A landmark £2 billion green energy plant will be scrapped and moved abroad unless the government reverses its decision to limit subsidies, Dorothy Thompson, chief executive of Drax, has warned.

Last year the FTSE 100 energy group announced a plan to build three power plants that would run not on coal but “biomass” such as wood chips and peanut husks.

It would be the largest such scheme in the world, providing low-carbon power for more than 1.2m homes. The plants would create jobs at the proposed sites in recession-hit Yorkshire and Immingham on Humberside.

Biomass is more expensive than coal and isn’t economical without heavy subsidy. The Department of Energy and Climate Change ruled recently that state aid could be cut after four years. Offshore wind, the government’s favoured low-carbon technology, received a 20-year subsidy guarantee.

Thompson said that without that certainty, the investment was unjustifiable, and Drax would be forced to go to countries with more favourable regulatory regimes. She said: “We’ve spent a lot of time and energy building up a skill base around biomass. If we are unable to do it in the UK, then we will go outside.”

Ben Warren, partner at Ernst & Young, the accountants, said the government’s decision was “an oversight that urgently needs to be corrected”.

Drax, operator of the giant coal plant at Selby, West Yorkshire, is the biggest polluter in western Europe. The plan to go green was seen as key to its future.

Thompson said: “We had understood when we started out that there would be protection on [the level of subsidies]. Not having that creates too much risk for us to be able to make a viable business case to our investors.”

Industry experts have questioned whether the plan is achievable even with subsidies. The plants would each be bigger than any comparable biomass project and would have to be fed by a steady stream of cargo ships loaded with trees from as far away as Canada.

The Sunday Times, 21 February 2010