Updated: Drax mixes up biomass plan with mooted £700m co-firing project

Drax's game of brinkmanship with the government over biomass subsidies has intensified, after the owner of the UK's largest coal-fired power station said it had scrapped plans to build a dedicated biomass plant, but would invest £700m in co-firing biomass-coal technology depending on the outcome of a major subsidy review.

Announcing its preliminary final year results, Drax chief executive Dorothy Thompson, yesterday revealed the company had cancelled plans for a 290MW biomass plant in Selby, North Yorkshire, blaming a lack of financial support from the government for the emerging technology.

The decision followed a threat last summer to shelve its dedicated biomass plans if  a government review of the Renewables Obligation (RO) scheme, which pays large power producers for feeding renewable energy into the grid, failed to increase support for the technology.

Thompson said the Selby project - a collaboration with Siemens Project Ventures - had proved "highly challenging" because the proposed levels of support for dedicated biomass power, as well as the site's inland location, would make the project uneconomic.

But she said Drax was keen to invest up to £700m in co-firing technology at the site, because the government has proposed to increase support for co-firing depending on the results of the latest consultation on the RO. Co-firing systems burn both coal and biomass simultaneously, delivering a significant reduction in emissions when compared to pure coal plants.

A government review of the RO scheme, launched in October, proposes to reduce support for standalone biomass plants by seven per cent from 2016, but it also proposes creating new bands for enhanced co-firing and biomass conversion projects, which could then receive 1 ROC/MWh.

A spokeswoman for Drax told BusinessGreen it had been delighted with the government's decision to increase support for co-firing, which it has long argued would be a more cost-efficient way of reaching its goal of making the plant majority biomass powered.

The plant can theoretically burn 12.5 per cent biomass, which would cut emissions by 2.5 million tonnes a year. But Drax has refused to burn biomass at full capacity on the grounds that the current subsidy is unviable. Under current support levels it receives just half a renewable obligation certificate (ROC) for every MW of biomass power.

Under the proposed changes to the RO scheme, any plant generating more than 20 per cent of its power from biomass will receive one ROC.

Drax yesterday said it would invest £50m this year increasing its biomass burning capability to 20 per cent by April 2013. But only if the government confirmed the higher subsidy rates in April.

The spokeswoman also maintained Drax would produce fewer carbon emissions using co-firing technology than from a dedicated biomass plant because building a brand new 290MW plant adjacent to the existing coal powered plant would result in additional emissions during construction.

"Given the significant financial liability that we would face were we to delay our investment decision until we have certainty over the final support level for dedicated biomass we have decided to cancel the project," Thompson said of the company's initial plans for a biomass plant at its main facility.

The news will come as a major blow to the North Yorkshire region, which is hoping to establish itself as a renewable energy hub.

But Thompson also maintained Drax was continuing to explore options to build a dedicated biomass-fired power plant at the Port of Immingham, North Linconshire and was still investigating plans for further renewable energy plants.

"Drax is ready to transform itself into a predominantly renewable generator, but to do so we need appropriate regulatory support, and to that end we look forward to the timely conclusion of the Government's current review," she said.

A spokesman for the Department of Energy and Climate Change said Drax was entitled to make the decision based on the expected subsidies.

"It is for the company to decide their investment priorities within the support framework that has been proposed for biomass electricity," he said.

"However, we welcome Drax's interest in stepping up co-firing with biomass - a low cost renewable source of power which will accelerate the UK's move away from coal."

But James Barrett-Miles, director of Ernst & Young Director, said the news was a potential blow to the development of the UK bio-energy sector and emerging green economy.

"Bio-energy provides valuable baseload renewable generation and as such has an important role to play in the UK's low carbon energy mix," he said.

"Although the government has shown some positive sentiment towards the biomass sector recently, as seen by the improved subsidy levels for co-firing and the introduction of the Renewable Heat Incentive, much more needs to be done."