Drax shares fall on UK change to biomass subsidies

(Adds Drax comment, background)

LONDON, Dec (Shanghai: 600875.SS - news) 12 (Reuters) - Shares (Berlin: DI6.BE - news) in British power producer Drax fell to their lowest in more than two years, wiping as much as 300 million pounds ($471 million) off its market value, after the government announced changes to a subsidy scheme for biomass plants.

Changes to the subsidy system were needed because more biomass generation was being developed than expected and to safeguard funds for other types of low-carbon power generation, the Department for Energy and Climate Change (DECC) said in a consultation published on Friday.

Drax shares were down 10 percent at 506 pence at 1105 GMT, after trading as low as 490.1 pence.

The government is changing the way it supports renewable energy projects. It is replacing direct subsidies with a contracts-for-difference (CfD) system whereby qualifying projects are guaranteed a minimum price for their electricity.

DECC said it would no longer grandfather, or guarantee, the subsidies offered under its previous Renewables Obligation scheme, for biomass conversion projects.

Drax meets around 7-8 percent of Britain's electricity demand. It is gradually converting generation capacity at its coal-fired power plant in Yorkshire to biomass.

"Today's announcement will have no impact on the Drax base strategy of converting three generating units to burn sustainable biomass in place of coal and becoming a predominantly biomass-fuelled power generator," Drax said by email.

"We have said that we are evaluating the option for a fourth unit conversion and we must now consider the implications of a change in grandfathering policy on that decision," it said.

The first power generation unit was converted in May last year and the second conversion was completed in October. Both earned government support.

Drax plans to convert a third unit between July 2015 and June 2016.

($1 = 0.6367 pounds) (Reporting by Susanna Twidale and Karolin Schaps; Editing by Mark Potter and Jason Neely)