Drax profits to be at top end of expectations

Shares in coal-fired power station operator Drax rose on Tuesday morning after the company said its full year results would be towards the top of market forecasts.

The firm said this was based on a range of market forecasts of £292 million to £331 million for earnings before interest, tax depreciation and amortisation and 43 pence to 54 pence for underlying earnings per share.

Since publishing its half year results in August, Drax said trading conditions in the commodity markets in which it operated have been relatively stable.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

This meant it had taken advantage of some better 'dark green spreads' during the period to strengthen its contracted position.

Dark green spreads refer to the margin its Yorkshire power plant makes from selling a unit of electricity, having bought the coal required produce this unit of electricity.

Drax also said it had benefited from continued good operating performance at its plant.

"The plant's reliability and flexibility allow us to participate in the real-time electricity trading market, managed on a daily basis by National Grid through the Balancing Mechanism, and we have been particularly active in this market during the period," the firm said.

However, it added it would need greater subsidies from the government if it was to push ahead with planned for increased use of biomass as its plant.

The government has proposed that it will give Drax one Renewables Obligation Certificate (ROC) for every MWh of energy it produces using biomass, a renewable fuel made from biological materials.

ROCs are used to determine how much support is given to green energy companies, but Drax said the government's proposed levels of support for new dedicated biomass plants made the investment case for planned dedicated biomass developments "highly challenging".

Energy production through biomass follows much the same line as fossil fuels, with only the material being different.

The fuel, including wood, crops, food waste and industrial waste, is burned, heating water that turns to steam and drives a turbine.

Traditionally this material is made up of waste products such as wood chippings or crop husks.