Drax has reported in earnings over the first half of 2020 despite taking a £44 million hit from the fallout of the coronavirus pandemic.
The company said the resulting losses were partly offset by the return of capacity market payments which amounted to £34 million over the six months to the end of June.
Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose by almost a third when compared to the same period last year to £179 million. However, this headline figure excluded a £244 million write-down the value of its coal assets meaning the company went from an unadjusted operating profit of £34 million to an operating loss of £32 million.
Speaking to Utility Week, Drax Group chief executive Will Gardiner said he expected the pandemic to cost the company £60 million over the whole of 2020 as a result of lower energy sales, trading losses and non-payment by struggling customers.
He also discussed the company’s drive to cut biomass costs sufficiently to allow generation to continue once its subsidies expire: “When this started this journey about a year or so ago, the cost biomass power generation was about £75/MWh.
“Our long-term goal is to reduce that to £50/MWh – so to reduce it by about a third. We believe that if we do that, we could continue to generate power at the Drax power stations without subsidy past 2027.”
Drax has set an interim target of reducing generation costs by £13/MWh by 2022. Gardiner said the company is aiming to achieve savings by both growing and improving the efficiency of its pellet supply operations, on which it will increasingly rely to feed its power station in North Yorkshire.
Over the last year, the company lowered the cost of its self-supplied pellets by 9 per cent to $154 per tonne. Drax Group chief financial officer Andy Skelton said this was partly the result of investments in transportation infrastructure: “The railway line finished considerably short of our plant in LaSalle. We extended the railway lines by 25 miles and what that did was significantly reduced the cost of transport because rail is cheaper than going by road.
“And at the port at Baton Rouge where the pellets get shipped from you could only take a certain size of wagons because wasn’t big enough for them to turn. We’ve worked with the port in getting a chambering yard which allows you take bigger wagons down to the port. Obviously, the cost of each extra wagon on the train is much cheaper the bigger it is.
“Things like that, they require a little bit of investment but they have very quick returns.”
He said the company is seeking to lower costs by sourcing cheaper feedstocks, noting that a sawmill was recently built alongside is LaSalle plant so its waste can be used pellet production.