Drax Faces Tough Situation in Light of EU Energy Directive

Drax operates Europe’s biggest coal-fired power plant and is facing a huge increase in its bill for carbon generation.  This comes after the EU made known in its new directive that it would start auctioning carbon permits which used to be free.

Drax’s uses coal exclusively, making it a particularly susceptible target for changes in policy.  Coal continues to be the dirtiest fuel in terms if emitting carbon.

One analyst stated that he believes that Drax will be forced to drastically reduce its power generation activity.  He believes it is ripe for a takeover by an energy company which is more suited to thrive under the new directive.  “Eventually, [Drax] will only be able to operate about 40 per cent of the time. Over the longer term, they won’t be able to survive as an independent entity. They will probably be bought by a large, integrated power company,” he explained.

Drax provides about 7 per cent of the UK’s power, and in 2006, the company generated 17.7m tonnes of carbon dioxide emissions from its massive site in Selby, Yorkshire. Under the current scheme, which runs until 2012, the company is granted 9.5m tonnes of free carbon allowances each year.  If it generates more than that, it must pay for the extra carbon produced. Carbon is currently trading at around €20 per tonne. Once Phase 3 comes into effect, analysts expect carbon to rise by as much as twice the current price.

www.draxpower.com