Drax green plans stuck on red

Drax, UK – Drax burnt 600,000 of biomass in the first half of 2011, generating around 6% of the UK’s renewable power for the period. But its renewables output could be much greater with appropriate Government support, believes Dorothy Thompson, chief executive of the Yorkshire-based company that produces 7% of the UK’s electricity supply, mainly from coal.

According to the CEO, burning biomass in place of coal, in facilities like Drax, is one of the most cost effective means of producing renewable electricity and could provide a third or more of the UK’s required renewable power by 2020.

Drax, she added, is ready to transform into a predominantly renewable generator – biomass, which is co-fired with coal, currently represents around 8% of the total power output from its six turbine units.

“We continue to operate at less than our installed renewable capacity because of the current low level of regulatory support for electricity produced by burning sustainable biomass instead of coal,” said Thompson.

In July, the Government published its Electricity Market Reform white paper setting out measures to transform the market and attract investment in low-carbon power sources. Alongside this, a Renewables Roadmap identified biomass as one of eight technologies offering most potential to meet the UK’s renewables target.

According to Thompson, the white paper confirmed the introduction of a Feed-in-Tariff with Contracts for Difference (“FiTCfD”) approach, as the replacement for the Renewables Obligation, to incentivise investment in new, low carbon generation.

“We believe the FiTCfD provides the lowest cost solution for the consumer and the necessary stability for investors. We are also pleased to see that a wider capacity mechanism is to be considered and look forward to engaging further with the Government on potential solutions,” said Thompson.

But, while Drax welcomes many of the planned reforms to the electricity market, the company is concerned about the Government’s plans to introduce a carbon price floor and an Emissions Performance Standard.

“The carbon price floor will not deliver all that is expected of it, and indeed that it may have unintended consequences,” said Thompson. “For example, to encourage investment any incentive mechanism must be ’bankable’. That is not the case for the carbon price floor, which is to be set annually and is subject to discretion, both of which increase uncertainty for investors.

“The introduction of an Emissions Performance Standard is, we believe, an unnecessary layer of additional legislation. Existing legislation already provides the framework for the agreed EU-wide emissions standards for electricity generation plant, and further we believe that the planning regime is more than capable of ensuring that only low emission power plants will be built in future.”

Thompson went on to report that since February, Drax had experienced some improvement in near-term and forward commodity market margins for coal-fired generators, driven largely by increasing gas prices.

But, she said, “in the longer term we see conflicting tensions through the introduction of the carbon-price support mechanism from April 2013, which is likely to erode our competitive position in the market.

“The dark green spreads – the difference between power price and the cost of coal and carbon – available to us in the traded markets are good in the near-term, but there remains little visibility beyond 2013.

Meanwhile, the low-pressure and high-pressure turbine modules of five of the six generating units at Drax Power Station have now been replaced and are operating as expected.

With only three low pressure turbine modules to be replaced during the first of next year’s two unit outages we are nearing completion of the project, which commenced in 2007, said Thompson. On completion, she noted, the improved overall efficiency of the power station will lead to a reduction in CO2 emissions of one million tonnes a year.

“We are furthering our work on the options available to us for compliance with the more stringent emissions standards of the Industrial Emissions Directive from 2016. The fuel mix, and so the level of biomass co-firing, is a key factor in determining the optimal solution for compliance,” said Thompson.

However, there has been no significant progress on work to develop dedicated biomass facilities with Siemens Project Ventures, due to the lack of clarity surrounding the future level of support available for dedicated biomass plants.