Jeremy Warner's Outlook: Drax's life may be longer than imagined

Does Drax Group have a long-term future? As Europe's largest coal-fired power station, and therefore its biggest single source of greenhouse gas emissions, you might not think so, yet Dorothy Thompson, the chief executive, is doing her best to ensure it does. Yesterday's exchange of contracts with Alstom gives her the technology to take Drax's co-firing of renewable biomass materials up to 10 per cent of output.

This is only possible because of the economic incentives to replace coal with biomass given by the European Emissions Trading Scheme and the Government's Renewables Obligation. Together with turbine upgrades, it puts Drax on course to achieve its targeted 15 per cent reduction in emissions by 2011.

That's progress, obviously, but without carbon capture and storage, technologies which are not yet proven, it only delays the reckoning. For the time being, investors are perfectly happy to view Drax as a cash cow of limited lifespan. They don't want to see Ms Thompson try to diversify herself away from the company's long-term fate. They'd much rather have the dividends instead.

Yet it has long seemed to me that Drax's best guarantee of survival is not so much the eventual arrival of carbon sequestration technologies as the fact that, at 7-8 per cent of Britain's generating capacity, it is simply too big to kill off. Without Drax, the Government would struggle to ensure that the lights stayed on. Forget ambitious plans for wind power, as things stand there is nothing on the medium-term horizon capable of replacing it.

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