Drax defeats DECC in High Court

UPDATE Drax has won its case against the government, with a High Court ruling that government was wrong to deem one of its planned biomass conversions ineligible for financial support.

The court has ordered that the decision of the Department of Energy and Climate Change (DECC) to exclude the coal-power generator’s second unit conversion from its new financial support regime must be quashed.

A statement from DECC defended its decision process but stopped short of saying that the department would appeal.

“We believe that we ran a fair and robust bidding process for renewable generators seeking early Contracts for Difference. We have been granted permission to appeal, and will now consider the decision carefully,” DECC said.

The ruling overturns the government’s shock decision in April this year to award Drax a contract for difference (CfD) for only one of two biomass units under development, which was announced just four months after DECC had provisionally rated both units as eligible for support.

The decision caused the company’s share price to fall 13.5 per cent despite assurances from the chief executive that the company remained “fully committed” to its strategy of becoming a mainly biomass-fuelled generator.

The government said at the time that the second conversion could still receive funding under the Renewable Obligation (RO) subsidy regime, which offers less favourable terms.  

Biomass power generated will earn an estimated £10/MWh less under the RO than the CfD. With a CfD, biomass conversion is guaranteed £105/MWh. Under the RO, it gets 0.9 RO Certificates, currently worth £41.50/MWh, plus the wholesale power price.

Following the stock market announcement Drax saw its share price bounce 7% higher from 683 pence to 732.5 pence by 11.32 BST, before easing back to 712 pence shortly after midday.