New subsidies have been announced for the world’s largest biomass plant, which the UK Government said will cut costs and improve sustainability. Announced overnight, the Keir Starmer government announced a new round of subsidies for the Drax power station – responsible for producing around 5% of the UK’s electricity, which was set to expire in 2027.
In announcing the measures, the Starmer government said the new subsidies were “important to delivering a secure, value-for-money power system” until 2031. But they say it cannot operate as it has until now, or with the level of subsidy it received in the past, which enabled Drax to make “unacceptably large profits”.
In a written ministerial statement, UK Energy Minister Michael Shanks said Drax would switch from being a baseload electricity generator, running about two-thirds of the time, to only operating as “dispatchable power” when it is needed, and allowing wind and solar to be favoured when they are available.
The government, however, warned that stricter sustainability requirements are also being introduced, with “substantial penalties on Drax if these criteria are not met.” The new arrangements will halve the subsidies paid to Drax and include a windfall mechanism that means 30% to 60% of profits will be returned to consumers if they exceed expected limits.
Biomass is the lowest cost option in the short term, but without extra technology to capture carbon emissions from burning wood, it is not a long-term solution, ministers said.
This new deal will halve the amount of support for Drax, save money on people’s energy bills and contribute to energy security
A UK Government spokesperson
Proponents of biomass say it can create carbon-neutral energy because trees and other plants first absorb carbon, then are burnt and release the same carbon back into the atmosphere. However, critics say this assumes the companies only use sustainable wood in their boilers – with green groups claiming the energy giant has been using wood from environmentally important forests – a claim refuted by Drax.
Investigations by green groups have alleged that Drax has used wood from environmentally important forests, but the company has said it is confident its biomass is sustainable and legally harvested.
Under the new contract for difference, Drax will be paid £113 per megawatt hour for electricity, and it will be able to generate only 22-27% of the time. Mr Shanks said this would halve payments compared to the existing support regime, saving households nearly £6 a year on bills.
Under the new arrangements, the proportion of woody biomass burned from sustainable sources must increase from 70% to 100%, and supply chain emissions must be cut to stricter levels in line with Europe’s.
Mr Shanks said the Government recognised the “strength of concerns” about using unabated biomass – which does not have the technology to capture and permanently store the carbon emissions it produces – and said it was not a long-term solution. In addition, the Starmer government is setting up a review to consider how technologies that remove greenhouse gases, such as large-scale biomass with carbon capture and storage, can meet net-zero targets.
The size, flexibility and location of the power station makes it important for UK energy security, and the proposed agreement helps protect the jobs and skills of today and the future
Will Gardiner, global CEO of Drax
A Department for Energy Security and Net Zero spokesperson said: “This new deal will halve the amount of support for Drax, save money on people’s energy bills and contribute to energy security.
“The deal includes a new windfall mechanism to recover excess profits and ensure fair prices,” they said. “We’ve introduced tough new sustainability measures with clear, enforceable standards,” they said, adding that “not a penny of subsidy” will be paid for non-compliant biomass.
Drax Group CEO Will Gardiner said the new framework was an “investment in UK energy security, which will result in a net saving for consumers” and support the delivery of the Government’s clean power by 2030 goal.
He said the analysis indicated that it would result in a £1.6 to £3.1 billion reduction in electricity system costs versus the construction of new fossil fuel power plants, which the government said would also carry significant risks.
“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.
“The size, flexibility and location of the power station make it important for UK energy security, and 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, ” Mr Gardiner said.
In response, Dr Doug Parr, policy director for Greenpeace UK, described continuing to subsidise biomass imports as “a dirty compromise with past failures”.
“Trees should be left to grow and not be burnt in a major subsidy-fuelled bonfire,” he said, warning that commitment to Drax could become more of a “stranded” asset as the energy market develops.
“The new criteria should, hopefully, limit the damage done both by restricting its operations and reforming its supply chain, but the government is still far too trusting of big polluters asking for big subsidies to decarbonise,” Dr Parr said. “We have cheap, clean power sources available, and we shouldn’t be left to gamble on schemes like this anymore.”
- To learn more about the Drax operation and how the energy giant is using surplus Southern Yellow Pine to supply energy to data centres, click here for Wood Central’s special feature.
