Subsidies for Drax to halve as UK government sees ‘more limited role’ for power station

DRAX power station’s state subsidies will be halved once the current arrangement expires in April 2027, the UK government announced on Monday.

The wood-fired electricity generator in North Yorkshire, England, will receive subsidies until 2031. The government predicts their partial withdrawal of support for Drax will see the company generating power for “less than half as often as it currently does”, which is around 67% of the time. The government has not withdrawn total support for Drax as it says the generator is necessary to provide backup power to wind and solar energy, but “while renewable power is abundant, Drax won’t generate”.

Drax currently supplies around 5% of the UK’s electricity. Going forward, energy minister Michael Shanks told parliament Drax will have a “much more limited role” in the UK’s electricity supply. He added: “We recognise the strength of concerns about the use of unabated biomass. It is not a long-term solution.”

The new agreement prohibits Drax from generating electricity at more than 27% of its capacity. A lower threshold will also be set at 22% of capacity to meet minimum energy demands.

It marks a shift from the previous government’s position, and Drax’s own marketing, which classed the company as a renewable energy supplier.

The government’s decision comes after a cost evaluation comparing renewal of Drax’s subsidies with other options for providing backup energy supply when renewable power is low, including building new fossil fuel-powered stations. The government claims the new subsidy arrangement will save £170m (US$210.9m) from electricity bills compared to the cost of investing in new gas power plants. 

In 2022, a report from energy think tank Ember found that Drax was the single largest emitter of unabated greenhouse gases, with no plans to begin carbon capture and storage (CCS) until at least 2030. While the government believes “there is a potential role” for integrated CCS at Drax, “realistically this will take time to implement and therefore cannot form the primary basis” of the UK’s energy supply strategy.

Geraint Evans, chair of IChemE’s clean energy special interest group, welcomed the government’s decision not to completely withdraw Drax’s subsidies. He told TCE that “support for Drax to develop their CO2 removal technology…is going to be essential if we are going to reach net zero”. 

Will Gardiner, CEO of Drax, said that under the new agreement “Drax can step in to increase generation when there is not enough electricity, helping to avoid the need to burn more gas or import power from Europe, and when there is too much electricity on the UK grid, Drax can turn down and help to balance the system”.

Seeing the wood for the trees

Drax has faced criticism over the sustainability of the wood pellets it burns. Last week, the BBC reported that public logging records show that the company has sourced wood pellets from felled primary trees in British Columbia, Canada rather than from plantations.

At the time, UK sustainability criteria only required 70% of biomass to be sustainably sourced, although the UK energy regulator Ofgem issued Drax with a £25m (US$31m) penalty in 2024 for misreporting how it sourced its wood. As a result of Ofgem’s investigation, Drax promised to audit their supply chain, although this is yet to be published.

Under the new agreement with the government, 100% of the wood pellets burned by Drax will have to be sustainably sourced, with “substantial penalties” promised for non-compliance. The government also said they “will exclude material sourced from primary forests and old growth forests from receiving support payments”. 

The deal also limits supply chain emissions to a maximum of 36.6 gCO2e/MJ, down from the current threshold of 55.6 gCO2e/MJ.

‘Unacceptably large profits’

The government’s decision was partly driven by its goal of keeping household electricity bills low. The government said that the previous subsidy regime “enabled Drax to make unacceptably large profits”.

The new agreement includes a “built-in windfall mechanism” that will “claw back excess profits made by Drax” should prices soar in response to volatile fossil-fuel markets. 

The government made clear that subsidies can be revoked before 2031 if Drax does not comply with any aspect of the deal.