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Drax shares rise on govt talks over carbon capture project

Sunset over Drax power station in North Yorkshire

By Susanna Twidale and Nora Buli

(Reuters) -Shares of British power generator Drax jumped by about 5% on Thursday after it said it was in talks with the government over a proposed carbon capture project.

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.

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.

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Drax said on Thursday 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 billion pounds investment programme," Will Gardiner, Drax Group CEO, said in a statement.

Shares in the company were up by more than 5% on Thursday afternoon, having earlier fallen by more than 12% when the government initially said the Drax project was not selected for its Track-1 programme, which is part of a 20 billion pound a year funding scheme it announced this month for carbon capture technology.

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 such units unviable.

"The concern now for Drax is how do they fill the cashflow cliff that exists post 2027," analysts at Citi said in a research note.

Green groups have heavily criticised 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.

($1 = 0.8102 pounds)

(Reporting by Nora Buli in Oslo and Susanna Twidale in London, additional reporting by Radhika Anilkumar in Bengaluru; Editing by Subhranshu Sahu, Clarence Fernandez and Andrea Ricci)