Ministers are now facing calls to use public money to ensure the project is secured with union leaders claiming the viability of the “Northern Powerhouse” is at risk.
However both the Government and other backers of the scheme have said they remain committed to it.
The “White Rose” plan has been to deliver the world’s first commercial scale, carbon capture and storage coal-fired power plant in Yorkshire on the Drax site.
The region is thought to ideally placed to develop this technology capturing millions of tonnes of CO2 each year from large industrial sites and power stations and pipe it out to a facility beneath the North Sea.
Drax said it would stil complete the feasibility study on a carbon capture and storage (CCS) project to catch up to 90 per cent of emissions from a power station and store them permanently under the North Sea, but would not invest any further in the “White Rose” scheme.
Drax was given European funding for the project, called White Rose, last July. It would have seen a new plant built new to Drax’s existing power station and would create enough energy to power 630,000 homes, with the majority of CO2 transported by pipelines for storage under the North Sea.
However the firm has blamed the “drastically different financial and regulatory environment” which has seen the wholesale price of electricity drop and moves by the Government to rein back support for low carbon technology.
The two year project is being taken forward by the Capture Power partnership – made up of Drax, Alstom and BOC and is looking at the potential to capture up to 90% of carbon emissions from a new coal fired power station and safely store them beneath the North Sea. The project is due to conclude during the next 6-12 months.
Drax has also confirmed that while at that point it would cease to commit further investment, it will continue to make the site owned by Drax, along with the infrastructure at the Power Plant, available for the project to be built.
Capture Power said it was committed to delivering the project - the world’s first “commercial scale, full chain, carbon capture and storage coal-fired power plant”.
Leigh Hackett, chief executive of Capture Power, said: “Drax’s decision not to invest further in the Project is disappointing, but we are keen to confirm that Capture Power remains committed to delivering the White Rose CCS Project. We can also confirm that we continue to work constructively with Drax on land, site services and shared infrastructure aspects to support the Project’s delivery.”
However questions are mounting about the project’s future and where it leaves the ambition to make the Yorkshire region a world leader of this new technology.
Labour and several unions have blamed the Government for the current situation.
Since the general election, the Government has curbed support for wind and solar power and, most significantly for Drax, removed an exemption on climate taxes so that clean power companies had to pay the levy for the first time.
On the day of the announcement of the changes to the climate change levy, Drax - which has converted coal-burning units at its North Yorkshire power station to biomass, making it the single biggest renewable generator in the UK - saw its share price fall 28 per cent.
Drax said its share price had fallen significantly since it had taken the decision to invest in White Rose two years ago, as a result of falling commodity prices which brought down the price of electricity, as well as uncertainty over support for renewables.
There are also concerns about future Government support for the low carbon agenda.
The White Rose scheme which Drax has pulled out of is one of only two schemes bidding for £1 billion support from the Government to develop carbon capture and storage in the UK.
The announcement comes after a report from warned the UK was not only slipping down the rankings as an attractive place for renewables but policy changes could even “sour investor confidence” in other areas including nuclear, CCS and shale gas.
Drax Group operations director, and capture power board director, Pete Emery said: “We remain fully committed to completing what we’ve signed up to - the completion of a study into the feasibility and development of world-leading technology that could result in dramatic reductions in carbon emissions produced by power stations and heavy industry.
“We are confident the technology we have developed has real potential, but have reluctantly taken a decision not to invest any further in the development of this project.
“The decision is based purely on a drastically different financial and regulatory environment and we must put the interests of the business and our shareholders first.”
He said the company would focus its resources on what would deliver best value, in particular on working with the Government to explore the potential for converting a fourth coal unit to run on biomass.
Labour and unions blamed the Government for the situation.
Shadow energy secretary Lisa Nandy said: “With the only new nuclear power station delayed, new onshore wind farms being blocked, solar support being slashed by almost 90 per cent, and the Government’s carbon capture and storage strategy now unravelling too, ministers must come clean on whether they are abandoning all efforts to secure investment in clean energy in this country.”
A spokesman for the Department of Energy and Climate Change said; “Carbon capture and storage is set to play a vital role in decarbonising the electricity sector and heavy industry. The Government remains committed to assisting the development of CCS in the UK and to the CCS competition, continuing to negotiate with the two preferred bidders.”
He said Drax’s decision was matter for the company, and that ministers were still committed to the development of carbon capture and storage schemes, which have the very strong backing of other companies involved.However the Unite union said the Government needed to step in with public money to ensure the future of the White Rose scheme.
It accused the Government’s green agenda of being “in tatters” and said the news called the viability of the Norther Powerhouse into question.
Unite national officer for energy, Kevin Coyne said: “This is a disaster.
“Ministers need to step up to the plate with public investment to ensure that the £1bn White Rose carbon capture project comes to fruition, otherwise the massive coal reserves that the UK is sitting on will remain untapped“The underlying message here is that the private sector has been unable to provide the necessary investment to support the carbon capture initiative – this should be a salutary lesson. Private sector money is not necessarily the panacea for big nationally important schemes. This has not been helped by the government’s decision to reduce subsidies for renewable energy, which has not created a climate of confidence for private sector investment.
“Today’s announcement calls into question the long-term viability of chancellor George Osborne’s much vaunted ‘Northern powerhouse’.
“The government’s green agenda appears to be in tatters and we have moved a long way from when David Cameron was hugging a huskie and boasted that his government would be the greenest ever.”
Energy workers’ union Prospect warned that Drax’s decision to pull out will be a “body blow to low-carbon energy generation for the UK”.
Deputy general secretary Garry Graham said: “Drax’s decision is the result of fragmented and incoherent government policy which is having a chilling effect on investors’ confidence.
“Even those close to government have expressed concern about the fact that it is making unilateral decisions, with no consultation or forewarning.
“Since the election support for wind and solar power has been cut, the Green Deal has been terminated and government has withdrawn support for renewable energy projects.
“We have also seen a £3.9bn carbon tax (the Climate Change Levy) on renewables that emit no net carbon – a step that even Lord Stern described as “potty”.
“We need a coherent strategy and a clear map of how we transition to low-carbon generation, keep the lights on and meet the needs of consumers and businesses.”