Biomass decision by Drax waits on Whitehall

Drax plans to build three 290 megawatt (mw) dedicated biomass plants in a 2bn investment, and was due to prove the investment case for the first of these by the end of the year.

But the North Yorkshire-based group, which supplies around seven per cent of the UK's electricity, said it would make the decision next year as Government support for the plants is not certain. Two of the plants would be at Selby and Immingham.

Drax is keen to burn more biomass – fuel derived from organic plant-based material – to reduce its carbon emissions, but has been held back by insufficient subsidies.

"If you commit to an investment this year you will not know what the band (for Government support) will be when you go into operation in 2014," said chief executive Dorothy Thompson.

The Government's Renewables Obligation grants varying bands of support for green power projects via Renewables Obligation Certificates (ROCs), which are traded to provide a source of income.

Dedicated biomass currently receives 1.5 ROCs per megawatt hour, but an imminent review of ROC bands means this could have changed by the time a new biomass plant is built.

"What we do not know is whether that might go up or down. It's that

lack of knowledge," said Mrs Thompson.

"Because it takes over three years to build a biomass plant and because the bands are subject to change in 2013 it means that you don't

actually know for sure what would be the band in force."

Drax is lobbying the new coalition Government and welcomed a recent announcement that support for biomass would be fixed for 20 years, but said further clarity was vital.

Drax recently increased biomass co-firing capacity at its 4,000mw coal-fired plant near Selby in North Yorkshire to 500mw, but has been unable to use it fully because the economics do not yet stack up.

Operating at full load, its co-firing capacity would produce 12.5 per cent of the plant's output – the equivalent of more than 600 wind turbines and a saving of 2.5m tonnes of carbon a year.

Drax is also lobbying for support to convert one of its six 650mw units from burning coal to only biomass – a UK first.

Finance director Tony Quinlan said: "What we would be looking for is a level of ROC that compensated us for the risks that we are taking."

He said that if Drax were to get the green light from the Department of Energy and Climate Change (DECC) and energy regulator Ofgem on ROC support for the conversion, "it could be up and running before next Christmas (2011)."

The power station operator yesterday reported a 23 per cent rise in first half profits, helped by the exceptionally cold winter and hedging.

It reported earnings before interest, tax, depreciation and amortisation of 184m in the six months to the end of June, compared with 150m a year earlier.

That meant the plant operated at a 77.4 per cent first half load

factor, compared with 69.3 per cent a year earlier.

Its output was 12.7 terawatt hours, up from 11.4 tw/h in the first half of 2009.

The plant more than trebled its interim dividend to 14.1p per share and ended the period with net cash of 71m.

A spokeswoman for the Department of Energy and Climate Change said: "We are about to launch a scheduled banding review, which will look at the levels of support for all technologies from 1 April 2013, apart from offshore wind where levels are set until 31 March 2014.

"We will announce the proposed bands in spring 2012, and welcome input from industry, including Drax, throughout the review to help inform our proposals."

Electricity supply arm growing

Drax said its electricity supply arm Haven Power has continued to grow its customer base of small and medium-sized businesses.

It bought the firm from Welsh Power Group in early 2009 for 10.75m to extend its trading capabilities and options for routes to market.

At the time Haven supplied around 22,000 SMEs, equating to about 0.7 terawatt hours per year. This had grown to 28,000 customers by the end of June.

Drax plans to expand this business to supply larger industrial and commercial businesses, and after completing assessment work, is now investing in systems and staff to support this.

"Haven continues to provide us with a valuable alternative to trading through the wholesale market," said the group.