Jeremy Warner: Drax opts to go green with biomass plants

Friday 24 October 2008 00:00

Outlook Well, there's a thing. Europe's biggest single source of greenhouse gases, the Drax power station in Yorkshire, wants to drape itself in green. At a cost of £2bn, Drax plans to build three new power stations dedicated to biomass-fired electricity generation.

This is not the purest form of renewable energy there is – wind, sun and wave produce no carbon at all, whereas biomass puts back what plants have already taken out – but it counts towards the renewables obligation, and according to Dorothy Thompson, Drax's chief executive, once the plants are up and running it will mean that Drax contributes around 15 per cent of Britain's renewable power.

But before the environmental lobby begins rejoicing at the sinner who repents, this isn't Drax transmogrifying from ugly polluter into a saintly green giant. The coal-fired power station that is Drax still has at least another 25 years in it, and unless emission permits or carbon sequestration demands price it out of the market, there's no intention of closing it down.

Still, yesterday's announcement at least gives Drax the company some kind of viable long-term future. Up until now, it has tended to be regarded by investors as an essentially wasting asset which should be run entirely for cash. Now, it is attempting to use the expertise that has been developed in co-firing of biomass with coal to give itself a greener future.

Yet this is not the unalloyed positive news for shareholders it might seem. The great thing about Drax up until now is that it pays out every penny it earns in dividends. Unfortunately, investment in the future costs money, and to pay for it, Drax plans to slash the dividend to half of earnings from 2010 onwards.

All the same, the plan is said to have the support of major shareholders, including Invesco, with nearly 30 per cent of the stock, and in any case, any form of investment in these austere times is to be welcomed.

Energy renewal provides one of Britain's best hopes of job creation over the next several years, even if the kit for all this spending seems to be coming mainly from France and Germany. EDF's planned new generation of nuclear reactors is designed and will largely be built in France before installation here in Britain. The Drax biomass plants are, meanwhile, part of a joint development agreement with Siemens of Germany.

British industry needs to be making a greater effort to tap the opportunities opening up in energy renewal and climate change technology, for there may not be many others for some while to come.

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