Shares in Drax fell 10 per cent after the Government said a new subsidy scheme would only apply to limited part of its plan to convert much of its giant coal-fired plant into biomass burners.
Drax said it had commenced legal proceedings after the government said it would only support the conversion of one of its coal units under a new subsidy scheme, rather than two as it had previously indicated.
The government had short-listed both conversion units for one of its Contracts-for-Difference scheme subsidies in December.
“Nothing has changed, as far as our plans are concerned, between being deemed eligible in December and now. We have, therefore, commenced legal proceedings to challenge the decision,” said Drax chief executive Dorothy Thompson.
She said she was pleased to have secured an “investment contract” for the other unit conversion.
Shares in the power giant fell by 78p to 689.53p. The Department for Energy and Climate Change declined to comment on the Drax case.
Drax’s concerns came to light as the government gave the go-ahead for the first eight renewable energy projects to receive support under its new subsidy scheme.
They will collectively generate enough green energy to power three million homes, or 4% of Britain’s total consumption, and support 8500 jobs, the government said.
Energy Secretary Ed Davey said he expects the projects to attract £12 billion of private investment.
The approved schemes include offshore wind farms in Liverpool bay, and off the Moray, Norfolk and Yorkshire coasts. They also include biomass plants at the Drax complex in Selby and in Middlesbrough.
Davey said the eight approved schemes had been chosen from 57 applications meaning that, even if one or more of the chosen projects fell through, there would be similar ones waiting to take their place.
“We are confident that the eight will go ahead, but if a company decides not to go ahead there will be another one queuing up behind,” he said. “These investments are critical to make sure we have got secure, clean energy.”