LONDON--Shares in U.K. power generator Drax slumped on Wednesday
after one of its planned biomass units was excluded from a list of
renewable energy projects eligible for a new system of government
subsidies.
Drax's shares fell by 9.9% after it said it would launch a legal
challenge against the government's decision to offer it an
investment contract to convert just one of its coal-fired
generators into a generator that can use biomass fuel. Drax said
the government had told it in December that two units scheduled for
coal-to-biomass conversion at its power plant in northern England
would be eligible for support.
Earlier Wednesday the Department for Energy and Climate Change
revealed a list of eight renewable energy projects in the U.K. that
had been offered subsidies known as contracts for difference. The
system, which is central to the U.K. government's energy market
reforms, aims to encourage developers to invest in renewable energy
by guaranteeing them a minimum price for the electricity they
produce over the first 15 years of output.
In total, five offshore wind and three biomass projects were
named as the first renewable energy projects to be eligible for the
new contracts. Denmark's Dong Energy is developing three of the
wind farms included in the list.
In a statement, DECC said the decision to award the contracts
should lead to GBP12 billion ($20.2 billion) of private sector
investment in renewable energy projects that could add 4.5
gigawatts of electricity-generating capacity--around 4% of the
country's total--by 2020.
But Drax, which has already converted one of its six generating
units at its power station from coal to biomass, said it was
disappointed by the government's change of heart, despite one of
its planned generator conversions being offered support.
"Nothing has changed, as far as our plans are concerned, between
being deemed eligible in December and now," said Drax Chief
Executive Dorothy Thompson in a statement. "We have, therefore,
commenced legal proceedings to challenge the decision."
DECC couldn't be immediately reached for comment.
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