9th May 2014 07:43
LONDON (Alliance News) - Drax Group PLC Friday warned that it is now expecting earnings to be below current market forecasts as power prices have fallen by more than expected, leading to weaker gas markets, and as renewables obligation certificates prices also have fallen.
The UK energy provider also confirmed it is moving ahead with its legal action against the UK goverment in relation to its contracts-for-difference dispute.
Drax said that since publishing its preliminary results on February 18, mild weather across Europe had led to weaker gas markets and a further fall in power prices, while abnormally high wind generation has pushed down the price of its renewables obligation certificates prices.
As such, the company said that, unless markets improve, its full year earnings before interest, taxation, depreciation and amortisation and earnings per share for 2014 would be below current market forecasts.
In February, the company announced a 23% fall in EBITDA in 2013 to GBP230 million due to increasing carbon costs and its earnings per share, excluding unrealised losses on derivative contracts of GBP110 million and associated tax, fell 32% to 35 pence, a number which was ahead of expectations.
However, the company said on Friday that it now has contracted for 25.0 terawatt hours of power sales in 2014 and for 10.3 terawatt hours in 2015, after extending its contracted position with 3 terawatt hours worth of new power sales for both 2014 and 2015 since February.
Drax said capital investment in its on-going transformation to a predominantly biomass-fueled electricity generator remains on schedule and on budget with commissioning of new biomass facilities expected to complete in the third quarter.
In April, Drax said it legal proceedings against the UK government after it rejected Drax's second unit conversion at the Drax Power Station, saying it was not eligible for investment contracts under a new contracts-for-difference scheme, a subsidy for low-carbon electricity generation.
On Friday, Drax said its legal advice confirms it has a good foundation to challenge the UK government decision, and the company confirmed that it has started legal proceedings.
Drax said the government decision has caused some uncertainty, leading to delays in its biomass supply and logistics development.
The company added that it has agreed to a new private placement for GBP100 million with various funds, managed by M&G Investments, which it will use for general business purposes.
Drax group shares were down 2.9% to 659.00 pence in early trading Friday.
By Tom McIvor; [email protected]; @TomMcIvor1
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