* Company reviews dividend policy after earnings fall
* Revenue from ancillary services treble to 47 mln pounds
* Coal generation more than halves in 2016
(Recasts, adds details, CEO comments, analyst comment, share
By Karolin Schaps
LONDON, Feb 16 Power producer Drax said
it was reviewing its dividend policy after reporting another
decline in annual profits on the back of weak energy prices,
sending its shares down 6 percent.
As its core power production business struggled with low
market prices, the company more than trebled revenue from
providing back-up generation. It saw scope to grow this business
significantly as rising renewable energy production requires
stand-by plants to fill gaps in output.
Drax said it would pay a full-year dividend of 2.5 pence per
share, down from 5.7 pence in 2015, but in line with a policy of
paying out half of underlying earnings.
However, it plans talks with shareholders in coming months
over a review of that payout policy.
"To us this points to a lower dividend policy long-term than
current consensus expectations," said analysts at Jefferies who
rate the stock as 'underperform'.
Drax reported a 17 percent fall in earnings before interest,
tax, depreciation and amortisation (EBITDA) to 140 million
pounds, just below analysts' forecast of 143 million pounds.
The company, which is converting Europe's once most
polluting coal plant to run on biomass, made 47 million pounds
($59 million) in revenue last year from contracts with National
Grid which reward it for providing back-up power. This
compares with 14 million made from these services in 2015.
The contracts mean that Drax has been able to keep its
remaining coal-fired power units running. It said a year ago it
may have to mothball the coal units that have struggled to
compete with cheaper green energy output.
"We do expect our coal plants to continue to generate at
very low levels compared to historic rates but we think they
will be needed to keep the system stable and secure," Drax Chief
Executive Dorothy Thompson told Reuters.
Drax's coal generation more than halved last year to 6.9
terawatt-hours as its biomass units produced 65 percent of the
company's output, up from 43 percent in 2015.
The British government has ordered the closure of all coal
plants by 2025, a policy that Drax said will lower the value of
its coal units by around 30 million pounds a year.
Drax said it needed further government incentives to convert
the last three of six coal units to run on biomass. Its latest
conversion, which was approved by the European Commission in
December, receives a guaranteed power price of 100 pounds per
Thompson said further conversions could happen at a
"significantly lower" price as costs have come down.
Drax is also expanding its energy supply business, having
earlier this month completed the 340 million pound acquisition
of business energy provider Opus Energy.
($1 = 0.8008 pounds)
(Editing by David Goodman/Keith Weir)