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Uncertain Subsidies Delay Drax Biomass Plans

Date: 02 March 2010

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EXECUTIVE SUMMARY

Drax Group, the operator of Europe’s largest coal-fired power station and supplier of 7% of the UK’s electricity, has shelved plans to diversify its power generation business into biomass. The firm had planned to invest £2 billion to build three 300MW dedicated biomass generation facilities with a target operational date of 2014. As biomass generation costs are on average 33% more than coal generation, Drax’s business plans required rising carbon prices and government subsidies in the form of Renewable Obligation Certificates (ROCs) for profitability. However it was recently brought to light by the Renewable Energy Association (REA) that unlike other renewable technologies, the ROCs awarded for biomass generation are not grandfathered, in other words guaranteed for the lifetime of the installation. DECC is due to review the terms of the Renewable Obligation (RO) in March 2010. Drax will not renew its investment in biomass until clarity is provided over the future profitability of UK biomass generation, and could potentially move its operations oversees if unfavourable terms are agreed.

TABLE OF CONTENTS

DRAX WAITS FOR CLARITY OF BIOMASS GRANDFATHERING
Drax Holds Back Biomass Investment Due To Subsidy Uncertainties
Partial Subsidy Guarantees Set To Be Announced In March 2010

COMPANIES MENTIONED

AMM, Department of Energy and Climate Change, Drax, E.ON, Gaia, Helius, Ofgem, MGT Power, Prenergy, Renewable Energy Association, RES, RWE npower, Siemens