Coal-fired power producer Drax has posted a fall in half-year profit, as the company began paying a Government-imposed minimum price for carbon. Drax, the operator of one of Europe’s largest coal-fired power stations, must also pay an extra carbon cost imposed by the Government in April.
Chief executive Dorothy Thompson said “at the beginning of this year, we entered into Phase III of the EU ETS and no longer receive a free carbon allocation. In addition, the UK carbon tax came into effect in April. As a result our carbon costs are higher, with a consequent impact on our profits. This is all well understood by shareholders and the stock market. Through these increased costs and Government's trajectory for increasing the UK carbon tax over time, there will be a growing downward pressure on the profitability of all coal-fired electricity generators.
Drax has delivered profits in line with expectations, although lower than for the same period last year reflecting the increased cost of carbon. From 2013, Drax purchased CO2 emissions allowances under fixed price contracts with different maturity dates from a variety of domestic and international sources.
Drax’s CO2 emissions allowances requirement for the six months ended 30 June 2013 was approximately 10.2 million tonnes, all of which were purchased. Their requirement for the first half of 2012 was 11.2 million tonnes, of which 6.5 million tonnes were purchased and 4.7 million tonnes allocated free under the UK NAP.
The average price expensed for purchased CO2 emissions allowances during the six months ended 30 June 2013 was £6.9 per tonne, compared to £5.9 per tonne in 2012, reflecting the timing of purchases under fixed price contracts in the forward and near-term markets. As a result, the cost of carbon allowances was £70 million in 2013 compared to only £38 million in 2012.