Drax’s BECCS project climbs in cost to the UK public
Rising costs of wood pellets mean the subsidy required for Drax’s BECCS plant could reach £1.7bn each year
Tom Harrison Analyst
UK energy bill-payers have already given Drax billions to burn wood for electricity, a practice that is unlikely to be carbon neutral and in fact could be a significant source of emissions that contribute to climate change. If Drax’s BECCS project goes ahead, the UK energy consumer could be locked into decades of even higher bills without any guarantee that the negative emissions they are paying for are actually being delivered.
Supporting Material
Methodology
Establishing the future cost of wood pellets
The biggest uncertainty in forecasting the cost of a BECCS project is the future price of wood pellets. The wood pellet market is far less liquid than many other commodity markets with many private bilateral deals between companies. As a result market price data for wood pellets is less transparent than for other commodities.
We have based our future wood pellet price on the forward price projections of Argus Media which forecasts prices out to 2026. We take a price of $235 per tonne (this is the mean of the ‘bid’ and ‘ask’ prices for North West Europe in 2026). These price projections are from January 2023 and are the latest publicly available data from Argus Media.
Calculating a levelized cost of electricity (LCOE)
In 2018 the UK Government calculated the LCOE of BECCS based on three scenarios – Low, Medium and High – of future wood pellet ‘fuel cost’ (given in units of £/MWh rather than $/t). The three scenarios and the corresponding LCOE are given in the table below.
| Scenario | Fuel cost (£/MWh)* | LCOE (£/MWh) |
| Low | 49 | 149 |
| Medium | 82 | 181 |
| High | 131 | 230 |
To find the appropriate fuel cost assumption we use the following factors to convert wood pellet price projections from $/t into £/MWh:
- A US dollar ($) to GBP (£) currency exchange rate of 0.8
- A wood pellet heating value of 17 GJ/t (0.2117 t/MWh)
- A BECCS plant net efficiency of 30.6% (as per UK Government documentation)
When these factors are applied to our 2026 wood pellet price projection of $235/t we find a fuel cost of £130/MWh. This is in-line with the UK Government’s ‘High’ fuel cost scenario and corresponds to a BECCS LCOE of £230/MWh.
* In the UK Government documentation, the fuel costs scenarios are given for wood pellets ‘pre-combustion’ as follows: Low £15/MWh, Mid – £25/MWh, High – £40/MWh. The costs presented in this table have been converted to wood pellets ‘post-combustion’ using a BECCS net efficiency of 30.6%.
Calculating Drax’s annual subsidy
We assume that Drax would seek a Contract for Difference (CfD) to top-up the difference between the LCOE and the wholesale electricity price (although it should be noted that Drax would also seek compensation through a negative emissions market). According to UK Government documentation, the projected mean wholesale price of electricity between 2025 and 2040 is £62/MWh. Drax would therefore require a top-up subsidy of £168/MWh to operate their BECCS plant.
Drax have expressed their ambition to convert all of their four biomass-burning units to BECCS. The mean generation output of Drax’s four units over the past five years for which most recent data is available (2018-2022) is 13.8 TWh. The carbon capture component of a BECCS project uses a significant amount of electricity, which Drax estimates will reduce usable capacity by ~25% (this figure is taken from ‘Baringa Partners LLP (2021), Value of Biomass with Carbon Capture and Storage (BECCS) in Power – Summary Report’ which until recently was available from the Drax website).
As a result we assume the annual generation output of Drax’s BECCS project to be 10.3 TWh.
Therefore, to run its four BECCS units profitably, Drax would require an annual subsidy of £1.73 billion.
A note on long-term wood pellet prices
While current and near-term forward wood pellet prices suggest the UK Government’s ‘High’ fuel cost scenario should be used to calculate the annual required subsidy for Drax’s BECCS project, these elevated prices may ease in the long term. However, analysis from the Climate Change Committee suggests that, due to rises in the value of carbon as part of the UK’s efforts to meet its 2050 net zero commitment, the price of wood pellets could rise to an equivalent of £390/MWh (£33/GJ) – triple our estimated fuel cost. This would of course result in the cost of Drax’s BECCS project to inflate even further. Hence, our estimate of a £1.73bn annual subsidy could be an underestimate.
A note on UK government estimates for the cost of carbon capture and storage
There are no examples of commercial scale BECCS plants elsewhere in the world, and only a handful of carbon capture and storage (CCS) plants, so we recognise that estimates from the UK government and other institutions come with a very significant degree of uncertainty. The CCS projects that are in existence do suggest actual costs are likely to be much higher than we have indicated here.
Acknowledgements
Credit: Les Gibbon / Alamy Stock Photo
In an earlier version of this article the CfD price cap for offshore wind was given as £73/MWh as stated on the UK Government website. However, this figure was in 2012 prices and has been updated to current (December 2023) prices according to the Bank of England’s inflation calculator.
Thanks to Dr Daniel Quiggin from Chatham House who provided the underlying research into wood pellet prices and the impact these prices may have on costs and subsidies.
Drax, the world’s largest burner of woody biomass, receives hundreds of millions of pounds in subsidies each year to fund its operations. In 2027 the UK will end its support for burning unabated biomass to generate electricity.