Drax pauses ‘biomass with CCS’ project, returns £150 million to shareholders

Drax Power has halted investment in a project to fit carbon capture and storage (CCS) to units burning biomass at its Yorkshire powersite and instead said in a trading update that it will return £150 million to shareholders.
The decision comes after the government decided not to name the biomass/CCS project in its ‘Track 1’ list of projects set to receive more governmemt support.
Drax said its plan for investment in UK biomass with CCS (Beccs) “was based on a first Beccs unit commissioning in 2027 and a second by 2030. Since Power BECCS is not currently in the Track 1 process and Government’s aim is to support Beccs by 2030, Drax has paused further investment in its UK eccs project in 2023 and will revise its UK Beccs investment schedule subject to further clarity on support for Beccs at Drax Power Station”.

The company said that returning cash was in line with its capital allocation policy and reflected a strong debt to earnings ratio, the revised timing of UK Beccs investment and the mitigation of equity dilution associated with the vesting of share schemes. The cash will be returned via a share buyback programme expected to commence in Q2 2023 and be completed by the end of 2023.
Drax Group chief executive,Will Gardiner said, “We remain excited about the opportunity to do Beccs in the UK. Whilst the project is not currently in the Track 1 process, we have commenced formal discussions with the Government to facilitate the transition to Beccs at Drax Power Station by 2030”.
The end of March also marked the end of coal generation at Drax. Following the completion of a “winter contingency” service agreement with National Grid ESO, between October 2022 and March 2023, Drax has commenced the decommissioning of its two coal units. There was no coal generation during the agreement period.

6 comments for “Drax pauses ‘biomass with CCS’ project, returns £150 million to shareholders

  1. May 3, 2023 at 2:17 AM

    This timely article underscores the fact that Drax is not in business to prevent ecological harm to our planetary life support system, notably natural forests. With all due respect, the folly of burning American trees to electrify Europe and Asia, is measurable in energy outputs: the amount of energy required to harvest, process, and ship wood pellets, exceeds the amount of energy derived by burning wood pellets. In truth, burning wood pellets to generate electricity is more inefficient, produces more CO2 than burning coal and/or natural gas, and it is very expensive–ecologically and economically. Taxpayer-funded subsidies designed to create profit for private corporations and their investors, are insulting because the wood pellet processing plants are polluting communities with harmful particulate matter and several carcinogenic chemicals released from wood fiber when it is hammered into dust, including formaldehyde, benzene, and various polycyclic hydrocarbons that naturally occur in woody material. Also deeply troubling are the harms coming to biodiversity and air and water quality resulting from the wholesale destruction of living standing forests; our best tool for carbon capture and storage. Instead of subsidizing a forest extraction industry, let’s subsidize forest owners for providing the public service of protecting our species’ living life support system. in the 19th century we brought the great whales to the brink of extinction for their biofuel oil. In the 21st century we’re burning trees to recharge our smartphones. Brilliant.

  2. Nikki Jones
    May 2, 2023 at 9:43 PM

    How is Drax managing £150m buyback when it’s reliant on almost £2m of UK taxpayer subsidies per day? Our Chancellor needs to rethink this subsidy urgently.

  3. Ann Stewart
    May 2, 2023 at 9:22 PM

    The atmosphere does not care where GHG emissions come from, be it coal, natural gas or old growth forest. Sadly, when forests are clearcut, the sequestration loss is not only from the trees cut but also from the soils in which they grow. Drax is sourcing its pellets from companies throughout the Southeast U.S. who state they only process “unwanted” materials–the limbs and tops of trees that are harvested for lumber or pulp, twisted or core-damaged logs not suitable for lumber, sawmill residue, etc. There is not enough of this “unwanted” material to supply the tonnage that is being processed, most often in and around low income communities of color–black, brown, indigenous–here in North Carolina and elsewhere in at least 10 states. BECCS would only capture emissions from the stack. None of the other GHG emissions/sequestration loss is removed or accounted for, meaning that production of electricity using wood pellets is damaging not only to the environment and the health of the people at the source, but as a previous writer notes, does not account for emissions of bulk transport via bunker fueled ships over 3,000 miles, the energy it takes to cut, haul, dry and manufacture the pellets themselves. BECCs is no solution at all, and it is heartening to see the UK government addressing this glaring fact.

  4. May 2, 2023 at 12:51 PM

    From Tortoise Net Zero, May 2, 2023:
    Claims of biomass’ carbon neutrality rest on the assumption that the amount of CO2 produced by burning the plant matter is equal to the CO2 the tree has absorbed in its lifetime. But that doesn’t take into account…
    • Supply. Last year a BBC Panorama investigation alleged that Drax suppliers were cutting down “environmentally important” forests in Canada. Drax claimed it was only using wood waste and sawdust to produce pellets. Ofgem, the UK energy regulator, has since launched a probe into the company’s compliance with rules for at least 70 per cent of its wood supply to be classified as sustainable.
    • Transport. A large proportion of emissions from bioenergy happen away from the power plant. Research by the NRDC found that logging trees, converting them into wood pellets and transporting them across the world produced the equivalent of 60 per cent of emissions from the smokestack.
    • Biodiversity. Demand for biomass risks turning biologically diverse old forests into monocultures. This can deplete soil health and its potential to lock in carbon. At the UN biodiversity summit 650 scientists urged world leaders to stop burning trees to make energy because it destroys valuable habitats for wildlife.

  5. John
    April 29, 2023 at 2:48 PM

    I agree with your comments, James. One further comment. A stock buy-back program does not return cash to shareholders. It may or may not drive a small increase in the stock price over the period of the buy-back program which the company said will begin in 2Q23 and end in 4Q23. I hope that some watchdogs will pay attention to the comparison of the timing of the buy-back transactions and the granting of stock options to management and directors.

  6. James
    April 28, 2023 at 12:03 PM

    Being woody, not an annual crop, most of the biomass currently burned in large power stations presumably has a prohibitively long (and uncosted) carbon payback period.
    It may be that pellet mills make sawmilling and related clear-cutting (of questionable sustainability) more attractive – by providing a market for both sawmill residues and all wood not currently sought by sawmills (which the industry might define as waste, low value or unmerchantable).
    Might the UK’s forthcoming Biomass Strategy consider such concerns sufficient to justify removing the zero-rating for woody biomass?
    Would construction of a CO2 capture and compression facility at a woody biomass burning power station depend on 1) connection – for a price – to a suitable pipeline network for onwards supply and injection for storage (perhaps uninsurable and impermanent) and 2) government subsidies sufficient to, in effect, underwrite repayment of debt incurred while constructing that facility?
    If a woody biomass burning power station must close any unabated generating units by 2035, then, would continuing to operate its abated units (if any) be viable? The need for them might become increasingly intermittent (thereby increasing both the cost per tonne of CO2 captured and the related energy penalty).

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