Blackfriar: Drax needs support as it steps out on the green path

The North Yorkshire power station owner yesterday revealed its next step towards turning the plant into a totally coal-free operation.

With Government support, it wants to demonstrate how a coal power station can come full circle and convert to burning biomass. This key step would be to turn one of its 650mw units into a demonstration unit, burning not coal but oat husks, straw pellets and wood chips.

Some way down the line, the next steps could be to convert its other five units, which Drax said would make it "one of the biggest clean power stations in the world".

Biomass and Drax are nothing new, but have had a rocky relationship in recent years. The UK's biggest single source of carbon dioxide, it is under huge pressure to cut emissions and help the Government meet carbon reduction targets.

But after recently spending 80m on 400mw of new biomass co-firing capacity, Drax is only burning only about two thirds of the biomass it said it would.

It argues lack of subsidies and long-term support have prevented full use, and must be in place before it can lead the way in biomass generation. Its 2bn plans for three standalone power plants at or near its North Yorkshire base will also only take off if Government support is in place to make them economically viable.

Chief executive Dorothy Thompson calls the situation a "wonderful fallacy".

Blackfriar is under no illusions about Drax's agenda in hammering home its biomass vision: economics, as much as the environment, lie at the heart of it.

Analysts reckon if Drax fails to diversify away from coal, by 2013 the company would have to spend some $850m annually on carbon permits under European Union regulations.

The day when Drax solely burns biomass is a long way off, but Blackfriar admires Mrs Thompson's vision.

Like it or not, the UK needs Drax in healthy shape if it is to keep the lights on. And if the group can lead the way among power plants by shifting to a lower carbon model, technology developed in Yorkshire could become a blueprint used on a global scale. That is surely a vision worth supporting.

To pay a divi or not pay a divi, that is the question.

Well it's only the question if the company involved is not doing so well. If the company is doing well then obviously shareholders deserve their cut with a nice fat dividend payment.

But a company that has just announced a near 3m pre-tax interim loss, what should it do?

Step forward Doncaster-based ATH Resources, which yesterday announced a pre-tax loss of 2.9m for the six months to April 4. Shares in the group tumbled last night after it said floods and freezing temperatures hit coal production last winter and it warned that it will fail to meet the production target for the full year.

Subsequently some analysts have questioned the decision to pay a dividend.

"With two new mines to construct and the Langton regeneration site to complete, it is interesting that the group found space to announce a 1p interim dividend – at a cost of about 401,000," said Charles Kernot at Evolution.

"In our view, this cash could have been better applied to reducing debt – which increased 1.9m in the period – and improving balance sheet structure," he added.

However others welcomed the reinstatement of the interim dividend. Analysts at Seymour Pierce described the payment as "good news". "Crucially the full year dividend looks secure following the refinancing," they said in a note.

The company itself said it is paying a dividend in the belief that the future is looking much brighter. It better be right.