Energy company Drax Group Plc is taking legal action after the Government said it would subsidise electricity prices for only one of two burners the company is planning to convert from coal to biomass.
In December the Government said two power-generating units at Drax’s north Yorkshire plant were deemed eligible for investment contracts under the Contracts for Difference (CfD) regime.
Investment contracts are designed to give investors the confidence they need to pay up-front costs for new projects. CfDs funds the gap between average grid electricity prices and the price for each particular low-carbon technology, and are taking over from Renewables Obligation subsidies in 2017.
But an announcement of biomass subsidies by energy secretary Ed Davey revealed only one of Drax’s units would be offered an investment contract. The other will only be offered support under the existing Renewables Obligation regime.
Drax’s share price dropped by more than 13% following the announcement.
A company statement read: “Drax has taken legal advice over the decision to exclude this second unit from the award of an investment contract. The advice confirms Drax has a good foundation to challenge this decision by the government. Proceedings have therefore been initiated, although this is likely to take months not weeks.”
Drax chief executive Dorothy Thompson said: “Nothing has changed, as far as our plans are concerned, between being deemed eligible in December and now. We have, therefore, commenced legal proceedings to challenge the decision.”
A DECC spokesperson said: “Following the assessment of Drax’s binding application for Unit #3, the project did not continue to meet the qualification criteria and therefore no longer qualified for the award of contract. Applicants that have not been not awarded an investment contract can consider other support that may be available to them.
“Drax have brought a judicial review against the decision of the Secretary of State not to award an investment contract to Drax Unit #3. As the matter is currently before the court, it would not be appropriate to comment further at this stage.”
The GMB union has also criticised Davey and said lack of Government support for a biomass conversion of the neighbouring Eggborough Power plant was “very disappointing”.
Phil Whitehurst, GMB National Officer for construction, said “Eggborough Power Ltd did all they could to comply with all the provisions of the application for the green subsidies. However they have again been slapped in the face by this floundering Government’s energy policies.
“This will almost undoubtedly have a very big knock on effect with the foreign investors who were willing to invest over £750m in the conversion of the station. It was one project with thousands of construction and supply chain jobs linked to the whole conversion and operational project.”
- Latest figures from the Department for Energy and Climate Change has shown the UK’s supply from bioenergy was up 9.4% in the three months to February 2014. It said: “The partial conversion to biomass of Drax in April 2013 helped contribute to this large increase, as well as some of the fall in coal generation.”