Budget 2014: Energy Price Hike
Drax Shares Edge Lower After Profits Hit By UK Carbon Tax Reuters

Drax shares have taken a hit in the market opening after the British power producer revealed that the UK's costly carbon tax hit first-half earnings.

The Drax share price fell by 1% to 681.50p after the operator of one of Europe's largest coal-fired power stations said earnings dropped by 15% during the first six months of 2014, to £102m (€129m, $173m), from £120m during the same period last year.

"As expected, in the short term the increasing cost of the UK carbon tax drove earnings before interest, tax, depreciation, and amortisation (Ebitda) down year-on-year," said Dorothy Thompson, chief executive of Drax.

"We have been investing significant capital to transform Drax into one of Europe's largest renewable power generators, burning sustainable biomass, thereby improving the long term value proposition for the group.

"The regulatory landscape still presents uncertainties, but positive progress is being made and we hope that most of the key issues will be clarified in the coming months."

However, Drax said that its outlook remains unchanged.

UK Chancellor George Osborne pledged to provide a £7bn relief package for businesses to help them with carbon costs and, in turn, help reduce energy bills for ordinary Britons over the next few years.

In the government's Budget 2014 announcement, Osborne said Whitehall will cap the carbon price support rate at £18 per tonne of carbon dioxide (CO2) from 2016 to 2017 for the rest of the decade.

Whitehall initially introduced a carbon price floor in 2011.

While the carbon price floor is popular for green campaigners, the Confederation of British Industry has said previously that green taxes on power are putting British companies at a "disadvantage".

Drax has tried to combat costly carbon taxes by converting three of its six coal-fired power generation units to use biomass by 2016.

One of these plants have been converted while the other two are pegged for completion by the end of 2015.