Drax, the operator of Britain's largest coal-fired power station, reported a smaller-than-expected fall in full-year core earnings, as tighter cost controls helped it offset the impact of volatile commodity markets.

Drax, whose coal-fired power station in North Yorkshire supplies about 7 percent of Britain's electricity, on Tuesday said earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 15 percent to 334 million pounds, but beat analysts' estimates of about 326.2 million.

The company said coal prices moved within a relatively narrow range throughout the year, but noted that carbon prices reached their lowest point for two years amid the euro zone crisis.

Looking ahead, the introduction of the carbon price support mechanism by the UK government from April 2013 is likely to erode the competitive position in the market of our coal-fired generation business, but at the same time it strengthens the case for biomass generation, Drax said in a statement.

However, the company said it continued to operate at less than installed biomass capacity, but added that it could transform into a predominantly renewable generator if given appropriate regulatory support.

Shares in Drax closed at 526 pence on Monday, valuing the company at 1.92 billion pounds.

(Reporting by Adveith Nair, editing by Rhys Jones)