Drax to axe future White Rose CCS plans

Generation giant Drax has said it will not continue with plans to develop the White Rose carbon capture and storage (CCS) project beyond the initial development phase, blaming the government’s shift in energy policy.

The coal generator said it will complete its work on the feasibility and technology development stage of the ambitious scheme alongside its project partners, but will withdraw from the consortium once complete.

“We are confident the technology we have developed has real potential, but have reluctantly taken a decision not to invest any further in the development of this project,” said Drax operations director Pete Emery.

“The decision is based purely on a drastically different financial and regulatory environment and we must put the interests of the business and our shareholders first,” he added.

Analysts said the decision to opt out of the project is “not a great surprise” given the regulatory uncertainty faced by companies reliant on green subsidies.

“It doesn’t come as a surprise that the company seems to be losing faith in the government’s commitment to renewable targets,” Citigroup analysts said.

Drax is in the process of converting its coal-fired power generation units to biomass, with two of the three reliant on subsidies through the government’s Renewables Obligation (RO) regime which has suffered multiple blows following the Conservative Party victory in the May general election.

In addition Drax took a heavy multi-million pound hit following the government’s decision to scrap the levy exemption certificates (LECs) previously offered to renewable generators. Market experts at Icis said the move could cut £5.54/MWh of revenue for renewable generators which would hit Drax particularly hard given the huge 7 per cent contribution the plant makes to the UK’s overall generation mix.

“The decision is likely to also be seen, in part, as retaliation against the UK government which is keen to have CCS in the future energy mix,” suggested analysts at RBC Capital.

However, abandoning the CCS plans is unlikely to leave a huge dent to the company’s bottom-line. Citigroup estimates its current investment in the project at £3 million and given its peripheral importance to Drax’s business activities it is not expected to have a significant negative impact on the company’s financial outlook.

Drax said in a statement on Friday morning that it will allow its consortium partners Alstom and BOC to continue to use the White Rose site to advance the project.