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The UK has announced new subsidies for Drax, the country’s largest power station, despite a long-running battle over whether the wood pellets it burns for fuel are environmentally sustainable.
Drax said on Monday it had agreed a contract for difference with the government for a minimum electricity price of £113 per megawatt hour, in 2012 prices, between 2027 and 2031, for a total of 6 terawatt hours a year.
The company’s shares rose 5 per cent in early trading on Monday.
Drax’s current subsidies, which expire in 2027, guaranteed it a price of £132 per megawatt hour in December 2023 according to the group’s most recent annual report.
Will Gardiner, Drax’s chief executive, said the deal was “an investment in UK energy security” and was cheaper than the cost of building new fossil fuel power stations to back up wind and solar generation.
“Under this proposed agreement, Drax can step in to increase generation when there is not enough electricity, helping to avoid the need to burn more gas or import power from Europe, and when there is too much electricity on the UK grid, Drax can turn down and help to balance the system,” he said.
Drax, formerly the UK’s largest coal-fired plant, now burns millions of tonnes of wood pellets in order to supply about 4 per cent of the country’s electricity.
The original subsidies were designed to help it switch from using fossil fuels to biomass. The extension will allow the plant to remain open while it installs a system to capture its carbon dioxide emissions and store them. That upgrade is expected to take until 2030.
“Closure of such large-scale biomass plants would hinder their conversion [and] have implications for the UK’s near-term security of supply,” the government said, in a consultation ahead of the decision.
Biomass accounts for about 11 per cent of power generation in the UK, but its use rests on assurances that the wood involved is from sustainably managed forests with ongoing replanting. The National Audit Office has cast doubt on the trustworthiness of the UK monitoring process.
Last August, Ofgem, the energy regulator, closed a 16-month investigation into Drax by saying the company did not have adequate data on the sustainability of the wood it imported for fuel in 2021-22 and ordered a full independent audit of its supply chain for 2023. Drax agreed to pay £25mn into Ofgem’s voluntary contribution fund in atonement.
But the regulator said the problems had been “technical in nature” and there was no evidence that Drax’s biomass was unsustainable, or that the company should not have received the £548mn in clean energy subsidies it was paid in 2023.
