UPDATED: Drax looking to phase out coal after it reports £83m loss

The power generator has been in the middle of a shift from coal to renewable fuels. Its coal-powered units are increasingly playing a support role, being used for plugging in gaps in the electricity supply.

Instead Drax has been converting its units to biomass, which burn wood pellets in order to generate power.

The energy giant is also carrying out a feasibility study looking at low-cost options for further conversions at the plant, either to biomass or gas. The Government wants coal off the system by 2025.

Mr Koss was speaking after Drax, which operates a giant power station near Selby in North Yorkshire, reported a pre-tax loss of £83m for the six months ended June 30. In the same period last year, Drax posted a profit of £184m.

The power generator said £65m of the losses were as a result of foreign currency hedging. Drax did though see an increase of £51m in EBITDA from the previous year to £121m.

It also said that its business-to-business retail operation was profitable and growing, and that it had improved earnings from renewable generation.

Last year Drax took the decision to branch out into new energy markets with the £340m purchase of gas and electricity supplier Opus Energy​. Opus supplies small businesses.

Mr Koss, said: “Overall we are pleased with the results.

“If you look at our EBITDA level it is up £51m from 2016. And again we had really strong overall performance from the biomass units. It is very much down to accounting issues.”

Dorothy Thompson, chief executive of Drax Group, said: “We have made good progress with our strategy during the first half of 2017, acquiring Opus Energy and a third compressed wood pellet plant, in addition to refinancing and implementing a new dividend policy.

“Central to our strategy is the delivery of targeted growth through deploying our expertise across our markets and, in so doing, diversifying, growing and improving the quality of earnings whilst reducing exposure to commodity market volatility. Delivering reliable renewable electricity remains at the heart of our business. We continue to produce at record levels, helping to keep the UK’s electricity system secure and supplying our customers through our retail business. With the right conditions, we can do even more.

“We are progressing our four new rapid response gas power projects and our research and innovation work has identified potentially attractive options to repurpose our remaining coal assets.”

Shares closed at 13 per cent at 332.40.

Analyst John Musk at RBC Capital Markets said there was “little to get excited about in these results”.

He said: “This is hardly surprising given the Capital Markets Day held by Drax in mid-June.

“Post that event, we highlighted our concerns that the new dividend policy was not as clear cut as investors had expected and that we have some scepticism in the long-term growth profile of EBITDA to over £425m in 2025.

“Much this scepticism was around Drax’s targets to grow Retail EBITDA to £80m and Biomass Supply EBITDA to £75m.”

Mr Musk said his team would continue to advocate an ‘underperform stance’.