Isramart : Drax says it's 'condemned' to carbon future

Isramart news:
The UK's most polluting power station has accused the Government of "condemning" it to a coal-fired future of high carbon emissions by failing to support subsidies for biomass.

Drax, which unveiled full-year pre-tax profits down 64pc at £158m, is currently agonising over whether to invest in £2bn projects to burn natural materials such as wood chips. It also adds biomass to its Yorkshire-based coal-fired plant, which generates 7pc of the UK's electricity.

But Dorothy Thompson, chief executive of Drax, the Yorkshire-based FTSE 100 company, said the Government needed to raise subsidies for biomass to make it economically viable.

"There is very little to support the conversion to 100pc biomass at the moment," she said. "It's effectively condemning us to high-carbon generation. But at least the Government does seem to be engaging about the fact that current regulations are stopping investment in this area."

Consumers currently pay towards biomass projects through a tax on their household energy bills, under the Renewables Obligation Certificate scheme. However, wind projects receive a much bigger financial advantage. Despite the subsidies it remains cheaper to burn coal to generate power.

Reporting annual results, the company said its revenues fell 16pc to £1.47bn, higher than analyst expectations of £1.36bn.

The drop was largely due to lower gas prices, which has a negative impact on Drax because it is therefore cheaper for gas-fired operators to run their stations than coal plants.

However, the company pointed out that it has locked in better coal prices for 2010 to counteract potential low gas prices and sold a significant amount of its electricity generation capacity for 2011.

"Weak commodity prices for coal generators persist," said Ms Thompson. "We are therefore particularly pleased with our decision to accelerate our hedged position for 2010, with Drax now virtually fully hedged at higher average margins than for 2009."

The company has also taken measures to protect its business against the possibility of a ratings downgrade and cut costs by 10pc.

Separately, the chief executive of E.ON, the German utility giant, warned the Government not to place emissions restrictions on plants in the UK.

Paul Golby, who has delayed E.ON's proposed clean coal plant at Kingsnorth, Kent, by three years, said binding rules about how clean the plants should be would create investor uncertainty.

The Government is considering a so-called Emissions Performance Standard measure for carbon emissions from new coal-fired power stations.

Dr Goldy said: "We are looking at it as an investor and from our perspective the danger is that [the new measures] would actually create new risks. It's about confidence that the standard will not be tightened without the guarantee of funding to provide additional [emissions reductions from clean coal]– only this would make it a viable investment option," he said.