© Thomson Reuters Sunset at Drax Power Station in North YorkshireSuzanne Tweedale and Nora Booley
(Reuters) - British energy producer Drax fell on Thursday after the government rejected the country's latest round of tech support for its carbon capture plan.
The UK on Thursday outlined plans to improve its energy security and independence by investing in efforts to switch to cleaner and more affordable energy sources, including carbon capture and storage (CCS) projects.
Drax is looking to build a £2 billion ($2.47 billion) CCS project at a 2.6 gigawatt biomass power station in Yorkshire, northern England.
But for that, the company said it would need clarification from the government on the financing model and would halt development on the project.
On Thursday, the government said the project had not been shortlisted for its Track-1 programme, part of the £20bn-a-year funding scheme announced this month, but said it would go ahead with the project after the outcome of the review. . .
Drax was asked to start a bilateral dialogue with the government to move the project forward.
Drax Group Chief Executive Will Gardiner said: "With the right government involvement and speedy decision-making, Drax is poised to continue with our £2 billion investment programme."
Shares in the company fell 12 percent in early trading, but were trading at 564p per share at 1002 GMT, about 2 percent below Wednesday's close.
A subsidy scheme for biomass plants, which provide 6% of the UK's electricity, expires in 2027, making it no longer applicable, a Drax spokesman said.
"Now Drax is worried about how it will offset the disruption in cash flow after 2027," Citi analysts said in a research note.
Green groups are critical of biomass energy production, saying it is not a carbon neutral energy production method and that the production of pellets contributes to deforestation.
Drax says they only use waste wood or tree by-products that are primarily used for wood production, and demand for wood from sustainably managed forests helps drive growth forests.
(1 dollar = 0.8102 pounds)
(Reporting by Nora Bulli in Oslo and Susan Tweedale in London; Additional reporting by Radhika Anilkmar in Bangalore; Editing by Subhanshu Sahu and Clarence Fernandez)
