DRAX stock hurt by change in Biomass subsidies

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Shares in Drax fall to lows of £3.50, a level not seen since 2011 and have fallen by more than 50% from their high of £8.00 only a year or so ago.

DRAXBritain’s Department for Energy and Climate Change (DECC) said in a consultation published in December it wanted to make changes to the subsidy system because more biomass generation was being developed than it initially planned, and to make sure enough cash is left to help support other types of low-carbon power generation. This together with the price of oil in free fall has hit DRAX hard.

As part of extensive reform of Britain’s electricity market, the government is changing the way it supports renewable energy projects by replacing direct subsidies with a contracts-for-difference (CfD) system whereby qualifying projects are guaranteed a minimum price at which they can sell electricity.

DECC said it would no longer grandfather, or guarantee, the subsidies offered under its previous Renewables Obligation scheme, to biomass conversion projects.

“We believe that none of Drax’s currently planned conversions should be affected by the announcement. What would be affected is a fourth unit conversion that could potentially happen (in 2016/17),” said analyst Angelos Anastasiou at Whitman Howard.

 

 

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