Soaring Drax profits help generate bumper pay day

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The Independent Online

Drax, the giant coal-fired power station at the centre of environmental protests last month, is likely to hand back at least £600m to investors this year as soaring electricity prices generate bumper profits.

But the company, Britain's biggest single source of greenhouse gases, is also seeking to placate its green critics by generating up to a fifth of its electricity in future from biomass fuels which produce no carbon.

The company announced yesterday that underlying profits had more than tripled in the first half of the year to £239m, enabling it to pay a special dividend to shareholders totalling £326m. Drax directors will receive about £4m of the payout.

The company supplies about 7 per cent of the country's electricity and roughly a fifth of its output goes to Centrica, Britain's biggest energy supplier, under a five-year deal which guarantees Drax a fixed profit margin. Dorothy Thompson, the company's chief executive, refused to be drawn on what was likely to happen in future to wholesale power prices, which make up about half the domestic bill.

But with Drax contracted to sell virtually all of its remaining output this year at even higher prices than those achieved in the first six months, another huge payout to investors is expected alongside its full-year results.

In the six months to the end of June, Drax achieved an average price of £45.70 per megawatt hour and for the year as a whole has contracted to sell 93 per cent of its generation at £48.10 an hour.

The company sought to shrug off the sharp decline in wholesale electricity prices in recent months, pointing out that it had contracted to sell two-thirds of next year's output and more than a half of the following year's at about £50 an hour. But its shares still ended the day 2 per cent down.

Ms Thompson said Drax "remains alive to opportunities in the sector" but indicated that most of the surplus cash it is throwing off would continue to be returned to investors. The company is also seeking tenders for a major refurbishment of its turbines which would involve hundreds of millions of pounds in capital expenditure but lead to a big efficiency improvement.

Following proposals in the Government's energy review earlier this year to increase incentives for green energy, Drax hopes to generate nearly 10 per cent of its output using biomass materials such as elephant grass, rising to as much as 20 per cent after 2009.

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