Business secretary Kwasi Kwarteng’s recent comments spell bad news for Drax Group (LSE:DRX) PLC, say analysts at Citigroup.
Kwarteng reportedly questioned the sustainability of Drax’s biomass imports from the US to a cross-party group of backbench MPs.
The business secretary said it is a “huge cost financially and environmentally” to the point that the situation “doesn’t make any sense.”
All this, the Citi analysts believe, points to a potential hardening of government legislation concerning biomass strategy, with a paper to be published imminently.
Roughly 80% of the biomass burned at Drax power station comes from the US, so any potential ban or restrictions would be terrible news for the FTSE 250 company.
Add into this pressure from environmental groups regarding the green status of electrical production, and analysts see this as “negative for the company’s prospects.”
As a result, the shares are rated a sell, with a target price of 616p.