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The share price of generating giant Drax plummeted almost 30 per cent in three hours on Wednesday afternoon, following budget plans from chancellor George Osborne to axe renewables exemptions to the climate change levy with effect from next month.
The market opened at 350 p/share and remained steady for much of the morning before tumbling down to around 250p/share just hours later.
Drax operates the UK’s largest single generating site and is in the process of shifting its coal-fired units to burn renewable biomass. As the UK’s largest renewable generator the company is uniquely exposed to the Conservative party’s fresh blow to the renewables sector.
The Budget statement said axing the tax exemption would enable Treasury to raise £450 million in the current financial year, and £490 million in the 2016/17 financial year. In total the move could enable the Treasury to claw back as much as £3.9 billion in the coming 5 years.
Renewables generators will take the biggest hit, losing around £5/MWh of renewable energy generated.
RBC Capital analyst John Musk said Drax was likely to take the biggest knock, and estimated a 50p/share impact. But the market reaction by late afternoon had already cut 100p from the share price, suggesting the sell-off might be overdone.
RBC Capital added that wind operating fund Greencoat could take a 2-3 per cent dent to its net asset value.
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