Broker snap: Drax to benefit from biomass potential

2nd Jun 2011 10:40

Matrix has upped its target price for coal-fired power station operator Drax from 460p to 550p, saying that now is the time to focus on its biomass potential with UK policy becoming clearer in the next few months.The Renewables Obligation Certificate (ROC) is a green certificate from Ofgem, placing an "obligation on UK suppliers of electricity to source an increasing proportion of their electricity from renewable sources," according to Ofgem's website. Meanwhile, the Energy Market Reform (EMR) project is aimed at delivering a "new market framework that will enable the cost effective delivery of secure supplies of low carbon energy," the Department of Energy & Climate Change said.The broker notes that both the ROC banding review consultation and the EMR White Paper will be published this summer, and "should give investors a clear steer to potential returns in biomass," said analyst Adam Forsyth."Drax is more efficient than the typical plant so we think it can beat the review assumptions to deliver a superior return," he said.A 'buy' rating is kept.---BC