The extent of Drax's biomass subsidies
Drax received more than £800m in biomass subsidies last year - with no obvious climate benefit
About
Today’s financial report from Drax, Europe’s largest biomass power generator, shows the extraordinary scale of the public subsidies the company is receiving.
Executive summary
Biomass calls for caution
COO and Lead UK Analyst, Ember
Biomass burning is eye-wateringly expensive when compared with wind and solar. What’s worse, there’s a significant risk it’s not delivering for the climate – and may even be exacerbating the problem. The government now has an opportunity to look again at the tax system, and ensure biomass pays for its carbon emissions, just as coal and gas already do.
Subsidies for biomass
Is the UK putting its money towards real climate benefit?
The carbon tax exemption means biomass generators are receiving an unfair tax-break, diverting much needed funds away from other renewable sources like wind and solar which are guaranteed to be low-carbon (and are much cheaper).
Using a mid-range estimate for biomass carbon intensity (468gCO2-eq/kWh over a 40 year time horizon), Ember estimates the carbon tax break to Drax was £258m in 2020. Current sourcing rules for biomass allow for an enormous range of possible carbon outcomes, which leads to uncertainty as to how high the tax break is. At higher-end estimates of biomass emissions, the tax break could be up to £585 million in 2020.
Conclusion
More subsidies on the horizon
The government is now considering further multi-billion subsidy for biomass with carbon capture and storage (BECCS) in pursuit of the UK’s net zero emissions goal.
As biomass can no longer be assumed to be carbon neutral, more research is needed to understand the true scale of negative emissions BECCS can really offer. The government must only support large scale BECCS projects when a full life cycle assessment demonstrates they are net carbon negative within a timescale relevant to the Paris Agreement (i.e. a decade).
Supporting Material
Methodology
Notes
- For today’s (25th Feb 2021) financial report from Drax, see: Full year results and investor presentations
- The mid-range emissions scenario used by Ember to estimate the value of the carbon price exemption is the lowest found by the Spatial Informatics Group (2019) (A life cycle assessment of wood pellets from Drax’s pellet mills in the South-Eastern United States). The level is consistent with a mid-range outcome (389g CO2-eq/kWh over a 40 years) of the possible high carbon responses to an increased demand for wood pellets according to the UK government commissioned Ricardo study (2017) “Use of North American woody biomass in UK electricity generation: Assessment of high carbon biomass fuel sourcing scenarios”. The scenario in question is BEIS BEAC model scenario 4, the carbon impact over 40 years of electricity production from pellets produced from coarse forest residues in the South USA, continuously removed over the time frame, vs. a counterfactual where the residues are left to decay in the forest.
- For more information and for details on the methodology behind Ember’s calculations, please read the 2020 report The Burning Question.
- Drax also has some Scottish hydropower assets which receive ROCs. The amount is not declared in the financial reports but is less than <2.5% of the overall subsidy Drax receives.
References
1. EASAC (Jan 2021)
2. The Climate Change Committee (2018) Biomass in a low carbon economy “Most current uses of biomass do not sequester carbon and are in sectors where there are increasingly other viable low carbon alternatives. Current uses of biomass will therefore need to change. Over time, Government policies should assist a transition towards increased use of biomass in construction and BECCS, and away from using biofuels in surface transport, biomass for heating buildings, or biomass for generating power without CCS.”
Other large UK biomass power plants
Ember used ENTSO-E unit level data to estimate subsidies at the UK’s other large biomass power station which has not yet disclosed financial reports. The analysis reveals that subsidies awarded to Lynemouth power station increased by £12m in 2020 to a total of £175m. Lynemouth also benefited from the carbon price exemption by a mid-range estimate of £48m, bringing Lynemouth’s combined total of direct and indirect subsidy to £223m.
Taken together, Drax and Lynemouth power stations cost the UK in direct subsidy at least £1,007m in 2020.
MGT Teesside biomass power plant did not commission as expected in 2020, following a series of industrial disputes and the pandemic. It is now expected to begin generation in March, and begin claiming subsidies.
