(Adds details on profit warning, new analyst forecast, share
By Karolin Schaps
LONDON May 9 UK power producer Drax
issued a full-year profit warning on Friday, forecasting
weaker-than-expected power and subsidy prices for its mainly
biomass-fuelled power plant in Yorkshire.
Drax is in the process of converting most of its coal-fired
power plant, one of the most polluting stations in Europe, to
run on more environment-friendly biomass.
The energy company said it has been hit by low power prices
due to the mild weather, eating into profit it makes from
generating electricity, while it is also expecting lower prices
for renewable obligation certificates it receives for using
biomass in its power plant.
"We now anticipate that, unless markets improve in the
coming months, full year EBITDA and underlying earnings per
share (EPS) for 2014 will be below current market forecasts,"
the company said in a market update.
Shares in Drax opened 4 percent lower on Friday.
Whitman Howard analyst Angelos Anastasiou said he now
expected EBITDA to fall to 210-220 million pounds, 20 percent
lower than the high-end of previous market expectations, and EPS
of 21-23 pence.
Utilities across Europe have been hit hard by a collapse in
electricity prices and Drax' profit warning comes a day after
competitor Centrica issued its own warning.
Britain currently rewards renewable energy production by
allocating Renewable Obligations Certificates (ROCs) to
generators. ROCs are traded on the open market and a recent
surge in wind power production has caused ROC prices to drop,
affecting subsidy income for all renewable energy generators.
Drax also said its first converted biomass unit has been
performing well since commissioning last month and another unit
has been running on at least 85 percent biomass fuel since the
beginning of May.
But it warned that its biomass supply and logistics
development for the conversion of its second coal-fired unit to
biomass would be delayed due to a government decision not to
grant it an early investment contract.
"Legal advice confirmed that Drax has a good foundation to
challenge the Government's decision," Drax said, confirming its
decision to start legal proceedings.
Despite Friday's profit warning and setback following the
government's decision against an investment contract for its
second unit, Drax said it was fully committed to completing its
conversion programme which remains on time and budget.
(Editing by Brenda Goh. Editing by Jane Merriman)