Electricity generator Drax hails progress in switch to biomass

Haven Power at Ransomes Europark, Ipswich

Haven Power at Ransomes Europark, Ipswich - Credit: Archant

Electricity generator and retailer Drax today reported a dip in underlying annual earnings after a “challenging” year in terms of regulation and commodity prices.

But the group – which includes Ipswich-based Haven Power, a specialist retailer of electricity to businesses – said it had continued to make progress towards its transformation into a mainly renewables-based electricity provider.

The group’s reported pre-tax profit jumped from £31.8m in 2013 to £165.9m last year but this largely reflected an unrealised gain involving the on-paper value of derivative contracts.

Underlying earnings fell by 33.4%, from £142m to £96m, as a result of higher depreciation and finance costs, reflecting biomass investment and associated financing.

Drax Power, its generation business, which produces around 8% of the UK’s electricity, achieved net sales of 26.7 terrawatt hours (TWh), up from 26.2TWh in 2013, with biomass accounting for 7.9TWh compared with 2.9TWh the previous year.

The group is in the process of converting three of the six generating units at its Drax power station in North Yorkshire from coal to biomass, with a work on a second unit being completed during 2014 and the third due to follow by the end of 2016.

During last year, however, changes in commodity prices had a negative impact on margins and the group also lost a legal battle with the Government which resulted in the second unit being converted under the Renewables Obligation support mechanism rather than the new Contracts of Difference arrangement as it had expected.

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Haven Power, which is based at Ransomes Europark, delivered sales of 11.8TWh compared with 8.1TWh in 2013, which Drax said was in line with its strategy to achieve sales of 12TWh to 15TWh by 2015. By value, Haven’s sales grew from £751m in 2013 to £1.1billion last year.

Drax said that selling its output through its own retail business continued to provide a credit-efficient route to market compared with the wholsesale electricity market.

It added that it had been working to minimise risk relating to the Labour Party’s proposed freeze on energy prices, although it said most of Haven’s customers were supplied under fixed term contracts which were not believed to be the primary target of the policy.

Drax chief executive Dorothy Thompson said: “External factors have been challenging, with regulatory headwinds in 2014 exacerbated by the recent major deterioration in commodity markets. In these conditions we are placing particular focus on business efficiencies and cost control measures.

“However, I am pleased that the key activities within our direct control have gone very well indeed. We will deliver our biomass transformation plans, converting three units to sustainable biomass, on time and on budget.

“We are delivering Europe’s largest decarbonisation project whilst producing 8% of the UK’s electricity. Renewable electricity from sustainable biomass is flexible and available 24/7, providing low carbon electricity, whenever it is needed.

“At the core of the group is a very high quality power station, hugely important to the security of electricity supply in the UK.”