Shares of British power generator Drax (DRX.L) fell on Thursday after the government turned down its carbon-capture project for the country's latest funding round for the technology.
Britain laid out plans on Thursday to boost its energy security and independence through investment in efforts to move towards cleaner, more affordable energy sources including projects to capture and store carbon dioxide (CCS).
Drax hopes to build a 2 billion pound ($2.47 billion) CCS project alongside its 2.6 gigawatt biomass power plant in Yorkshire, northern England.
But to do this the company has said it would need clarity from the government on a funding model and has paused development of the project.
The government said on Thursday the project was not selected for its Track-1 program which is part of a 20 billion pound a year funding scheme it announced this month, but said it would engage further with the project following an assessment outcome.
Drax said it has been invited to begin bilateral discussions with the government to move the project forward.
"With the right engagement from Government and swift decision making, Drax stands ready to progress our 2 bn pounds investment program," Will Gardiner, Drax Group CEO, said in a statement.
Shares in the company fell as much as 12% in early trading but by 1002 GMT were at 564 pence per share, down about 2% from Wednesday's close.
An existing subsidy scheme for the biomass units, which provide about 6% of Britain's electricity, runs out in 2027, which a Drax spokesperson previously said could make them unviable.
"The concern now for Drax is how they fill the cashflow cliff that exist post 2027," analysts at Citi said in a research note.
Green groups have heavily criticized the practice of biomass power generation arguing that it is not a carbon-neutral method of energy generation and that pellet production can contribute to deforestation.
Drax says it only uses wood residuals or byproducts from trees primarily used for lumber and that demand for wood from sustainable managed forests can help to increase forest growth.
Reuters