Drax Group (LSE:DRX) shares fell 10% as the government rejected its plans for a new carbon capture programme.
The company had warned earlier this month that it would divert a £2bn investment in the project without further UK public support but received confirmation on Thursday that it had missed out under the government’s 'Powering up Britain' plan.
Ahead of the announcement, Drax had threatened to shift its investment abroad to the US, where government subsidies for green projects are more readily available under president Biden’s US$400bn Inflation Reduction Act.
“I think it is now likely that Drax will refocus its strategy towards the US where subsidies are more favourable to biomass power generation,” Liberum analyst Sam Wahab said.
“This represents a significant setback for biomass generation in the UK, especially considering that subsidies for Drax are due to end in 2027,” he added.
These are set to be worth £11bn by then, according to think tank Ember.
Drax, alongside Lynemouth Power Ltd, could build the bioenergy stations in time, the government said, but would not be considered in the first allocation of its £20bn carbon capture investment, announced in the Spring Budget.
Based on “affordability” and “value for money”, Net Zero Teeside Power could become the UK’s first carbon capture project, it added, with the biomass element effectively being sidelined.
The government also revealed it would grant £240mln worth of funding for green hydrogen projects, alongside launching public body Great British Nuclear to aid the first small modular reactor competition, due to begin in April.
Drax shares fell 10% to 518.5p.