Drax confident of biomass boost despite profits cut

DRAX, which runs Britain’s biggest coal-fired power station, said its strategy to cut carbon emissions was progressing positively.

Chief executive Dorothy Thompson said she was confident an £80m investment in biomass facilities at the Drax power station at Selby, North Yorkshire, would yield positive financial returns.

Ms Thompson was speaking as Drax reported earnings before interest, tax, depreciation and amortisation (EBITDA) of £206m for the first six months of 2008, down 28% from the first half of last year. Pre-tax profits fell 45% to £150m.

The fall was attributed to lower margins as fuel costs have increased. Drax’s share price was 7.5p up at 730.5p in early trading this morning.

Earlier this year, Drax signed a £50m contract to create the world’s largest biomass co-firing facility at its Yorkshire power station, which is the country’s biggest single source of carbon dioxide.

The deal with power generation technology business Alstom is part of Drax’s commitment to significantly increase its renewable biomass output as part of plans to reduce carbon dioxide emissions and combat climate change.

Over the last five years, Drax has developed the capability to co-fire renewable biomass materials with coal and has set itself a  target to produce 10% of its output from co-firing, the equivalent output of around 500 wind turbines, which will reduce its emissions of CO2 by more than 2m tonnes each year.

Co-firing, the blending and burning of renewable fuel derived from plants with coal to generate electricity, is a recognised carbon abatement technology that has the potential to reduce the emissions of CO2 from coal-fired power stations.

Ms Thompson said that Drax had achieved a “solid financial performance” over the first half and expected its full-year EBITDA to be slightly more than £400m.

For the 12 months to December 31 2007, Drax’s underlying pre-tax profits were £439m – a fall from £542m the year before.

Ms Thompson said the biomass Drax used was from sustainable sources and was harvested from various locations across the globe.

She said: “During the first half of 2008, we have continued to focus on delivering value for our shareholders by maintaining leading performances in trading and production whilst developing our biomass capability.
 
“Both of our strategic carbon abatement projects, to deliver efficiency improvements by upgrading our turbines and to grow our co-firing capability have made good progress. Due to the success of our biomass procurement strategy, we are also pleased to announce today an increase in our forecast co-firing capacity from 10% of output (or 400MW) to 500MW. These investments are critical to the UK’s transition to a low carbon economy, whilst delivering reliable and secure supplies of electricity.

“Overall, our environmental performance continues to improve. We are successfully driving down all our emissions per unit of electricity generated, strengthening our position as the UK’s cleanest and most efficient coal-fired generator.”

Chairman Charles Berry confirmed that following finance director Gordon Boyd’s decision to leave Drax during the second half of the year, Tony Quinlan will replace him in September.

Drax has proposed distributions of 14.7p per share comprising an interim ordinary dividend of 5p and an interim special dividend of 9.7p.