Drax wins battle against UK government

In April, electricity producer, Drax, announced that the company had begun legal proceedings against the UK government over a decision not to support the conversion of one of its coal-fired power units to biomass under a new subsidy scheme.

The High Court has now ruled in favour of Drax, saying that the government was wrong to deem the biomass conversion ineligible for financial support. The court ordered the decision of the Department of Energy and Climate Change (DECC) to be quashed.

The court decided the utility had fulfilled all of the key criteria set out by the government at the time of making its application to seek early investment ontracts under the new scheme for two of its projects to convert coal units to biomass.

A statement from DECC defended its decision process but there was no mention of a potential appeal against the ruling.

“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,” DECC said.

Drax had expressed shock that only one of two biomass units under construction was to be awarded a contract for difference (CfD), especially since the DECC had provisionally rated both units as eligible for support.

Following the DECC’s decision shares in Drax fell almost 14%, although the company stressed that it was “fully committed” to its strategy of becoming a mainly biomass-fuelled generator.

At the time of the initial decision, the government said that the second conversion could still receive funding under the Renewable Obligation (RO) subsidy regime, which offers less favourable terms.  

Biomass power generated will earn an estimated £10/MWh less under the RO than the CfD. With a CfD, biomass conversion is guaranteed £105/MWh. Under the RO, it gets 0.9 RO Certificates, currently worth £41.50/MWh, plus the wholesale power price.

The legal victory for Drax will give fresh impetus to the company’s power plant modernisation programme in order to comply with tighter rules on carbon emissions in the electricity sector.

Utilities analysts and Liberum said that the High Court’s decision “will give investors some comfort that Drax (and others) can hold the government to account through the courts if need be.”

Written by Sam Dodson

Read the article online at: https://www.worldcoal.com/power/16072014/drax_wins_legal_battle_with_uk_government_1086/