February 27, 2020 / 8:00 AM / a month ago

UPDATE 2-Britain's Drax to end coal power generation in 2021

* UK govt deadline to phase out coal in 2024

* Drax profit rises 64% in FY 2019

* Shares up 5% (Adds more detail; share price)

By Nina Chestney

LONDON, Feb 27 (Reuters) - British power producer Drax Group Plc said in its full-year results on Thursday it will end coal power generation at its North Yorkshire plant, ahead of Britain’s 2024 deadline.

Drax, which has the capacity to provide electricity for around 13 million homes, has converted four of its six former coal-fired units in the past decade to use biomass wood pellets.

Although almost 50 years of coal-fired electricity generation at Drax power plant is expected to come to an end in March 2021, the firm said will ensure its two remaining coal units remain available until September 2022 under a government scheme to provide back-up electricity at short notice.

“Ending the use of coal at Drax is a landmark in our continued efforts to transform the business and become a world-leading carbon negative company by 2030,” said Chief Executive Will Gardiner.

“Drax’s journey away from coal began some years ago and I’m proud to say we’re going to finish the job well ahead of the government ... deadline,” he added.

The firm said the coal generation market has been challenging as power prices weakened last year due to a mild winter and high levels of gas storage.

The cheapness of natural gas, coupled with strong carbon permit prices, meant gas was more competitive than coal in power generation in much of Europe.

Investors widely anticipate the slow demise of coal use due to policies encouraging cleaner natural gas and renewable energy generation, as well as public pressure on companies to fight climate change and increasing divestment from coal assets.

Drax said the end of coal generation will lead to a reduction in staff at the plant of around 200-230 people from April 2021. Trade unions and employee representatives will be consulted over the coming months, the company said.

It also expects a reduction in operating costs at the plant of around 25-35 million pounds ($32.5-$45.5 million) per year when the coal phase-out is complete.

The company’s adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 64% to 410 million pounds for the year ended Dec. 31 from 250 million pounds a year earlier.

The rise in profit was due to the integration of acquired hydro and gas assets from Scottish Power and a reduction in the cost of wood pellets.

Drax shares were up 5% by 0929 GMT.

The company raised its final dividend to 9.5 pence per share, up from 8.5 pence per share in 2018.

Drax plans to build a new combined cycle gas turbine at its power plant to replace the two remaining coal-fired units. However, approval for the project is subject to a judicial review, it said.

It has also developed options to build new open cycle gas turbines but that will be dependent on securing a payment under the government’s capacity market which pays operators to provide back-up power at short notice.

“An appropriate clearing price in a future capacity market (auction) will be required to underpin investment in new-build gas,” Drax said in its results. ($1 = 0.7696 pounds) (Reporting by Nina Chestney; Editing by Edmund Blair and David Evans/Emelia Sithole-Matarise)

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