Drax, Iberdrola Amend Deal After EU Ruling Suspends UK Capacity Market

By Adam Clark

U.K. power company Drax Group PLC (DRX.LN) said Monday it has amended the terms of its purchase of a portfolio of assets from Spain's Iberdrola SA (IBE.MC), after a European Union ruling threatened contractual payments from the British government.

In November, a European Union court decision forced the suspension of the capacity market, which the U.K. uses to ensure electricity supplies at times of stress. The U.K. government said it is working with the EU's state-aid investigation into the market, but payments have been suspended.

Drax said contracted capacity payments make up a significant proportion of the earnings of a portfolio of pumped storage, hydro and gas-fired generation which it bought from Iberdrola for 702 million ($894.9 million) in October.

Drax and Iberdrola have agreed a risk-sharing mechanism in respect to GBP36 million worth of capacity payments for the period from Jan. 1 to Sept. 30 of 2019. If less than 100% of those payments are received and the portfolio's gross profit falls below expectations, Iberdrola will pay Drax GBP26 million. However, Iberdrola will also have the opportunity to earn up to GBP26 million if the portfolio performs better than expected.

Drax said its full-year earning outlook remains in line with previous expectations, despite the loss of GBP7 million in capacity payments scheduled in 2018 due to the EU ruling.

At 0905 GMT, Drax shares were up 5.60 pence, or 1.4%, at 396.20 pence.

Write to Adam Clark at [e-mail]; @AdamDowJones

(END) Dow Jones Newswires

December 03, 2018 04:34 ET (09:34 GMT)

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