Power station operator, Drax, saw its first-half earnings drop 27 per cent to £150m, but has forecast a rise in profits for 2010, driven largely by favourable hedging contracts.

The Selby-based group reported a drop in revenues of 12 per cent to £707m. Gross profit was down 17 per cent to £255m from £307m a year earlier and operating profit fell from £161m to £43m.

The group has attributed the sharp fall in revenue to lower power demand and depressed UK gas prices. However, chairman Charles Berry said the company had made ‘steady progress’ in the first six months of the year and was on track to meet expectations.

He said: 'With a commitment to delivering value to our shareholders, we have taken sensible steps to ensure we are well placed to continue to do just that.

‘This year the business has had a strong focus on cost, capital and cash management. Through strong action across the business we fully expect to deliver on our targeted savings.'

Drax said its expectations for core profits for the full year remain unchanged, however, an additional £30m of earnings and cash has been received through foreign exchange contracts, £25m of which will be posted in the second half of the year.

Dorothy Thompson, chief executive of Drax, said: ‘We have successfully strengthened our capital structure and completed our refinancing. Our operational performance continues to be good and we are delivering strong control over costs, capital and cash, remaining on track to deliver the targets we set out in March.

‘Our near-term market remains volatile and unpredictable. We have therefore accelerated our hedging for 2010 and are now over 80 per cent contracted, at higher achieved margins than the current year. This will underpin next year's gross profit at a level, under current market conditions, that is comfortably in excess of the underlying level this year.'

In addition to its hedging strategy, the company's carbon abatement projects are said to be on budget, with the group halfway through a turbine upgrade programme as well as the construction of a biomass co-firing facility.

Once completed, the biomass facility is expected to deliver a saving in carbon emissions of up to 17.5 per cent by 2011 and will increase the company’s power station co-firing capability to 500W, equivalent to 12.5 per cent of its total output.

Thompson added: ‘Beyond 2010, the forward markets for our commodities continue to show a further improvement in margins. We remain confident in the long-term future and potential of Drax.'