Drax Group (LSE:DRX) warned that its giant biomass power station is not viable without further government support and highlighted that without such projects the UK’s peak energy capacity is set to decline sharply.
The North Yorkshire power company paused its £2bn bioenergy with carbon capture and storage (BECCS) investment programme at the site unless the government supports it with new subsidies.
Providing enough energy to supply four million homes, the Drax power station, which burns wood chip and coal, could become unviable when its subsidies run out in 2027, the FTSE 250 group warned.
It suggested that the future of the plant was in doubt unless the company is given new subsidies to support the CCS development.
"Until we have this clarity, we are pausing our multimillion-pound investment programme in the UK BECCS project," said chief executive Will Gardiner in a statement.
With the UK facing a significant energy shortage, Drax was among several energy companies essentially holding the country to ransom, with SSE also saying it will invest £100mln in an energy storage project once Downing Street confirms how it intends to support such projects.
To highlight this, Drax commissioned a report from Baringa Partners that said the UK’s peak 'dispatchable capacity' is set to decline to 85% by 2027 from 93% today due to the retirement of fossil-fuel plants and nuclear reactors alongside ongoing increases in demand.
Peak demand for electricity is forecast to increase by 4GW over the next four years, according to Baringa.
But closures of coal and older gas generation from the like of Drax, EDF and SSE will remove up to 6.3GW of secure capacity from the grid.
Prime minister Rishi Sunak and chancellor Jeremy Hunt have set out the government's intention to support carbon capture and small modular nuclear reactors in recent weeks.
The PM said a new energy strategy would be unveiled “shortly”, after the former plan proposed by Boris Johnson was found to be unlawful, breaching the 2008 Climate Act by the high court last July.