Drax Group (LSE:DRX) is likely to benefit from allowances granted as part of the new electricity generator levy, says Liberum.
The Yorkshire power firm will, according to the broker, be among those able to gain tax breaks on the new windfall tax that began this year and sees electricity generators charged 45% on 'exceptional receipts' - where energy is sold in excess of £75 per megawatt-hour (MWh).
Firms facing 'exceptional costs' from the use of bio and nuclear fuels will not pay as much though, the government outlined in December.
“The levy will not apply to Drax’s contract for difference biomass unit, pumped storage hydro and coal generation,” analysts outlined, referencing Drax's wood pellet and coal power stations.
“This represents a net positive outcome for Drax, with the potential for the company to receive an extra £25/MWh benefit,” they added.
The analysts said there had been “a stronger than anticipated performance” in pumped storage and hydro in the second half of 2022, including from Drax’s Scottish Crauchan site, which is one of just four of pumped storage power stations in the UK.
Drax was given a share price target of 966.6p by Liberum, far above its current value of 645p.