The Government plans to halve the subsidies it pays to biomass energy supplier Drax Group to operate its North Yorkshire power station. It follows pressure from environmental campaigners calling for the UK to scrap Drax subsidies entirely, citing concerns about the group's environmental record. The Selby powerstation, which has already received £6billion in subsidies, is the world's largest biomass plant and supplies about 10 per cent of the UK's renewable energy, which can rise to over half during peak demand.
Drax has agreed a proposed contract for difference with the government to provide electricity for £113 per megawatt hour from April 2027 to March 2031. Under the deal, Drax must increase the proportion of its woody biomass coming from sustainable sources from its current level of 70 per cent to 100 per cent. It will also be financially supported to operate the plant at a maximum load factor of only 27 per cent, half as much as current levels.
The company will no longer generate power when electricity is abundant on the UK grid and instead supply when electricity is lacking to avoid gas being used. Proposal: The UK Government plans to halve the subsidies it pays Drax Group to operate its power station in North Yorkshire, which is the world's largest biomass plant. Government analysis estimates the arrangement will save consumers £170million in subsidies per year, equivalent to £6 per household.
Separate research by management consultancy Baringa Partners has predicted the CfD contract will lower electricity system costs by £1.6billion to £3.1billion compared to building new fossil fuel power stations. Will Gardiner, chief executive at Drax, said: 'The proposed agreement helps protect the jobs and skills of today and the future, creating options for billions of pounds of investment in growth across Britain, including the development of large-scale carbon removals and data centres.'.
Drax is targeting average annual adjusted earnings before nasties of £100million to £200million over the agreement period. A 'clawback mechanism' is included in the deal to stop the business from making excessive profits if prices surge too much. Michael Shanks MP, the Minister for Energy, said Drax's contract was 'the right deal for security of supply and price'. He noted projections showed that biomass generation at Drax was the 'lowest cost option' for billpayers when measured against gas-fired power stations.
However, he said using unabated biomass was not a 'long-term solution' due to concerns about environmental sustainability. Drax burns millions of tonnes of wood pellets each year, which are mostly imported from forests in the United States and Canada. It has claimed this is carbon neutral because newly-planted trees can re-absorb the carbon dioxide released from cutting down old trees. The company is using subsidies to build a bioenergy carbon capture and storage system to try and capture and store the carbon dioxide emissions emitted from biomass.
Green campaigners are more sceptical of Drax's assertions, saying that burning wood pellets destroys forests and worsens emissions. Dr Doug Parr, policy director for Greenpeace UK, said: 'Continuing to subsidise huge biomass imports is not a step on the road to a cleaner future, but a dirty compromise with past failures. 'Trees should be left to grow and not be burnt in a major subsidy-fuelled bonfire.
'The UK's commitment to Drax has become an albatross, a supposed asset that is looking more and more stranded as the energy market develops.'. Drax Group shares were 3.7 per cent higher at 658.5p on late Monday morning, taking their gains over the past 12 months to around 48 per cent. Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
