Drax loses appeal over CfD, expected to proceed with conversion

By Erin Voegele | August 07, 2014

On Aug. 7, Drax Group plc released a statement indicating that its second unit conversion is no longer eligible for an investment contract. Rather, the company is expected to proceed with the conversion with support under the Renewables Obligation.

According to information released by Drax, the U.K. Court of Appeal has reached a decision in relation to the appeal by the U.K. Department of Energy and Climate Change against a recently High Court judgment that Drax’s second unit conversion is eligible for an investment contract. Drax’s statement specifies the Court of Appeal has allowed DECC’s appeal and dismissed Drax’s application for judicial review. “Accordingly, the second unit conversion is no longer eligible for an Investment Contract. Having taken legal advice, Drax will not appeal against this decision,” said the company in its statement. “Drax will now consider its options for the full conversion of this unit, where eligibility for support under the Renewables Obligation has been confirmed.”

In late 2013, the DECC indicated it would award an early Contract for Difference (CfD) to two Drax unit conversions, but later pulled support from one conversion under the Final Investment Decision Enabling mechanism. Last year, the DECC announced that the government had sent out draft investment contracts to 16 renewable energy projects that had progressed to the next stage of 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 Eggborough Power Ltd. In December, the DECC narrowed that list to 10 projects found to be provisionally affordable under budget caps released earlier that month. The three Eggborough unit conversions were among the six projects cut. An announcement made by the DECC in April further altered 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.

Drax is, however, expected to proceed with the unit conversion even without the CfD. During a recent investor presentation to discuss financial results for the first half of the year, Dorothy Thompson, chief executive of Drax, said the company is confident it will convert at least three of its six units to biomass. At minimum, she said two units will be supported by the Renewables Obligation and one will be supported by a CfD.