UK power station Drax boosted by ruling on RWE

Shares in the UK’s biggest power station jumped 15 per cent on Tuesday after the European Commission granted permission for its rival RWE to receive government support to convert from burning coal to wood pellets.

The commission’s decision not to block the conversion or demand a reduction in subsidy triggered hope among investors in Drax that the UK company would gain approval for a similar deal, agreed at the same price.

Drax’s shares rose 35p to 260p on Tuesday after the commission allowed RWE’s Lynemouth plant in Northumberland to claim £105 from the government per megawatt hour of electricity.

The commission began investigating the RWE deal in February amid concerns that the subsidy might be too generous to comply with European state aid rules.

Drax, which is in North Yorkshire, has converted three of its six boilers from burning coal to wood pellets. It is the funding for the third of those that the commission is now investigating.

A company spokesman said: “Whilst today’s European Commission decision is encouraging — particularly the conclusion that there is no real impact on upstream pellet or other fibre markets — it is important to remember that the Drax and Lynemouth contracts are separate, with different underlying technical and economic assumptions.”

Ashley Thomas, an analyst at Société Générale, said: “It is an encouraging sign that the European Commission has cleared the Lynemouth deal. But investors should be careful not to make a direct read across, as the thermal efficiency, load factor and full costs of the Drax scheme are different.”