How Drax Are Maximising Their Subsidies
By Paul Homewood
Drax Power Station
My post on wind power costings has generated some comments about the Drax biomass operation.
Drax has four units converted to biomass. One of these, Unit 1, is covered by CfD subsidies; it has 645 MW capacity. There are three other units of the same capacity, which are still subsidised by Renewable Obligations (RO).
It has been my suspicion for a while that Drax is optimising output at the RO units, which benefit from sky high power prices on top of subsidies worth around £100/MWh. On the other hand the CfD unit only earns £126.37/MWh in total, regardless of the market price. There is nothing illegal about this of course, it is simply good business practice.
Nevertheless it is quite astonishing to see how little it has been suing its CfD unit in the last few weeks:
According to the official Low Carbon Contracts Company data, the unit has virtually produced no electricity at all in November. And output only resumed on Dec 5th. The capacity of Drax 1 is 15480 MWh per day, so even then the unit was running well below half of it capacity.
I do not know how much its ROC units have been producing. But total GB biomass has been running at around 2GW in the last month. The overwhelming majority of this is Drax, which suggests that their three ROC units have been running flat out.
I repeat, there is nothing illegal about any of this. But it does highlight how badly our renewable energy subsidy mechanisms have been designed in past years. And it is energy consumers who are paying the price.
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NOT A LOT OF PEOPLE KNOW THAT 
It beggars belief that the government and its civil servants are so hopeless at drafting these agreements. Us poor consumers are hung out to dry. Incompetence is all around.
Brown envelopes.
Civil servants believe they are far more clever than anybody else and that they can accurately forecast for years ahead, things like gas and oil prices. They are also often ridiculously naive. It is a combination that means we get absurdly complex mechanisms that inevitably have numerous holes in them when prices move outside forecast ranges.
As someone once said, about an individual (who’s name escapes me*) with a brain the size of a planet, “if that is the answer then I hate to think what the question might be.”
* was it a very, very clever Andersen Consultant selling an extremely complex idea to Enron? ?
BEIS and Ofgem’s mission is to implement their unilateral Net Zero Strategy and making energy more expensive is very much part of this plan to persuade us to use less energy. It is not incomptetance it is deliberate policy.
“It beggars belief that the government and its civil servants are so hopeless at drafting these agreements.”
It beggars belief that you give the government such power. Of course they mess it up. The fix is to keep government out of it.
As any golfer can tell you, “It’s in the setup.”
“There is nothing illegal about this of course, it is simply good business practice” Maybe not illegal but not sure i’d call it good business practice to exploit the system that enables their existence
That’s what a business does, maximise the returns for its shareholders.
It is good business practice. Businesses exist to make returns for their shareholders, not to help out incompetent governments.
Good business practice and exceedingly poor governance. The energy market has been set up to be gamed. Net Zero laws are insuring that capacity is limited so that when weather turns cold, prices climb. It’s a rigged market.
It would be interesting to see a list of major shareholders in these undertakings.
But I suspect I can guess at quite a few…
I’m not sure that the unit earns £126.37/MWh at all. I think that Drax management decided not to try to hedge the CFD, which would have required making forward sales to match or better the average Base Load Market Reference Price over the summer. The BMRP is published on a seasonal basis in accordance with the Contract for Difference Standard Terms and Conditions. It is calculated using volume weighted average prices based on Baseload Forward Season Contracts reported by LEBA.
In a highly volatile, low liquidity market that comes with all sorts of risks. The BMRP is £405.26/MWh, meaning that Drax have to pay a tax of £278.89 on every MWh the unit produces. It is probable that their costs for fuel are tied to coal prices, which have increased substantially in the present crisis – and rather faster than the indexation on its CFD, so it is now likely that they need a subsidy to the CFD price to cover costs. Moreover, at such high prices they are only likely to be able to compete to cover the evening peak when there is shortage pricing. That means they will have added costs for warming up which they have to recover from what they charge for output. The result is that they need prices to be well above the BMRP to make any kind of profit.
Here are the hourly day ahead prices since the beginning of November:
Without the CFD they would likely have run much the same as the ROC units, backing out gas use in the process.
Probably worth reprising my earlier comment.
Drax and Lynemouth power stations stopped running their CFD funded units when their subsidies turned into taxes.
The green line is the “market” price that their CFDs are benchmarked against. The CFD prices are the yellow and light blue lines. You can see that as the Baseload Market Reference Price got close to the CFD strike prices they started to cut running hours: the subsidy no longer covered costs unless actual market prices for power were high enough. This winter the BMRP is £405/MWh, based on forward trading for the winter conducted in the summer when we had a massive price spike. The result is that these plants have shut down. Only the extremely high peak prices during the cold snap got a small amount out of Drax earlier in the month.
The units that are subsidised via ROCs continue to operate normally, because the ROC subsidy on top of elevated market prices gives a very handsome profit. You can check that out here:
https://bmrs.elexon.co.uk/generation-by-fuel-type
The beta replacement version for BM Reports offers a number of big improvements. Worth a look. Also makes data download much less of a pain (although the underlying historical data can have some missing values).
Thanks for the link to Elexon Insights!
Brits finally have easy access to much of our electricity generation data via user-choosable variables and time scales! 👍
When you do a download you actually get both imports and exports on interconnectors and pumping demand for pumped storage as well as pumped storage output. Missing is anything for solar (or batteries and probably a chunk of embedded generation), but Sheffield solar allows up to a year at a time at half hour resolution that can be added in. Beware that they use period end times, not period start times.
