Drax saw pre-tax profit fall by £50 million in the six months to 30 June, compared to 2015. The removal of Levy Exemption Certificates and deteriorating commodity markets were to blame, the company said. The effect had been mitigated by higher income from ancillary services, which had revenue of £20 million, compared to £6 million in 2015.
The company is “now, firmly, a predominantly renewable energy generator,” said chairman Philip Coz, because 70% of generation had came from biomass during the period, up from 37% in the period last year.
The future of the site’s coal units is not yet clear, although chief executive Dorothy Thompson has consistently called for support to convert them to biomass. The company has reviewed operations for the remaining coal units in the light of a likely phaseout of coal – although it is not clear when an expected consultation on the phaseout will be published.
But Drax expects little operation of the units in summer and has reduced planned maintenance work on one unit, saying “With lower investment comes risk of lower reliability but we are confident that the unit will continue to achieve an appropriate rate-of-return, as well as be available to provide critical system support should the grid require it.”
Drax is now hoping that a Contract for Difference (CfD) for power from conversion of another unit to biomass will receive State Aid approval in the autumn. The company noted that the supply chain for wood pellets, which fuel its converted plants, had been hit by warm winters and low prices. Some suppliers were in ‘financial distress’ and liquidity was limited, although Drax has long-term contracts. It expects growth to stabilise supply – biomass will be used to fuel plants at Lynemouth and Teesside in the UK, and further projects in the Netherlands, Belgium, Korea and Japan.
The company said the outcome of the Brexit vote “may increase the level of regulatory and political risk as arrangements are made for the UK Parliament to take full control of all policy-making which impacts the UK energy industry. The Board is monitoring this situation closely, and recognises the current uncertainty, but at this stage we do not detect increasing risks”.