Drax profits halve amid UK policy U-turns
Drax, the UK power group, saw its earnings more than half in the six months to June as it was hit by weak energy markets and the UK government’s move to scrap a key renewable energy tax exemption.
The company, which has been converting its coal power plants to biomass plants, suffered a 58.5 per cent fall in its underlying pre-tax profit to £17m, while its earnings before interest, tax, depreciation and amortisation fell 41.7 per cent to £70m. That was slightly ahead of analyst forecasts of £64m EBITDA.
“Financially we continue to feel the effect of weak commodity markets and the removal of the Climate Change Levy exemption,” said chairman Phil Cox.
The company has been hurt by low energy prices which have fallen amid a global oil and gas price rout, as well as controversial u-turns by the UK government on green energy support measures.
Drax shares have fallen heavily in the wake of policy shifts by the UK government over the last year and a half.
The shares fell 26 per cent in one day last summer after Conservative Chancellor George Osborne scrapped the climate change tax levy exemption in the Budget last summer.
The exemption had provided crucial support to renewable energy projects, and the then David Cameron’s government had been lambasted by environmental groups and international organisations, who have suggested the move is undermining the fight against climate change.
Earlier this year Drax and rival energy group Infinis had a case against the government rejected. The companies said the government had not provided enough notice when scrapping the tax exemption.
In the renewable energy rat race for government favour, biomass shapes up fairly well. According to analysts NERA, biomass is slightly more expensive than onshore wind — but once its less intermittent nature is factored in, slightly cheaper.