Without Subsidies, Drax Would Be Broke
By Paul Homewood
Drax Power Station
As I reported earlier, there is much environmental concern about the sourcing of biomass for use at power stations like Drax. Whether biomass has any real value, either from a genuine environmental point of view, or even as a way to reduce emissions of CO2, must be highly doubtful.
But what makes matters even worse is the obscene cost of subsidising the process.
Last year, Drax had two biomass units operating, together with four coal units. These biomass plants rely on Renewable Obligation Certificates, or ROCs, to make any profit, and, as the Annual Accounts show, the value of these ROCs is critical for the profitability of the group as a whole.
LECs refer to Levy Exemption Certificates, which Drax used to earn when Biomass generation was exempt from the Climate Change Levy, CCL. This exemption was removed by the Government last August, and is understood to be worth about £30 million in 2015. The ROCs are therefore likely to be worth about £420 million to Drax.
This subsidy accounts for all of the Gross Profit. But much worse for Drax, since GP does not include operational and other costs, without the ROCs, the company would actually be trading at an unsustainable loss.
As the group accounts show, profit before tax only amounted to £59 million last year. Without the ROCs, this would have been a loss of more than £300 million.
Last year, Drax produced 11.5 TWh of bio power (out of the UK total of 18.5 TWh), so the ROCs would be worth in the region of £36/MWh. They also have plans in hand to convert two more units to biomass, which will attract a more generous subsidy under the CfD system.
Under this, they will earn a guaranteed and index linked price of £105/MWh (at 2012 prices, so currently worth about £110/MWh). By contrast, their Annual Accounts show an average price of £49.40/MWh for power sold in 2015. (Currently, this subsidy is under EU investigation).
Given just how critical these subsidies are to the whole viability of Drax, which claims to supply about 8% of the UK’s power, it is easy to see why both they and DECC are so keen to sweep any potential environmental concerns under the carpet.
As their Annual Accounts also state, if they don’t meet the sustainability standards, they won’t get any ROCs.
And no ROCs, no Drax.