The Government shocked the green energy industry yesterday as it removed guarantees to subsidise conventional power plants converting to wood-burning biomass technology.
Shares in Drax dived 10 per cent after the announcement raised doubts over whether the planned conversion of one of its coal-fired power generators would be able to go ahead without guaranteed subsidies – known as “grandfathering”.
Drax, which generates about 8 per cent of the UK’s electricity, has already converted two of its plants from coal to burning wood pellets and is hoping to convert more. A spokesman said: “We have said we are evaluating the option ... and we must now consider the implications of a change in grandfathering policy on that decision.”
Critics said the Government’s unexpected decision represented another sudden shift in energy policy that would undermine the confidence of potential investors.
It follows several changes to solar power subsidies and adds to fears that the Conservative party is not in favour of renewable power.
“It will not help general market confidence ... Potential investors in parallel areas such as solar and onshore and offshore wind will be treading very carefully or just not bothering,” said Angelos Anastasiou, an analyst at Investec. “This is not great for confidence when we are working with historically low reserve margins.”
“It’s another example of moving the goalposts and, coming after changes to solar and bellicose sounds about wind power, it could put investors off further,” said Doug Parr, chief scientist and policy director at Greenpeace UK.
The move will also have an impact on investment in biomass, he added. “This means you will be taking a very considerable risk in doing a biomass conversion or starting a new plant in the next two year.”
The Department of Energy and Climate Change (Decc) defended the move, saying that changes to the subsidy system were needed because more biomass generation was being developed than had been expected.
With only limited funds available to subsidise renewable energy projects, it was necessary to drop the biomass guarantees to leave money for other types of clean-power projects, Decc added.
Shares in Drax fell 56p to 508.5p.
The blow to the shares comes two weeks after the Yorkshire generator was made to pay a record £28m in penalties by the regulator Ofgem, for failing to provide thousands of homes with insulation.Reuse content