Blackfriar: Collective action needed to turn carbon dream to reality

Drax last year revealed ambitious biomass plans, but these have largely stalled because of Government indecision. The coal-fired plant now wants a slice of Government and EU funding to pump carbon emissions into the North Sea.

Drax is on a tight deadline. Fossil fuel-fired power stations have until the 2020s to clean up their act or close.

“Drax is going to look at every single opportunity to extend the value that they have from the existing assets and skills,” said Evolution Securities analyst Lakis Athanasiou.

With carbon prices due to hit £30 per tonne by 2020 and £70 by 2030, he said “there’s no way on earth Drax can survive in that environment”. He sees the North Yorkshire power station, Britain’s biggest single source emitter of greenhouse gases, forced to close between 2025 and 2030.

“They are skilled at running a coal plant and (CCS is) a version of that,” added Mr Athanasiou. “If they can get funds they certainly will.”

Drax’s plans for CCS, one of nine UK projects bidding for money from a £3.8bn EU funding pot, are currently vague. It envisages building a 426 megawatt (MW) standalone power demonstration project at Selby, working with French engineering group Alstom and National Grid to pipe carbon emissions from coal combustion out to the North Sea.

Administrators of troubled energy firm Powerfuel, which ran out of money in its quest to build a CCS power station at Hatfield near Doncaster, have also submitted a bid for EU funding. Administrators KPMG say this shows it’s business as usual as they try to find a buyer for Powerfuel.

Drax’s plans – plus those of Doncaster’s Powerfuel – revive plans for a CCS cluster in the Humber.

National Grid and bodies such as Yorkshire Forward want to link the Humber region’s big CO2 emitters to create a CCS network that would pipe CO2 out to the North Sea, creating 55,000 jobs and bringing £2bn investment.

Blackfriar believes this kind of collective action is an encouraging step for the region’s green economy plans – and may be the only way to turn these carbon pipe dreams into reality.

n INVESTORS in Smith & Nephew have been cheered by a very strong trading update, as the company forecast market-beating growth.

The group, which has its wound care arm based in Hull, reported robust sales of advanced wound management treatments, knee replacements and key hole surgery products.

Europe’s biggest artificial knee and hip replacement manufacturer, which has been tipped as a bid target by US rivals Johnson & Johnson and privately-owned Biomet, reported a nine per cent rise in trading profit to £173.1m for the fourth quarter of 2010, soundly beating expectations of £156.9m.

It’s all good news but the surprise departure of chief executive David Illingworth, who joined Smith & Nephew as president in May 2002, has unsettled the market.

Does it imply that there is truth in M&A speculation? Could Johnson & Johnson or Biomet launch a bid?

Or does it mean the medical devices sector is about to face the same difficulties faced by the pharmaceuticals sector, which is where his successor Olivier Bohuon comes from?

This is the speculation in the market, but the real reason may be a little simpler.

Mr Illingworth, who will retire in April after four years in the role, insisted his departure was not linked to recent takeover speculation, nor was he taking another job elsewhere.

“I came to a very difficult personal decision that I needed to return to the US,” said Mr Illingworth, who is 57.

“This is probably the perfect time to turn the company over to new leadership. The company is very strong, it is doing well, it is well positioned.”

His successor Mr Bohuon, aged 52, is a big hitter.

He was until recently chief executive of French pharmaceutical and cosmetics firm Pierre Fabre, and before that he held senior management positions at Abbott Laboratories and GlaxoSmithKline.

At a time when the company has given its most robust outlook statement for some years, S&N needs to put the takeover speculation behind it and crack on in what will be a challenging market place.

The orthopaedics market is facing stagnant demand as patients delay procedures until the job market improves.

Mr Bohuon’s mission will be to meet the difficulties over the next year by supplying innovative products and making further cost savings.

The appointment of a new high-profile chief executive shows that the company is keen to forge a path ahead as an independent entity.