Drax dives after government modifies decision on subsidies

23rd Apr 2014 08:39

Shares in FTSE 250-listed Drax Group plunged on Wednesday morning after the group admitted the government had decided one of its generating units at Drax Power Station was no longer eligible for an investment contract. In response, the company has initiated legal proceedings to challenge the decision. In December last year, the government had said that two units were eligable under its Contracts for Difference (CfDs) mechanism, but has now decided just one of the units is suitable. As such, on the eligable unit the government will support the conversion from coal to sustainable biomass by way of a CfD, and on the other support for conversion will be made available under the existing Renewables Obligation (RO) regime, where eligibility has been confirmed. Support may also be available under the enduring CfD mechanism, Drax added. The company explained it took legal advice over the decision to exclude the second unit, which it said confirmed it has "a good foundation to challenge this decision by the government". Dorothy Thompson, the Chief Executive of Drax, said: "Whilst we are pleased to have been offered an investment contract for [one] unit conversion, we are disappointed by today's decision on the ineligibility of our second unit. Nothing has changed, as far as our plans are concerned, between being deemed eligible in December and now. We have, therefore, commenced legal proceedings to challenge the decision. "Sustainable biomass provides a very reliable, flexible and cost effective renewable power source for the UK consumer. The performance of our first converted unit, which was converted last year to burn sustainable biomass in place of coal, continues to be strong. "I am proud of what we have achieved to date and we remain fully committed to our strategy of transforming Drax into a predominantly biomass fuelled generator, initially through the conversion of three of our six generating units, with a fourth unit conversion under evaluation."The share price tumbled 8.24% to 686p in the first hour of trading. NR