Drax Group (LSE:DRX) is under investigation by the UK financial watchdog relating to past statements about its sourcing of wood for biomass.
The Financial Conduct Authority confirmed that it has opened an investigation into the Yorkshire-based group but did not say more.
The FTSE 250-listed company said the probe covers related to certain statements between January 2022 to March 2024 regarding its biomass sourcing and compliance of its 2021, 2022 and 2023 annual reports with the listing rules, disclosure guidance and transparency rules.
"The company will cooperate with the FCA as part of their investigation," Drax said.
Shares in the company recently reached their highest in over two years, off the back of a solid set of interim results.
2022-2024 biomass backstory
In 2022, shares in what was then a coal-and-biomass power generator fell sharply on criticism from business secretary Kwasi Kwarteng, who said the company’s imports of US wood pellets to be burnt for energy were not sustainable.
Drax, which had at that point received approximately £6 billion of UK green energy subsidies, was accused of cutting down environmentally-important forests in Canada, according to a BBC Panorama investigation.
The company claimed it only used waste wood and sawdust, insisting many of the trees had already died and that logging reduces wildfire risk.
Chief executive Will Gardiner later disputed whether the power company was the UK’s largest emitter of carbon dioxide as he faced questioning from ministers, with the company’s own reports showing it emitted 13.3 megatons of CO2.
In 2023, Drax warned that its giant biomass power station was not viable without further government support, pausing its £2 billion bioenergy with carbon capture and storage investment programme at the site unless the government supports it with new subsidies.
Also that year, the UK energy regulator probed the biomass fuel that was being burnt, to see if it complies with sustainability rule under the Renewables Obligation schemes, with Ofgem's scientific advisers questioning whether it should even be calling biomass 'carbon neutral'.
Drax has claimed that all the Canadian woody biomass it used in 2021 and 2022 was certified under the Sustainable Biomass Program.
Drax said it was “confident” in its biomass compliance, having appointed an independent third party to verify its biomass sustainability and profiling data as part of an ongoing process.
In January 2024, approval was given to install carbon capture technology at its North Yorkshire biomass power plant, though soon after a National Audit Office report was unable to demonstrate whether biomass power plants that have received £22 billion of public subsidies are complying with sustainability rules which see them classed as carbon neutral.
A month later, another BBC Panorama claimed Drax’s biomass furnaces continued to burn wood from "some of the world’s most precious forests", with timber taken from forests in Canada despite them being designated as “no go areas”.
Drax was quoted in the report as saying its wood pellets are sustainable and legally harvested.