Drax confident earnings will see boost with biomass plans

DRAX expects its earnings to grow “significantly” as it moves forward with its new biomass units.

The Yorkshire power station operator reported in its half year results yesterday, a pre-tax profit of £206.6m compared to £141.2m in the same period last year and operating profit up to £213.6m compared to £146.6m. However, EBITDA was down to £120m from £154m in the same period last year but the group said this was in line with expectations, as it invested heavily in biomass and carbon costs were ramped up by the Government.

Drax said it is pleased with its results for the first half of the year, as it makes a number of moves in its bid to become the one of the world’s largest renewable generators. The business is working to move from coal to biomass as its main source of fuel.

Production director, Peter Emery, said: “Earnings overall are down but as we move into 2014/2015, we expect earnings to grow significantly, as we take carbon costs out of the equation.

“The job now is to try and get there as quickly as we can and we are confident we can do that.”

Drax said it plans to convert its second unit to run on sustainable biomass next year. It also has plans to convert a third unit possible in 2017.

Emery said: “We are pretty confident we can do this. We don’t want to run before we can walk, but the business has performed well. It is the price of carbon that has depressed these results but the progress is pretty clear.

“We are focused on responding to this and moving to renewable sales. This is opening up a huge new income for us.”

Emery said the increase in buying carbon permits has been a big hit on earnings, but it knew these high Government costs were coming. The business had to pay £70m for EU carbon allowances through the emissions trading scheme. Last year it had to pay £38m. A carbon floor price introduced by the Government in April also cost Drax £14m up to the end of June.

He said: “We are very pleased with our performance but Government policy has made it harder.

“We are trying to manage the transition – that’s the big news for us and it has all gone to plan and the unit is running well.”

Earlier this year, Associated British Ports (ABP) signed a 15-year contract with Drax to handle biomass shipments destined for Drax Power Station at Selby. Emery said one of the big challenges now is the smooth running of the rail loading facilities at ABP’s Port of Hull for handling and transporting shipments of sustainable biomass.

He said: “The basic design has worked well, we are trying to make it flexible. That has gone well but our next job is to look at the move to bespoke systems.

“We are moving a lot more biomass now, so the logistics can be a challenge but we are managing.”

Last week, Drax unveiled the UK’s first purpose-built biomass rail freight wagon at the National Railway Museum in York.

Developed by designers at Lloyd’s Register Rail and manufactured by WH Davis, it is the largest ever produced and pushes the boundaries of rail engineering.

The wagon is one of 200 that will transport sustainable biomass from the Ports of Tyne, Hull and Immingham to Drax Power Station for use in generating the renewable energy.

Its volume is almost 30% bigger than any freight wagon currently used in the UK.

Emery said: “Our transformation means we need new, bigger and better rail wagons. We need to keep the biomass dry, move more of it and speed up the process of unloading.

“The finished product is an industry-leading design and fulfils all the criteria we set. We may be launching it in a museum but this wagon is no museum piece and will not be surpassed for many years to come.”

As plans move forward, Drax power station is also in pole position to secure a grant worth up to £300m, after the European Commission announced the ‘White Rose’ project as the sole bidder in its green energy funding competition to help develop carbon capture and storage (CCS) across the continent.