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Drax power station, which has dominated the North Yorkshire countryside near Selby for more than half a century, was given another lease of life this week. The biomass generating plant with 12 water cooling towers will carry on producing electricity until at least 2031, thanks to the government’s renewed support.
Drax was built as a coal-fired plant in 1974 and later converted to burning wood pellets. It has outlasted many others but longevity does not equate to popularity. From green campaigners to the Conservative party, which abruptly withdrew its support for Drax after leaving office last year, it is derided for being, as Greenpeace puts it, a subsidy-burning “scam”.
That accounts for the defensive tone of this week’s announcement of fresh backing for Drax and the fact that Ed Miliband, energy secretary, did not make it in person. It was left to energy minister Michael Shanks to bemoan its energy inheritance from the Conservatives and outline a “much more limited” role for Drax from 2027 onwards, with a halving of public subsidies.
This is a painful compromise, but it is also a necessary one. It only helps Miliband’s ambition to convert Britain to clean electricity generation by 2030 if you believe that emitting carbon by burning wood pellets is wholly different from doing so by burning gas. But Drax has one clear advantage over the new nuclear power stations that the government is backing for energy transition: it already exists.
Shares in Drax Group, the company that owns the power station, rose on the news both out of relief and because the market does not believe Miliband. Nor should it. Many complex and costly investments are needed without delay to make the electricity grid work better and reduce fossil fuel power generation to low levels. It is safe to assume that Drax will be with us for some time.
Drax benefits from a peculiar regulatory arbitrage that results in biomass power generation being zero-rated under UK and European carbon standards. The pellets it mostly imports from North America count as a renewable power source although its emissions are higher than any other UK power plant, according to the research group Ember. It was also fined £25mn last year for not keeping adequate sourcing data.
This environmental trick is no longer convincing. Drax says its emissions are balanced by the fact that carbon-absorbing trees are regrown to make the pellets. Perhaps so, but to ignore them completely is absurd. Biomass should fall somewhere between wind power and fossil fuel in the green ledger.
But Drax’s environmental imperfection is a poor argument for shutting it down by ending all support, as some wanted. This would have risked about 5 per cent of the UK’s future generating capacity and increased the grid’s dependence on gas and nuclear power plants (along with European interconnectors) for power when the weather is poor for solar and wind generation.
Wind accounted for 30 per cent of the electricity generated in the UK last year. But its expansion does not abolish the need for gas or biomass plants that can be turned on when they are needed. Indeed, the more the system decarbonises, the more fragile it could become as such plants lose their business to cheaper renewables.
A decarbonisation study last year by the National Engineering Policy Centre concluded that the UK may need to build more gas-fired plants to maintain generating capacity in future. The official National Energy System Operator, which has warned of the pace of change being “at the limit of what is feasible”, supported Drax’s retention on the grounds of energy security.
The government has tacitly conceded the point. Rather than treating Drax as a renewable energy source in a conventional financial way, the deal is quite like a capacity contract with a gas-fired operator. Drax will stay in service but it will not operate at more than half of today’s levels and “excess profits” will be clawed back.
It is unclear what happens after March 2031, when the deal is meant to run out. Drax wants to install carbon capture and storage equipment so that it no longer emits greenhouse gases and can trade in emissions credits. That technology is untested and very expensive, although Drax has a record of keeping one step ahead of obsolescence.
I bet on further delays, not only to carbon capture but to Miliband’s clean energy timetable. That is the message of this week’s deal with Drax. Having a vision is admirable, but risking the lights going out by closing an unpopular power station would be reckless.