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Drax eyes revenue from UK's back-up power schemes - CEO

The first phase of a new wind farm is seen next to Drax power station in Drax, northern England, September 2, 2010. REUTERS/Nigel Roddis (Reuters)

By Susanna Twidale LONDON (Reuters) - British electricity producer Drax will benefit from subsidy schemes designed to prevent power cuts over the winter months, its chief executive said on Tuesday. Revenue from the so-called ancillary contracts more than trebled to 20 million pounds ($26 million) in the first half of 2016 compared with the same period last year, company results posted earlier in the day showed. "We see these as a real market opportunity for Drax across our units," CEO Dorothy Thompson told Reuters in an interview. Weak electricity prices have led to several generation plant closures over the past few years, forcing Britain's grid operator National Grid to launch a raft of measures to ensure there is enough power over the winter. From next year many of these schemes will be replaced by a government capacity auction that pays generators a fixed fee to guarantee availability, and is expected to be worth around 2-3 billion pounds a year. At the end of this year, the government will hold auctions to secure power for winter 2017/18 and winter 2020/21. Thompson said she expected the company to enter all, or some of, its coal-fired power units into both auctions. Drax, which has enough capacity to provide 7-8 percent of Britain’s electricity, has secured contracts under the scheme to provide power for winter 2019/20. Analysts at ratings agency Moody's said those deals were worth around 24 million pounds to the company. Overall first-half earnings before interest, tax, depreciation and amortisation (EBITDA) were 70 million pounds in the first half of 2016, down from 120 million a year earlier. Full-year earnings for 2016 would likely be at the lower end of analysts' forecasts of 146-185 million pounds, the company said in its results. Weak power prices combined with high environmental levies for coal-power producers had led to a challenging environment, Thompson said. Britain plans to close all its coal-fired power plants by 2025 unless they are fitted with technology to capture and store carbon dioxide emissions. Thompson said the company could convert all of its units to biomass but would need government support to do so. (Reporting by Susanna Twidale; Editing by Mark Potter and Dale Hudson)