Drax, and Double Drax
Last week the government announced their backing for a series of renewable energy generation projects that they hoped would form the backbone of a new energy front.
In line with the policy of the onshore wind farm sceptic Tory administration, the schemes backed included:
- 5 offshore wind farms
- and 3 biomass plants
As we wrote about a few weeks ago the beneficiaries were primarily foreign owned renewable energy powerhouses with Dong Energy, Statoil and Statkraft’s schemes featuring heavily.
The schemes were located across the UK in Liverpool, Norfolk, Yorkshire, Cumbria, Northumberland, Teeside and Scotland. In total the projects promise generation capacity of 4.5GW enough to power 3 million homes and the equivalent of nearly 4% of the UKs generating capacity.
Secretary of State for Energy and Climate change Ed Davey said:
“These contracts for major renewable electricity projects mark a new stage in Britain’s green energy investment boom. By themselves they will bring green jobs and growth across the UK, but they are a significant part of our efforts to give Britain cleaner and more secure energy.
“These are the first investments from our reforms to build the world’s first low carbon electricity market – reforms which will see competition and markets attract tens of billions of pounds of vital energy investment whilst reducing the costs of clean energy to consumers.”
As ever however these projects come with cost and controversy concerns. The changes are expected to add 2% to electricity bills by 2020 however in a familiar refrain Davey claimed that the costs would be offset by other initiatives that would ultimately lower overall bills. Clearly this remains to be seen.
The controversy element came from three main sources.
Firstly the lack of backing for onshore wind farms, the cheapest of the wind generation options suffering again from the policy hostility of the government.
Indeed whilst the deals were welcomed by commentators calls were made for a renewed focus on onshore wind farms, Deputy Chief Executive of RenewableUK, Maf Smith, said:
“We’re pleased to see this vote in confidence for these five offshore wind projects, which will make an important contribution to keeping the lights on, and create much-needed growth in coastal areas.
“However, we need far more onshore and offshore wind projects over the next decade if we’re not to find our energy security threatened, and the UK further exposed to price shocks from imported fossil fuels, so it’s important that the contracts for difference regime works for all renewable energy projects, not just those that have secured early contracts.”
The second source of controversy was the failure to fully back a flagship biomass project.
Whilst three biomass projects were backed including the partial conversion of Drax, and that of Lynemouth and MGT’s Teesside plant, it had been expected that a full conversion of Drax would have been backed.
As recently as December, both of Drax’s proposals had been shortlisted by ministers for state support.
This support was seen as critical to the future strategy of Drax who as the largest coal generating power station in the UK are also the single largest emitter of carbon dioxide.
As a result Drax have been looking to both future proof their business and avoid economic and political sanctions for exceeding ever tightening emissions targets. As a result their focus on becoming the single largest generator of renewable energy in the UK was critical to their long-term commercial future.
The disappointment was palpable with Dorothy Thompson, Chief Executive of Drax, saying:
“Whilst we are pleased to have been offered an investment contract for our third unit conversion, we are disappointed by today’s decision on the ineligibility of our second unit. Sustainable biomass provides a very reliable, flexible and cost effective renewable power source for the UK consumer.”
Given Drax’s strategy has been a £700m investment to replace coal burning with that of wood pellets, the loss of the deal, where the fundamentals of the plan were predicated on receipt of the subsidy left the project in jeopardy.
The subsidy, known as Contract for Differences (CFDs) guarantee eligible generators a fixed “strike” price for the electricity they produce over a period of 15 years.
Losing out on this certainty placed Drax’s overhaul into doubt triggering a 13% drop in its share price as the decision to pull such a key subsidy came as a surprise to the business and investors alike.
Whilst Ed Davey sounded a confident note that Drax’s strategy would continue unharmed, Dorothy Thompson announced the intention to take legal proceedings against the government.
The final part in the trilogy of controversy was the very essence of whether biomass deserved its inclusion as a renewable energy source.
Indeed whilst 3 biomass projects were backed, the methodology being used has been denounced as contributing to “climate disaster” by protesters.
Whilst it is sometimes a challenge to know what isn’t climate impacting and what the protestors’ and naysayers’ real world alternatives are, their grounds for criticising biomass met with some agreement.
It is claimed that biomass is only environmentally sound when forest waste, such as bark or sawdust are used, as in so doing this will allow young trees to grow and replace older ones. By contrast if whole trees are sacrificed the period of time it takes for them to regrow will mean a net result of higher emissions for decades.
PBL Netherlands Environmental Assessment Agency, the Dutch national policy institute, in its 2013 report ‘Climate effects of wood used for bioenergy” claimed that:
“Using logged trees as a bioenergy source, replacing fossil fuel, carries the risk of first increasing CO2 emissions before reducing them. It could in fact take up to 100 years before emissions begin to decrease”
The report proposed that felled trees should be used first as building materials or for other purposes, postponing their use as an energy source until the end of their lifespan, so the absorbed carbon stays stored in the wood for as long as possible.
Drax for its part claims that it indeed does only use waste forest material because whole trees are so expensive it makes no financial sense to burn them.
However there was another avenue of attack from protesters, this was that even if forest waste was used the company is importing its biomass product from US and Canadian pellet mills, being grown, harvested and processed and shipped thousands of miles to the UK
Drax insists it has been measuring the carbon dioxide footprint of its imported wood for five years and is convinced it can be classified as “low carbon”.
So with renewable energy advocates, consumers, onshore wind farms and power generators all left unhappy by the government’s decisions the bright headline and positive talk of a brave new world masks the nitty gritty of winners and losers in the race to a renewable future.