombiningDrax’sandHavenPower’scommercialcapabilitiesandverticallyintegratedbusiness model with Opus’ established SME business and experience in both electricity and gas. The Acquisition leverages Drax’s flexible, reliable, renewable generation offering to create energy solutions for customers. It also furthers Drax’s strategic ambition to diversify and improve the quality of its earnings while increasing the contribution of businesses with long-term growth opportunities. KeybenefitsoftheAcquisitioninclude: AccelerationofDrax’sretailstrategy The Acquisition provides access to a large and profitable SME-focused retail business. As the leading “challenger” brand in the SME market, Opus has demonstrated consistent sales and sustained growth in revenue and profitability1 driven by customer satisfaction and high customer retention levels (>85% April 2015 to June 2016). As at 31 March 2016, Opus had a total of 129,025 customers (with 265,418 meters2), and as at 30 April 2016 had a non-domestic market shareof8%(bymeterscount). Opus’ experience and proven success in the SME market, combined with Haven Power’s existing presence in the I&C market, represents an exceptional opportunity for Drax to develop a platform for the growth of its retail business and significantly expand its customer base in the profitable SMEsector,acceleratingtheimplementationofDrax’sretailgrowthstrategy. Platformforgrowth Over the last six years, Opus has trebled the number of meters contracted to 265,418 (as at 31 March 2016) and has driven profitability, through its low cost business model and strong customer service proposition. The Acquisition provides the Enlarged Group with established routes to market for electricity and gas in the SME market and Drax believes that the combination of Opus and Haven Power can drive market share growth in the SME market. The SME market coversabroadrangeof customers –at thelargeendcommercialusers,similartoI&Ccustomers, while at the smaller end, users similar to domestic customers. The expertise and platforms shared by the combined business across both I&C and SME markets will enable the Enlarged Group to delivernewproductsandservicesandenhancedmarketcoverage. Compatibleandcomplementarytoexistingretailbusiness Haven Power was acquired by Drax in 2009 as a credit-efficient route to market for the large volumes of electricity produced by Drax Power and to monetise electricity sales and renewable certificates, such as Renewables Obligation Certificates (“ROCs”). Haven Power has focused on growing market share in the I&C market and currently has limited presence in the SME market, whereOpusiswellestablished. The Acquisition, therefore, complements Haven Power with its focus on a profitable separate and distinct customer segment. It will also enlarge the route to market for Drax’s generation business and allow its retail business to achieve critical mass both in the non-domestic market and within the Drax Group. Opus’ expertise in SME electricity and gas sales, combined with Haven Power’s 1 Excluding a reduction in the financial year ended 31 March 2016 reflecting the removal of the Climate Change Levy exemptionforrenewablepower 2 Smallcustomerstypicallyhaveasinglesiteandthereforesinglemeter,butlarger,corporatecustomersmayhavemultiple siteseachwithitsownmeter 7 track record in the I&C market and Drax’s umbrella of generation-backed power and commodity risk management, is anticipated to provide distinct benefits in the future, including the opportunity foranalternativehedgetocommoditymarketexposure. Drax believes that Opus’ expertise in different but related markets, a challenger mentality and a shared customer service ethos with Haven Power, together with its strong credit and risk management, including commodity risk, makes Opus a good cultural fit with Drax and contributes totheuniquenessoftheAcquisitionopportunity. HavenPowerYE OpusYEMar Dec2015 2016 Revenues(£m) 1,290(1) 573(2) GrossProfit(£m) 19(1) 107(2) Grossprofitmargin 1% 19% CustomerMeters(000’s) 30 265 Power(TWh) 13.8 4 Gas(TWh) — 1.7 Staff c.400 c.693 (1) SeeDrax’s2015AnnualReportandAccounts (2) SeePartV(HistoricalFinancialInformationrelatingtotheOpusGroup) Advancestransitiontobroader,higherqualitylong-termearnings Drax’s current strategy is to enhance quality of earnings and manage its exposure to commodity and power markets by broadening the range of markets in which it operates with improvements in magnitudeandstabilityofnetincome. The Acquisition aligns with this strategy and is expected to deliver more broadly based, high quality and predictable earnings, today and in the long term. This will be driven by more revenue from electricity and gas sales in the SME market and Opus’ high levels of customer retention (>85%inApril2015toJune2016). Attractivefinancialreturns Opus is expected to deliver strongly enhanced margins to Drax’s retail business having experienced consistent mid-single digit operating