Drax concerned over CFD approval

February 19, 2014, London, England — State aid approval from
the European Commission is required for the UK's contracts for difference
(CFDs) subsidy support scheme for renewables, but there is no guarantee that
the process will be concluded quickly, according to UK power company Drax. CFDs
are “absolutely pivotal” for future investment, the firm said.

Drax aims to agree terms with the government next month on
the CFDs, which would apply to the power sold if it goes ahead with the conversion
of two of its coal-fired units to biomass. The CFDs would be expected to be
effective from the beginning of the 2015-16 financial year in April 2015, but
Drax is concerned that the requirement for state aid approval from the
commission could delay the date that the contracts become effective.

“Our understanding is that there's been a long [government]
engagement with the EU. But you can never be totally confident that there won't
be something which will lead the EU to say we need a change,” Drax chief
executive Dorothy Thompson said.

The UK government confirmed that the process for gaining
state aid approval for CFDs is ongoing, but it could not provide any further
clarity on the timeline for a decision.

Drax reiterated its concern at the incoming UK capacity
mechanism, which it said is not a “particularly interesting opportunity” for it
in its current format. It acknowledged that the capacity market design is
ongoing, but that the penalty regime for non-delivery of capacity makes the
balance between risk and reward unfavourable for its coal-fired units.

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