Drax sells 63 per cent of 2007 output at higher prices

Britain's Drax, owner of Europe's largest coal-fired power station, said it had already sold nearly two-thirds of its 2007 output at higher prices and gave details of a planned special investor payout. The firm, which this month had its name added to the UK's leading 100 group of listed companies, was almost bankrupt in 2002 after wholesale electricity prices crashed.

But soaring power prices have changed all that and after a debt restructuring in 2005 and a stock market listing in December, its value has rocketed.

Drax is raking in cash because unlike many energy utilities, it does not need costly gas to make its power. However, as a pure coal-fired generator, it is one of Britain's biggest makers of carbon dioxide (CO2), a greenhouse gas seen linked to climate change.

By 0724 GMT, its shares were one per cent stronger at 833 pence, giving it a market worth of almost £3.4 billion. They peaked earlier at 844-1/2 pence, a gain of 2.5 per cent on the day.

Shares in Drax, which owns the giant 3,960-megawatt plant near Selby, Yorkshire and which is capable of supplying around seven per cent of Britain's power needs, started trading on December 15 at 500 pence.

The firm said it expected 63 per cent of the power it produces next year to be sold at £49.90 per megawatt hour (MWh), helped by a recently-agreed deal to supply British Gas owner Centrica Plc with crucial supplies for five years from October 1, 2007. Drax has fixed deals for 87 per cent of this year's output at £47.90 per megawatt hour. Drax also gave more details of its plan to return more cash to investors by way of a special dividend this year and said that at this stage it expected this to be between 75 pence and 80 pence per share, higher than some analysts had expected.

It said the payout, which could be paid in late October, would be worth between £305 million and £326 million. The company pledged to return "substantially all" of any remaining cash flows after meeting its debt repayment and capital expenditure obligations, which analysts say could mean bumper returns for investors.

"In the longer term, we continue to believe that the market is over-valuing Drax," Credit Suisse analyst Colin Pollock said in a note.