profit / EBIT margins over the last three financial years. Opus is focused on small SME and multi-site corporate groups obtained via an extensive network of third party intermediaries (“TPIs”) and is supported by a specialist customer service department. The utilisation of TPIs has helped to increase Opus’ customer base and has established a broad sales network incentivised to maximise margin. Together with a simplified pricing model and quick customer revenue collection, Opus delivers significantly higher net margins per customer than those currently achieved by Haven Power in the higher volume, low margin I&C sector. In addition, over the last three financial years, the difference between Opus’ operating profit / EBIT and EBITDA has remained consistently low reflecting the low capital intensityofitsbusiness. The Acquisition is expected to add both short and long-term financial benefits to Drax. Drax expects to achieve a return on invested capital higher than its current cost of capital. The addition of the well-established and growing Opus business with its high profitability and high cash conversion is expected to be significantly accretive to earnings and cash flow in 2017, with Opus having delivered EBITDA of £33.7 million, operating profit / EBIT of £32.8 million and cash from operationsof£34.3millioninthefinancialyearended31March2016. To illustrate the financial effects of the Acquisition on the assets and liabilitiesof the Company, an unaudited pro forma statement of net assets as at 31 December 2015 is set out in Part VI (UnauditedProFormaFinancialInformationrelatingtotheEnlargedGroup). Synergypotential The principal synergy for the Enlarged Group will be the opportunity for Opus to benefit from the sourcing of wholesale electricity and gas from Drax Power. Currently, Opus fulfils the majority of 8 its wholesale electricity and all of its gas purchasing requirements through agreements with a single counterparty. Opus incurs additional costs under these agreements (in excess of the underlying costs of the energy supplied), which vary depending on, amongst other things, the volume of energy supplied, the prevailing market price of energy purchased, the time Opus requested it from the counterparty and the accuracy of Opus’ forecasts. Further details on these arrangementsaresetoutinPartIII(InformationontheOpusGroup). In the year following Completion, Drax intends Opus to terminate these arrangements and for this wholesale energy to instead be sourced through Drax Power. Following replacement of these arrangements, Drax therefore expects that the majority of any future additional costs (in excess of the underlying costs of the energy supplied) relating to this wholesale purchase will be eliminated for the purposes of the Enlarged Group. This is because the service will be provided on an intra- group basis by Drax Power (which has the existing capability and expertise to source gas in the wholesalemarket as wellas electricity) rather than by athirdparty, althoughDraxPowerwillincur somethirdpartycostsinprovidingtheseservices. Drax also expects the consolidation of commodity positions within the Enlarged Group to achieve some economies of scale through the consolidation of Haven Power’s and Opus’ electricity imbalancepositionsandconsequentialreductionsinassociatedimbalancecosts. Haven Power has identified that smaller customers in its target market place are increasingly preferring suppliers who can offer a dual supply of gas and electricity and that Haven Power’s current single commodity offering is disadvantaging it compared with some competitors. Opus’ capability within the gas market may be used to satisfy this demand without Haven Power having toindependentlydevelopthecapability. The Acquisition will also allow Drax to drive traditional operational efficiencies over time. In particular, Opus’ IT platform is expected to be able to absorb forecast customer growth in the immediate future, while Haven continues work on a new enterprise resource planning-based technology solution which can be used in conjunction with Opus’ IT platform across the Enlarged Group’s retail business. The ability of Opus’ IT platform to absorb forecast customer growth therefore allows Drax both the time and the flexibility to create a sustainable IT platform solution fortheEnlargedGroupinthemediumterm. 