February 27, 2018 / 7:27 AM / 2 years ago

British power producer Drax beats earnings expectations, shares rise

(Reuters) - British power producer Drax Group Plc (DRX.L) beat full-year core earnings expectations on Tuesday, sending its shares higher.

Drax has converted three of its six power plant units in Yorkshire in the north of England - once Europe’s most polluting coal-fired power station - to burn wood pellets.

Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 63.6 percent to 229 million pounds for the year ended Dec. 31, the company said.

That topped the 225.4 million pounds expected by analysts, according to Thomson Reuters I/B/E/S.

The company also announced a 50 million pound share buy-back which analysts said might disappoint any investors hoping for a special dividend.

Revenue grew by about 25 percent to 3.69 billion pounds, helped by higher profit from its biomass power plants and the acquisition of Opus Energy.

Drax shares rose as much as 9 percent in early trade and were up 3 percent at 246 pence by 1305 GMT.

As well as higher generation and acquisitions, revenue was buoyed by a 35 percent increase in biomass pellet production at the company’s U.S. manufacturing plants.

As a part of its efforts to meet climate targets, Britain plans to close all coal-fired power plants by 2025 unless they are fitted with technology which can capture and store carbon dioxide (CO2) emissions.

Drax plans to convert a fourth unit to biomass by the end of the year and eventually replace its existing coal units with two large gas units.

In an interview with Reuters, Chief Executive Officer Will Gardiner said the company hopes to secure planning permission for first of the gas units by the end of 2019.

It would then enter the plants into Britain’s capacity auction, which are held four years in advance and pay power generators to be available during times of high demand.

Drax’s two coal units won capacity contracts this month for 2021/22.

The biomass units are not eligible to enter the auction since they already receive renewable subsidies.

Gardiner also said the company had no plans to follow fellow power generators Vattenfall and Engie in launching a domestic retail business in Britain.

Britain’s energy firms are under pressure to reduce domestic bills. Prime Minister Theresa May this week introduced new legislation to force Ofgem to cap what she called “rip-off” prices.

Reporting by Susanna Twidale in London and Arathy S Nair in Bengaluru; editing by Jason Neely and Tom Balmforth

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