New subsidies have been announced for wood-burning power plant Drax, which the Government said would (Image: Getty)
Ed Miliband’s department has admitted giant subsidies to controversial wood-fired power plant Drax have allowed it to make “unacceptably large profits” at the expense of billpayers.
Despite this, the Department for Energy Security and Net Zero (DESNZ) has signed off a four-year subsidy extension at a lower rate.
Energy minister Michael Shanks said: “We have looked at previous arrangements for subsidy and sustainability.
“We believe that they simply did not deliver a good enough deal for billpayers and enabled Drax to make unacceptably large profits.”
Subsidies for the major power station in Yorkshire, which produces around 5% of the UK’s electricity, are set to expire in 2027.
But ministers have announced the plant is “important to delivering a secure, value-for-money power system” from then until 2031.
The Government revealed consumers would save £170million a year under a new deal with Drax covering 2027-31.
In a written ministerial statement, Mr 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 really needed.
Stricter sustainability requirements are also being brought in, with “substantial penalties on Drax if these criteria are not met”, the Government warned.
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The new arrangements will halve the subsidies paid to Drax and include a windfall mechanism that means that 30-60% 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, said ministers.
Drax would not be financially viable without the billions it has received in government subsidies for burning wood pellets, classed as renewable energy.
Investigations by green groups have alleged that Drax has used wood from environmentally important forests around the world, but the company has said it is confident its biomass is sustainable and legally harvested.
Clare Oxborrow, nature campaigner at Friends of the Earth, said: “At a time when funding for many government schemes is being slashed or curtailed – from support to help people insulate their homes to programmes encouraging farmers to plant trees – and with the climate emergency intensifying, it’s disappointing that the UK’s biggest carbon emitter is being given yet more public money at a cost to people and the environment.
“However, this decision represents a significant rollback of government support for Drax, with its funding slashed by half and the introduction of much tighter sustainability requirements.
“Given it was in the news just yesterday that Drax has misreported its sustainability data for the second time, it’s vital ministers ensure stringent monitoring so that public money doesn’t bank-roll the destruction of precious ancient forests.
“This doesn’t change Drax’s legacy of unleashing planet-warming emissions into our atmosphere, and subjecting communities who live near its US plants to toxic air pollution. Given the net zero economy is the UK’s fastest growing sector, cash would be better spent transitioning workers out of polluting jobs into the sustainable, clean industries of the future – this is good for our economy, communities and our ailing planet.”
Mr Shanks said the Government recognised the “strength of concerns” about using unabated biomass – which does not have technology to capture and permanently store the carbon emissions it produces – and said it was not a long-term solution.
Drax Group chief executive 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 analysis indicated 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.
Mr Gardiner said: “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 makes 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.”