Drax share price slides after it loses appeal on state subsidy
Power producer Drax’s share price plummeted yesterday after it lost an appeal against the government’s decision to exclude one of its units from a new green subsidy framework.
The FTSE 250 firm, which operates the UK’s largest coal-fired power plant, expected to be eligible for early contracts for difference (CfD) mechanisms so that it could convert its units from coal to sustainable biomass.
But one of its units was rejected with little explanation, according to the company.
The High Court ruled in favour of Drax last month, overturning the Department of Energy and Climate Change’s decision, but the Court of Appeal reversed the ruling.
Shares plunged around 10 per cent before recovering slightly to close 8.2 per cent lower.
While the Appeal Court decision has no impact on Drax’s other units, analysts said the share price movement was justified due to its wider implications for biomass subsidies.
“The events of this year raise two concerns,” said Liberum research.
“Firstly, that the government has cooled on its enthusiasm for large-scale biomass conversions and secondly, that as the government juggles its various energy priorities it can act arbitrarily and unpredictably. Both of these concerns have a degree of legitimacy in our view.”
A government spokesperson said that it could not comment on the amount of money still available for biomass support because the final budget allocations will depend on a range of factors.