Drax Group fell the most in three and a half months after the UK Court of Appeal ruled one of its power-generating units is not eligible for a government contract that pays guaranteed electricity prices for 15 years.
The decision leaves Drax reliant on an older subsidy system called the Renewables Obligation to fund the conversion of one of its six units from burning coal to biomass. That older program has less price certainty than the newer one, known as a contract-for-difference, which Drax had sought.
“Drax will now consider its options for the full conversion of this unit, where eligibility for support under the Renewables Obligation has been confirmed,” the company said today in a Regulatory News Service statement. Drax will not appeal the decision, it said.
The shares today plunged as much as 12%, the most since April 23, the day the government said only one of two conversion projects by Drax was eligible for the contracts. Last year, it had shortlisted both.
Drax in April was awarded one of eight renewable energy contracts that would guarantee it a power price of £105 ($611) per MGh of electricity it produces from a unit converted from burning coal to biomass. It had expected two such contracts after both were shortlisted last year.
The deals were precursors to the contracts-for-difference program, which has its first auctions in October.
A High Court judge in July agreed with Drax that the government’s decision had to be quashed. The Department of Energy and Climate Change told Drax that it had appealed the ruling.
On Thursday, the Court of Appeal ruled in DECC’s favor and dismissed Drax’s application for judicial review.
“We believe that we ran a fair and robust process and are pleased that the Court of Appeal has upheld decisions we took,” DECC said today in an e-mailed statement.
“We will now work with Drax to find the best outcome” for the unit.
Aside from using the Renewables Obligation, another option for Drax would be to bid in future auctions for contracts. Still, the government last month said it will not fund any biomass conversion projects when it awards another £200million ($340million) of contracts at the first sale in October.
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