The government has agreed a new funding arrangement with the controversial wood-burning Drax power station that it says will cut subsidies in half.
The power station, a converted coal plant in north Yorkshire, generates about 5% of the UK’s electricity and has received billions of pounds from the government and bill-payers because wood pellets are classed as a source of renewable energy.
Though there are plans to eventually capture the carbon emitted from Drax, its emissions from burning the pellets are currently unabated.
Critics of the power station have called it one of the UK’s leading emitters of the climate warming gas CO2, but Drax disputes that description.
It argues that burning wood is carbon neutral because when trees are cut down for fuel, new trees can be planted that effectively re-absorb the carbon dioxide released.
The new agreement will run from 2027 to 2031 and will see the power station only used as a back-up to cheaper renewable sources of power.
The government says that will mean that when there’s lots of wind and solar, Drax won’t run at all.
It says the company currently receives nearly a billion pounds a year in subsidies and and predicts that figure will more than halve to £470m under the new deal.
Michael Shanks, the Minister of Energy, said the previous subsidy arrangement had allowed Drax to make “unacceptably large profits” and that the new deal would be a “step change in value for money and sustainability”.
In a statement, Drax said the the new mechanism would represent a “net saving” for consumers and quoted analysis which suggested it would cut electricity system costs by between £1.6bn and £3.1bn over four years.
A “clawback mechanism” in the new arrangement is designed to stop the company making excessive profits if electricity prices rise steeply.
“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,” said Will Gardiner Drax’s chief executive.
Campaign group Greenpeace called the deal “a dirty compromise with past failures” but said that it should hopefully limit the damage by restricting Drax’s operations.
“The government is still far too trusting of big polluters asking for big subsidies to decarbonise,” Dr Doug Parr, Greenpeace’s policy director, said. “We have cheap, clean power sources available, and we shouldn’t be left to gamble on schemes like this anymore.”
The new agreement also states that 100% of the wood pellets Drax burns must be “sustainably sourced” and that “material sourced from primary and old growth forests” will not be able to receive support payments.
All the pellets Drax burns are imported, with most of them coming from the USA and Canada.
BBC Panorama and BBC News has previously reported that Drax held logging licences in British Columbia, Canada, and used wood, including whole trees, from primary and old-growth forests for its pellets.
In response to the BBC’s reporting, Drax admitted it had taken wood from old-growth forests. But it told Panorama that 77% of the material for its Canadian wood pellets came from sawdust and sawmill residues, with the rest coming from forestry residues and low-grade logs.
It says the company does not own forests or sawmills, no longer bids for logging licences and has stopped sourcing wood from some sites, where the British Columbia government has asked companies to pause further logging.
