Drax, which runs a coal-fired power station in North Yorkshire, said it was set to transform itself into a predominantly biomass-fuelled power generator.
The firm said the decision was prompted by technical progress and the level of subsidy the Government was willing to offer to help with the conversion.
It plans to convert three of its six generating units to biomass and expects to convert the first unit in the second quarter of 2013 and a second unit in the following year.
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"We have long believed that generating electricity from sustainable biomass has great potential and that it should have an important role as a low carbon, cost effective and reliable renewable technology in the future energy mix of the UK," said Chairman Charles Barry.
The news came as the company reported a 16% fall in pre-tax profits to £141m in the first half.
Drax said the numbers had been pushed down by additional biomass costs and said the result was in line with expectations.
But this meant a cut in the interim dividend to 14.4p per share, in line with the company's policy of distributing 50% of underlying earnings.
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