NGESO now has a 46MB download of data since 2009. I’ve not tried it. It has no means to avoid the whole lot. Then you probably discover it uses different bases.
IDAU – thanks for your reply.
Yes, it’s a shame that estimations for solar aren’t included.
I see the egregious jailbird Huhne is still involved with the Drax wood pellet scam.
https://www.business-live.co.uk/economic-development/former-energy-secretary-claims-government-25283343
For the avoidance of doubt, whilst our Beloved Leaders in the HOC are perhaps 90% as thick as three bog seats screwed together and 10% venal charlatans, these “good business practitioners” are the reverse.
There are few of 650 MPs capable of managing a back garden bonfire. There are few of the Drax management I would trust to not grow turnips on their mothers’ graves.
is quite astonishing to see how little it has been suing its CfD unit in the last few weeks …
using?
I think he was closer the first time phil – or should have been if you get my drift.
This is somewhat like the U. S. Govt. trying to restrict the petroleum industry. Apparently, no one in the Biden camp ever took an ECON-101 class.
Industries respond to the situations created by rules and laws. Not only is it not illegal, but it is also what they are supposed to do.
Soaring energy costs in the U.S.
Here are a couple posts on my neighborhood chat site. I live in the suburbs of Philadelphia, PA. Many of the people on this site voted for Biden and now are trying to make excuses for the soaring energy costs his war on fossil fuels has brought about.
“I just got my PECO bill and couldn’t believe that it went from $58 to 141. Has anyone else experienced this?” This is the electric bill.
“Just got my invoice from Waste Management. Quarterly service went from $68.50 to $144.00. Anyone else experiencing an “attempted robbery” like this?”
This is the trash pickup bill.
The Chickens are coming home to roost!
Same here in UK, energy bill gone from £70 per month to £210 (government backhanded dropping that to £148)
And, there are still some who believe it’s due to the war in Ukraine!!!!!
In my experience, every major renewable energy scheme in existence is run by scammers or corrupt people who are only interested in ripping off the public and making lots of money. None of the schemes are about “saving the planet”, although that is what they all say when they apply for planning permission.
They are run by people investing their client’s money to make the highest returns possible. If government stupidity means the highest returns are via renewables, that’s what they invest in. They are not scammers nor corrupt, nor do they want to rip off the public – it is the government that does that.
Well Phillip and P44, I think you are both right. Remember many of the “Independent” Committee advising government on climate change are on the boards of renewables companies. Talk about revolving doors!! and conflict of interest. They are all in on the scam.
The real scam is the climate of fear being mercilessly used to bring about our compliance. Net Zero is but one part of this, allowing Drax to claim carbon neutrality for its brazen forest destruction operation. The sensible option of using our own natural reserves to provide energy security can’t get a look in.
Two words spring to mind when the topic is “Renewable Energy”: Smoke, Mirrors!
Only to be expected when slithering serpents, with no commercial experience, are responsible for negotiating commercial contracts. A classic example being the Bliar Government GP contract which allowed them to do less work for much more money.
I did wonder why biomass output was lower than I expected during times of high demand. Yet the National grid were going (did?) pay Drax to ready their coal fired section just in case. Surely they should have pressed Drax to produce all it could from it’s biomass plant first?
Perhaps they don’t have sufficient supplies of the raw materials needed?
It will be all about contracts. BEIS insisted that the coal backup only be run in emergencies, even though it means much less efficient operation and more cost for consumers. I doubt they understand the effect on CFD base load until they read the analysis here. Drax probably doesn’t want to stir the pot because of the handsome profits on the ROC side.
I don’t think they have burnt all the US forests yet.
I’m not at all surprised by this. It is a well known loophole in the crazy legal/financial contracts negotiated by brain dead bureaucrats; and not a single politician there to put it right. Votes seem entirely useless these days.
Meanwhile let the energy prices surge and the gas beneath our feet stay put to the diktats of the rentacrowd.
So right about our votes. The Oxford car lockdown plan is getting coverage around the world so it will be interesting to see what happens at the local elections in May. When my local Tory scum proposed a new town labelled as a ‘garden village’ all the Tories were chucked out in the affected wards and they lost control of the council. It did stop the idea and then Covid came along to keep it subdued but we have a load of LimpDums in the north of the borough who would be delighted to see houses built on our fields.
But what is interesting in Oxford is that the city council is NOT the Highway Authority and so the county council must enact the legislation. So even a change in the city council may not stop it. I worked within London where the rules are different with regard to objecting to schemes but from recollection it is only affected highway authorities who can object to a scheme to block it.
The only good point is that if Drax had not come up with this green wheeze then our COP26 President, Alok Sharma, would have explosively demolished it as he did Ferrybridge Power Station last year. At least Drax survives for a possible return to burning coal when the country is desperate for power, riots ensue and the current idiots are removed.
Official SSE video :
https://video.twimg.com/ext_tw_video/1429456184902393858/pu/vid/720×720/JwPnpycxEiyBmqVJ.mp4?tag=12
You don’t seriously think that the only available replacement idiots will be more amenable, do you? Given that a hung parliament with Labour needing Lib-Dem and SNP votes is probably the likeliest outcome ( the Conservatives may do well enough to hang onto a slim majority but it is historically unlikely that Labour will turn an 80-seat majority into a clear majority for them) the situation is, if anything likely to get worse!
Great video John, remember seeing similar with the Scottish leader. Clear photo evidence of the act of Treason.
And why haven’t we heard from the corrupt Committee on Climate Change who should be working for the benefit of the community instead of being non executive directors of foreign windmill companies.
Well done, Paul. Nice, clear article