Drax Power Station Secures £2 Billion Subsidy Deal Despite Environmental Concerns

Labour’s energy secretary, Ed Miliband, has awarded a controversial £2 billion subsidy package to the Drax biomass power station, sparking intense debate over Britain’s green energy priorities. The North Yorkshire facility, which supplies approximately 5% of the UK’s electricity, will receive subsidies worth up to £525 million annually over four years.

The government’s decision comes amid mounting criticism from environmental groups who label the wood-burning operation a “green-energy scam”. The former coal power station, which now burns wood pellets imported from North America, depends entirely on these subsidies for economic viability.

Energy Minister Michael Shanks defended the decision, emphasising the plant’s crucial role in maintaining energy security. The new agreement imposes stricter environmental standards and halves the previous subsidy rate, reflecting Labour’s commitment to balancing energy security with cost-effectiveness.

The revised terms will limit Drax’s operations to 27% of its capacity, significantly reducing its current two-thirds annual runtime. Additionally, the facility must now source 100% of its woody biomass from sustainable sources, up from the previous 70% requirement.

Market analysts at Morgan Stanley characterised the agreement as “attractive” and “more favourable than expected”, triggering a 6% surge in Drax Group’s share price. The company will receive a guaranteed £113 per megawatt-hour, adjusted for inflation from 2012 prices, projected to reach £170/MWh by 2027.

Drax Chief Executive Will Gardiner welcomed the deal, highlighting its contribution to UK energy security and potential for future carbon capture investments. However, the Conservative opposition remains critical, with Shadow Energy Minister Andrew Bowie questioning the environmental impact of importing and burning wood from Canadian forests.