Drax hit by power prices and change in support for renewables

DRAX is weathering a tough period in its sector but despite a fall in profits it is optimistic for the future.

During the period, the government has become less sympathetic to renewables, leading to the scrapping of exemption from the Climate Change Levy, something which Drax said was partially to blame for its decline in half year EBIDTA to £70m from £120m the year before.

Drax said that these regulatory challenges (following a rejected appeal by the High Court) could reduce EBITDA by £90m by the end of 2016.

However chairwoman Dorothy Thompson and chief executive of Drax Power Andy Koss said that despite these shorter term effects, the business was optimistic.

Having transformed 70% of its electricity generation into renewables, Drax now provides 20% of the UK’s total renewable energy from its biomass conversion.

It also won an ancillary services contract from the National Grid which offset the decline in EBITDA.

Chief executive of Drax Power Andy Koss spoke to TheBusinessDesk.com. He said: “We’re pleased with the results, operating performance has been very good, financial performance is a little weaker but in line with market expectations. EBITDA at £70m as opposed to £120m is primarily because of power prices and changes in support for renewables.

“What we’d really like to do is convert more, under the right conditions we’ve said to the government, new cabinet, and the new secretary of state that we want to open discussions on that. We stand ready to convert the rest, we all want coal off the system and to introduce great, reliable and flexible renewable energy.”

Mr Koss said that from a Brexit point of view, Drax was relatively unaffected in the short term.

He said: “We will have to see how the future of Europe maps out, but so far our share prices have shown that we’re a safe haven. The one big thing is the fall in the pound against the dollar, which exposed up to the US and Canadian dollar, but we do hedge foreign exchange up to five years forward, so we are well protected.

“We stand ready to work with the new government, Greg Clarke has been very supportive of renewables in the past which is great. The new Northern Powerhouse minister Andy Percy is MP at Goole down the road and we look forward to working with him.”
Dorothy Thompson, chief executive of Drax who was this year awarded Ambassador of the Year accolade at TheBusinessDesk.com’s Business Masters for her services to the energy sector at the helm of the power station, said that Drax’s “challenging environment” impacted financial performance.

She said that Drax were committed to biomass as “the most reliable way to decarbonise the UK” and that the renewable energy it demonstrated, enough to power Leeds, Manchester, Sheffield and Liverpool combined, was “truly a renewable northern powerhouse.”

 

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