3. SummaryoftheprincipaltermsoftheAcquisition Drax Developments (a wholly owned subsidiary of Drax), along with Drax and DGHL (another wholly owned subsidiary of Drax, acting as guarantor), entered into an acquisition agreement (the “Acquisition Agreement”) with the Sellers on 6 December 2016 in relation to the Acquisition for anequitypurchaseprice(withnoadjustmentfornetdebt)of£340million. As part of the transaction, a “locked box” mechanism has been agreed from 31 March 2016 to Completion. This has the effect of “economic ownership” of Opus (and all profits earned) passing to Drax Developments as at 31 March 2016, by preventing cash and cash equivalents being paid out of Opus to the Sellers or persons connected to them (other than certain items agreed in the Acquisition Agreement, including the dividend paid in April 2016). To compensate the Sellers for this, an additional sum equal to 8% per annum on the purchase price (pro-rated for the actual periodbetween31March2016andCompletion)willalsobepaidtotheSellersatCompletion. As at 31 March 2016, Opus had net debt (once adjusted for the payment of a dividend of £25 million in April 2016) of £3 million3. Following Completion, it is expected that the existing debt facilitiesofOpuswillberepaidandcancelledandanyworkingcapitalrequirementsofOpuswillbe metusingdebtfacilitiesandexistingcashoftheEnlargedGroup. Arrangements have also been made for: (i) the purchase of any additional Opus shares issued as a result of the exercise of existing share options as part of the Acquisition; and (ii) the payment of equivalent compensation for unexercised share options. Any payments made under these arrangements will be deducted from the purchase price payable to the Sellers such that the total considerationpayablebyDraxDevelopmentsisnotaffected. 3 AssetoutinPartV(HistoricalFinancialInformationrelatingtotheOpusGroup),Opushadcashandcashequivalentsof £22.3 million and no other borrowings as at 31 March 2016. This has been adjusted for the payment of a dividend of £25.4millioninApril2016. 9 CompletionisexpectedinQ12017.TheAcquisitionisconditionalupon: • the approval of the Acquisition by Shareholders, which is required as the Acquisition constitutesaClass1transactionundertheListingRules;and • the CMA not having made an order or a reference under the UK merger control regime such that the Acquisition is prohibited from completing while the CMA completes an investigation. In addition, the Acquisition was conditionalupon the approval by the EuropeanCommission of the CfD Investment Contract awarded to Drax by the UK government. This approval was obtained on 19December2016. DGHL has agreed to guarantee the obligations of Drax Developments under the Acquisition Agreement. Drax has also provided certain customary undertakings in relation to the shareholder approvalprocess. The Management Sellers have given to Drax Developments customary warranties relating to Opus’ business and warranties and covenants relating to Opus’ tax position. Drax Developments has arranged a warranty and indemnity insurance policy to provide additional cover up to £50 million in respect of those warranties and covenants (subject to certain exceptions and limitations). Further detailsof the AcquisitionAgreement and the Warranty andIndemnity InsurancePolicyare setoutinPartIV(PrincipalTermsoftheAcquisition). 4. FinancingoftheAcquisition The consideration in respect of the Acquisition will be financed entirely by a new acquisition debt facilityofupto£375million(the“AcquisitionFacilityAgreement”). Drax aims to maintain a credit rating in the BB range in line with its robust sub-investment grade business model. This is consistent with the recent update from S&P, which confirmed the existing rating. Drax will consider potential options for its long-term financing strategy (includingthe refinancingof theAcquisitionFacilityAgreement)in2017. Further details of the Acquisition Facility Agreement are set out in paragraph 7.1(D) of Part VII (AdditionalInformation). 5. Currenttradingandoutlook (a) Drax TheDirectorsconfirmDrax’sstandaloneoutlookasdescribedinthetradingupdateannouncement on6December2016,extractsofwhicharesetoutbelow: “Since publishing its half year results on 26 July, trading conditions in the markets in which Drax operateshaveimproved,withhigherpowerandcommodityprices. Drax’s second major planned biomass unit outage was completed over the summer. The outage commenced earlier than planned due to a generator issue but has now been completed with no biomass related issues identified. Both biomass and coal operations are currently performing well, although availability of biomass units over the period has been lower than forecast due to the generatorissuenotedaboveandanunplannedoutageonfuelfeedsystems. Taking these factors into account, amongst others, based on the current power prices and good operational availability for the remainder of the year, alongside CfD revenues during December, Drax continues to expect full year EBITDAto be around the bottom of the range of current analyst forecasts4.” The Directors have continued to see positive trading from Drax in the period since the trading update announcement on 6 December 2016 and confirm that Drax’s standalone outlook as 4 Based on a range of market forecasts for EBITDA, published since 26 July 2016, of £135 million to £169 million. These forecasts generally assume a CfD Investment Contract for Drax’s third biomass unit conversion with a strike price of £100/MWhin(2012terms)byJanuary2017. 10