UK utility Drax cut its CO2 emissions 12.8% y/y in H1 2015 as it converted and brought online a second biomass unit, it said in financial results on Tuesday, cutting the company’s demand for EUAs.
Drax’s main plant, the UK’s biggest and consistently one of the biggest emitting installations in the EU ETS, pumped out 7.5 million tonnes in H1, compared to 8.4 million a year earlier.
The emission reduction was due to the company converting the second of the plant’s six coal-fired units to burn biomass in May 2014.
Drax still plans to convert a third unit to biomass over the next year, pending clearance of EU state aid rules.
But the company is evaluating whether to convert a fourth and will hold a strategic review of all its operations in the light of the government’s decision earlier this month to no longer exempt renewables producers from its climate levy, it said.
London-listed Drax shares plunged 28% on the day of the announcement.
Drax CEO Dorothy Thompson said the decision was “a shock to the industry, representing an about-turn in a well-entrenched policy that has been a key underpinning for renewable investments since 2001.”
The company estimated the decision would cut £30m (€42.4m) from its EBITDA in H2 2015 and £60m in 2016 with a reduced impact thereafter until it becomes negligible in the early 2020s.
Drax’s EBITDA for H1 2015 was up 18% y/y at £120m, partly due to the increased use of biomass, which accounted for 37% of Drax’s power generation compared to 23% a year earlier, it said.
Notwithstanding the withdrawal of the tax exemption, the cost of EUAs and the UK’s carbon floor fee mean that biomass – deemed to be carbon neutral – becomes a cheaper source of fuel than carbon-intensive coal, Drax said.
“The incremental cost of carbon continues to erode the competitiveness of our coal-fired generation capacity with an increase of over 90% in carbon price support rates from 1 April 2015. However, our biomass investments … are beginning to bear fruit. The significant carbon savings delivered are also having a positive impact upon our financial results,” Drax said.
Drax said it paid an average of £5.20 per EUA in H1, compared to £4.30 a year earlier.
By Ben Garside – email@example.com