The head of UK power producer Drax says the company is in line to benefit from the government’s subsidy schemes.

Chief executive Dorothy Thompson told Reuters, “We see these as a real market opportunity for Drax across our units,” in reference to the schemes designed to use conventional power generation such as coal or gas to prevent power cuts during the winter months.
Dorothy Thmpson Drax CEO
Revenue from the so-called ancillary contracts more than trebled to £20m ($26m) in the first half of 2016 compared with the same period last year, company results posted earlier in the day showed.

Drax, which has enough capacity to provide 7-8 percent of Britain’s electricity, has secured contracts under the scheme to provide power for winter 2019/20.

Analysts at Moody’s said those deals were worth around £24m to the company.

Fossil power generation plants have become uneconomical in recent years due to greater integration of renewables and falling power prices. National Grid has had to react to ensure that baseload power is sufficient despite market conditions.

From next year many of these schemes will be replaced by a government capacity auction that pays generators a fixed fee to guarantee availability, and is expected to be worth around £2-3bn a year.

At the end of this year, the government will hold auctions to secure power for winter 2017/18 and winter 2020/21. Thompson said she expected the company to enter all, or some of, its coal-fired power units into both auctions.

Overall first-half earnings before interest, tax, depreciation and amortisation (EBITDA) were £70m in the first half of 2016, down from £120m a year earlier.

Thompson said the company could convert all of its units to biomass but would need government support to do so. Connor Campbell, a senior market analyst at spreadex.com noted the positivy towards the company for its performance as a biomass generator telling Power Engineering International, “Despite a hefty 59 per cent fall in underlying profit and 2 per cent slide in revenue Drax Group still managed to eke out a 0.7 per cent rise this morning.”

“It appears that investors are impressed by the company’s progress in making its coal station (the biggest in the UK) almost completely run on biomass. It’s the kind of move that speaks points to strong forward planning for Drax, and appears to have allowed investors to forgive its ugly headline figures.”