Drax biomass power boosted by EU approval

There was a surge in shares for Drax yesterday following European Union approval of UK government aid that will compensate for the company’s MGT Teeside biomass power plant’s higher costs.

The biomass combined heat and power plant, owned by the offshoot of Drax Group, is the largest coal-fired power station in the UK and is set to switch from coal to burn wood pellets.

The Commission said it decided to back the project as the plant will reduce carbon dioxide emissions and provide a constant energy output throughout the day, rather than intermittently as is the case with wind energy.

The UK will pay the plant a variable premium above the market price for electricity.

Drax shares fell by as much as 13 percent last month after the UK said it was considering removing subsidies to generators that are converting to burn biomass, meaning they may not receive premium payments for the lifetime of a project.

However shares went up 7.5 per cent yesterday after more positive news emerged from Brussels.

EU regulators must approve large government payments to companies to check they don’t harm rivals.

  Bloomberg reports that MGT Power is one of several developers, including Drax, to get a contract for difference mechanism that guarantees the price clean energy generators receive for power for 15 years. The state programme aims to ensure certainty for investors before a more permanent system is introduced. The contracts are part of reforms to the UK power market that seek to increase the country’s supply of renewable power.