Britain's biggest polluting power station, the giant coal-fired Drax, today revealed ambitious plans to become one of the country's biggest green energy producers.

Drax, the quoted company that operates the Yorkshire power plant, said it is to pump £2 billion into a project to build three power stations incinerating biomass capable of producing 3% of the country's electricity and 15% of the renewable energy targets set by Government.

The 60-40 venture with Siemens of Germany will see power stations built at Hull and Immingham on the Humber, with the third likely to be on Drax's site a few miles inland.

It is expected to be paid for through City project finance. Drax chief executive Dorothy Thompson promised equity returns in the mid-teens and a payback period of no longer than six years. Drax has already been experimenting with biomass at the Drax plant, and is on the way to producing 500MW of electricity from wood chippings and the like by 2010 accounting for about an eighth of the electricity the plant produces.

With the planned biomass-only power stations, Drax will be able to produce about a tenth of the country's electricity. The announcement came as Drax said its profits for the year are going to be better than the £425 million expected by the City.

It has been taking advantage of low reserve margins, the recent electricity shortages that have allowed the likes of Drax to charge high spot prices.