Coal-fired power groups take forward positions

London - Drax Power has reported 2008 earnings (EBITDA) from its power generation activity at £454 million from sales of £1,753 million - based on net sales of 25.4TWh and an average achieved price of electricity of £58.3 per MWh. Plant availability performance for the North Yorkshire coal-fired facility came in at 86%.

For us, last year was characterised by extreme movements in commodity market prices, which introduces an element of uncertainty to the business," said Charles Berry, chairman of Drax. "However, the market fundamentals for generators have remained strong amidst a backdrop of generation capacity issues, and it's this that's allowed Drax to demonstrate the strength of its strategic role within the UK power generation sector."

According to Berry, pressure on profit during 2009 is being partially mitigated by a strong forward contracting position at the start of the year. And looking ahead to 2010, he said current commodity prices would indicate a strengthening of margins.

Drax is developing a 900MW biomass-fired generation business in strategic partnership with Siemens Project Ventures. The plan is to develop three 300MW dedicated biomass-fired generation plants in the UK.

The company, said Berry, has been progressing the evaluation of potential sites for the developments and, so far, have accepted Grid connection dates for two sites, one at the Port of Immingham and the other at the site of Drax Power Station itself. Once operational, the new developments combined with our increased biomass co-firing capability at Drax Power Station will mean that almost 30% of its generation capacity will be fuelled by renewable sources, he said.

On current estimates, Drax would be responsible for around 15% of the UK's renewable electricity, equivalent to the output of some 2,000 wind turbines, and for producing around 10% of the UK's total electricity, enough to power around seven million homes.

"We believe our strategy should provide a diversified and sustainable business growth path and deliver value with a clear focus on return on investment. Given the outlook for the UK power generation market and the incentives to invest in renewable generation," said the chairman. 

"We're now in the advanced feasibility stage of developing and planning, but we've been clear to our investors that we'll only commit to investment once it can be plainly demonstrated that we'll secure attractive returns," he added.

Continuing with the biomass theme, Berry reported that construction of a biomass pellet plant at Goole, some three miles from Drax Power Station, is now complete and is being commissioned with the expectation that the first batch of locally sourced straw will be processed on 1 May. The straw will be used to fuel our co-firing facility at Drax Power Station.

Drax has also recently acquired a small electricity supply business, Haven Power, from the Welsh Power Group. The acquisition, said Berry, is part of a strategy to extend the company's trading capabilities and routes to market. Haven, currently supplies 0.7TWh per annum serves small and medium sized business customers, but has the capacity to grow significantly.

Meanwhile, Scottish and Southern Energy (SSE) has agreed the terms of a five-year deal with UK Coal to purchase fuel for its Ferrybridge power station. The recent installation of flue gas desulphurisation equipment at the station means the UK's higher sulphur coal can now be used to generate power.

Under the proposed agreement, SSE will buy 3.5 million tonnes of coal between 2009 and 2015, which represents around 15 per cent of the station's coal requirements in that period. The coal will be sourced from deep mine and surface sites in the UK, including Kellingley Colliery in North Yorkshire.

SSE has agreed to provide a loan to UK Coal so that production facilities at a number of UK Coal sites can be upgraded.

Ian Marchant, chief executive of SSE, said: "With its higher sulphur content, the UK's coal has previously been unsuitable for use in SSE's power generation plants. Our investment in equipment to remove emissions of sulphur means we can now make this substantial commitment to an indigenous source of fuel, thereby supporting jobs in the UK's mining industry.

"We are aiming to reduce the carbon intensity of our power generation by 50% by 2020, but the security of the UK's energy supply will continue to require a role for coal for the foreseeable future. In this context, it makes very good sense to diversify our sources of fuel supply."