Drax pays pollution price as profits fall

Drax, the FTSE 100 company which produces nearly one-twelfth of the country's electricity from a single power station in Yorkshire, said today despite the soaring price of power its profits fell 28% to £206 million in the first half
Much of that fall is due to the rising cost of carbon dioxide emissions allowances — a permit that firms must have if they pollute the atmosphere.

For the six months to end-June, Drax produced 13 terawatt hours of electricity — 8% more than the previous year.

Its average selling price was £53.6 per megawatt hour, up 11% on the first six months and the reason electricity supply firms are citing for increased household energy bills.

That brought Drax a 25% increase in revenues to £801 million.

However, offset against that is the rising price of coal, which has hit record spot prices as a result of Far East demand. This saw Drax's fuel costs rise 34% to £23.6 per MWh of electricity produced.

The biggest pro-rata rise in costs, though, is CO2 allowances.

This year sees the launch of a more punitive emissions trading regime and the amount of free permits that Drax receives from the Government has been slashed by more than a third. That has meant Drax has had to go into the emission trading market to acquire almost double the amount of extra allowances at a time of rising permit costs.

For the half year, Drax said its CO2 costs per tonne burned rose to £16.5 per tonne from £3 per tonne which with Drax burning five million tonnes, 4% more than last year, adds up to a near six-fold rise in carbon costs.

Shareholders are not missing out as a result of the increased pollution penalties. The company is sticking to a policy of paying stable dividends, plus a commitment to distribute excess cashflow. For the half-year, investors will get an interim dividend of 5p plus a special payout of 9.7p.