The company also plans to build two wood pellet plants in the southern US to provide part of its biomass fuel needs. Drax’s announcement follows changes to government policy in the summer which ensure a good level of subsidies for fossil fuel power plants converting to biomass.

Previously, Drax had plans to build dedicated biomass power plants. Drax’s plans would see the first power unit at Selby converted in April 2013.

The company says it has secured rights to two million tonnes of biomass in the 2013 Renewables Obligation Certificate year. It has also advanced strategic partnerships in the forestry sector to secure raw material, as well as port, shipping and rail arrangements necessary.

“The sustainable biomass supply chain is being developed for three converted units within five years,” Drax said.

Investment will be phased with £200m being spent in 2012, £300m in 2013 and £100m in 2014. Drax believes biomass conversion will yield very attractive returns.

It will pay for the investment by a mixture of placing up to 10% of issued share capital loans and an increase in working capital.