Dorothy Thompson said the new subsidy rules “made it very hard” to make the case to shareholders for the company’s £2bn biomass investment plans.
She told the Financial Times that although some of the government’s reforms, announced in last week’s annual energy statement to parliament, were “good news” for the industry, other aspects of the changes undermined the investment case for biomass.
Ms Thompson’s comments came as Drax on Tuesday reported a 23 per cent rise in first-half earnings before interest, tax, depreciation and amortisation of £184m, thanks to hedging and cost controls. That was ahead of analysts’ forecasts of £165.7m, according to Thomson Reuters I/B/E/S.
Drax had
planned to build three new power stations that would burn only biomass, mostly in the form of waste agricultural products such as straw and wood, and to convert at least one of the boilers in its coal-fired plant to burn biomass only. If the latter project was successful, more of the company’s coal-firing could have been switched to renewables.
These investments would have run to billions of pounds, but some of them are now in doubt.
The government, under pressure from the biomass industry, increased the level of subsidy available to make biomass more competitive with other forms of renewables such as wind power. One biomass company, MGT Power, immediately announced it would carry on with building two power stations as a result.
However, key aspects of the government’s changes will be reviewed in 2013. As building biomass boilers takes more than three years, Ms Thomson has taken the view that without greater uncertainty beyond the next few years, she “cannot put together the investment case” to shareholders.
“We are very, very discouraged,” she said. “They have only solved half the problem.”
Although Drax is likely to press on with some of its biomass programme, the news will come as a blow to government plans to increase the level of renewable fuel used in the UK.
Ms Thompson said biomass had “huge potential” but had been “overlooked”. She said the company was able to source plentiful supplies of straw, waste wood and energy crops.
Drax has been burning biomass for seven years, but to date has been using it to “co-fire” alongside coal in its burners.
Copyright The Financial Times Limited 2010.
