Drax warned that the PS2 billion project to build Britain’s largest carbon-capture power plant is “at serious risk” without urgent government action. The Inflation Reduction Act in America makes it more attractive to invest in the US.
The FTSE 250 company has been planning for a bioenergy plant with carbon-capture storage (BECCS), at its site near Selby, North Yorkshire for many years. This could lead to 10,000 new jobs.
Drax stated that, “following the US Inflation Reduction Act”, we were “increasingly excited about the potential to deploy BECCS to the US” and asked the UK government for its response.
President Biden’s Act, a $369 Billion package of taxpayer support passed last fiscal year to encourage investment in clean energy, raised the amount of subsidies available for carbon-capture projects, from $50 to $85 per ton of carbon dioxide.
Drax chief executive Will Gardiner stated that “that effectively makes the opportunity for a BECCS station in the US much more attractive, and so we’re doing lots of work on that.”
The BECCS subsidy system in Britain is not yet established. Drax has waited since December for the government’s decision on whether it will support its Yorkshire project with financial support.
Gardiner stated: “If the UK government stops moving at a pace, then that investment will move to other countries including the US. That’s something that is part of our thinking.”
Drax should be negotiating with the Westminster government about subsidies right away to allow for a final investment decision in the first half next year.
Gardiner stated that if this did not occur, it would “accelerate” its plans in America and the UK would “become a less important priority over time”.
“There’s a risk that many of the renewable and carbon-capture investment that are very keen to invest in the UK, will move to the US because there’s more attractive support. This could also include ours. It’s a serious danger.
Drax already has a pipeline of over ten sites for BECCS project in America and is currently building a team.
Drax’s excitement for the investment opportunities that arise from the US act sparked speculation about whether the company could move to America.
Dominic Nash, an analyst from Barclays asked Gardiner if it would consider a partial IPO, or dual listing. Gardiner replied that it did not have such plans.
point”. Drax’s warning about the future of its Yorkshire project is one example of the possible flight of investment from Britain as a result of the US act.
This comes after Energy UK warned last month that it was aware of companies who are actively withdrawing from investing in the UK for the United States.
Europe is also struggling to retain investment in light of the incentives in Biden’s act. On Wednesday, Tesla, Elon Musk’s electric vehicle manufacturer, announced that it would be scaling back its battery manufacturing in Germany in favor of America.
According to Tesla, the United States Inflation Reduction Act has made Tesla’s cell production a priority.
Drax received PS617million in subsidies from UK customers last year. High power prices allowed it to increase its adjusted earnings by 84% to PS731million.
To help pay its costs of burning biomass wood pellets at the power station in Selby, North Yorkshire, the FTSE 250 group is eligible for subsidies through renewable energy schemes. Drax’s inclusion is controversial as environmental groups question whether biomass burning is sustainable.
Drax stated that it received subsidies of PS650 million under the renewables obligation program in 2022. This scheme covers three of its biomass units, which is a similar amount to 2021, even though power prices are much higher. It receives an additional subsidy in addition to the wholesale price.
To help pay its biomass wood pellets burning costs, the FTSE 250 group is eligible for subsidies through renewable energy schemes.
The fourth biomass unit is operated under a different system. It receives a fixed price per unit of power. If market prices rise, it pays back the difference and gets subsidies. Last year, the unit received PS33 million in subsidies, while it received PS231 millions in subsidies.
Drax also runs pumped storage and hydroelectric plant and was paid to keep two coal units at its Yorkshire site available for emergency use during winter.
Drax said that overall the average price it sold electricity at was PS108.80/megawatt-hour (MWh) in 2022, up from PS52.50/MWh in 2021. The power it has sold so far for 2023 has been an average of PS158.10/MWh.
Drax’s chief executive officer Will Gardiner stated that the company expected to pay a substantial amount this year under the windfall taxes on electricity generators. This will impact its units participating in the renewables obligation program.
Drax, the fourth biomass unit, is currently uneconomic as it would have to pay substantial sums to consumers. This was based on the incorrect assumption that the power had been pre-sold at high forward prices.