The FCA of the UK is investigating energy company Drax for its disclosures about biomass sources
The UK's financial watchdog has launched an investigation into Drax Group's disclosures about the biomass it sources, following a previous investigation conducted by the energy regulator of the country. This sent its shares plummeting more than 12% in Thursday's trading.
Ofgem fined Drax 25 million pounds ($33.77m) for reporting incorrect data about wood from Canadian forests. Drax supplies around 5% of Britain’s electricity through biomass-converted plants, and has received billions in green energy subsidies.
Drax has been criticized by environmental groups for sourcing wood from Canadian forest. However, it has stated that they only use wood residues or wood products from trees primarily used as lumber.
The FCA investigation covers Drax's annual reports for 2021-2023 and their compliance with financial reporting rules.
The power producer stated that it is cooperating closely with the FCA but did not provide any further details.
Ofgem’s investigation found that Drax had not violated its sustainability obligations or issued incorrect renewable obligation certificates.
The FCA's probe covers all statements made from January 2022 to March 2024.
Jefferies analysts wrote in a note that the new investigation puts Drax back in the spotlight and intensifies political scrutiny over the government's biomass support plan for 2027-2031, which will reduce subsidies to the company by half.
Drax shares dropped as much as 12.4%, to 617 pence. However, losses were reduced to 9.2% at 0748 GMT.
Environmental groups are questioning the sustainability of biomass plants that generate electricity from wood pellets.
Drax's goal is to achieve net zero carbon emission across its entire value-chain by the end 2024.
Britain has plans to decarbonise the electricity sector in its country by 2030. This will require new renewable energy projects and infrastructure including pylons that connect these power plants to the grid.
(source: Reuters)
