By Susanna Twidale
(Reuters) - Drax, Britain's third largest power generator, reported a 9 percent rise in full-year earnings on Tuesday, driven by higher renewable power generation from its biomass units.
Drax, which has the capacity to provide electricity for around 13 million homes, converted the fourth of its six former coal-fired plants to use biomass wood pellets last year, ahead of Britain's plans to phase out coal plants by 2025.
Drax aims to replace the two remaining units with gas plants, but CEO Will Gardiner said this depended on the new plants receiving government support.
"It takes around three and a half, to four years to build the new plants so the timing depends on when we secure the contracts," he said in an interview.
The company planned to enter the units into Britain's back-up power scheme to avoid electricity shortages called the capacity market.
However, last November the government was forced to halt payments under the scheme pending a further investigation by European Union regulators.
Gardiner said he expected the capacity market to be reinstated this year, echoing comments by the government which said this year it expected to make retrospective payments to participating companies.
Drax bought British power generation assets from Iberdrola’s Scottish Power including some gas, hydro and pumped storage sites, for £702 million in a deal which closed on Jan. 1.
The terms of the deal were revised to ensure Drax gets a rebate on lost capacity payments due to a pause in a government scheme.
Analysts at Jefferies said total capacity payments would be worth around £68 million to Drax in 2019, but Gardiner said the company would receive up to 26 million back from Iberdrola if the scheme is not restarted.
The suspension of those payments led to a £7 million loss in revenue in the final quarter of 2018, Drax said.
Earnings before interest, tax, depreciation and amortisation (EBITDA) rose to £250 million for the year ended Dec. 31 from 229 million, helped also by higher biomass pellet production at lower costs.
Drax produced 1.35 million tonnes of biomass pellets at its U.S. sites, up 64 percent from the previous year.
(Reporting by Susanna Twidale in London and Arathy S Nair in Bengaluru; Editing by Jason Neely and Edmund Blair)