UK's Drax secures forward power sales despite tough market

* Adds 3 TWh of power sales for 2015 since July results

* Continues to evaluate options for fourth biomass unit

* Keeps FY expectations unchanged (Adds detail, background)

By Nina Chestney

LONDON, Nov 5 (Reuters) - British power producer Drax Group (LSE: DRX.L - news) Plc has secured forward power sales since the end of July even though trading conditions in energy markets have been challenging, it said on Wednesday.

A mild winter last year dampened demand for energy over the past year, causing prices for natural gas and coal to fall. This has pressured margins of many power plants operating in Britain and in Europe.

"Since publishing our half-year results on 29 July, trading conditions in the markets in which we operate have remained challenging. However, we continue to benefit from a strong contracted position," the operator of Britain's largest power station said in a statement.

Drax said it had additional power sales of more than 3 terawatt hours (TWh) for 2015 compared with the position it reported in July.

As of Oct (HKSE: 3366.HK - news) . 27, Drax's power sales contracted for 2014 were 25.9 TWh and 15.6 TWh for 2015.

Drax meets around 7-8 percent of the Britain's electricity demand. It is gradually converting half of the generation capacity at its coal-fired power plant in Yorkshire to biomass.

The first power generation unit was converted in May last year and the second conversion was completed last month. Both these conversions earned government support.

Drax said on Wednesday it planned to convert its third unit between July 2015 and June 2016, subject to receiving state aid clearance from the European Commission.

"Overall, capital investment remains on schedule and budget. Commissioning of the new on-site biomass facilities at Drax is complete and all four storage domes are now in service," it said.

Drax Group also has a U.S. business which builds and operates wood pellet plants.

It expects commercial operations to start at its first pellet plant there in the first quarter of next year and its second plant to start up in the second quarter.

"We also continue to evaluate options for further value enhancing, biomass-related capital investment. These include a fourth unit conversion, a third US Gulf pellet plant and the development of U.S. east coast pellet operations," the group said.

Since 2013, Britain's energy market regulator Ofgem has been investigating Drax's non-compliance with an energy saving scheme. The group said it could be forced to pay a financial penalty for this and will provide an update when Ofgem gives its conclusions.

Drax kept its full-year expectations unchanged and will report its annual results on Feb. 24, 2015. Drax shares had not traded by the time of writing. (Editing by Louise Heavens and Mark Potter)