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Drax lauds supporting role in energy transition as Capacity Market spectre looms large

Image: Flickr/Jonathan Kershaw.

Image: Flickr/Jonathan Kershaw.

Drax has said its ability to support the UK’s energy transition will become increasingly important as low carbon power soars, but the Capacity Market’s ongoing suspension looms large over the firm’s 2019.

Yesterday the power producer reported its results for 2018, confirming a 9% year-on-year increase in earnings before interest, tax, depreciation and amortisation (EBITDA) to £250 million, resulting in a group final profit before tax of £14 million.

The results followed a landmark year for the company as it finalised the acquisition of around 6GW worth of pumped storage, hydro and gas generation assets from ScottishPower, a deal which the company said possessed a “strong strategic fit” with the country’s need for flexible, low carbon and renewable generation.

In addition, the firm has also set in motion technology upgrades within its supply divisions in order to make its operations more efficient and feature more prominently in what’s becoming a crowded, more advanced space.

“Technology has a key role in shaping the market and our business and we remain alert to opportunities this may present. Digital offerings are a growing feature of the market. We believe our investment in this area will provide commercial opportunities, a reduced cost to service and an enhanced customer experience,” the company stated.

Will Gardiner, chief executive at Drax, said the firm was now among the leaders of low carbon and renewable power in the UK.

“As the grid decarbonises, our ability to support intermittent renewables will become increasingly important as we strive to deliver our purpose of enabling a zero carbon, lower cost energy future.

“We are confident in our ability to continue growing our earnings and advancing our strategy through the year. We have attractive investment opportunities throughout our business, and while short-term uncertainty over the Capacity Market remains, we look forward to developing those opportunities in a disciplined fashion.”

The much-discussed suspension of the CM has resulted in Drax missing out on £7 million of revenues from Q4 2018 that have not yet been accrued, however this figure stands to be significantly larger this year should the suspension continue.

Drax has guided that it expects revenues of up to £68 million from the CM throughout 2019, £47 million of which is to originate from assets included in those acquired from ScottishPower.

And while the firm expects the matter to be resolved and the scheme reinstated on a “same or similar basis”, it has still moved to negotiate a compensation package with ScottishPower parent Iberdrola where the firm will receive up to £26 million should forecasted revenues not be accrued in the coming year.

The suspension of the CM has already caused SSE to issue a profit warning this month after it notified the market that up to £60 million of revenues from the CM will not be accrued this year.

Last week the European Commission commenced its investigation into the CM and its compliance with State Aid guidelines, however there is no timeframe for its conclusion.

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