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Drax wins case against government over biomass subsidy

Employees work inside the control room of Drax power station in Drax, northern England, February 16, 2011. REUTERS/Nigel Roddis

LONDON (Reuters) - British power producer Drax won a legal case against the government on Monday as the High Court overruled a decision to drop one of the company's coal-to-biomass conversion projects from a new renewable energy subsidy scheme. The court decided the utility had fulfilled all of the key criteria set out by the government at the time of making its application to seek early investment contracts under the new scheme for two of its projects to convert coal units to biomass. The government had rejected the application for the second unit in April, sending its shares down 13 percent at the time. The legal victory on Monday gave fresh impetus to Drax's power plant modernization programme in order to comply with tighter rules on carbon emissions in the electricity sector. Shares in Drax traded up to 6 percent on Monday, last changing hands at 3.8 percent above Friday's closing price. The government said it would now consider the court's permission to appeal against the decision. "We believe that we ran a fair and robust bidding process for renewable generators seeking early Contracts for Difference," an energy ministry spokeswoman said. The government is changing the way in which it awards subsidies to green forms of energy by introducing a contracts-for-difference system for specific projects, replacing a certificate system. "Today's decision will give investors some comfort that Drax (and others) can hold the government to account through the courts if need be," said utilities analysts at Liberum. (Reporting by Karolin Schaps; editing by Jason Neely and David Evans)