Drax, the owner of Europe's biggest power station, warned yesterday it is being forced to halve the amount of green electricity it produces because of the way the Government's renewable energy scheme operates.
The company would like to increase the proportion of renewable energy generated by its 4,000 megawatt coal-fired station in Selby, North Yorkshire, to 20 per cent by burning more biomass materials - enough to cut its carbon emissions by 4 million tonnes.
Instead, Drax is having to halve the amount of electricity produced from biomass materials - mainly elephant grass grown by local farmers - from 2.5 per cent to 1.25 per cent because of the limit on what can be counted towards the Government's renewables obligation scheme.
All electricity produced from wind farms is covered by the scheme, which provides a guaranteed market for the power producer, but biomass can take up only 10 per cent of the allowances.
Dorothy Thompson, the chief executive of Drax, said she wanted this limit increased to 25 per cent. She said the uncertainty caused by the Government's Energy Review and doubts over the long-term future of the renewables obligation was holding up major investment in Drax.
The company has looked at a major upgrade of the station to increase its capacity but cannot commit the investment until it knows whether there will be a long-term role for coal in the UK's energy mix. Drax produces 7 per cent of the UK's total electricity.
Ms Thompson said she was looking for "clarity and consistency of policy". As a first step, biomass should be treated on an equal footing to wind power.
She was speaking as Drax, which successfully floated on the London stock market in December, announced a 166 per cent rise in profits before interest tax and depreciation to £239m last year on the back of soaring wholesale electricity prices. Drax also said its executive chairman, Gordon Horsfield, who made nearly £100m in the float, was stepping back into the role of non-executive chairman.
The company said it was on track to return surplus cash to shareholders in the latter part of this year, through a share buy-back or special dividend. As a first step, it will pay an interim dividend of 4p a share for the first half of this year at a total cost of £16.3m. It has guaranteed contracts for three-quarters of this year's output at an average price of 46p a unit compared with last year's realised price of 33.9p. Shares in the company, which were priced at 500p on flotation, gained 19p to close at 659p, their highest since Drax's stock market debut.Reuse content