Drax Second-Half Profit Rises on Higher Power Prices

The owner of the U.K.'s biggest power plant,Drax Group Plc, reported a 20 percent jump in second- half profit because of higher wholesale electricity prices.

Net income climbed to 231.8 million pounds ($448.6 million) from 192.6 million pounds a year earlier, Bloomberg calculated from annual earnings distributed today by the Selby, England- based company in a Regulatory News Service statement.

Drax, which sells electricity produced at its coal-fired plant to energy suppliers such as Centrica Plc, boosted sales as it sold forward contracts for its expected electricity production in 2007 above current market levels.

``It's a solid set of results,'' Ian Mitchell, a London- based analyst at JPMorgan Securities Ltd., said by phone today. ``The progress of the forward contracting book is good.''

Shares of Drax were little changed at 728 pence as of 10:51 a.m. in London, after earlier rising as much as 2.1 percent. The stock has climbed 12 percent over the past 12 months.

The company said it had sold 80 percent of its expected electricity production for 2007 at an average 47.60 pounds per megawatt hour, and 40 percent of its expected 2008 output at 46.80 pounds a megawatt hour. Drax said on Dec. 13 that it had sold 53 percent of expected generation in 2008 at an average 49.20 pounds a megawatt hour.

Power prices for the 12 months starting April 2007 climbed to a record 56 pounds a megawatt-hour in April last year from an average 41 pounds a megawatt-hour in 2005. Prices have since dropped to about 29.80 pounds a megawatt-hour, according to the energy broker GFI Group Inc.

Beat Estimates

Full-year net income rose to 463.5 million pounds, or 126 pence per share, from 282.4 million pounds, or 108 pence, in 2005, Drax said. That beat the 386.8 million-pound estimate of nine analysts surveyed by Bloomberg News. Full-year revenue rose to 1.39 billion pounds from 929 million pounds in 2005.

Drax increased the volume of electricity generated in 2006 to 25.2 terawatt hours from 23.2 terawatt hours in 2005.

``Throughout most of 2006, gas-fired power stations were the price-setting plant in the power market, with marginal costs of production above the equivalent cost for coal-fired generation and nuclear generation,'' the company said in the statement.

Drax said it intends to pay a final dividend for the year of 9.1 pence per share as well as a second special dividend of 32.9 pence a share. Total proposed dividend payments for the year will be 497 million pounds, equivalent to 134.7 pence per share.

`Slightly Disappointing'

``It's slightly disappointing that they haven't taken on more debt in order to increase the dividend,'' Mitchell said.

Finance Director Gordon Boyd said in a conference call that the volatility in wholesale energy prices made it important for the company to maintain its existing investment rating. ``When and if it is appropriate we will seek to add debt,'' he said.

Drax said in February it plans to produce 10 percent of its 4,000-megawatt output from energy crops by 2009 to benefit from increased government subsidies for renewable energy. It can already generate as much as 10 percent of the power at one of its six generators using biomass and will extend the technology to its other units, it said.

The company confirmed those plans today, saying it will invest as much as 67 million pounds over the next three years to enable the power station to burn more energy crops and process renewable fuels on site.

Renewable Energy

Energy crops such as miscanthus, known as elephant grass, or fast-growing willow are judged by the U.K. to be carbon-neutral because they will have previously absorbed from the atmosphere any carbon dioxide they emit when they're burned.

Drax, which emitted 20.8 million tons of carbon dioxide in 2005 and 22.7 million tons last year, said extending the biomass generation capacity to the remaining units could save 2 million tons of carbon a year. That's on top of the 1 million tons a year it will save by installing new turbines at the plant to improve its efficiency.

Using more biomass as fuel means Drax probably will need to buy fewer emissions allowances in Europe's emission-trading market. It needed to buy permits for 8.2 million tons of carbon- dioxide emissions last year, it said.

Permits for 2009 traded at about 14.80 euros ($19.47) a metric ton yesterday, according to the European Climate Exchange in Amsterdam.

At full capacity, the Drax power station can provide 7 percent of Britain's electricity. It emits more carbon dioxide than any other plant in the U.K.

source:www.bloomberg.com