Drax operates one of Europe’s largest coal power plants and is converting three of its six coal-fired power generation units to biomass by 2016 to reduce carbon emissions and costs.
The power producer said yesterday that the Court of Appeal has overturned an earlier ruling by the High Court that the conversion of the second unit was eligible for a government subsidy.
Shares in the company, which is listed on the London Stock Exchange, had dropped by almost 11 per cent yesterday morning.
Drax has already converted one unit at its West Yorkshire plant last year, and plans two more next year. The whole project will cost up to £700m.
Drax has sought government funding to help pay for the cost of the conversions, with the first unit receiving support under the Renewable Obligation (RO) scheme.
As a part of reforms of Britain’s electricity market the government is changing the way it supports renewable energy projects by replacing direct subsidies with a contracts-for-difference (CfD) system whereby qualifying projects are guaranteed a minimum price at which they can sell electricity.
In April, the government said it would back the conversion of one of Drax’s units under the CfD scheme but rejected the application for the second unit to be included.
However, Britain’s High Court in July decided the utility had fulfilled all the key criteria set out by the government at the time of making its application.
The short-lived victory was then appealed by the government.
Drax said it will now “consider its options” for the unit’s conversion and could try to get support under the older, RO scheme.
“We have no doubts that this conversion will now happen and that Drax will announce the precise timing in the not too distant future,” said Angelos Anastasiou, utilities analyst at investment bank Whitman Howard.