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Telegraph: Drax moves step closer to regaining biomass subsidy contract



Drax's hopes of regaining a coveted subsidy contract for its biomass conversion plans were buoyed on Wednesday night when ministers admitted they would have to reinstate the funding unless they win an appeal court challenge.

Britain’s largest coal-fired power plant is in the process of converting to burn biomass, which is heavily subsidised. In December, its plans to convert two of its units were provisionally allocated funding by the Government for the first tranche of new subsidy contracts.

However, in April ministers unexpectedly disqualified one of the units, claiming it was ineligible.


Drax, which saw its share price tumbled on the news, launched a High Court challenge, which last week found in its favour, ruling the unit was eligible and telling the Department of Energy and Climate Change (DECC) to reconsider its subsidy allocation.

In an announcement after markets closed last night, Drax said it had been informed that DECC had completed its reconsideration and “intends to award Drax an investment contract for this unit”.

“However, DECC has now appealed against the High Court judgment to the Court of Appeal,” it said.

Peter Atherton, energy analyst at Liberum Capital, said: “Even by the standards of DECC, this is a confusing outcome”. However, he added: “It now looks that Drax will indeed eventually receive a [contract] for its second unit, which should be well received by investors”.

If Drax is awarded the contract, experts say it will put pressure on the Government’s budget for renewable energy subsidies. The National Audit Office last month warned DECC had used up more than half of its budget for the new type of renewable subsidies through the contracts it did award in April. The addition of Drax could push the budget close to exhaustion, they suggested.