(Bloomberg) -- UK power generator Drax Group Plc jumped the most in four years after announcing a program to return £300 million ($386 million) to shareholders and an improved profit outlook.
The two-year share buyback program is expected to start in the third quarter, Drax said in a statement on Friday. It said full-year earnings will be at the top end — £996 million — of a range of analysts estimates. Drax’s shares rose as much as 16%, the biggest intraday gain since April 2020.
The UK utility is sitting on a pile of cash as it waits for a government decision on a “bridging mechanism” to help keep its biomass units profitable after its current subsidy contracts end. A decision was delayed due to the UK general election this month but Drax expects a conclusion this year.
The company is planning to invest £2 billion to capture emissions from its biomass-fired power plant in Yorkshire. As government subsidies for unabated biomass generation expire in 2027, the company is seeking a subsidy for its carbon capture and storage project but won’t be eligible for that until at least 2030. Due to the cost of biomass as a fuel to generate power, Drax is unlikely to be profitable in the interim without some kind of help.
The company’s first-half adjusted earnings before interest, taxes, depreciation and amortization rose to £515 million up from £417 million in the same period last year.
Drax says its investments linked to the energy transition and energy security could be about £4 billion by 2030, with more during the 2030s.
“We look forward to working with the new UK government to help grow the economy and take steps urgently to deliver a net zero electricity system by 2030,” Will Gardiner, chief executive officer of Drax, said in the statement.
(Updates with share increase in second paragraph and CEO comments in last)
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