Drax wants renewable future as carbon tax bites into earnings

INCREASING carbon tax costs has hit earnings by power station operator Drax.

The Yorkshire-based power group said it is focused on increasing its renewable power generation from the current 20% to 50% by 2016.

Drax saw a fall in earnings before interest, tax, depreciation and amortisation (EBITDA) to £102m in the six months to June 30 from £120m a year ago.

After depreciation and finance costs due to the investment in biomass and losses on derivative contracts of £56m related to a foreign currency hedging programme, the group made a pre-tax loss of £11m compared to a profit of £206m for the same period last year.

The group said its outlook for the full year remains unchanged but warned that regulatory issues still remain.

Last week Drax won a High Court challenge against a Government decision to withhold a subsidy for its biomass conversion plans and while the Department of Energy and Climate Change has now agreed to award it  an investment contract it will appeal against the court decision.

Dorothy Thompson, chief executive of Drax, said: “We are pleased to have delivered another good operating performance across our biomass and coal generation business. However, as expected, in the short term the increasing cost of the UK carbon tax drove EBITDA down year on year. We have been investing significant capital to transform Drax into one of Europe’s largest renewable power generators, burning sustainable biomass, thereby improving the long term value proposition for the Group.
 
“The regulatory landscape still presents uncertainties, but positive progress is being made and we hope that most of the key issues will be clarified in the coming months.
 
“Our underlying business case remains strong. In 2016, half of Drax Power Station will be fuelled by sustainable biomass, delivering 4% of the UK’s electricity. Through this transformation we will provide cost-effective, low carbon and reliable renewable power to the UK consumer.
 
“At the core of the group is a very high quality power station, hugely important to the security of electricity supply in the UK. We will remain critical to UK infrastructure for a very long time to come.”

Drax will pay an interim dividend of 4.7p a share.