Drax profits up on renewables, but warns govt on investment spend

(Sharecast News) - UK energy provider Drax on Thursday posted an increase in annual profit driven by an increase in renewable power generation, but said it would lower investment on infrastructure such as carbon storage until it received more clarity from the government on investment returns. The company reported earnings before interest, tax, depreciation and amortization of £1.06bn for 2024, up from £1bn a year earlier.

Drax, which burns wood pellets to produce electricity, said biomass power production rose 27% year on year. The UK government earlier this month extended a deadline on subsidies to 2031 from 2027 although the payouts were halved.

Chief executive Will Gardiner said the deal was a "major milestone for the business and provides the basis on which the site continues to generate electricity for the country, especially when the wind isn't blowing, and the sun isn't shining".

"This is an investment in security of supply, which provides a net saving for consumers and helps deliver the government's Clean Power 2030 goal. It also offers a potential pathway for long-term growth for our business."

However, the company also said it would "commit less development investment" to strategic investments, which included carbon removals, 24/7 renewable power, datacentres and energy storage.

"As we seek to maximise value we will exercise prudence in how we commit development investment to our larger projects. Until we receive greater certainty on appropriate regulatory structures and investments returns, we expect to commit less development investment," the company said.

Earlier this month the government halved subsidies for the Drax power station and ordered it to use 100% sustainable wood after sustained criticism over its business model, especially burning wood pellets sourced from forests in the US and Canada.

UK energy minister Michael Shanks said at the time: "We believe that they [subsidies] simply did not deliver a good enough deal for bill payers and enabled Drax to make unacceptably large profits."

Drax accounts for around 6% of the UK's electricity supply and under the new agreement, will have to switch to using 100% woody biomass from sustainable sources, up from the current level of 70%. The government threatened "substantial penalties" if it did not comply.

Reporting by Frank Prenesti for Sharecast.com