Drax warns on profit as wind power rises

9th May 2014 08:59

Power station operator Drax blamed competition from wind power and mild weather for a profit warning and said it was suing the British government over refusal of subsidies.Drax said power prices had fallen further since its annual results in February, with mild weather across Europe resulting in weaker gas markets.The group also expects more weakness in renewable obligation certificate (ROC) prices this year, worsened by unusually high wind generation."As a result, we now anticipate that, unless markets improve in the coming months, full year pre-tax earnings before interest, depreciation and amortisation and underlying earnings per share for 2014 will be below current market forecasts," it said.Drax said it had extended contracts including extra power sales of about three terawatt hours for each of 2014 and 2015 compared to February.It also reported good progress in converting the North Yorkshire power station to a mainly biomass-fuelled plant.The government has rejected Drax's application for financial help to convert a unit at the power station to biomass.Drax said it believed it had a good case to challenge the decision and had initiated legal proceedings."The government's decision has caused some uncertainty, which will lead to delay in biomass supply and logistics development," it said in a trading update."We do, however, remain fully committed to our strategy of transforming Drax into a predominantly biomass-fuelled generator."It also revealed it had agreed a £100m private placement with funds overseen by M&G Investments, which it plans to use for general business purposes.By 08:59 in London, shares in Drax had fallen 17p or 2.5% to 660p.PW