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June 16, 2016

Drax claims to fully switch to wood pellets in the next 3 years

Drax group might eliminate coal power earlier than the 2025 deadline, which the UK ministers have previously set in November 2015. As the chief executive of the company, Dorothy Thompson, stated, Drax will start to use wood pellets instead of coal at its boilers from its North Yorkshire power plant, as Financial Times reported.

“We have project plans that we could execute within three years, so you could take our coal units off the system by 2020 if not before,” Thompson added.

At the moment, Drax has already converted its Selby power station into a renewable generator. The power station is 42 years old and as of 2012, six of its coal-fired boilers are working with wood pellets. Thus, it became one of the largest renewable generators in the world, supplying almost 8% of the electricity in the UK.
In 2015, the Selby power station received government subsidies of £451.8 million, after Drax had been involved in many government discussions regarding green energy policies, when the company’s share price decreased 5 times in the last 2 years. Only last year, in July, Drax’s share dropped 28% in only one day because of the climate change tax for renewable generators.
This lessened the company’s revenues by almost £30 million and the impact of this loss will be felt throughout this year too. Also, Drax recorded lower power prices that dropped by 30% in 2015, which affected the profits at the Selby station. The company’s pre-tax profits recorded a drop of £166 million in 2014 to £59 million in 2015, making Drax consider new financial options to recover its plans and the boost its balance sheet.
Regarding the change from coal to wood pellets at the remaining three boilers, Thompson stated that if Drax makes the switch it would need a contract for difference (CFD), which can guarantee long-term power prices for renewable power companies. It is replacing an older subsidy scheme that leaves generators more exposed to falling wholesale power prices, as Financial Times reported.
Without the CFD, the change would be too expensive, as Thompson added. Two years ago, Drax was already given a CFD for the conversion of its third boiler. Now, the company waits state aid approval for it, which puts things on hold. Also Brussels has given support back in December 2015 for such a switch at the Lynemouth power station. As Jefferies’s analysts assume, if Drax’s third boiler get aid approval, it would make a £70 million in 2017’s total revenues.
Unfortunately, there are only three more batches of CFD contracts to be offered by UK’s government over the next four years but these are expected to go to offshore wind farms, not big biomass generators, according to Financial Times.

“We are already supporting over 5 gigawatts of biomass technologies, providing nearly a quarter of our renewable electricity.” Ministers want “a sensible level of support” to keep “bills as low as possible for hardworking families and businesses”, said an energy department spokesman, quoted by Financial Times.

There are many voices coming from the environmental activists, which say that Drax’s actions of burning wood instead of coal isn’t so green and that this might truly affect US’s forests, as all the wood imports for Drax come from there. Yet, the UK company affirms that burning wood eliminates the carbon emissions by 80%.
The government thus wants to shut down eight coal stations which sell power to the market and supply only 19% of UK’s electricity. Thus, it could cause a lot of trouble because it could create competition issues.
As Financial Times reported, this year Drax won a National Grid contract to provide services to help electricity transmission systems work reliably. Yet, the company has no position in the June Brexit referendum, but Thompson hopes to remain the EU as to avoid the significant economic consequences.


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