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12 | 29th August - 4th september 2014 | utILItY WeeK Electricity Company profile T hrough this transformation we will provide cost-effective, low carbon and reliable renewable power to the UK consumer." These words could easily have been spouted by energy secretary Ed Davey in one of his many attempts to sell Electricity Mar- ket Reform, the government's proposed solu- tion to the UK's energy "trilemma". In fact, the claim was made by Dorothy Thompson, chief executive of the UK's largest power plant, Drax. The 4GW Drax has undeniable influence over the UK's push for a low car- bon economy, despite its distance from the Westminster bubble. Drax provides around 7 per cent of the UK's total electricity – roughly the amount required to meet London's energy needs. It is also a leading light of low carbon evangelism as it transforms from coal-fired carbon guz- zler to biomass believer. In recent years this conversion has made Drax a poster child for the UK's energy transformation ambitions, but this position of celebrity is not without its burdens. The company has found itself increasingly at the mercy of fluctuations in markets, and envi- ronmental backlash not to mention a high profile clash with government over obscure renewables subsidies decisions. These trials are unsettling to sharehold- ers, and Drax's ability to overcome them will have a big impact on the UK's future energy security. An unhappy first half Drax's most recent financial results, released in July, revealed the extent of its sensitivity to the market. The government-enforced carbon tax (the carbon floor price) has eroded earnings from the largely coal-fired power generator by 15 per cent year on year. At the same time, it took a hit due to low weather-linked power demand and depressed market prices. These stresses and strains would be enough to make many energy executives blanche, but because Drax is also reliant on renewables subsidies to support its biomass conversion, the generator is under further pressure from the declining prices of Renew- able Obligations Certificates due to record windfarm output. Drax's management effected a certain nonchalance about this challenging environ- ment when it announced the company's first half-year results – and about the fact that profits fell by 15 per cent rather than the 13 per cent analysts had anticipated. A sharp rise in the carbon tax and increased depreciation – not a cash item – as well as additional finance costs were blamed for the weakened bottom line, which Thomp- son shrugged off as a "temporary" incon- venience. All will be well when Drax has completed its journey to being a predomi- nantly biomass-fuelled power plant, she said – a milestone it expects to reach in 2016. The best laid biomass plans Biomass and carbon capture and storage (CCS) are the technologies Drax has backed to carry it in into a new era of low carbon generation. The company plans to convert four of its six coal burners to run on biomass. The first started full commercial operation in April 2013 and the second is set to follow in April 2015 (see timeline). This plan represents a weighty invest- ment commitment in UK energy infrastruc- ture – which many commentators agree is in dire need of such big ticket attention. In 2014 so far Drax has pumped £123 mil- lion into capital expenditure and expects to meet its full year capital investment guid- ance of around £200 million. More broadly, the company says it will spend £650-£700 million in total between 2011 and 2017. In addition, its role as part of the Capture Power consortium helped clinch the €300 million funding offered by the European Commission to develop the White Rose Car- bon Capture and Storage project. That award was made in July this year. The White Rose project is the only CCS initiative to receive funding through the com- petition, and entails a new 426MW coal-fired power station on the Drax site fitted with equipment to capture around 90 per cent of its emissions. Draxtic times With technology controversy, state aid questions and courtroom wrangling disrupting its strategy to lead the charge on a low carbon economy, what's the outlook for Drax? Jane Gray reports. Drax at a glance Location: Selby, Yorkshire Employees: 830 Revenue: £2,062 million Gross Profit: £445 million Ebitda: £230 million Did you know? Drax chief executive Dorothy Thompson is now a non-executive director at the Bank of England. Her ap- pointment was announced on 21 July, one week aer Drax defeated the government in a High Court dispute over its decision to withdraw subsidies for one of Drax's biomass conversion projects. *Based on full year 2013 results " Ouch: Drax's painful share price fall, 7 august 650 60.00 (8.45%) Open: 708.00 High: 741.00 Low: 648.50 750 700 650 Opening price 7% Drax's contribution to total average annual uK electricity supply