Drax received more than £800m in biomass subsidies last year - with no obvious climate benefit

by | Feb 25, 2021

Today’s financial report from Drax, Europe’s largest biomass power generator, shows the extraordinary scale of the public subsidies the company is receiving. [1]

In 2020 Drax earned £832 million (2019: £790m) in direct government subsidies to biomass, whilst also benefiting from multi-million pound carbon tax breaks – which Ember calculates amount to an additional £258 million in 2020 (2019: £246m).

Biomass generation is currently considered as carbon neutral in UK law – but a growing weight of scientific evidence has overturned this assumption. The European Academies Sciences Advisory Council (EASAC) now states that using woody biomass for power “is not effective in mitigating climate change and may even increase the risk of dangerous climate change.” [2] The Climate Change Committee recommends the UK moves away from using biomass for power without CCS  [3] – and yet biomass use is increasing in the UK power sector, and now generates 12% of total electricity.  

Direct subsidies to biomass

Drax receives subsidies in the form of £490 million ROCs (Renewables Obligation Certificates) and £342 million from a CfD (Contract for Difference) – changing each year dependent on the amount of woody biomass it burns. Ember calculates that from 2012 until 2027, when this support runs out, Drax will have collected more than £10 billion in subsidies. This figure is all the more extraordinary considering wind and solar generation, which guarantee real emissions reductions, are now effectively subsidy free, and therefore represents a very poor use of public funds.

The biomass carbon tax exemption

Unlike other large thermal generators, biomass power plants do not pay for their carbon emissions. This is because biomass is assumed to be inherently carbon neutral under the EU Emissions Trading System (and now the UK ETS) and the UK Carbon Price Support. That assumption, however, is not supported by the weight of recent science, or by data provided by power plant operators themselves.

“Labelling forest biomass as renewable has a perverse impact on the climate. Much of the biomass employed in Europe is anything but carbon neutral. Current accounting rules under the emission trading scheme let certain power plants and countries shine as climate pioneers although they actually damage the climate”

Prof. Michael Norton

Environment Programme Director, EASAC, Emissions Trading System: Stop Perverse Climate Impact of Biomass by Radically Reforming CO2 Accounting Rules

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.

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).

“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.”

Phil MacDonald

COO and Lead UK Analyst, Ember

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.

 

1. Drax (25th Feb 2021) Full year results and investor presentations
2. EASAC (Jan 2021)
3. 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.”

Notes 

  • 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.

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