Mild and windy weather hits Drax profits

Drax Power Station. Picture by Simon Hulme
Drax Power Station. Picture by Simon Hulme
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​​POWER ​station operator​ Drax​ has​ issued a full-year ​profit warning, blaming ​low​er ​​energy prices ​following mild weather​ across Europe this year.

The Selby-based ​firm said that unless markets improve in the coming months, full year ​earnings for 2014 will be below current market forecasts.

The group’s shares closed down x per cent, a fall of xp to xp.

​​Analyst Harold Hutchinson​ at Investec said: ​“​A prolonged mild and windy winter has led Drax to indicate lower prospects for 2014 than were baked into previous consensus forecasts.”

​He has cut ​2014 earnings expectations from £243m to £220m.

“We leave our recommendation and target unchanged, seeing the downgrade as driven by a one-off weather effect, with no read through for medium-term fundamentals,” he added.

Drax is in the process of converting most of its coal-fired power plant, one of the most polluting stations in Europe, to run on environment-friendly biomass​.

The group said it ​is making progress with its transformation ​and capital investment ​is on schedule and budget.

​“​Biomass conversion ​is ​on track​,” said Mr ​Hutchinson​.

“​The main aspects of Drax’s metamorphosis remain intact, with unchanged timelines and budgets. The first converted unit continues to perform at a high level. A further unit is now beginning commissioning as an ‘enhanced’ co-firing unit (at least 85​ per cent​ biomass).​”

Two biomass storage domes are now in service at the Drax site and the new facility at the Port of Hull is operational.

In the US, Drax expects its first pellet plant and port facility to begin in ​the first quarter of ​2015, with commercial operations at the second pellet plant beginning in the second quarter.

The group said it anticipates further weakness in Renewables Obligation Certificates (​ROC​)​ prices this year, exacerbated by abnormally high wind generation.

​​Last month, Drax launched a legal challenge against the Government after it changed its mind over funding for the conversion of one of Drax’s generating units from coal to sustainable biomass.​

Yesterday Drax said: ​“The Government’s decision has caused some uncertainty, which will lead to delay in biomass supply and logistics development.

“We do, however, remain fully committed to our strategy of transforming Drax into a predominantly biomass-fuelled generator, initially through the conversion of three of our six generating units, with a fourth unit conversion under evaluation.”

The group has agreed a new private placement for £100m with various funds managed by M&G Investments. ​Drax said this will strengthen its balance sheet.