On Monday 10th Feb, the government announced new subsidies for Drax. Here is our breakdown of what this really means, as this has been quite variably reported in the press.
Until this week, Drax had a contract with the government that guaranteed them profits until 2027, but no backing after then. This new agreement extends that date to 2031, but with different conditions – some better and some worse. The new end date for Drax’s government backing has now been kicked down the road to 2031.
Drax has received around £2m a day from our bills for years, so far totalling £7bn paid out. They use this for burning millions of tonnes of wood pellets each year, made from forests around the world. In this process, communities are poisoned by the production of pellets, vital forests, and ecosystems are destroyed. Drax is also the UK’s highest carbon emitting site, and worlds biggest burner of trees.
Contents of the announcement
Max 27% generation
This means that Drax will only be subsidised for 27% of their generation capacity, or half of what they are subsidised for now. This is better than the current arrangement. Depending on energy prices, this should mean that trees are burned at a slower rate from 2027 to 2031. However, this is only related to what is subsidised by the government and not a legal restriction on how many trees they burn.
The Government has also set a ‘minimum annual contract floor’ of 22%. This means that Drax is mandated to generate power for at least 22% of the year – regardless of whether this power is needed or not. We could easily see a situation where, even when renewables are plentiful, Drax’s pollution is subsidised regardless.
100% sustainable biomass
The Government has said that all subsidised generation must use ‘100% sustainable biomass’ – up from 70% previously. However, current sustainability rules do not disallow the use of primary forests. Although the government says primary forests will be excluded from the subsidy regime, this rule only applies to subsidised biomass generation. This means that Drax could quite possibly only count ‘sustainable’ biomass within subsidised generation, whilst still burning non-sustainable wood outside of it.
The Government has said there will be future work done on improving the sustainability rules, but as it stands, many vital forests are not protected by current rules.
Of the current sustainability certification schemes, the main sustainability scheme used by the biomass industry is the Sustainable Biomass Program (SBP). SBP was established by the biomass industry, and is run by the industry. Past and current board members include Drax and Enviva executives.
Amount of subsidy and where it comes from
Much of the media framed this decision as a halving of Drax’s current subsidies. But this reporting is based on a series of convenient assumptions around future energy prices and inflation, and doesn’t give the full picture.
Drax is subsidised based on agreement from the Government that they will always be paid a fixed amount for the energy they generate. If energy prices are low, they are paid more in subsidies; if they are very high, and Drax are selling their energy over a certain threshold, then Drax have to pay this back.
(Side note: Drax have many times idled their generation at peak energy price times, when they would have had to pay this back, effectively scamming bill payers of further millions.)
This agreement set the price threshold (or “strike price”) much higher: twice as much per unit energy as wind subsidies. This could mean Drax being paid even more than their current agreement. Effectively, Drax will be paid a lot more for doing a lot less than before the new agreement.
The subsidies from 2027 will still come from our energy bills, a regressive system where the poorer pay more to line energy companies pockets.
Supply chain emissions
In this announcement, the government has boasted that is has reduced the level of carbon emissions allowed within the subsidised supply chain. The reality is very different.
The new cap on supply chain emissions is four times what it was in 2018, and is set above Drax’s current emissions: so will therefore have no impact whatsoever. This is simply media spin.
Energy Security
The government stressed in the announcement that Drax is necessary for energy security. However, this goes against the findings of the recent report from E3G which demonstrates that it is possible, and indeed cheaper for Drax to switch off in 2027. A system that relies on imported wood inherently undermines UK energy security.
Carbon Capture and Storage (BECCS)
Drax have spent years pushing a narrative to be granted up to £43 billion in further subsidies for building BECCS at Drax, which is an unproven technology that could see Drax Power Station continue to burn trees until as late as 2050.
The Government has said that this decision was made on the basis of energy security, not the future potential of BECCS. They have now committed to a review of the role of BECCS in the future energy system which is good news and a marked shift from previous narratives.
What does this mean?
What does this mean for frontline communities?
Drax Group owns, runs and is a customer to many wood pellet factories in the Southern USA, Canada and other sourcing countries. These factories create toxic fumes that poison whole communities.
The government did not even mention this.
Although Drax Power Station (owned by Drax Group) is the biggest tree burning power station in the world, it is not the only one. Drax sells pellets globally, and is actively looking for new markets, pushing for other countries like Japan to expand tree burning power stations. It is likely that this new deal will decrease the demand of pellets to Drax Power Station here in the UK, but this will not necessarily change the reality on the ground for these communities.
The reality is that this announcement represents a multi-billion cheque into a company which is happily suffocating whole communities for profit.
What does this mean for trees?
In the reduction of subsidised energy generation from burning trees from 2027 to 2031 will likely reduce the rate of wood burnt. However, there is nothing in the announcement to legally mandate a decrease in tree burning, only a change in the way cash is injected into Drax.
Drax also owns wood pellet factories outside of the UK, in places like the southern states of the USA (see above). It is in Drax Group’s interest to continue felling, chopping and chipping trees at its current rate to sell on even if less wood does go to Drax Power Station from 2027. They now have government backing to keep the business afloat for a further 6 years while they create and find markets to sell wood pellets, for example in (not) Sustainable Aviation Fuels; which they recently agreed a deal for worth 1 million tonnes of pellets
What does this mean for carbon emissions?
This decision by the Government makes no mention of Drax’s carbon emissions, and continues classifying woody biomass as a low-carbon fuel. This is despite burning trees at Drax emitting more carbon than burning coal per unit of energy.
Under the agreement, Drax Power Station will only be subsidised on 27% of their generation capacity, or half of what they are being subsidised for now, from 2027 to 2031. If, and only if, energy market rates stay within an average range, and it would not be profitable for Drax to burn non-subsidised trees, then this could significantly decrease emissions at Drax Power Station from 2027 to 2031.
But even with the decrease of emissions, what comes out of Drax’s chimney is not going to be counted by the government in their targets, and as discussed above, Drax are actively trying to expand into burning trees elsewhere.
What does this mean for energy bills?
The current subsidy arrangement, and the new one from 2027, have a regressive model of taking money from a levy on our energy. This means those struggling the most are the ones that pay the price.
Subsidies are tied to a few factors: a “strike price” set by the government, how much Drax are generating, and how much Drax can sell their energy to the grid for. This agreement set the “strike price” much higher: twice as expensive as wind subsidies. This could mean Drax being paid more than their current agreement, despite a decrease in subsidies generation. Effectively, Drax will be paid a lot more for doing a lot less.
What does this mean for workers?
Drax Power Station is old, and despite the government pumping more money into Drax, this announcement has shown the beginning of the end for this tree burning power station.
From 2027, Drax will not need to generate as much electricity to still make a profit. Inherently, this will require fewer workers at Drax, but the government mentioned nothing of a worker-led and just transition. Drax has shown time and time again the lives and jobs of their workers matter very little next to their bottom line, even dragging their feet on a 50p / hour pay raise demand for 19 of their workers for months.
Drax cannot be trusted with workers rights, and we need a commitment from the government about a genuinely just transition for workers.