A wood-burning power station called a “scam” by environmentalists has been awarded hundreds of millions of pounds a year in subsidies by the energy secretary, Ed Miliband.
The Drax biomass plant in North Yorkshire, Britain’s biggest power station supplying about 5 per cent of electricity, benefits from existing green-energy subsidies that expire in March 2027.
On Monday the government extended them by four years, but halved the amount the operator will receive through energy bills and imposed tougher environmental standards.
The package could be worth about £525 million a year, or about £2 billion over four years, based on the latest energy price forecasts, according to analysts at Cornwall Insight, a consultancy. The actual amount will depend on future prices.
However, the move has been heavily criticised by environmentalists who have branded Drax “a green-energy scam”, arguing its output should not qualify as renewable energy.
The former coal power station near Selby, which burns wood pellets from America and Canada, has faced mounting criticism for sourcing some of its fuel from forests. It is not economically viable without the green subsidy.
Michael Shanks, the energy minister, said the support was needed to help keep the lights on and it was cheaper than alternatives including trying to build gas-fired power stations. “The clear evidence is that Drax is important to delivering a secure, value-for-money power system in the period 2027 to 2031,” he said.
Shanks said the new deal would be tougher on Drax financially than existing arrangements which he said “simply did not deliver a good enough deal for billpayers and enabled Drax to make unacceptably large profits”.
Revoking subsidies for Drax would have made it harder for Labour to meet its flagship goal of 95 per cent of electricity supplied by low carbon sources in 2030. About 900 people work at the plant, and the government has made economic growth and “good jobs” a priority. The union Unite welcomed the deal.
However, Andrew Bowie, the shadow energy minister, said: “Biomass is not clean, nor is it cheap. Ed Miliband’s decision to subsidise Drax’s new biomass scheme will have the British taxpayer pay £450 million a year in subsidies to chop down wood in Canadian forests, ship it across the Atlantic in diesel-chugging ships, and burning it to release four times the emissions of coal.”
The Conservatives had previously been a staunch backer of Drax’s plans to add carbon capture and storage (CCS) technology to the plant. But the former energy secretary Claire Coutinho reversed the party’s policy in opposition, citing environmental damage and claiming the case for the scheme had “unravelled”.
The Green party called for the subsidy, which will be paid via household energy bills and not directly from taxes, to instead fund a national insulation scheme for Britain’s draughty homes. “Drax is a green energy scam, burning trees, some imported from ancient forests from as far away as Canada, subsidised by the taxpayer,” Adrian Ramsay, the Green party co-leader, said.
Rick Parfett, a senior policy adviser on climate at the conservation charity WWF-UK, said: “It’s deeply concerning to see taxpayer money continuing to flow to the UK’s single largest polluter when we know we can decarbonise the power sector without it.”
The new agreement aims to relegate the plant to a back-up role. Drax will be paid subsidies to operate for a maximum of 27 per cent of the time, “less than half as often as it currently does”, so that it will generate “only when it is really needed”, Shanks said. At present, it typically operates for about two thirds of the year, reaping hundreds of millions of pounds in subsidies.
The government said there would be urgent improvements in sustainability standards, requiring 100 per cent rather than 70 per cent of its woody biomass to come from sustainable sources.
Despite the tough talk from the government, analysts at Morgan Stanley said the terms of the deal appeared “attractive” and “more favourable than expected”. Drax Group’s share price rose by almost 6 per cent in early trading.
Drax will be guaranteed a fixed price of £113 for each megawatt-hour (MWh) of power it generates, adjusted for inflation from 2012 prices, which is expected to be worth £170/MWh by 2027. Analysts said that should easily cover estimated operating costs of £120/MWh.
There remains a question mark over Drax’s future and Shanks said that burning biomass without capturing the carbon emissions was “not a long-term solution”. However, Drax hopes to secure a fresh package of subsidies to enable it to install CCS technology at the plant by the early 2030s.
The government has offered only limited assurance that this long-term plan would materialise, saying there was “a potential role for bio-energy with carbon capture and storage” but that “realistically this will take time to implement”.
Will Gardiner, the Drax chief executive, said the deal was “an investment in UK energy security, which will result in a net saving for consumers and support the delivery of clean power by 2030”.
He added: “The size, flexibility and location of the power station makes it important for UK energy security and the proposed agreement helps protect the jobs and skills of today and the future, creating options for billions of pounds of investment in growth across Britain, including the development of large-scale carbon removals and data centres.”
A report due on February 26 from the Climate Change Committee, the government advisory body, is expected to show the need for carbon removal technologies, such as those proposed by Drax.
