UK's FCA investigates energy company Drax over biomass sourcing disclosures

By Yamini Kalia

(Reuters) -Britain's financial watchdog is investigating Drax Group's biomass sourcing disclosures following last year's investigation by the country's energy regulator, sending its shares down more than 12% on Thursday.

Drax, which supplies about 5% of Britain's electricity via biomass-converted coal plants and has received billions of pounds in green energy subsidies from the UK government, was fined 25 million pounds ($33.77 million) by Ofgem for misreporting data on wood sourced from forests in Canada.

Drax has faced criticism from environmental groups about sourcing wood from Canadian forests but has said 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.

The FCA's investigation includes Drax's 2021–2023 annual reports and their compliance with financial disclosure rules.

The power producer said it is cooperating with the FCA, but provided no further details.

Ofgem's investigation found no evidence of a breach of sustainability obligations by Drax or that it had incorrectly issued renewable obligation certificates.

The FCA's investigation covers statements made between January 2022 and March 2024.

The new probe puts Drax "back in the spotlight", Jefferies analysts said in a note, and increases political scrutiny of the government's post-2027 biomass support plan, which will halve subsidies for the company during 2027–2031.

Drax shares fell as much as 12.4% to 617 pence, but pared losses to 9.2% by 0748 GMT.

Environmental groups have questioned the sustainability of biomass power plants, which generate electricity by burning wood pellets.

Drax aims to reach net zero carbon emissions across its entire value chain by the end of 2024. 

Britain plans to largely decarbonise its electricity sector by 2030 which will require many new renewable power projects and infrastructure, including pylons to connect them to the grid.

($1 = 0.7402 pounds)

(Reporting by Yamini Kalia in Bengaluru; Editing by Sherry Jacob-Phillips and Elaine Hardcastle)