UK green policy under scrutiny as Drax quits £1bn carbon project

25th Sep 2015 08:09

(ShareCast News) - The UK government's stance on renewable energy was under scrutiny on Friday after power company Drax pulled out of a £1bn climate change project, saying policy u-turns were making it too risky to invest.Prime Minister David Cameron's pledge to lead the greenest government ever was looking a distant memory as his administration launched a series of cutbacks to subsidies for renewables.Drax shares rose 1% to 242.80p as investors cheered the company's decision.Several "critical reversals" in government support for renewable energy had made "a severe impact on our profitability", said Peter Emery, the Drax board member chairing the group developing the White Rose carbon capture project in Yorkshire."We've also got concerns about the government's future support for the low carbon agenda and that's left us in a position where we are no longer confident we can persuade our shareholders that this is an attractive investment, given the obvious risks," he told the Financial Times."The government has to make difficult decisions based on affordability and, in turn, so are we," he added, in what was seen as a riposte to Energy Secretary Amber Rudd's assertion that subsidy cuts are needed as part of the government's austerity agenda.Drax chief executive Dorothy Thompson said policy changes and turbulent commodity markets had forced a rethink."This is for us a sad decision but ultimately investment is about choices and we are in a very different financial situation today than we were two years ago when we decided to invest in the project," she told BBC radio."There have been changes to the government's renewable policy but there have also been dramatic movements in the commodity markets and that has greatly reduced our profitability," Thompson said.Renewables on back burnerThe green energy sector has been hammered by the Conservatives since the party won the May general election.Ministers have reduced support for wind and solar power, ended the Green Deal home energy saving programme and raised questions about the level of future support for renewable energy projects.Drax had already invested £3m in White Rose, which is now left with France's Alstom and the BOC industrial gas group as the project's remaining members.The company has shifted from coal to burning renewable wood pellets to produce its energy based on state financial support for firms that converted from using fossil fuels. The Drax share price took a severe hit after July's Budget as Chancellor George Osborne unexpectedly decided that clean power companies would have to start paying a climate-change tax.Drax has started legal proceedings against the government for not providing enough notice when it announced the removal of the exemption in July. It said the policy change would reduce its core earnings by £30m this year and £60m next.Carbon capture and storage plants are designed to trap greenhouse gases before they can pollute the atmosphere, but so far the only one in the world to become operational is Canada's Boundary Dam project.White Rose is exploring the feasibility of capturing 90% of carbon emissions from a new coal-fired power station next to Drax's existing power plant and storing it under the North Sea. The project still depends on getting some government funding.