Drax posts bumper profits, confirms carbon capture plans in the US
Energy generator Drax, best known for its coal and biomass power generation in North Yorkshire, has posted a steep increase in annual profits. It has also confirmed that it is assessing more than 10 carbon capture project sites in the US.
Drax posted its full-year results for 2022 on Thursday (23 February). They confirm that the business made a net income of £731m last year, up from £398m the year prior. This is despite the fact that Drax provided less power to the grid in 2022 than in 2021.
Many energy generation businesses have been posting record profits in recent weeks, including BP, Shell and Equinor. Social justice campaigners have been pointing out that this is largely due to the rising price of energy globally in recent times, borne mainly from Russia’s war in Ukraine which began one year ago this month. While price rises have been steepest for oil and natural gas, low-carbon power generation has also been impacted – particularly in places like the UK, where wholesale low-carbon power costs are still determined in part by gas pricing.
Drax also used its annual report to confirm more information on plans to scale its biomass with carbon capture and storage (BECCS) approach globally. BECCS involves burning biomasss – in this case, wood pellets – to generate electricity. Most of the resulting process emissions are then captured using man-made technologies.
BECCS technologies have been in place at Drax’s Selby power plant in North Yorkshire since February 2019 and have been scaling up in stages ever since. Drax intends to bring its first full-scale BECCS unit online at the site in 2024 at the earliest and add a second by 2030, capturing eight million tonnes of CO2e annually.
Drax has now confirmed that it is assessing at least 10 sites in the US for potential BECCS project development, with the first site already chosen. It has signed a Memorandum of Understanding with a large timber supplier to source wood pellets for this site, and also signed its first Memorandum of Understanding for
“Following the introduction of the US Inflation Reduction Act, we are increasingly excited about the opportunities to deploy BECCS in the US,” said Drax’s chief executive Will Gardiner.
The Inflation Reduction Act, passed last summer, details more than $360bn of spending and subsidies for climate adaptation programmes and technologies to reduce emissions, including renewable energy, electric vehicles and carbon capture.
Gardiner is calling on the UK Government to respond to the Inflation Reduction Act with its own accelerated policy support for net-zero targets. Of course, he wants more support for biomass and BECCS to be included in any British version of this policy package.
Chancellor Jeremy Hunt may well use next month’s Spring Budget to propose the UK’s response. He has stated that
Cost and climate concerns
Drax’s announcements have prompted fresh criticism from groups who argue that the Government should intervene to prevent energy majors from taking outsized profits at a time when many are struggling to pay their energy bills. It has also reignited debate about the climate credentials of burning wood pellets, which Drax claims is a “renewable” energy source.
Cut Carbon Not Forests claims that Drax received some £893m of subsidies from the UK Government in 2021. Its poll of 2,005 adults in the UK found that 62% do not believe the Government should subsidise the biomass industry. That same poll found that only 13% of people would call wood pellet burning “renewable”, “low-carbon” or “green”.
Conservative MP Pauline Latham is supporting the campaign group. She said: “The Government pays significant sums in renewable energy subsidies to bioenergy companies making sizeable profits, despite it releasing huge amounts of greenhouse gases and harming forests’ ability to absorb carbon.
“This directly costs billpayers and families through their energy bills. In the context of the cost of living crisis, the Government should be looking into these subsidies and ensuring they are used for proven renewable energy sources and energy efficiency measures, rather than harming nature.”
Fellow Tory MP Sally-Ann Hart has expressed similar concerns, as has SNP MP Tommy Sheppard, who accused Drax of continual “greenwashing PR stunts”.
It’s not just green groups that are concerned about how Drax explains its climate and forest impact. December 2021 saw Citi downgrading Drax, because it does “not fundamentally see biomass as a sustainable source of energy.” Additionally, S&P Global removed Drax from its also in late 2021, S&P removed Drax from its Clean Energy Index.
Drax maintains that its wood pellet supply chain, which is largely concentrated in the US, uses sustainable sourcing methods and that it includes value chain emissions in emissions accounting. In posting its results this week, Drax has continued to call its biomass power “renewable” and stated a mission to be “at the heart of the energy transition, creating the jobs, renewable power and large-scale carbon removals that the world needs.”
It’s a busy week for news from Drax, with workers at three of its hydro-electric power plants in Scotland having voted to take strike action over pay. The strike will be planned for mid-March and will not impact power generation.
The strike is orchestrated by members of Unite the union, who have rejected an 8% increase in pay. They argue that, with profits nearly doubling, staff should at least be offered an increase that matches inflation.
Unite’s general secretary Sharon Graham said: “Energy workers’ pay is lagging well behind the eye-watering profits being made across the sector.
“Drax’s parent group is awash with tens of millions in profit. Yet, Drax Hydro workers have been offered what amounts to a significant real terms wage cut, this is totally unacceptable. We will fully support our members in their fight for better jobs, pay and conditions.”
Drax has argued that because the deal would be backdated, employees would see a 10% increase in pay this year. It has stated “deep disappointment” in the employees’ decision to strike and stated that it is open to further dialogue with Unite.
Drax is notably planning to add 600MW of underground pumped storage hydropower capacity at its Cruachan Power Station, in what would be the first major pumped storage project in the UK in more than 40 years.