On Monday last week, another step was taken toward extending government subsidies for the UK’s largest polluter.
A delegated legislation committee voted to pass draft regulation allowing for Drax Group PLC to receive government support for a further four years, from 2027 to 2031. The new funding deal, announced in February, is a vast improvement on the current situation, but it exposes holes in the government’s plans for the future of biomass-generated power.
Drax owns and operates the UK’s largest power station, which produced about 5 percent of the nation’s electricity last year. As part of its transition away from coal, the government began subsidizing Drax’s biomass operations in 2012 — and has not stopped, despite the company’s growing profits.
By 2027, global energy think tank Ember calculates that the power generator would have received about ￡11 billion (US$14.92 billion) of taxpayer money. (The company forecast ￡1 billion in post-tax operating cash flow between this year and 2027 from the power plant.)
Questions have been raised in and out of parliament about whether that truly represents good value for money, particularly as controversy swirls around Drax’s fuel sourcing.
In 2022, a BBC Panorama investigation found that the company was burning wood sourced from primary forests in Canada — rather than the waste wood it claimed to be using. That was followed up last year and this year with reports revealing that the practice was still happening.
A Bloomberg News report in 2023 found that Drax was also gaming the subsidy system for its own benefit. As energy prices soared, Drax shut down power generation and sold wood pellets to avoid paying back ￡639 million of subsidies. It was not illegal, but it was at the expense of the nation.
Burning wood for electricity is controversial. In the UK and Europe, it is treated as if it produces zero carbon emissions. Trees grow back after all, and when they are burned, they are releasing the carbon captured during their lifetimes.
However, there are a few problems with this. Carbon dioxide and other pollutants are released into the atmosphere from Drax’s West Yorkshire plant far quicker than new trees can absorb the gases. Burning waste for energy makes some sense: Doing nothing would also have led to the release of carbon dioxide as the organic material rotted down, so it might as well get some energy out of it.
The same cannot be said for wood sourced from forests, which would have continued absorbing carbon for potentially many years to come. There is also the problem that wood pellets are mostly imported into the UK and EU from the US and Canada — a long carbon-intensive journey.
So, clearly, something had to change. Enter the new deal. From 2027, Drax would be supported to operate at less than half of current levels. That means that although it would receive a guaranteed price of about ￡160 per megawatt-hour in, more than twice as much as the equivalent for other renewables, the amount of subsidies flowing to the company would halve, saving consumers an estimated ￡170 million a year.
The agreement also stipulates that Drax has to source 100 percent of its fuel from sustainable sources, up from 70 percent under the current agreement. Failure to meet the new requirements would lead to “substantial penalties,” the government said.
That seems fair, as it would shore up generational capacity while winding down the role of unabated biomass in the electricity supply, but there are a couple of concerns.
In April, the British Public Accounts Committee, a group which examines the value for money of government projects, published a report that highlighted the risk that the likes of Drax might be “marking their own homework” on sustainability criteria. Current arrangements rely heavily on self-reporting and third-party certification programs, and no one — neither the British Department for Energy Security and Net Zero nor energy regulator the Office of Gas and Electricity Markets (OFGEM) — can say for sure that the approach is effective.
Even though the rules would be strengthened to require all feedstock to be sustainable, there are no details yet on how the department would ensure compliance. A clear plan ought to be laid out to instill some trust back into a system that has left the public disappointed on multiple occasions.
There have also been calls from campaigners for Drax to release a report by auditor KPMG into its operations and sourcing, which have been provided to the government and OFGEM, but not to the public. OFGEM said the report shows the power generator has not breached any sourcing rules, but given Drax’s reliance on subsidies and lack of competition, it’s fair to demand some more transparency.
The other factor at play here is the future of bioenergy with carbon capture and storage (BECCS), which promises to deliver net negative emissions. Rather than simply burning wood, a generator such as Drax would also capture the carbon from its emissions and store it permanently underground.
BECCS is expected to play a vital role in helping the UK reach its climate targets, but deployment has been repeatedly delayed from an original target date of 2030.
Part of the reason the government has continued to support Drax is this carbon-removal potential, with the power generator seen as a key player. However, just weeks after the Labour Party government announced the extra support, the company signaled it would slow its investment in carbon capture until it gets “greater certainty” on regulation and returns.
The Labour government could have gamed this better by adding incentives for Drax to continue its BECCS investment as part of the deal. Now, at the very least, the UK needs a clear plan on BECCS. There is no new target date, no BECCS projects in the first phase of the government’s carbon capture and utilization program and no road map for the technology.
As a key chunk of UK power generation, Drax has commanded a lot of government attention and funds. There are also 54 regional biomass power stations primarily fueled by waste wood from household recycling centers in the UK. The support for such small-scale plants would run out by 2027, but with a local, sustainable fuel supply, they should not be left to flounder.
Continued support for Drax would only make sense if the government fills us in on what its vision beyond 2030 is.
Lara Williams is a Bloomberg Opinion columnist covering climate change. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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