Drax charges ahead: Power station operator sees profits surge

Drax has revised its earnings outlook upwards for the third time this year as its power plants benefited from high and volatile electricity prices.

The FTSE 250 company, which runs a power station near Selby in North Yorkshire, predicted 2022 results would be ‘slightly above’ market expectations, which estimate a profit of between £651m and £681m, compared to £398 million last year.

Fossil fuel prices have skyrocketed as the Russian invasion of Ukraine disrupted supplies. In particular, the company has seen its renewable energy become much more competitive financially as governments scramble to secure other energy sources to avoid winter blackouts.

This lead has paid off for Drax, which generated 11% of the UK’s renewable energy during the year and met 20% of demand during peak periods.

Drax operates a power station in the village of Drax, the largest power station in Britain, which burns mainly wood pellets from biomass.

It also has sites using hydropower and claims to be the largest source of renewable electricity in the UK.

But the profit increase has drawn criticism from campaigners, who claim energy companies and electricity suppliers are taking advantage of households being hit by crippling bills.

“We know that people don’t turn on the heating and don’t use their electricity, and have spent the last few days in the cold.

“One of the reasons for this is the amount charged by the energy production companies,” says Simon Francis, coordinator of the End Fuel Poverty Coalition. He added: ‘Electricity is particularly perverse because its cost is linked to the price of gas.

“So even though we can use huge amounts of renewable energy, the system is still charging more electricity than it needs to. It’s very annoying that Drax takes advantage of this.’

Drax still has a contract with the National Grid to keep two coal-fired generating units on standby to provide electricity in case the supply is interrupted this winter.

The stations were nearly ablaze this week as the onset of a cold spell raised fears that strong demand could strain the power grid.

The plants were later disposed of. Drax is also facing cost pressures for the biomass used to power generators, saying prices in Europe have risen ‘significantly’ over the past 12 months.

It expected biomass costs to exceed £100 per megawatt hour next year, above average and exacerbated by inflation, energy costs and the depreciation of the pound.

Drax also warned that the planned levy on electricity generators, announced by Chancellor Jeremy Hunt in November and due to take effect early next year, was expected to “limit” its ability to buy more biomass for its plant.

Despite this, CEO Will Gardiner remained optimistic, saying it planned to invest “billions of pounds” in renewable energy to “create thousands of jobs and generate the safe, renewable energy this planet desperately needs.”