Electricity generator Drax’s decision to convert half of its generators from coal to biomass appears to have been well timed.

The pressure on coal-fired generators to reduce emissions through costly modernisation or emission capture schemes is rising.

DraxUtility peer SSE recently decided to close Ferrybridge, one of its two remaining coal-fired stations, for these reasons. So Drax’s move to biomass, at a cost to shareholders of some £700m in capital expenditure, appears to make sense. The firm has some big institutional backers, too. Amongst them are Schroders, which recently doubled its stake from 5% to 10%, and noted fund manager Neil Woodford.

It hasn’t been a trouble-free process, though, partly thanks to the government’s apparently confused and short-term thinking on energy.

Drax shares have fallen by 50% since March 2014, and lost 10% in one day in December last year, when the government hinted that subsidies available for biomass conversions might be changed.

Drax shares are now trading close to their all-time lows.

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Is now a good time for contrarian value investors to buy, or is this a business in decline?

The story so far

Drax generates about 8% of the UK’s electricity. In 2014, the firm reported revenue of £2.8bn and gross profit of £450m. With a market capitalisation of £1.5bn, it’s a pretty substantial business.

The company has changed in recent years. Originally owned by the Central Electricity Generating Board, it was the last coal-fired power station to be built in the UK when its final units were completed in 1986. Although privatised in 1990, Drax has only been listed on the London Stock Exchange since 2005.

In 2012, Drax announced plans to convert three of its six generating units from coal to biomass. Two of the three have now been completed, while the third is now underway and expected to begin producing electricity later this year.

Is Drax good value?

Drax’s relatively modest StockRank of 63 belies a ValueRank of 91 and a QV Rank of 88, the highest in the utility sector.

Drax has been on my radar as a potential investment for some time, but I’ve remained undecided.

However, the shares have fallen by another 10% over the last month and the firm qualified for the