Drax one step closer to securing CfD for second unit conversion

By Erin Voegele | July 28, 2014

A recent regulatory filing made by the Drax Group plc indicates the company could be one step closer to securing an investment contract, or early Contract for Difference (CfD) for a second biomass unit conversion under the Final Investment Decision Enabling (FID Enabling) mechanism.

On July 23, Drax issued a statement announcing the U.K. Department of Energy and Climate Change has informed the company that, following a recent judgment by the High Court, it has completed reconsideration of the of Drax’s application for an investment contract for its second unit conversion under the FID Enabling mechanism. “Following that reconsideration, DECC now intends to award Drax an investment contract for this unit,” said Drax in the statement. “However, DECC has now appealed against the High Court judgment to the Court of Appeal. Any award of an investment contract for the second unit conversion will therefore be dependent on the final conclusion of the legal challenge and remains subject to EU State Aid clearance.”

The legal battle over the investment contract has been ongoing for several months. Last year, the DECC announced the government had sent out draft investment contracts to 16 renewable energy projects under the FID Enabling process. That original list of 16 projects featured six biomass projects, including the Teesside plant, the Lynemouth conversion, the conversion of two Drax units (Drax Unit #1 and Drax Unit #3), and the conversion of three units at the Eggborough Power Ltd. facility. In December, the DECC narrowed that list to 10 projects found to be provisionally affordable under budget caps released earlier that month. At that time, the three Eggborough unit conversion were among the six projects cut from the list. In April, the DECC further revised the list of projects, including the elimination of the Drax Unit #3 conversion. On April 23, Drax announced its intent to legally challenge the DECC’s decision. 

On July 14, Drax announced the U.K.’s High Court declared the company’s second biomass unit conversion was indeed eligible for an investment contract under the FID Enabling mechanism.At that time, the court ordered that the DECC reconsider the application.

Drax’s latest announcement notes that that process of reconsideration is now complete. According to the statement released by Drax, the DECC has essentially admitted it will have to award an investment contract the company’s second biomass unit conversion unless it wins an appeal in court.