(Bloomberg) -- Drax Group Plc will hold talks with the UK government to progress its carbon-capture project at a power plant in northern England after the plan was rejected by a separate state program. 

The generator and biomass trader was “invited to enter formal bilateral discussions with the government immediately,” it said in a statement. Drax failed to get so-called Track-1 status for its project, the Department for Energy Security & Net Zero said on earlier on Thursday. 

While the government’s decision was a setback for biomass in a nation which badly needs more stable electricity generation, the continued negotiations point to a heightened focus on security of supply. Drax is also being drawn by the prospect of generous US subsidies across the Atlantic.

Climate Minister Graham Stuart told Parliament on Thursday afternoon that Drax and the carbon capture technology are “critically important” to the UK and its net-zero plans. His speech was another attempt by the government to highlight the importance of biomass after the mixed signals earlier in the day sent Drax’s shares tumbling at the open. 

Stuart added that officials are working on “bridging options” for Drax to ensure its viability between 2027, when the company’s subsidies expire, and 2030.

“With the right engagement from government and swift decision making, Drax stands ready to progress our £2 billion investment program and deliver this critical project for the UK by 2030,” Drax said in its statement before Stuart’s comments. 

Its shares initially slumped more than 12% but clawed back the losses and were up 2.3% at 1:48 p.m. in London. 

The government will publish its biomass strategy in June, which may shed further light on the role of biomass-fired generation with carbon-capture. The government also separately issued a response to a consultation that mapped a path forward for the nascent technology. 

Drax may still focus more of its investments in the US, where President Joe Biden’s Inflation Reduction Act offers subsidies and tax credits to the tune of $370 billion for a range of green technologies. The firm is already investing heavily in pellet production in the country and plans to build a plant there.

UK Unveils Green Program With Little New Cash to Fight US Plans

Other generators also suffered setbacks in getting the Track-1 status, which provides subsidy arrangements with the government to ensure security of investment in the UK.

SSE Plc’s Keadby project, which plans to fix carbon-capture technology to a gas plant in Lincolnshire, was also not taken forward to the government’s list to negotiate those subsidies. Despite the setback, SSE is still “ready to invest and will work with government to get shovels in the ground as quickly as possible,” a spokesperson said in an emailed statement.

(Updates with comments from climate minister in fourth paragraph.)

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