Drax abandons plans to build 3.6GW of new gas generation

Drax has abandoned plans to build up to 3.6GW of new gas generation at its power station in North Yorkshire.

The company originally intended to repurpose the steam turbines for its two remaining coal units to create two sets of combined-cycle gas turbines (CCGTs), each with a capacity of up to 1.8GW.

A development consent order for the project was granted by the secretary of state for energy in October 2019 and was twice upheld by judges following legal challenges by the environmental law ClientEarth, most recently in the Court of Appeal.

The decision to scrap the scheme comes after Drax agreed in December to sell the fleet of four combined-cycle gas turbines that it bought from Scottish Power at the end of 2018 to a subsidiary of the Dutch energy company Vitol.

The company also signed a deal earlier this month to buy the Canadian biomass pellet producer Pinnacle Renewable Energy, more than tripling its current production capacity to 4.9 million tonnes per year.

“We are announcing today that we will not develop new gas fired power at Drax,” said Drax Group chief executive Will Gardiner.

“This builds on our decision to end commercial coal generation and the recent sale of our existing gas power stations.

“The proposed acquisition of Pinnacle Renewable Energy will position Drax as the world’s leading sustainable biomass generation and supply business, paving the way for us to develop bioenergy with carbon capture and storage (BECCS) – taking us even further in our decarbonisation.”

Speaking to Utility Week, Drax Group chief financial officer Andy Skelton said: “The decision was a combination of financial, strategic and environmental considerations. We had always said we would only develop that project with the right kind of Capacity Market support and clearly that’s not been where it’s needed to be.

“The exciting thing for us is we’re making great progress on our ambition to a carbon negative company by 2030 and helping the UK hit its climate change net zero targets. We’ve sold our gas power stations earlier this year – that was concluded in January – and we’re coming off coal at the end of March.”

“The Capacity Market has cleared at lower prices and that hasn’t been at a rate we would take in the past,” he added. “I think financially, though, you have to look forward as well as to where the best investments are and we’re very excited about BECCS”.

As to what will now happen with the coal units, Skelton said: “I think if we were to deliver BECCS at the power station, initially we’d looking to do that on up to two units and we’ve the capability to do four, so I don’t think there’s any need to be developing the two [coal] units to biomass right now.”

He continued: “Those two units – we’ll make them safe and we’ll decommission them properly but there are no immediate plans to do anything with those.”

The development consent order for new gas generation at the Drax power station also covered up to 200MW of battery storage. Skelton said the company likewise has “no imminent plans” to develop this storage but added that “batteries are something that are of interest and something we continue to look at and research”.

Skelton said Drax is still planning to bid the four open-cycle gas turbine projects it acquired in 2016 into the upcoming Capacity Market auction: “Those projects are very different. They don’t run baseload and actually they provide very important system support in a system that increasingly needs that… When the wind’s not blowing and the sun’s not shining then something needs to be there to balance the system.”

Earlier today, the climate change think tank Carbon Tracker published a report warning that the planned construction of 14GW of new CCGTs risked creating £9 billion of stranded assets as the same energy and services can now be provided more cheaply using a portfolio of clean energy assets.

Report author and head of power and utilities at Carbon Tracker, Catharina Hillenbrand Von Der Neyen, said: “Of the 14 GW CCGT pipeline highlighted in our report, the Drax complex was the largest.

“This clearly underlines how power companies are waking up to the reality of the unfavourable economics of new gas plants and making the right investment decision by shelving their plans.”

The decision was also welcomed by ClientEarth lawyer Sam Hunter Jones, who commented: “Drax’s decision to scrap development of what would have been Europe’s largest gas plant is a massive win for the UK and the climate.

“Just as the coal era is long gone, what Drax’s statement today makes clear is that time is up for building any new large scale gas power plants in the UK,” he added.

“However, we need to see Drax embrace truly low-carbon and sustainable energy, rather than continuing to bet big on unsustainable biomass.

“Drax relies on an outdated loophole to burn giant volumes of high carbon wood using billions of pounds in subsidies and without paying carbon taxes. And its claims of sustainability are at odds with the reality of the carbon cycle as well as forest and biodiversity loss.

“The science is clear about the inconsistency of large-scale wood burning for power with meeting our climate goals and protecting the planet’s essential forests. Recent reports of Drax’s wood pellet production causing toxic pollution and burning gas to dry the pellets only adds to the absurdity.”

Financial results

The announcement was made as part of Drax’s financial results for 2020, which showed adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rising by £2 million year-on-year to £412 million. With the earnings from the gas plants it sold excluded, the figure was down £5 million to £366 million.

However, the company reported an unadjusted operating loss of £156 million – down from a £48 million profit in 2019 – and a statutory pre-tax loss of £235 million, primarily due to a £239 million write down on its coal units and other assets.

Skelton said the acquisition of Pinnacle Renewable Energy will eventually allow Drax to self-supply 3.5 million tonnes of biomass pellets each year, putting it most of the way towards its target of reaching 5 million tonnes per year by 2027. He said the remainder of the target is likely to be met more through “organic growth.”

He said this could include the use of feedstocks other than wood “like sugarcane residues, sunflower husks, peanut shells, and we’re trialling a number of these at the Drax power station in the first half of this year – trialling the chemistry and trialling the handling. We do mix in other feedstocks today but at a lower proportion”.

“I think the challenge with some of this feedstock is it’s a bit stickier, so it’s sticks to the side of the boiler and the question is how you manage and handle that and really that’s what the trials are all around.”