Generating less electricity proved to be no bar to Drax making more money from its North Yorkshire power plant, as it started to reap the rewards of a lucrative biomass subsidy deal.
Earnings from generation at Britain’s biggest power plant, which burns coal and biomass, rose to £136.7 million in the first half of this year, from £85.8 million in the same period last year, after the fixed-price subsidy contract for one of its biomass units came into effect. Electricity output dipped 2 per cent, to 10.7 terawatt-hours.
Despite the increased earnings, Drax slumped to an £83 million pre-tax loss from a £184 million profit in the same period last year, dragged down by the impact of foreign currency hedging and the declining value of its coal assets.
Drax has converted three of the six units at the power station from burning coal to biomass, in return for renewable energy subsidies. It is assessing options for the remainder of the site, including converting another unit to biomass and one or two units to gas, after the government vowed to end coal-fired generation by 2025.
The decision, announced last autumn, forced Drax to accelerate the depreciation rate for the parts of its plant that relate specifically to coal and cannot be used in any conversion, weighing on its profits.
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Drax’s profits also were hit by “unrealised losses related to foreign currency hedging of £65 million”, as sterling started to recover against the dollar. The previous year’s result had been flattered by £163 million of gains on currency hedging as the pound fell in the wake of the Brexit vote.
Dorothy Thompson, chief executive of Drax, said that the business had “identified potentially attractive options” for adapting its remaining coal units. It is pressing ahead with work on the feasibility of converting one or more units to burning gas and is beginning the process of looking at how gas supply pipelines can be brought to the plant.
Mrs Thompson said: “Early indications are that this could be an attractive option for delivering critical flexible and reliable generation capacity for the UK and we expect to continue to develop this as an option.”
Coal units converted to burn gas would be eligible for a type of subsidy contract through the government’s capacity market scheme.
The plans for conversion to gas come after years of unsuccessful lobbying for the government to offer more renewable energy subsidy contracts to support the conversion of further units to burn biomass. Drax has not given up on biomass entirely, however, and has been testing a new, cost-effective way of converting one more coal unit to burn biomass wood pellets. This might qualify for a less lucrative subsidy scheme.
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The company, which has come under fire from green groups sceptical of the environmental case for biomass, said that it had appointed David Nussbaum, a former head of the World Wide Fund for Nature in the UK, as a non-executive director.
Shares in Drax fell by more than 3 per cent yesterday, closing 12¼p off at 333¼p.