WOOD BURNING GENERATION AT DRAX. A GREEN SUBSIDY?

A GOOD DEAL BUT COULD DO BETTER?

Pilita Clarke in the FT of 19^th April (yesterday) discusses fuel burn at Drax, and the offer of Britain’s largest power station, and biggest emitter of carbon dioxide, to reduce emissions in exchange for continuing subsidy.  The figures are interesting. If we can assume with confidence that the wood pellets imported from the US are indeed carbon neutral, admittedly a big assumption, then this looks like a good value short term fix to reduce UK carbon emissions. But the story does not end there. If the biofuel supply provision can be made to work in an environmentally friendly (ie carbon neutral) way, Drax could be at the forefront of UK efforts to move towards a “net zero” carbon economy, something that the Government has promised in the wake of Paris.

At full output Drax is capable of burning nearly 10 million tonnes of coal a year.  Very approximately this is likely to equate to about 25 million tonnes of CO2 emissions. If the FT figures are correct, and with a few other significant assumptions, then the 2015 subsidy, if it relates to 50% of Drax output, may have reduced UK emissions by around 12.5 million tonnes at a cost of around £450 million.  In other words the implied cost of CO2 reduction is about £36/ tonne.

This is prima facie below even relatively conservative estimates of the long term damage caused by carbon emissions, for example those published in the 2011 Treasury guidelines, and looks to be below most estimates of the carbon price at which alternatives such as nuclear energy become viable on a long term perspective (ignoring for the moment the trials of Hinckley Point). So prima facie this looks like a good deal and a sensible deployment by the government of its own cost benefit analysis.

But the bigger picture is also important. Post Paris, the government committed to a zero carbon strategy for the long term.  De facto this implies a substantial removal of CO2 from the atmosphere, and the only viable route to this currently on the horizon is the burning of biomass, as at Drax, combined with carbon capture (CCS). 

Prior to the November cancellation, itself a contravention of the government’s election promises, of funding for CCS, Drax had been engaged in substantial planning to deploy carbon capture and construct a pipeline for its eventual storage in the North Sea. Those plans are now on hold. In terms of current prices, CCS requires additional primary energy input, so the notional cost of CO2 sequestration will rise above the £36/ tonne quoted above.  But then so will the urgency of CO2 sequestration, and our collective willingness to pay.