Drax First-Half Earnings Fall 22% After U.K. Starts Carbon Tax

Drax Group Plc (DRX), operator of the U.K.’s largest coal-fired power station, said first-half earnings fell 22 percent following the introduction of a tax on carbon emissions.

Earnings before interest, tax, depreciation and amortization fell to 120 million pounds ($184 million) for the six months ended June 30 from 154 million pounds a year earlier, according to a statement today from the North Yorkshire-based utility.

“We are investing significant capital this year and next to transform our business, with earnings during this period impacted by the increasing costs of carbon,” Dorothy Thompson, chief executive officer of Drax, said in the statement. First-half capital investment reached 138 million pounds.

In a bid to boost investment in low-carbon power the U.K. government on April 1 introduced a tax on fossil fuels used in the generation of electricity. The so-called carbon floor price sets a minimum rate of 16 pounds a ton of carbon dioxide for companies such as Drax that emit the polluting greenhouse gas.

The shares rose 2 percent to 644.50 pence as of 8:10 a.m. in London. Drax is up 18 percent this year.

Drax plans to spend as much as 700 million pounds turning three of the six units at its site in Selby to burn biomass by 2016. The first was converted in April and it plans to convert the second to burn wood chips by the middle of next year and the third in 2016. It spent 106 million pounds in the first half on its biomass conversion program.

“As we move beyond this investment phase and replace substantial quantities of coal with sustainable biomass, we are confident that we will deliver attractive returns for our shareholders,” Thompson said. The incentives the government plans to offer low-carbon generators under its Electricity Market Reform potentially provide “additional options to support future unit conversions,” she said.

The government on June 27 published the proposed prices it plans to pay low-carbon generators for their power under the EMR. Electricity from biomass conversion may be eligible to receive 105 pounds a megawatt-hour.

To contact the reporter on this story: Louise Downing in London at ldowning4@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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