DECC wins appeal on Drax subsidy

The government-disputed Drax biomass conversion project will not go ahead under the Contracts for Difference (CfD) scheme after an appeals court ruling in favour of the government’s decision to deem it ineligible for support.

The government has won its appeal against a high court ruling last month that it was wrong to exclude Drax’ planned biomass conversion from the fast-track CfD scheme, despite including it provisionally late last year.

Drax responded saying that it will not challenge the decision further, meaning its unit two conversion project will not proceed under the fast track CfD scheme.

“The Court of Appeal has allowed DECC’s appeal and dismissed Drax’s application for judicial review. Accordingly, the second unit conversion is no longer eligible for an Investment Contract,” Drax confirmed in a statement.

“Having taken legal advice, Drax will not appeal against this decision,” the company added.

The unit will still be eligible to receive funding under the Renewables Obligation (RO) subsidy regime, although this option 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.

The ruling defied market expectations with shares in the company plummeting after steady gains made earlier in the day in anticipation of a ruling in favour of Drax.

The company’s share price was seen at around 685 pence over the morning of 6 August but prices ahead of Thursday’s ruling traded up to highs of above 737 pence. By 11.00 BST shares fell to below 650 pence with further losses likely.

Drax said it will consider its options for the full conversion of this unit.