Drax returns to profit as annual earnings surge

By Hull Daily Mail | Posted: 26 Feb 2019

Regional power giant Drax is back in profit, with annual earnings up more than £20 million, as it progresses on a transformational journey to clean up its contribution to the energy sector.

The huge operator has switched from being a predominantly coal-fired operation to biomass in a decade’s journey, and is now piloting carbon capture as it looks to enhance its credentials further as the sector turns green. 

And the base load security of supply offered by the raw material that is shipped in via Immingham and Hull to replace reliance on fossil fuel – together with the addition of gas assets and developments – is strategically positioning it to smooth the intermittent nature of wind and solar. 

Posting earnings of £250 million, Will Gardiner, chief executive of Drax Group Plc, said: “Drax is now one of the leading generators of flexible, low carbon and renewable electricity in the UK. As the grid decarbonises, our ability to support intermittent renewables will become increasingly important as we strive to deliver our purpose of enabling a zero carbon, lower cost energy future.

Drax Power Station.

“Drax performed well in 2018. Our commitment to operating safely and sustainably remains at our core. We commissioned our third pellet production plant, which contributed to our good results. After a difficult first quarter for our Power Generation business, we delivered strong availability and financial results. Whilst the year was challenging for our B2B Energy Supply business, we continued to grow our customer base and are investing in the significant opportunity created by smart meters. 

“We are confident in our ability to continue growing our earnings and advancing our strategy through the year. We have attractive investment opportunities throughout our business, and while short-term uncertainty over the Capacity Market remains, we look forward to developing those opportunities in a disciplined fashion.”

Read more: Carbon capture first at Drax

The completed acquisition of ScottishPower Generation has accelerated the strategy, with the addition of a 2.6GW multi-site, multi-technology portfolio of pumped storage, hydro and gas.

The huge silos that hold the biomass ahead of use as a feed stock for firing at Drax. 

Drax said that “high quality earnings with expected returns significantly in excess of weighted average cost of capital” are anticipated. 

It has reduced debt from £367 million to £319 million, representing a significant reduction from 1.6 times earnings to 1.3.

Dividend growth of 15 per cent has also been announced, 14.1p per share compared to 2017’s 12.3p, with a £50 million share buy back programme completed.

Read more: Spanish acquisition reinforces Drax's role at the heart of GB energy network

Profits included gains made on foreign currency hedging, after a year that saw the value of coal assets plummet and a weak pound hit raw material costs and saw pre-tax losses of £204 million posted 12 months ago.

Further highlights in the year included the successful low-cost conversion of a fourth biomass unit, with biomass now accounting for 75 per cent of generation compared to 65 per cent in 2017, with a third US biomass pellet plant commissioned, and fully operational.

Immingham Renewable Fuels Terminal. 

LaSalle Bioenergy, a half a million tonne pellet capacity in Louisiana – helped Drax post a 64 per cent increase in production to 1.351 million tonnes, from 822,000 tonnes last year, with a 10 per cent cost reduction achieved. Further savings are to be achieved with a dedicated rail spur to support the link with Baton Rouge port facility, with commissioning this year, the penultimate step before the biomass arrives on the Humber. 

Biomass availability hit 91 per cent, compared to 79 per cent in 2017. 

Read more: Green is the new black as power capacity shifts from fossil to renewables

Touching on Brexit, today's statement underlines how the "ongoing negotiations for the withdrawal of the UK from the European Union and the evolving trade policy of the US administration continue to increase political and regulatory uncertainty".  The group said it continues to monitor these situations closely, with bosses engaged with government and regulators in the UK and internationally to ensure the views and positions on legislation, regulations, and energy and environmental policy issues are represented.

It warned of any associated sterling weakness influencing the cost of fuel, with foreign exchange hedging already in use to effectively cap liabilities on exposure. 

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