UK energy producer Drax said it expected full-year earnings to be slightly above the top of the range of analyst expectations on the back of higher prices and a strong pumped storage and hydro performance in the second half of 2022.
The company’s own compiled consensus for 2022 adjusted core earnings was £668m, with a range of £651-£681m.
Drax generated 20% of UK renewables at peak demand from January to November. The company, which continues to benefit from higher power prices, added it will continue to optimise its biomass operations to ensure more renewable power is available especially as the UK looks to face a difficult winter.
In October the company also cashed in on a fall in short-term gas and power prices and bought back forward sold energy output from its biomass units that it had pre-sold at higher prices.
It also revealed it had been in talks with the government about the energy windfall tax and possible adjustments to reflect higher running costs, with an update expected shortly.
Drax operates a power plant at the village of Drax, near Selby in North Yorkshire, that is Britain’s biggest power station and primarily burns biomass wood pellets. It has also kept two old coal units open there at the request of the government. It also runs four pumped storage and hydroelectric plants and has a business producing some of its own wood pellet supplies at sites in America.
“Over the past 12 months the cost of biomass in the European spot market has increased significantly, with cargoes trading at over three times their historic average,” the company said.
“Reflecting higher production costs in its own supply chain, those of third parties and higher spot market prices, Drax has incurred additional costs in the second half of 2022, securing biomass to support its reliable and dispatchable generation. Accordingly, the group currently expects its all-in contracted cost of biomass for the UK generation business to be over £100/MWh in 2023.”
“This is above the historic average, in part reflecting increased transportation and fuel costs associated with higher energy costs, inflation and the lower value of sterling captured in the group’s foreign exchange hedges.”
Reporting by Frank Prenesti for Sharecast.com
