Drax Group has won an appeal against a decision to exclude it from receiving a £1.3bn investment contract to fund the conversion of one of its coal-fired generating units to biomass. The dispute started when the Department ofEnergyand Climate Changereversed a decisionprovisionally to accept two of Drax’s six power generating units as eligible for new incentives to switch from coal to moreenvironmentally friendly energysources. The department said in April that just one of Drax’s units would qualify for the preferred contracts for difference mechanism. The surprise decision led to shares in Drax, which runs the UK’s biggest power station, falling 13 per cent on the day and the immediate launch of legal action against DECC.
On July 14, Mrs Justice Andrews upheld Drax’s appeal and ordered the department to quash the exclusion of the contested unit from applying for subsidies, as reported by the Financial Times. She described the competition to qualify for the scheme as part of a "stick and carrot” approach of taxes and incentives to make coal burning increasingly unattractive, compared with renewable energy sources. According to the judgment, both units put forward by Drax should have been considered as qualifying for the programme. The scheme offered more stable support for biomass conversion than the existing renewables obligations regime, it added.
Drax, Britain’s biggest emitter of carbon dioxide, is spending £700m on a plan to generate half its power output fromimported wood pelletsrather than coal. But the dispute with DECC had threatened its ability to invest in guaranteeing supplies of imported wood pellets, it argued. Eight schemes – five of them offshore wind farms – were approved as recipients of early contracts for difference by DECC in April.
Energy secretary Ed Davey said the projects would bring £12bn of private investment by 2020 and underpin the addition of a further 4.5GW of low-carbon electricity, or about 4 per cent of capacity, to Britain’s energy mix.
The DECC said: "We believe that we ran a fair and robust bidding process for renewable generators seeking early contracts for difference. We have been granted permission to appeal, and will now consider the decision carefully.”
Shares in Drax rose 4 per cent to 707p on Monday, recovering some of the ground lost since DECC’s decision in April.
