* Pretax profit up 1.5 percent to 188.5 mln stg, beats poll
* Viridor profit rises, offsets decline in South West Water
* Says UK waking up to potential of waste as energy source
* Increases final dividend 10 pct to 17.15p
* Shares up 1.14 percent
(Adds exec, analyst comments; detail, updates shares)
By Adveith Nair
LONDON, May 24 British water and waste company Pennon (PNN.L) expects its waste management unit, Viridor, to continue to boost profits, as projects to generate energy from waste begin to gain acceptance in the UK.
Earlier on Tuesday, Pennon reported annual earnings above analysts' forecasts, as profits at Viridor rose 14 percent, helping to offset a slight drop in those at South West Water, which provides water and sewerage services.
Waste management, recycling and renewable energy company Viridor now accounts for a third of total group profits.
Colin Drummond, chief executive of Viridor, who had slammed Britain's "wedded to wind" policy last year, said the country was now "slowly waking up to the potential of waste as a renewable energy source."
"(UK Energy Minister) Charles Hendry, in particular, is minded to set an aspirational target for how much of UK electricity can come from waste," Drummond said.
He added that over the past year, the company got planning permission for four energy from waste facilities previously stuck in planning.
"What will really drive this movement is economic realities that waste gives baseload power, generating power 80-90 percent of the time," Drummond said, referring the inability of wind farms to generate energy at all times.
Viridor, which has called on the government to set a target of 6 percent of electricity generation from waste by 2015, is aiming to nearly triple the capacity of its waste-to-energy plants to 300 megawatts by then.
"The UK is sleepwalking into an energy crisis," Drummond said. "Waste happens to be a low-cost, baseload, economic form of renewable energy ... and that's why we are investing heavily."
Shares in the company were up 1.14 percent at 663 pence at 0830 GMT on Tuesday.
RECYCLING BOOSTS PROFITS
Viridor's performance last year was credited for helping to boost Pennon's pretax profit 1.5 percent to 188.5 million pounds ($303.8 million), on sales 8 percent higher at 1.16 billion pounds.
"Recycling is now the company's largest single segment and will be key to profit growth in the next two years," the company said in a statement.
Analysts had expected pretax profit of 175.6 million pounds, on sales of 1.12 billion pounds, according to a Thomson Reuters I/B/E/S poll of analysts.
Pennon is the first of the four main British water companies to report full-year results. United Utilities (UU.L), Britain's largest listed water utility, and Severn Trent (SVT.L) report later this week, while Northumbrian NWG.L reports in June. ($1=.6205 Pound) (Reporting by Adveith Nair; Editing by Clara Ferreira-Marques and Hans Peters)