Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
UK financial markets regulators have opened an investigation into whether Drax made misleading statements to the market over its sourcing of wood for biomass pellets.
The UK energy company’s shares dropped more than 10 per cent, to 631.50p, in morning trading in London on Thursday — the deepest plunge since March 2023. Shares closed at 650p.
The probe by the Financial Conduct Authority increases scrutiny on the FTSE 250 group around its sourcing of biomass for power stations, following claims by a whistleblower.
Drax said it had been notified by the FCA that the agency had begun a probe covering the period from January 2022 to March 2024. It will also cover the company’s annual reports for the financial years 2021-23.
Drax said it would co-operate with the FCA. The watchdog confirmed the investigation and declined to comment further.
The FCA’s move follows claims from Drax’s former top lobbyist in March that accused the company of “misleading the public, government and its regulator” over its sourcing of wood for biomass pellets, during a claim for unfair dismissal at an employment tribunal.
The whistleblower, who was backed by billionaire hedge fund founder Louis Bacon, reached a settlement with the company in March. Bacon’s firm, Moore Capital Management, previously held a short position in Drax. The firm said in March that it had closed out its position in July 2024, before Bacon began supporting the whistleblower, Rowaa Ahmar.
The firm does not have any subsequent disclosable short positions in the company. Moore Capital did not immediately respond to a request seeking comment on Thursday.
Campaigners have long contested Drax’s claims that the imported wood from Canada and the US meets its targets on renewable energy.
Last year, Ofgem cleared Drax of accusations it was environmentally unstable, but found that the company had inadequate data for the sustainability of the wood it imported to burn in its biomass units in 2021-22. It ordered a full independent audit of its supply chain for 2023 and Drax paid a £25mn penalty.
The National Audit Office last year also cast doubt on the trustworthiness of the UK process that monitors assurances that the wood involved was from sustainably managed forests.
Earlier this year, the UK government confirmed it would continue subsidising Drax’s biomass-fuelled power plant in Yorkshire after its existing arrangement expires in 2027.
The facility supplies about 4 per cent of the country’s electricity and was formerly its largest coal-fired plant. Biomass accounts for just over a 10th of power generation in the UK.
The FCA tries to ensure the cleanliness of financial markets. It can investigate any listed company for the accuracy and timeliness of announcements it makes to the market.
The UK government said it was not involved in the FCA’s investigation. “We will review the investigation’s findings when they become available. Drax will operate for less time under a clean power system and will need to use 100% sustainably sourced biomass, with not a penny of subsidy paid for anything less.”
Additional reporting by Costas Mourselas, Martin Arnold and Malcolm Moore in London
https://www.ft.com/content/368c29c7-27fd-4fed-8fcc-94ce56f1c958