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.
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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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