Drax Cuts Power Hedging as U.K. Carbon Price Uncertain From 2015

Drax Group Plc, operator of the U.K.’s largest coal-fired power station, cut its forward sales amid uncertainty about the price of emissions permits from 2015.

The Selby, England-based company sold 2.9 terawatt-hours of electricity for 2015 as of Feb. 11, compared with 3 terawatt-hours for 2014 at this time last year, according to a company presentation published today. That’s equivalent to 10 percent of the company’s generating capacity, according to Bloomberg New Energy Finance.

In a bid to promote low-emission power generation the U.K. will introduce a so-called carbon price floor from April 1. The price support is set two years in advance and will close the profit gap between coal and natural gas power plants, potentially leading to the closure of some coal plants. The price “is unknown beyond summer 2015,” Drax said today.

“Drax’s hedging rate remains well below those observed in the German power market,” Itamar Orlandi, an analyst for New Energy in London said by e-mail. He estimates that German utilities had hedged 59 percent to 85 percent of their capacity by the end of September 2012 for three years ahead.

Drax’s power sales for one year ahead rose 23 percent to 11.2 terawatt-hours, the presentation showed.

The company said in July it would become a predominantly biomass-fired power generator, initially converting three of its six units to burn wood chips.

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