Drax raises profit forecast as wind farms falter

The owner of the UK’s largest power station has raised its full-year profit outlook as it expects to benefit from wind farms contributing less power to the system.
North Yorkshire-based Drax has said it expects its adjusted earnings to come in at the upper end of City analysts’ expectations of £993 million and £1.04 billion. This is on the back of higher demand for both its power stations, which generate electricity by burning wood pellets imported from North America, and pumped hydro storage plants.
Contracted power sales for its biomass plant stood at 11 terawatt hours (TWh) for this year, 9.7 TWh for next year and 6.8 TWh in 2026.
The guidance includes a £25 million penalty from Ofgem, the second-largest ever levied by the energy regulator, after it failed to report accurate sustainability data about the sourcing of the wood pellets. The company also will resubmit its figures for the compliance period relating to the forestry type and saw-log proportions used in its plant.
The outlook also reflects £7 million set aside for overcharging customers of Opus Energy, the smart metering business it sold this year, over a decade until last year.
Drax hopes to generate adjusted earnings of more than £500 million by 2027, including over £250 million from its pellet production business.
A delay in securing grid connections means three new open-cycle gas turbines that had been scheduled to start generating before the end of this year have been pushed back to the start of next year.
The Drax power station in Selby, North Yorkshire, contributes about 4 per cent of the UK’s electricity. The plant has won the support of successive governments by claiming that it is “carbon neutral” because trees that are felled to produce the pellets absorb as much carbon dioxide while growing as they emit when they are burnt.
However, an analysis by Ember, the think tank, suggested that Drax power station is by far the UK’s largest single emitter. Drax has rejected the analysis, which it has described as “flawed”.
The existing support regime comes to an end in 2027 and Drax has been seeking an extension to the subsidies until the end of the decade, when at least one of the units at the Drax power station will be converted to biomass with carbon capture and storage technology, known as Beccs. It is still awaiting a decision by the government on whether it will extend the financial support.
In its report on how Britain could decarbonise the grid by 2030, the operator responsible for keeping the lights on envisaged large-scale biomass generation and at least one Beccs unit by the end of the decade.
Will Gardiner, Drax chief executive, said its £2 billion investment in Beccs “remains contingent on gaining further clarity” from the government on support to maintain the Drax power plant’s operation beyond 2027.
The FTSE 250 group, which will release its full-year results on February 27, pressed ahead with the first tranche of a £300 million share buyback programme.
The shares rose 29p, or 4.5 per cent, to 671p in London in afternoon trading.