Drax seals £50m deal to produce 10 per cent of its electricity from biomass
Tuesday, 20 May 2008
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Drax, Europe's biggest polluter, signed a landmark deal yesterday that will allow it to produce 10 per cent of its electricity from biomass resources such as peanut husks and wood chips.
The company has contracted Alstom, the French engineering giant, to add facilities capable of burning 1.5 million tonnes of sustainable biomass a year to the site of the country's largest coal-fired power station.
The companies billed the £50m project as the largest biomass generation project in the country. When it comes on stream in late 2009, it will generate 400 megawatts of electricity, equivalent to the output of 500 wind turbines.
The deal failed to dent the perception among investors and environmental campaigners, however, that Drax will ultimately be rendered obsolete by increasingly stringent rules on emissions imposed by the European Union. The EU's Emissions Trading Scheme (ETS) "will one day make Drax unviable", said Per Lekander, an analyst at UBS. The biomass deal "changes absolutely nothing" about the company's long-term prospects, he added.
Drax said it plans to burn up to 50 different types of biomass fuels, including corn and sunflower husks and willow pellets. It hopes to source "at least half" of the resources from within the UK. These will benefit from the Government's Renewable Obligations Certificates (ROC) scheme, which subsidises the price difference between the cost of coal and more expensive biomass sources.
Doug Parr, the chief scientist at Greenpeace, said ensuring sustainable sourcing of the biomass fuel is crucial. "This is better than nothing, but it's not really what biomass should be. Biomass was intended for highly efficient combined heat and power plants, not to provide ROCs to make big unabated coal-fired plants sustainable, because they are not," he said.
Alstom will build everything from the silos to store the grains as well as the machinery to process what are often pellets of waste matter that are pulverised to create a flour-like dust. Drax hopes to sign a contract within the next couple of months for the building of the injection system that will blow the fuel into the six massive boilers at the 4,000-megawatt site near Selby.
The burning of biomass actually results in greater emissions – it takes 1.5 million tonnes of biomass to generate the same amount of energy as 1 million tonnes of coal. However, as the emissions released are from bio-logical matter that during its life has taken CO2 out of the atmosphere, biomass is considered "carbon neutral".
Sourcing 10 per cent of its generation this way will reduce the number of carbon permits Drax has to buy for producing emissions in excess of EU-mandated thresholds. It is also a central plank of the company's drive to remain viable in a low-carbon world. Dorothy Thompson, the chief executive, rejected the view of sceptics who say the company's near-total reliance on coal means its days are numbered. She said: "There is no single switch that can solve climate change, and we believe we have a significant role to play. The truth is that, the more we look into it, we are convinced coal will be the main fuel source for the world." The evolution of carbon capture and storage technology, unproven on an industrial scale, is crucial, she added.
The company's bill for carbon permits will explode in coming years. Last year, Drax generated about 22 million tonnes of carbon. Under the current structure of the EU ETS, the company pays nothing for the first 9.5 million tonnes it produces. Anything beyond that, it must buy carbon permits to cover the excess. Last year, it paid an average of just £1.50 for each of its 7.6 million tonnes of excess carbon – an annual bill of about £11m. The price was so low because the EU issued too many permits based on an overestimation of total pollution. Targets have since been cut sharply and will continue to be forced down as the EU strives to hit its goal of cutting emissions by 20 per cent by 2020.
If proposals are approved for the next phase of the ETS, effective from 2013 through to 2020, all permits will be auctioned. Analysts predict the price of carbon permits could rise to €40 (£32) or beyond. Under a €40 carbon scenario, even with 10 per cent biomass generation, Drax's annual carbon bill would rise to more than £600m. Last year, the company made a pre-tax profit of £449m.
