Growth in US pellet business swells Drax profit

Drax has reported an increase in profit in 2018 due to improved earnings from its US pellet production business and higher biomass output from its power station in Yorkshire.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 9 per cent year-on-year to £250 million. Revenue rose by nearly 15 per cent to £4.3 billion and pre-tax profit jumped almost eight-fold from £5 million to £37 million.

The majority of the earnings boost came from the pellet business, which saw its adjusted EBITDA almost quadruple from £6 million to £21 million. Annual production increased more than two-thirds to 1.35 million tonnes following the commissioning of the LaSalle Bioenergy pellet plant in Louisiana – its third such facility – in late 2017.

Drax reduced production costs across the whole of the business by $10 per tonne during 2018. It expects to see a similar decrease in transportation costs from the LaSalle plant to its port facility in Baton Rouge due to the completion of a new rail line in 2019.

Adjusted EBIDTA from the group’s power generation business dropped almost 3 per cent to £232 million due to a range of factors.

Overall electricity output from its portfolio fell by 8 per cent to 18.3TWh, while higher fuel and carbon costs lowered margins from coal generation. The suspension of the capacity market in November also left a £7 million dent in its revenues.

However, subsidised biomass output increased nearly 6 per cent to 13.7TWh following the conversion of a fourth unit from coal to biomass over the summer. This was despite several units being affected by an outage during the first quarter of the year due to a fire in a pellet unloading area towards the end of 2017.

Adjusted EBITDA from Drax’s business supply arm fell by £1 million to £28 million as a result of higher gas costs, the mutualisation of Renewables Obligation costs in the wake of supplier failures and an increase in bad debt. The number of customer meters served by the company rose by 5 per cent to 396,000.

Drax group chief executive Will Gardiner, said: “Drax is now one of the leading generators of flexible, low carbon and renewable electricity 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.

“Drax performed well in 2018. Our commitment to operating safely and sustainably remains at our core. We commissioned our third pellet production plant, which contributed to our good results.

“After a difficult first quarter for our power generation business, we delivered strong availability and financial results. Whilst the year was challenging for our B2B energy supply business, we continued to grow our customer base and are investing in the significant opportunity created by smart meters.”

Drax completed the purchase of a 2.6GW portfolio of gas and hydro assets from Scottish Power in January and this month began capturing carbon emission from one its biomass units for a ground-breaking pilot project.