Drax Earnings Rise 18 Percent as Biomass Offsets Carbon Costs

Drax Group Plc, the utility converting the biggest U.K. coal station to burning wood pellets, said first-half earnings rose about 18 percent as its biomass investments shielded it from rising carbon prices.

Earnings before interest, tax, depreciation and amortization rose to 120 million pounds ($186.9 million) for the six months ending June 30 from 102 million pounds a year earlier, the Selby, North Yorkshire-based utility said Tuesday in a statement. That surpassed the 101 million-pound estimate of three analysts surveyed by Bloomberg, as an increase in its biomass generation offset higher U.K. carbon taxes.

“Through our continued transition to sustainable biomass we’re Europe’s largest single source of renewable energy,” Dorothy Thompson, chief executive officer of Drax, said in the statement. “We expect the potential long-term value of the business to become increasingly evident.”

Drax plunged 28 percent on July 8 after the government said renewable energy that includes power from biomass will no longer be exempt from the Climate Change Levy. That will cut Drax’s Ebitda by about 30 million pounds this year and 60 million pounds in 2016, according to the statement.

“While there are elements outside our control, particularly regulatory challenges and weak commodity markets, the underlying fundamentals of the group remain strong,” Thompson said.

The government last week also said it will be ending a policy called grandfathering, which allows biomass developers to get premium payments for their electricity over the lifetime of a project. When the move was proposed in December, Drax shares slumped almost 10 percent.

Drax already has converted two of its six units to burn biomass. It plans to bring a third unit online by 2016 once it secures approval from the European Union on the state aid it will receive through government subsidies. It invested 54 million pounds in its biomass conversion program in the first-half and remains on-track to funnel about 150 million pounds into the program this year.

Biomass generation accounted for 37 percent of net power sales in the first-half, compared to 23 percent for the same period last year.

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