UK energy strategy raises questions on Drax’s carbon capture project

UK energy strategy raises questions on Drax’s carbon capture project

After expressing doubt over its £2 billion carbon capture project, the energy company Drax is planning to enter into talks with the government as the company’s share price plunged.

Inadvertently raising concerns about the future of one of the nation’s largest electricity producers, the government’s comprehensive plan to secure Britain’s energy supplies seemed to rule out the project to capture carbon emissions at the Drax biomass plant in North Yorkshire from the competition for subsidies.

On Thursday morning, the company suffered one of its biggest falls on the FTSE 250, as the shares declined by 12%.

Nonetheless, Drax guaranteed investors that it would enter into a formal dialogue with the government directly to “move the project forward.”

Will Gardiner, the chief executive of Drax, informed investors that his company’s project would be eligible for the “Track 1” process expansion that the government planned to implement later this year.

When Drax’s current subsidy for burning wood pellets in its power plant expires in 2027, funding for the carbon capture project is seen as essential to securing future revenues for the company. A funding gap might nonetheless exist until 2030 if the Track 1 process is not joined as soon as possible.

Graham Stuart, the minister for energy security and net zero, stated in front of the legislature on Thursday that the government “totally understands that we need to work with Drax on a bridging option between 2027 and 2030, and the secretary of state has charged our officials working with Drax on what those options look like.”

After the assurance was made public, the share prices quickly surged by 6%.

In the first track of a government subsidy program, which could start capturing and storing carbon emissions as early as 2027, the strategy listed eight carbon capture projects, including three in Teesside and five in the north-west of England and north Wales, but omitted Drax’s project in the Humber.

Ministers are pressured to slash subsidies for biomass generators as there is  a growing concern that generating electricity by burning wood is far from green and might add up to ever increasing CO2 emissions.

Moreover, the government announced the 20 hydrogen projects that will be funded, including three led by Scottish Power and two by SSE.

Leading business organizations criticized the government plan for lacking ambition and clarity in advancing Britain’s green industries, which led to the market turmoil at Drax. Multiple policy papers totaling 1,000 pages were published by the government, but many of the strategies outlined had already been revealed, and the majority of the budget had already been set aside.

A policy adviser at the Institute of Directors, Alexandra Hall-Chen, stated that “Despite the volume and detail of today’s announcements, there is nothing obvious within these plans which matches the ambition of the US’s Inflation Reduction Act. It remains an open question as to whether the UK can offer the incentives for green investment that can sustain it as a leader in the global green economy.”

Plans to secure energy supplies, reduce carbon emissions to zero, and position the UK as a global leader in green finance are all included in the government’s flood of documents. However, these plans are not independent of one another.

All large businesses with more than 500 employees or £500 million in annual revenue will be required to disclose their plans to achieve net zero, according to a government proposal that has been put out to consultation.

As of now, the government’s stipulation is aimed at encouraging investors to make greener decisions by leveling the playing field across the economy, as the Financial Conduct Authority has made it mandatory for listed companies and large asset owners to disclose their plans.

A policy officer at the Aldersgate Group, James Fotherby, expressed the decision as “encouraging” and yearned for the government to “provide a clear timetable and further details on the implementation of the sustainability disclosure requirements to tackle greenwashing and inform investors’ financial decisions.”

- Published By Team Timeswire

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