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EU To Investigate Biomass Subsidies For Drax

January 8, 2016
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By Paul Homewood  

 

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http://www.telegraph.co.uk/finance/newsbysector/energy/12082623/Blow-to-Drax-biomass-plan-as-EC-launches-state-aid-investigation.html

 

Whoops!!

Hot on the heels of an EU investigation into subsidies for Hinkley Point, comes one into biomass subsidies for Drax, as the Telegraph report:

 

Drax’s hopes of securing lucrative subsidies for its biomass conservion have suffered a setback after the European Commission launched a full state aid investigation over concerns the payments may be too generous.

The Yorkshire-based power plant is in the process of switching from burning coal to biomass, and was awarded a £1.7bn Government subsidy contract in April 2014 for the third of its six units – subject to state aid approval.

The contract would see Drax paid a fixed price of £105 for every megawatt-hour (MWh) of biomass-fired power the unit generated until 2027 – well over double the current market price.

Drax shares fell 5pc on Tuesday after the European Commission said it was concerned that the rate of return from the subsidies "could be higher than the parties estimate and could lead to overcompensation".

It was also concerned that the "considerable" volume of wood pellets the unit would burn each year – about 2.4 million tonnes, mostly imported from United States and South America – would be so great as to "significantly distort competition in the biomass market".

It said it had "opened an in-depth investigation to assess whether the United Kingdom’s plans to support the conversion of part of the Drax coal power plant to operate on biomass are in line with EU state aid rules".

Drax has already largely converted the unit in question, which now runs on about 85pc biomass. This enables it to qualify for lesser subsidies, estimated to be about £80-£85/MWh, through another scheme called the Renewables Obligation.

The significantly more lucrative subsidy contract that is currently under EC scrutiny would require 100pc conversion.

Drax shares had been boosted last month when another biomass conversion project at Lynemouth got the green light from the EC for a comparable subsidy contract.

But Drax had cautioned at the time that its project had "different underlying technical and economic assumptions".

The EC said it believed that "estimates of the plant’s economic performance may be too conservative".

Combined with its fears over market distortion, it said it was "concerned that on balance the measure’s negative effects on competition could outweigh its positive effect on achieving EU 2020 targets for renewable energy".

Drax said the opening of the investigation was "in line with expectations".

A spokesman added: “We welcome this announcement as the next step towards the full conversion of our third generating unit from coal to sustainable biomass.

"A positive outcome will result in half our power station running on biomass. This will improve the security of UK electricity supply and, in saving more than 12 million tonnes of carbon per year, play a critical role in helping the UK meet its climate change targets.

“We will continue to work hard to complete this State Aid clearance process as quickly as possible and make the case for converting the remainder of our power station.”

John Musk, an analyst at RBC Capital Markets said he believed that "the additional scale and greater thermal efficiency at Drax" meant it was always likely to get a lower subsidy price than Lynemouth.

He said that "the returns at £105/MWh were always too high". This had now been "brought into even more stark contrast" because earnings through the alternative subsidy option, the Renewables Obligation, had been reduced to around £80-£85/MWh as a result of falling wholesale power prices and other Government changes.

A similar in-depth state aid investigation was held into the proposed Hinkley Point nuclear plant. It was eventually approved, but with changes imposed by the EC to try to lessen the risk of the subsidies being too high.

8 Comments leave one →
  1. January 8, 2016 12:37 pm

    It is a pity that only the subsidy issue is being addressed, as the green subsidies are totally obfuscating the real economics of power generation. It is clear to any engineer that burning wood is less efficient than burning coal and the idea that transporting massive volumes of wood and dry-storing this is much worse than growing trees to replace the carbon in the coal.

    Would need to grow about 2.2 tonnes trees per tonne coal burned for carbon equality: but in power generation each tonne coal displaced needs over 5 tonnes new trees to be grown for real carbon reduction, i.e. CO2 emissions as if no generation occurred.

    If our Government are CO2-mad enough, we could pay the Americans to grow forests for us at 2.2 tonnes / tonne coal burned, and cut out the transport and storage while burning the lowest cost fuel available for power generation.

  2. NeilC permalink
    January 8, 2016 1:31 pm

    What do WWF and FoE have to say about pretending to save the planet and at the same time destroying thousands of species which inhabit the hundreds of thousands of acres of forests which need to be cut down?

    Oh, the insanity of the green way of thinking!

    • January 8, 2016 1:44 pm

      Don’t forget the ubiquitous Sierra Club. The environmentalists’ precious wind turbines are killing thousands of bats in WV. There are a number of bat species which are unique to the area and thus threatened by already small numbers. I whould also mention that the bats are being hit hard by the “white nose fungus.” However, there is only crickets chirping. Every time some private entity wants to cut some timber, there is a hue and cry from these “keepers of the light,” but, when a European socialist country (Germany) wants to remove all forests along our southern river bottoms, have at it. Again, crickets chirping–if any are left.

    • Doug Brodie permalink
      January 8, 2016 3:16 pm

      In fact even Friends of the Earth have said that burning pristine plant biomass to “save” CO2 is a nonsense, see
      http://www.foe.co.uk/resource/press_releases/biomass_risks_driving_climate_change_22082013

      • David Richardson permalink
        January 8, 2016 8:17 pm

        Trouble is Doug – that’s not what they said originally – Just like bio-fuel they told (no demanded) governments use this approach.

        In common with much other stuff we discuss here, it follows the same patttern ranting at anyone who said it was a bad idea, then they eventually fall into line, while denying (sorry) that they thought it was good idea at all.

    • David Richardson permalink
      January 8, 2016 8:31 pm

      I think most of us see ourselves as Green – none of us think polluting the planet is a good thing. What you are seeing now in the States and in Germany is a battle starting between the real Greens and the “CO2 cutters at all costs”.

      It is like belonging to any religion or political party. You are expected to disconnect your brain and believe anything you are fed. It wonderful to watch some greens contort their thinking to fit in with the latest statement/excuse/rebuttal etc. from Green/Global Warming Central.

      As they say – 25 years ago greens were chaining themselves to trees – now they are burning them!!

      You couldn’t make it – but they did.

  3. Bitter&twsited permalink
    January 8, 2016 2:26 pm

    This is precious!
    Popcorn futures are the place to be.

  4. January 9, 2016 12:11 pm

    Reblogged this on ajmarciniak.

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