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| UK power company Drax’s shares plunge amid investigation over source of ‘renewable’ fuel | UK power company Drax’s shares plunge amid investigation over source of ‘renewable’ fuel |
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| Investigation by UK watchdog relates to historical statements on wood pellets for power station from January 2022 to March 2024 | Investigation by UK watchdog relates to historical statements on wood pellets for power station from January 2022 to March 2024 |
| Analysis: Latest Drax inquiry will raise fresh questions about its billions in subsidies | |
| Business live – latest updates | Business live – latest updates |
| The power generator Drax has revealed it is under investigation by the City watchdog over “historical statements” made about the sourcing of wood pellets for its biomass power station. | The power generator Drax has revealed it is under investigation by the City watchdog over “historical statements” made about the sourcing of wood pellets for its biomass power station. |
| The Financial Conduct Authority confirmed the investigation on Thursday, which will cover a period of more than two years between January 2022 to March 2024 and examine whether the company complied with disclosure and transparency rules, including in three annual reports. | |
| Drax said the FCA investigation related to “certain historical statements regarding the company’s biomass sourcing and the compliance of Drax’s 2021, 2022 and 2023 annual reports with the listing rules and disclosure guidance and transparency rules”. It added: “The company will cooperate with the FCA as part of their investigation.” | Drax said the FCA investigation related to “certain historical statements regarding the company’s biomass sourcing and the compliance of Drax’s 2021, 2022 and 2023 annual reports with the listing rules and disclosure guidance and transparency rules”. It added: “The company will cooperate with the FCA as part of their investigation.” |
| Drax is expected to receive more than £10bn in renewable energy subsidies between 2012 and 2027, the current regime period, according to the thinktank Ember. This is despite ongoing concerns that wood pellets are not always sustainably sourced. | Drax is expected to receive more than £10bn in renewable energy subsidies between 2012 and 2027, the current regime period, according to the thinktank Ember. This is despite ongoing concerns that wood pellets are not always sustainably sourced. |
| Last year Drax was found to have supplied inaccurate data for previous government subsidies, leading to a £25m fine. In April, the public accounts committee – the government’s spending watchdog – questioned the value of the multibillion-pound subsidies granted to the Drax power plant and said plans to hand over billions more might not represent value for money. | Last year Drax was found to have supplied inaccurate data for previous government subsidies, leading to a £25m fine. In April, the public accounts committee – the government’s spending watchdog – questioned the value of the multibillion-pound subsidies granted to the Drax power plant and said plans to hand over billions more might not represent value for money. |
| Despite these concerns, the UK government confirmed this year that it would continue offering new subsidies for Drax’s wood-burning power plant in North Yorkshire until 2031 after the existing subsidy ends in 2027. This contract has not been finalised. | Despite these concerns, the UK government confirmed this year that it would continue offering new subsidies for Drax’s wood-burning power plant in North Yorkshire until 2031 after the existing subsidy ends in 2027. This contract has not been finalised. |
| The news of the FCA investigation sent Drax shares down by 8% on Thursday. Market analysts are understood to be concerned that the investigation could delay the company’s new support contract to extend subsidies for the power plant’s electricity. | The news of the FCA investigation sent Drax shares down by 8% on Thursday. Market analysts are understood to be concerned that the investigation could delay the company’s new support contract to extend subsidies for the power plant’s electricity. |
| The so-called “bridging scheme” was designed to support Drax from the end of the existing subsidy regime in 2027 until it can start up a new project using carbon capture technology at the plant, which could cost billpayers more than £40bn. | The so-called “bridging scheme” was designed to support Drax from the end of the existing subsidy regime in 2027 until it can start up a new project using carbon capture technology at the plant, which could cost billpayers more than £40bn. |
| The government said the bridging subsidy would be set at half the current level and that biomass electricity would play a “much more limited role” in future, operating less than half as often as current levels and only when it is really needed. | The government said the bridging subsidy would be set at half the current level and that biomass electricity would play a “much more limited role” in future, operating less than half as often as current levels and only when it is really needed. |
| The government’s statement said: “Our central projections show that, on the right terms and in a much more limited role than today, biomass generation at Drax is the lowest-cost option, including when compared to gas-fired power stations, for billpayers during this period.” | The government’s statement said: “Our central projections show that, on the right terms and in a much more limited role than today, biomass generation at Drax is the lowest-cost option, including when compared to gas-fired power stations, for billpayers during this period.” |
| A government spokesperson said: “We will review the investigation’s findings when they become available. Drax will operate for less time under a clean power system and will need to use 100% sustainably sourced biomass, with not a penny of subsidy paid for anything less.” | |
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| One industry source said although government officials hope to reduce the UK’s reliance on biomass in the future, it would become more difficult to meet the government plan to reduce fossil fuels to just 5% of the electricity mix by 2030 without electricity generated by Drax. | |
| Jenny Ping, an analyst at Citi, said: “The FCA can issue financial penalties to companies and/or directors who are in breach, however, we do not expect this to be material to Drax.” | Jenny Ping, an analyst at Citi, said: “The FCA can issue financial penalties to companies and/or directors who are in breach, however, we do not expect this to be material to Drax.” |
| Ping said that although the FCA would not be able to alter the terms of the proposed subsidy contract it was “possible that it could impact the timing of when it will be finalised and signed, which is currently expected before year-end”. | Ping said that although the FCA would not be able to alter the terms of the proposed subsidy contract it was “possible that it could impact the timing of when it will be finalised and signed, which is currently expected before year-end”. |
| It comes months after Drax’s former head of public affairs and policy Rowaa Ahmar accused Drax of having made misleading claims over its sourcing of wood for biomass pellets, which formed part of her claim for unfair dismissal at an employment tribunal. Drax denied her claims and reached a settlement with Ahmar a week after the case opened. | It comes months after Drax’s former head of public affairs and policy Rowaa Ahmar accused Drax of having made misleading claims over its sourcing of wood for biomass pellets, which formed part of her claim for unfair dismissal at an employment tribunal. Drax denied her claims and reached a settlement with Ahmar a week after the case opened. |