By Mark Williamson Group Business Correspondent
ENERGY giant Drax has welcomed a strong performance by its hydro assets in
Scotland although the group expects to take a £60m hit to profit because of
the impact of the coronavirus on the United Kingdom.
Drax noted the spread of the Covid-19 coronavirus has resulted in a slump
in demand for power and could leave many of its small and medium sized
enterprise customers struggling to pay their bills.
A renewables specialist which has invested heavily in windfarms in Scotland
said yesterday that it was braced for a material reduction in power prices
in the near term as a result of the coronavirus.
The Renewables Infrastructure Group told investors: “Covid-19 is having a
materially adverse impact on wholesale power prices as a result of reduced
economic activity due to movement restrictions introduced across Europe.”
However, TRIG said its assets in Great Britain have been performing well
despite the operational challenges posed by Covid-19. The portfolio
includes stakes in 16 windfarms across Scotland including Green Hill in
Ayrshire.
The London-based group said the Solwaybank development near Langholm in
Dumfries and Galloway is progressing well with the commencement of
operations still expected by the end of the year. Construction work on the
Blary Hill windfarm on the Kintyre Peninsula is expected to commence shortly.
Signalling continued confidence in its long term prospects, the group
maintained its dividend guidance for the current year.
Drax made clear it is pleased with the Scottish renewable energy assets it
acquired with a £700m portfolio bought from Scottish Power in 2018.
These include the giant Cruachan Pumped Storage plant on Loch Awe in Argyll
and two hydroelectricity generators on rivers.
In an update on first quarter trading Drax said: “The Group’s hydro assets
have performed well, particularly the pumped storage business, primarily
driven by activity in the system support services market.”
Drax has said Cruachan could play an important part in supporting the
transition to a low carbon energy system by providing power on demand to
make up for fluctuations in the output of windfarms and the like.
Cruachan generates power from the movement of water between a reservoir in
the hills and Loch Awe, which lies about 450 yards below.
Drax noted yesterday that Cruachan was recently awarded a contract by
National Grid to help keep the national power system stable. This will be
worth up to £5m annually over six years.
Drax has said it could be prepared to make the massive investment required
to achieve a big increase in capacity at the plant with the right official
support.
The company’s other assets include the giant power plant in Yorkshire from
which it takes its name. Drax announced in February that it expects to stop
commercial coal-fired production at the plant by the end of March
2021.Around 75% of current output is generated using wood pellets.
In an update on trading Drax said it achieved a robust trading and
operational performance in first three months of 2020.The company said it
is on course to meet consensus forecasts for underlying earnings even after
taking account of the £60m negative impact of the coronavirus..
However, the fallout from the coronavirus will pose challenges for the
division that sells power to business customers.
Drax said: “In the Customers business, the consequences of Covid-19 are
only now starting to become visible. It is expected to result in reduced
demand and a potential increase in bad debt, which represents a major
sensitivity, particularly in the SME) market … Drax has significantly
increased its expectation of potential customer business failures and
higher bad debt.”
The Renewables Infrastructure Group said it expected wholesale power prices
in markets such as Great Britain to be around 17 per cent lower than
previously expected over the next five years as a result of the impact of
the coronavirus on demand.
But it noted: “Approximately 74% of the Company’s revenues through to 31
December 2024 (and in excess of 80% over the next two years) are fixed,
providing strong levels of visibility on cashflows in the near-to-medium
term.”
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