Drax Says Profit Will Be Lower Than Expected on Weak Power

Drax Group Plc, converting the U.K.’s largest coal-fired power plant to burn biomass, said profit for 2014 will be lower than current market forecasts after a mild winter cut electricity prices.

A poor market for renewable obligation certificates, earned for generating power from alternative sources, will also contribute to weaker earnings, the company said in a statement today. Analysts had estimated underlying earnings per share at 28.5 pence, according to a Bloomberg survey.

Drax shares dropped 17 pence, or 2.5 percent, to close at 660 pence in London, valuing the company at at 2.67 billion pounds ($4.5 billion).

Drax, based in North Yorkshire, has converted one of six generation units to burn biomass, processed wood pellets, and a second is fired with a mixture of biomass and coal.

The company said a government decision not to offer a long-term contract guaranteeing power prices at its second unit may delay the development of biomass supply and logistics. It will challenge the ruling in court.

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

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