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Drax share price takes 12 per cent hit

Over the past week, generating giant Drax has seen its share price take a 12 per cent hit, plunging from a recent high of 333 pence per share on 13 August to 293p/share.

Analysts at Whitman Howard said they “do not see any particularly good reason for this” but that it could be the result of some “short-term profit taking” from the firm’s recent recovery.

However, analysts said they still believe there is “considerable upside over the longer term”.

Utilities analysts Angelos Anastasiou said: “A near-term trigger could positive news on progress with the EU state aid process for Drax’s third unit conversion, including any update on RWE’s Lynemouth plant, which is also seeking EU state aid clearance, but from a more advanced position.

“Hence, we see the recent share price retrenchment as an opportunity.”

Drax produced relatively good interim results on 28 July, and these led to some upgrades.

The firm experienced a hefty share price fall of 28 per cent to 254p/share when the government removed the climate change levy exemption for renewables on 7 July, effective from 1 August 2015. 

However, shares had a 10 per cent bounce on the day of the interims to 277p/share, and then steadily recovered further to a recent high of 333p/share on 13 August.

“We believe that this recovery was fuelled by some optimism as to what the strategic review announced with the interims might come up with,” said Anastasiou.

Drax consists of six units that were initially coal-burning. The first and second units have already been converted to full biomass burn under the Renewables Obligation (RO) and are not affected by Decc’s announcement, as they are already grandfathered in.

The third unit will operate under the CfD scheme (£105/MWh for biomass conversion), subject to European Commission state aid clearance, and is set to be converted to co-firing by the end of July.

Any further unit conversions would either be subject to the RO, which is time limited to 2017, or would have to apply in future CfD rounds if allowed.

Last month, the generator said it is keen to push ahead with plans for converting its fourth unit to biomass, despite an announcement that £500 million of support for biomass has been withdrawn by the government.