LONDON (Reuters) - British power producer Drax Group Plc (L:DRX) may get a rebate on its deal to buy UK generation facilities from Spain's Iberdrola (MC:IBE) following a recent EU decision on Britain's state-supported back-up power scheme.
In October, Drax agreed to buy a group of Scottish gas, hydro and pumped storage power plants from Iberdrola for 702 million pounds as it aims to exit coal-based production before a 2025 government deadline.
Drax may receive a payment of up to 26 million pounds in compensation, it said, depending on the outcome of continuing applications to Brussels around the capacity market.
Last month, Britain had to halt a back-up power scheme to avoid electricity shortages pending a further investigation by European Union regulators.
Drax says the pause has put payments to plants it is buying in the Iberdrola deal at risk and that it has agreed a risk-sharing scheme with the Spanish firm as a result.
The judgment by the EU's General Court annulled a decision by the European Commission, which had said Britain's so-called power capacity market was compatible with EU state aid rules.
The scheme, called the capacity market, pays providers for making energy supplies available at short notice to avoid shortages that might occur as coal plants close and low prices dissuade investors from building new power plants.
"The capacity market is a central pillar of the UK’s energy policy and ensures security of supply while minimising costs to consumers," Will Gardiner, chief executive of Drax Group said in a statement.
"To mitigate the risk that capacity payments take time to be restored, we have agreed revised terms which provide protection in 2019," he added.
It could take a year or more for the capacity market to be reinstated, analysts say.
Shares in Drax (L:DRX) were up 1.6 percent at 397 pence at 0819 GMT.