The energy company Drax will immediately enter talks with the government after its energy strategy cast doubt over its £2bn carbon capture project and plunged the company’s share price into turmoil.
The government’s wide-ranging plan to secure Britain’s energy supplies inadvertently raised questions about the future of one of the country’s biggest electricity generators after appearing to rule out the project to capture carbon emissions at the Drax biomass plant in North Yorkshire from the race for subsidies.
The company suffered one of the biggest falls on the FTSE 250 as shares tumbled 12% on Thursday morning.
However, Drax assured investors that it would enter formal bilateral talks with the government immediately to “move the project forward”.
Drax chief executive, Will Gardiner, told investors that the government planned to expand the “Track 1” process later this year, and that its project would be eligible.
Funding for the carbon capture project is considered crucial in securing future revenues for Drax beyond 2027 when its existing subsidy for burning wood pellets in its power plant will come to an end. However, a delay in joining the Track 1 process could still leave a funding gap until 2030.
The energy security and net zero minister Graham Stuart said in parliament on Thursday that the government “totally understands that we need to work with Drax on a bridging option between 2027 and 2030 and the secretary of state has charged our officials working with Drax on what those options look like”.
The share price losses were quickly wiped out, and the stock rose 6% after the assurances.
The strategy named eight carbon capture projects in the first track of a government subsidy scheme which could begin trapping and storing carbon emissions from 2027; including three in Teesside and five in the north-west of England and north Wales, but leaving out Drax’s project in the Humber.
Ministers are under pressure to cut subsidies for biomass generators amid growing concern that burning wood to generate electricity is far from green and may even increase CO2 emissions.
The government also named 20 hydrogen projects which will receive funding awards including three spear-headed by Scottish Power and two for SSE.
Drax’s market turmoil emerged as leading business groups criticised the government plan for its lack of clarity and ambition in accelerating Britain’s green industries. The government published multiple policy papers, totalling 1,000 pages, but many of the strategies set out had been previously announced, and much of the government spending had already been committed.
“Despite the volume and detail of today’s announcements, there is nothing obvious within these plans which matches the ambition of the US’s Inflation Reduction Act,” said Alexandra Hall-Chen, a policy adviser at the Institute of Directors. “It remains an open question as to whether the UK can offer the incentives for green investment that can sustain it as a leader in the global green economy.”
The government’s document deluge includes separate but interconnected plans to secure energy supplies, reduce carbon emissions to net zero, and establish the UK as a leading centre for green finance.
The government has launched a consultation on plans to require all large companies with more than 500 employees or £500m in turnover to disclose their plans to reach net zero.
Currently the Financial Conduct Authority requires listed companies and large asset owners to disclose their plans, but the government stipulation would level the playing field across the economy to make it easier for investors to make greener decisions.
James Fotherby, a policy officer at the Aldersgate Group, described the decision as “encouraging” and urged the government to “provide a clear timetable and further details on the implementation of the sustainability disclosure requirements to tackle greenwashing and inform investors’ financial decisions”.
