Investec still upbeat about Drax despite negative court ruling

7th Aug 2014 16:28

Investec has maintained its 'buy' rating for power station operator Drax despite the negative news on Thursday that one of its power-generating units will not be eligible for government subsidies."The fundamental case for Drax, both in terms of UK security of supply and carbon abatement, remains strong in our view," the broker said.The Court of Appeal has backed the Department of Energy and Climate Change's (DECC) appeal to exclude Drax's second unit of its power plant from an early contracts-for-difference feed-in tariff. Drax had hoped that the unit, which will convert to burn biomass rather than coal, would be eligible and had started legal proceedings against the government earlier in the year. The company said it will consider its options for the full conversion of the unit, where eligibility for support under the Renewables Obligation (RO) has been confirmed."We believe that some recent DECC decisions (including those relating to the 'Drax' issue) have negative implications for the credibility of UK energy policy, and potentially for the cost of capital," said Investec analyst Harold Hutchinson.However, he added: "The decision today, somewhat paradoxically, gives greater clarity, with the likely conversion of the disputed unit under the existing approved RO regime. A bad day, but the equity story remains intact."Drax was down 8.5% at 649.59p by 15:36.BC