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The Drax share price surged almost 3 per cent following the European Commission’s ruling that the UK contracts for difference (CfD) regime, and early investment ‘fast track’ CfDs comply with EU competition rules.
But the shares quickly halved these gains as the market priced in the EU’s failure to approve the allocated early biomass funding contracts, despite approving the same contracts offered to offshore wind developers.
The share price opened the trading day at 702.5 pence Wednesday morning but rallied to highs of 723 pence shortly after the early afternoon news, before easing back around 10 pence lower than intraday highs.
In an investor note following the EC approval Citigroup analysts said that although the approval is encouraging for the prospect of CfD funding generally, the positivity may be dampened by the EC failure to approve the ‘fast track’ CfDs for biomass projects.
“Although this approval should increase the probability that at least one of Drax’ units receive approval for CfD (Citi assumes two units), today’s EC press release only explicitly mentions five offshore wind farms but not Drax’s third unit conversion or RWE’s Lynemouth which have also been allocated an early CfD,” the note said.
Drax was awarded a fast-track, or ‘early FID enabling’, CfD contract for one of its biomass conversion units in April this year, but failed to secure a CfD for a second planned conversion unit as the government deemed it ‘ineligible’.
Drax has since won its High Court legal action against the government decision, but it is not yet known whether the government will appeal this decision.
The Drax share price was last seen at 711 pence at 15.50BST.
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