Drax takes a £35m hit from higher taxes on burning coal

Drax power station
Drax power station
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Drax, the UK’s biggest power station, reported a​ 15 per cent fall in first-half earnings, hit by ​higher taxes on burning coal.

​The firm, based near Selby in North Yorkshire, said higher carbon taxes knocked £35m off earnings in the six months to June 30.

The group said earnings before interest, tax, depreciation, and amortisation (EBITDA) fell to £102m over the half year, down from £120m. ​

Drax has plans to convert three of its six coal-fired power generation units to biomass by 2016, which will provide four per cent of the UK’s electricity. This means that half of Drax will be fuelled by sustainable biomass.

One unit was converted last year and another two conversions are planned for next year. Biomass now makes up more than 20 per cent of Drax’s output.

​Following a report last week ​that some biomass could be more polluting than fossil fuels, Drax said its biomass is rigorously checked to ensure it meets the firm’s stringent green credentials.

Drax chief executive Dorothy Thompson said: “Our biomass produces 80 per cent less carbon than coal.

“This report concludes there are good ways to buy biomass and there are bad. If procured responsibly you can deliver a sustainable low carbon fuel.”

She added that the group is keen to set up a voluntary code with other European players to ensure that the biomass they all use is low carbon.

She dismissed the notion that Drax could ever use biomass that pollutes as much as coal, saying: “It’s a risk not worth taking.”

​Drax recently won a legal victory over its eligibility for subsidies that the Government had initially indicated it would grant for the conversion of the second unit before ministers changed their mind.

This is subject to appeal and Ms Thompson said the group doesn’t know when the case will be settled.

“We think we have a very strong case,” she said.

Asked how much the company is paying in legal fees to try to win back subsidies, finance director Tony Quinlan said: “There’s a lot of value at stake, so the legal fees are very small in comparison.”

Drax said only a very small amount of its coal comes from Russia, so it is unlikely to be affected by any disruption in Russia coal supply. The majority of its coal comes from Colombia and America.