A court has found in favour of one of the UK’s biggest power generators, Drax Group, which had appealed against a decision by the government’s Department for Energy and Climate Change (DECC) not to accept the eligibility of two of the company’s units for an incentive scheme.

However, a Drax spokesperson told Power Engineering International that the decision does not automatically mean an investment contract will be granted.

Drax had seen the units excluded from a £1.3bn ($2.2bn) investment to fund conversion of its coal-fired generation units to biomass.

DECC had reversed a decision to provisionally accept two of Drax’s six power generating units as eligible for new incentives to switch from coal to more environmentally friendly energy sources, granting permission for just one unit.

Mrs Justice Andrews upheld Drax’s appeal and ordered the department to quash the exclusion of the contested unit from applying for subsidies. She described the competition to qualify for the scheme as part of a “stick and carrot” approach of taxes and incentives to make coal burning increasingly unattractive, compared with renewable energy sources.
The judge said both units put forward by Drax should have been considered as qualifying for the programme as the scheme offered more stable support for biomass conversion than the existing renewables obligation regime.

Drax spokesperson Melanie Wedgbury told Power Engineering International that the company is committed to biomass conversion regardless of how the decision might have gone.

“When we learnt in April that our second unit conversion was deemed ineligible for an investment contract, we stated that we remain fully committed to our strategy of transforming Drax into a predominantly biomass fuelled generator, initially through the conversion of three of our six generating units, with a fourth unit conversion under evaluation. We also stated that support for [the second unit] conversion instead is available under the existing Renewables Obligation regime, where eligibility has been confirmed.  Support may also be available under the enduring Contract for Difference (CfD) mechanism.” 

She added, “This does not mean that our second unit will now automatically receive an investment contract. There are still steps to go through. Until the legal process has been concluded we are not able to offer any further comment.”

Shares in Drax rose 4 per cent to 707p on Monday, recovering some of the ground lost since DECC’s decision in April, when the company’s shares dropped 13 per cent.

Drax is spending £700m on a plan to generate half its power output from imported wood pellets rather than coal. But the dispute with DECC had threatened its ability to invest in guaranteeing supplies of imported wood pellets, it argued.

DECC said: “We believe that we ran a fair and robust bidding process for renewable generators seeking early contracts for difference. We have been granted permission to appeal, and will now consider the decision carefully.”