Key factors affecting the business

Price of electricity

The table below shows the average achieved electricity price realised for the years ended 31 December 2006 and 31 December 2007, together with the market closing price on the last day each season illustrated was traded as a product.

Average achieved price for the year ended 31 December 2007 was £45.3 per MWh compared to £48.9 per MWh in 2006. Average capture price (being the price attained prior to Balancing Mechanism activity) for the year ended 31 December 2007 was £44.2 per MWh compared to £47.7 per MWh in 2006. The forward baseload power prices for Summer 2008 and Winter 2008/2009 were approximately £54.2 per MWh and £61.2 per MWh respectively as at 22 February 2008.

The fall in average achieved price primarily reflected the impact from forward sales contracts secured in the last six months of 2006 and early in 2007, during which time power prices were generally falling relative to the levels of late 2005 and early 2006, for power now delivered in 2007.

Price of coal and other fuels

We burnt approximately 9.8 million tonnes of coal in the year ended 31 December 2007 compared to approximately 10.2 million tonnes in 2006. This coal was purchased from a variety of domestic and international sources under either fixed or variable priced contracts with different maturities.

Spot prices for internationally traded coal delivered into North West Europe (as reflected by the TFS API 2 index) rose steadily from US$68 per tonne on 31 December 2006 to US$79 per tonne by 30 June 2007, but then increased dramatically over the last six months of the year reaching US$127 per tonne on 31 December 2007. This reflected tight markets for both coal and freight, especially in the Pacific Basin, caused by strong demand from China and India, combined with some production and logistical issues in Indonesia and Australia.

We also burn biomass, petcoke and fuel oil, although coal comprised around 95% of total fuel costs in 2007 (excluding CO2 emissions allowances) compared to 93% in 2006, primarily reflecting higher coal prices in 2007. The average cost of fuel per MWh (excluding CO2 emissions allowances) for the year ended 31 December 2007 was £18.5 compared to £17.1 in 2006, with coal prices continuing to rise throughout the year.

CO2 emissions allowances

Our CO2 emissions allowances requirement for the year ended 31 December 2007, in excess of those allocated under the UK NAP, was approximately 7.6 million tonnes compared to approximately 8.2 million tonnes in 2006, with the reduction largely due to lower generation.

The price for Phase I (2005–2007) CO2 emissions allowances began the year at approximately 16.6 per tonne, and as a result of oversupply, fell steadily over the first six months of the year to 10.13 per tonne on 30 June 2007, subsequently falling away further to 10.04 per tonne by 31 December 2007. The average price expensed for CO2 emissions allowances during the year ended 31 December 2007 was £1.5 per tonne compared to £14.3 per tonne in 2006.

Outages and plant utilisation levels

Notes:

1. The forced outage rate is expressed as a percentage of planned capacity available (that is, it includes a reduction for planned losses). The planned outage rate is expressed as a percentage of registered capacity. Accordingly, the aggregation of the forced outage rate and planned outage rate will not equate to the total outage rate.

Plant availability in the year ended 31 December 2007 was 86% compared to 90% in 2006, primarily as a result of an increase in the planned outage rate with two major planned outages taking place in 2007 compared to one in 2006.

Our maintenance regime includes a major planned outage for each unit every four years. Consequently, there is an irregular pattern to planned outages and associated expenditure, since in two of the four years; two units will each undergo a major planned outage. Two major planned outages (units 2 and 3) were completed during 2007, whereas one major planned outage (unit 4) took place during 2006. The planned outage rate achieved for the year ended 31 December 2007 was 8.1% compared to 4.8% in 2006. Two units will each undergo a major planned outage in 2008.

The Winter forced outage rate in 2007 was 4.2% (4.7% in 2006). The forced outage rate for the full year was 6.9% (5.8% in 2006), of which approximately 0.8% was due to a decision to undertake a number of elective forced outages during low margin periods to inspect boiler tubes following a tube failure at an older UK coal-fired power station.

These outages also allowed additional plant inspections and repair work to be undertaken which have provided us with a high degree of confidence in maintaining plant integrity.

We have targeted improvements in forced outage rates by focusing on preventing minor predictable failures and seeking to avoid major failures by using historical Drax operating data together with original equipment manufacturer and industry experience. We believe further progress can be made in both areas and will continue the programmes to improve performance, with the objective of achieving a sustainable average Winter forced outage rate of 4.5%.

Health and safety

The lost time injury rate was 0.34 for the year ended 31 December 2007 compared to 0.08 in 2006. Although this represents a deterioration, we maintained the much improved performance levels achieved in 2005, despite a 53% increase in hours worked by our production teams and contractors in 2007 compared to 2005. This demonstrates that the safety programmes implemented in the last few years are becoming well entrenched and are delivering sound performance, and our safety record compares favourably to our sector peers and international benchmarks.