* Carbon tax costs rise to 49 million pounds in H1
* Three of six units to convert to biomass by 2016
* Fourth unit could also be converted
* No likely impact from any potential Russian coal
(Adds details on biomass, court case and background)
By Susanna Twidale
LONDON, July 29 British power producer Drax
Group Plc reported a 15 percent fall in first-half
earnings, hurt by the increasing cost Britain's carbon tax.
Operator of one of Europe's largest coal-fired power
stations, Drax said earnings before interest, tax, depreciation,
and amortisation (EBITDA) fell to 102 million pounds ($173
million) for the six months which ended June 30, from 120
million a year earlier.
"In the short term, the increasing cost of the UK carbon tax
drove EBITDA down year on year," Chief Executive Dorothy
Thompson said in a statement.
The utility warned in May that full-year EBITDA and earnings
per share would come in below market forecasts and said on
Tuesday this outlook remained unchanged.
Britain's carbon tax came into effect in April 2013 and was
designed to spur investment in low-carbon power generation and
switching to cleaner fuels.
The tax almost doubled to 9.55 pounds per tonne in April
2014 from 4.94 pounds a year earlier and will rise again to
18.08 pounds in April 2015 where it will stay until the end of
the decade after Britain's finance minister announced a freeze
in this year's budget.
It cost Drax 48.6 million pounds in the first half of 2014,
up from 13.7 million pounds during the corresponding period last
year, the results showed.
In a bid to reduce carbon costs, Drax plans to convert three
of its six coal-fired power generation units to use biomass by
2016 and is planning to later convert a fourth unit.
One was unit converted last year, and the other two
conversions are planned for next year.
The company has sought government funding to help pay for
the cost of conversions, with the first unit receiving support
under the so-called renewable obligation (RO) scheme.
As a part of extensive reform of Britain's electricity
market the government is changing the way it supports renewable
energy projects by replacing direct subsidies with a
contracts-for-difference (CfD) system whereby qualifying
projects are guaranteed a minimum price at which they can sell
In April the government said it would back conversion of one
of Drax's unit under the CfD scheme but rejected the application
for the second unit to be included.
However, Britain's High Court in July decided the utility
had fulfilled all the key criteria set out by the government at
the time of making its application.
The Department of Energy and Climate Change (DECC) is
appealing the court decision and Thomson said in a conference
call on Tuesday the hearing was likely to take place on Aug. 1.
"We still have no idea when a final judgment will be given,"
she said, adding that DECC has the right to appeal any decision.
If the second unit cannot get CfD funding, Drax will try for
support for the conversion under the older RO scheme, she said.
The pace of the conversion of a fourth unit would also
depend on the type of government support available, she added.
CfD funding for the biomass plants must also pass European
Commission state aid rules before it can be awarded.
The company said it also hopes its coal-fired units will be
able to participate in Britain's energy capacity market which
will be launched at the end of this year to ensure there is
enough electricity generation available at all times to meet
Thomson said the majority of Drax's coal comes from the
United States and Colombia and that it would unlikely be
affected by any disruptions in Russia coal supply.
European physical coal prices have risen over the last few
weeks as the threat of a new round of U.S. and European
sanctions against Russia, a large coal exporter, led traders to
price in a market risk premium. [ID: nL6N0PZ68E]
Shares in Drax were little changed on Tuesday morning and
traded at 691.5 pence, up 5 pence on Monday's close.
($1 = 0.5892 British Pounds)
(Reporting by Susanna Twidale; additional reporting by Abhiram
Nandakumar in Bangalore; editing by Jason Neely and David Evans)