Drax profits are hit hard by declining British gas prices and drop in demand

DRAX, the British power station operator, has recorded a substantial drop in full-year profits and revenue due to declining power prices and demand.

Pre-tax profits fell 64 per cent for 2009 to £158m from £443m the year before. Revenues were 16 per cent lower at £1.47bn – against analyst predictions of 1.36bn.

The company said market conditions in 2009 had been difficult and that a slump in British gas prices and relatively stable coal costs made coal plants less profitable in Britain.

It added that demand had not yet picked up but the situation is expected to improve.

Drax said: “Despite challenging market conditions in the near-term, our exposure to these narrowing spreads is mitigated by our strong forward contracted position. For 2010 and beyond, we are continuing to see narrow dark green spreads driven principally by low forward gas prices compared to those of coal.”

The operator’s share price fell four per cent on the poor results and analysts said predictions for the future were overly optimistic.

Evolution Securities analyst Lakis Athanasiou said: “Drax has very good hedged positions for 2010 and 2011, but the fundamentals are weak. The forward dark green spreads are very low due to low gas prices (caused by global excess supply) and high coal prices ... there is more downside risk to the share price than upside.”