The Drax gas plant is dead

Drax has reportedly dropped its plans for an enormous new gas plant – but many other developers are still hunting for government subsidies to build theirs.

Phil MacDonald

Managing Director (Interim)

15 February 2021 | 3 min read

The Drax gas plant is dead but other new gas projects are a headache for the COP26 team.

Drax has reportedly dropped its plans for an enormous new gas plant – but many other developers are still hunting for government subsidies to build theirs. With the UK Climate Change Committee calling for a 2035 gas phase-out, and gas power in the UK steadily being replaced by wind, these projects are a waste of public money.

On top of the controversial new coal mine project in Cumbria, a fleet of new gas plants backed by the government would be another headache for COP26 President Alok Sharma.

Public cash for fossil gas

Drax’s new CCGT (Combined Cycle Gas Turbine) power plant was going to be the biggest fossil project in Europe at 3.6GW. The plant faced a series of legal challenges, brought by ClientEarth. On Wednesday, the Evening Standard reported the project is now set to be cancelled.

Though the biggest, Drax was not the only company planning new gas. On March 9th the government will again be holding a subsidy auction (specifically, the T-4 Capacity Market, which will help subsidise the firm capacity BEIS believes it needs from 2024-2025 to ensure security of supply). More than 9GW of new gas power projects have prequalified, meaning they can compete for funds from the UK taxpayer. For comparison, the UK currently has 33GW of gas capacity. Any of these new projects going ahead would be likely to face legal challenges too – and if they do get built, with a UK gas phase-out coming soon, the projects could be receiving public funds long after gas burning has been banned.

Of the gas bidding for subsidy, 5.7 GW are CCGT similar to the Drax project. These are expensive to build and have a 25 year lifetime, and are designed to run regularly (high-utilisation rates), so are a particular risk for locking in the UK to fossil fuel power. Given the UK’s plans to generate the bulk of its power from wind in little over a decade, these projects look peculiarly anachronistic.

As well as the 5.7GW of CCGT projects (in red on the map), 2.1GW of OCGT (Open Cycle Gas Turbine) plants are looking for subsidy (in grey on the map). These plants are less efficient, generally smaller, and would not be expected to run very often, only generating electricity at times of peak demand. Drax itself still has 4 OCGT projects bidding in the auction, making up more than half of the planned OCGT capacity. In addition there is ~ 1.3 GW of very small capacity, mostly from gas engines (not shown on the map).

Carbon capture loophole

Why do so many of the projects have a capacity of 299MW? Because 300MW is the threshold for projects to show they are ‘ready’ for Carbon Capture and Storage. The regulation is weak, but it means they have to demonstrate some basic attempts to prepare for future conversion to CCS.

CCS is in its infancy, and not yet operational in the UK. Storage sites for carbon have already been identified under the North Sea and Teesside and Humberside are possible ports from which a CCS pipeline could run. Even of the projects which are above 300MW and so legally must be “CCS-ready”, most aren’t near possible CCS sites, and so have little prospect of being made compatible with a future gas phase-out.

A UK gas phase-out by 2035

In the recent Sixth Carbon Budget, the UK Climate Change Committee recommended a 2035 unabated gas phase-out and suggested the government commit to this by the end of 2021. The new gas projects are bidding for subsidy contracts which would last 15 years from October 2024, meaning a power plant which wins a subsidy contract now would either have to cease operation after little more than a decade of operation – or convert to run on hydrogen or with Carbon Capture & Storage (CCS).

Following controversy over the planned new coal mine in Cumbria, the government is setting itself up for another headache by subsidising a fleet of new gas power stations in March. What’s worse, the new gas capacity (especially the CCGTs) could be obsolete before it starts generating, with fast deployment of cheap wind & solar providing the bulk of the electricity the UK needs.

The sooner the government makes a commitment to phasing out gas power, the less taxpayer and investor money will be wasted on fossil gas. The UK should seize the opportunity for a gas phase-out commitment before COP26, and demonstrate to the world that an advanced economy can run entirely on carbon-free power.

Explainer: What is the capacity market?

The UK Government introduced the Capacity Market to reduce the risk of future electricity blackouts – for example, during periods of low wind and high demand. The Capacity Market makes payments to reliable capacity to ensure that enough is available at times of system stress. The payments encourage investment in new capacity and provide an incentive for existing capacity to remain open.

Capacity Market payments are supplementary to other sources of revenue such as electricity sales. Competitive auctions are held to determine which combination of new and existing capacity will meet the system requirement at the lowest cost to consumers. Nearly all of the required capacity for a specific year is procured at auction four years in advance – this allows sufficient time to build any new capacity required. These auctions are referred to as “T-4” auctions.

This year’s T-4 Capacity Market Auction will be held on the 9th March 2021, capacity will be procured for the period October 2024 to September 2025.

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