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Drax Slumps After UK’s Kwarteng Questions Reliance on US Biomass


Drax Group Plc fell the most in 11 weeks in London trading after UK Business and Energy Secretary Kwasi Kwarteng slammed the company’s use of US wood pellets for biomass production.

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(Bloomberg) — Drax Group Plc fell the most in 11 weeks in London trading after UK Business and Energy Secretary Kwasi Kwarteng slammed the company’s use of US wood pellets for biomass production.

The shares sank as much as 11%, the most since late May, after Kwarteng said Drax’s reliance on US pellets isn’t sustainable and “doesn’t make any sense.” It’s another setback for the power producer, which is already under scrutiny following a complaint by environmental campaigners over its green credentials.

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“We see these developments as incrementally negative for the company’s prospects,” given its core business is in biomass generation, Citigroup Inc. analysts Jenny Ping and Rory Graham-Watson wrote in a note. “The shares are expensive.”

Drax has been gradually converting its coal-fed power plant in northern England to burn biomass. But in an interview with the Financial Times, Kwarteng questioned the future of biomass in the UK, saying the country could get to “a point where we just draw the line and say biomass isn’t working.”

Drax couldn’t immediately be reached for comment.

The report piles further pressure on Drax, after the Organisation for Economic Cooperation and Development said in July it’s reviewing allegations that the company’s claim to produce “carbon-neutral” power from biomass is wrong.

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Read more: Drax Green Credentials Under Review as Campaigners Cry Foul

Drax’s plant burns wood largely sourced from forests in North America. The company said last year that it planned to double its biomass output by 2030, and would invest heavily in carbon capture and storage with a view to being carbon-negative by that time. 

Drax traded down 8% at 677 pence as of 9:50 a.m. in London, the worst performance on the Stoxx 600 Utilities index. The stock is up 12% this year.

Drax said in July that it’s adjusting its biomass-fired output to produce more in the winter, when demand is typically higher. The company saw its first-half biomass generation drop by almost 20% from a year earlier and reported an increase in costs, though soaring power prices helped to lift earnings.

Read more: UK’s Drax Posts Earnings Jump Even as Power Output Declines

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