Drax Group predicts full-year earnings will eclipse estimates

Drax Group expects annual earnings to surpass forecasts of significant renewable energy demand in recent weeks.

The power generation division expects full-year adjusted underlying profit to be “slightly above” analysts’ consensus range of £651m to £681m, compared to just under £400m last year.

Fossil fuel prices have soared over the past 18 months as the easing of Covid-19 restrictions led to a resurgence in demand and the Russian invasion of Ukraine significantly disrupted supplies.

This has made renewables much more competitive financially, benefiting the likes of Drax, which operates a large biomass power station in Selby, North Yorkshire, pumped storage and hydro.

It is also developing bioenergy technology for carbon capture and storage that will be added to a few biomass units at the Selby site, with the aim of removing eight megatons of carbon dioxide from the atmosphere each year.

Between January and November, the company said it generated 11 per cent of the UK’s renewable energy and a fifth during peak periods.

Drax noted that its pumped storage and hydropower assets “performed strongly” during the second half of the year, while its sustainable biomass pellets division provided support during times of high demand this winter.

Chief executive Will Gardiner said: ‘Drax plays a vital role in supporting the UK energy system, generating more renewable energy than any other company.

“During the difficult winter ahead, we will continue to optimize our biomass operations to ensure that more renewable energy is available when the country needs it most.

“We are accelerating our plans to invest billions of pounds in critical renewable energy and carbon removal technologies that can create thousands of jobs and generate the safe, renewable energy this planet desperately needs.”

But as the FTSE 250 company moves forward with its green energy plans, it is also under contract to the National Grid to provide a ‘winter emergency service’ through its old coal-fired generating units.

These assets were mothballed last year due to increasing competition from gas and renewables, and the UK government’s introduction of a carbon price floor, making them less economically viable.

However, as the conflict in Ukraine intensified, the threat of power outages increased, leading many European countries to buy and burn more coal as a stopgap measure.

Drax was asked by former Business Secretary Kwasi Kwarteng to keep its coal-fired units open this winter as a ‘sensible precaution’ and will be compensated for any costs incurred by the electricity grid operator.

Drax Group Shares were up 0.6 percent on Thursday morning to 630.5 pence, after recovering significantly from a slump in September and October.