Biomass Generation

Statement

The following Statement was made in the House of Commons on Monday 10 February.

“With permission, Madam Deputy Speaker, I would like to make a Statement about support for biomass electricity generation. My apologies to the House for it having to put up with even more of me.

In January 2024 the previous Government launched a consultation on supporting large-scale biomass generators when existing support ends in 2027. That consultation outlined their proposals to continue to support biomass as a

‘valuable … form of dispatchable power’.

Since this Government came to office, we have carefully considered responses to that consultation and assessed the case for a new support mechanism. Biomass currently plays an important role in our energy system, but we are conscious of concerns about sustainability and the level of subsidy that biomass plants have received in the past. With that in mind, I want to report to the House on our conclusions about the role of Drax power station in Yorkshire in the years 2027 to 2031.

In coming to the view I will express today, we have taken advice from the National Energy System Operator on questions of security of supply, analysed the effect on consumers of support for biomass versus the alternatives, looked at issues around subsidy and sustainability in the existing arrangements, and considered longer-term issues around decarbonisation.

First, on security of supply, we inherited a situation from the previous Government where there was no long-term planning for our energy system and its resilience. In the system we have inherited, large-scale biomass provides around 5% of our annual electricity generation, serving a specific role as a source of firm power. To meet our needs between 2027 and 2031, we could seek to replace Drax with new gas-fired power stations, but in the timescale we have there would be significant risks to relying on that approach. In that context, NESO has advised us that Drax plays an important role in delivering security of supply between 2027 and 2031.

Secondly, on price, we have undertaken comprehensive analysis of the costs of biomass against alternatives. Our central projections show that, on the right terms and in a much more limited role than today, biomass generation at Drax is the lowest-cost option, including when compared with gas-fired power stations, for bill payers during this period.

Thirdly, we have looked at previous arrangements for subsidy and sustainability. This Government’s view is that they simply did not deliver a good enough deal for bill payers and enabled Drax to make unacceptably large profits. At the same time, they demanded levels of sustainability that are not now in line with the latest scientific evidence or global best practice, including supply chain emissions well above the European standard. We have concluded that if Drax is to continue to play a role in our power system, these arrangements must urgently be improved going forward.

Fourthly, we have looked at issues with decarbonisation. Our finding is that there is a potential role for bioenergy with carbon capture and storage—or power BECCS—but realistically this will take time to implement and therefore cannot form the primary basis of this decision. On the basis of that assessment, and given the circumstances that we inherited, the clear evidence is that Drax is important for delivering a secure, value-for-money power system in the period 2027 to 2031. But we have also concluded that we cannot allow Drax to operate in the way in which it has before, or with the level of subsidy that it received in the past. On that basis, we have secured heads of terms that will form the basis of a very different agreement with Drax for support during the period 2027 to 2031.

Let me set out the terms of the agreement. First, it will ensure that Drax plays a much more limited role in the system, providing low-carbon dispatchable power only when it is really needed. Drax currently operates as a baseload plant, running around two-thirds of the time. That means that it provides power even when other renewable sources are abundant. That must not continue. Under the new arrangement, Drax will be supported to operate only at a maximum load factor of just 27%. In other words, it will operate less than half as often as it does currently. That will be guaranteed by the design of the dispatchable contract for difference that we have agreed. When renewable power is abundant, Drax will not generate, and consumers will benefit from cheaper wind and solar instead.

Secondly, reflecting that change, the contract will deliver much better value for consumers. It will significantly reduce the amount paid in subsidies compared with the previous support mechanism. The new deal halves the subsidies for Drax—equivalent to a saving of nearly £6 per household per year. Furthermore, our analysis shows that the deal will save consumers £170 million in subsidy in each year of the agreement compared with the alternative of procuring gas in the capacity market. I can also inform the House that the deal limits the expected rate of return for Drax to a level below that of monopolies regulated by Ofgem, but while that is our central estimate, unlike the last Government we are not prepared to take the risk of prices soaring in response to volatile fossil fuel markets, so the agreement includes a built-in windfall mechanism, with rates of 30% and 60% that would claw back excess profits made by Drax, guaranteeing a much fairer deal for consumers than in the past.

Thirdly, we will introduce tough new measures on sustainability. We will increase the proportion of woody biomass that must come from sustainable sources from 70% to 100%. We will significantly cut the allowable supply chain emissions to a level in line with the much stricter regulations currently operating in the rest of Europe, and we will exclude material sourced from primary forests and old-growth forests from receiving support payments. There will be substantial penalties on Drax if those criteria are not met, and we will go further to ensure greater confidence that the standards will be met. I can inform the House that we will also appoint an independent sustainability adviser to work with my department, the Low Carbon Contracts Company and Ofgem to ensure that our monitoring and enforcement measures are robust and keep pace with the science.

To be clear to the House, taken together the measures represent a profound shift from the past on both sustainability and value for money. In that context, this is the right deal for security of supply and price in the period 2027 to 2031, given the circumstances that we inherited from the previous Government. Nevertheless, we recognise the strength of concerns in this House and across the country about the use of unabated biomass. It is not a long-term solution. We are determined that the next time such decisions are made, the Government are not left in the circumstances we have been.

We will do the work that was not done by the previous Administration on strong and credible low-carbon alternatives, so that in four years’ time we will have proper options. To help that process, we are setting up an independent review to consider how options for greenhouse gas removal, including large-scale power BECCS and direct air carbon capture and storage, can assist the UK in meeting our net-zero targets and ensure security of supply out to 2050. The review will take representations widely on the issues and report back in due course.

The steps that I have set out are about fulfilling our duty to ensure security of supply and the best deal for bill payers. We have come into office, faced up to the circumstances left by the previous Government, and delivered a step change in value for money and sustainability. The Government will do whatever it takes to deliver energy security, to protect bill payers now and into the future. I commend this Statement to the House”.

My Lords, I begin by welcoming a more limited role for Drax in our energy power system. However, we must acknowledge that because of the Government’s ideological energy policy—which prioritises naturally unreliable renewable technologies —more biomass subsidies are required. This would not be the case if the Government focused their attention on flexible and reliable baseload power. We must look for a more pragmatic approach: one which prioritises cheap, stable and reliable energy. It goes without saying that Drax’s biomass plant is not clean nor is it cheap. In fact, according to non-profit think tank Ember, burning wood at Drax produces a staggering four times the emissions of our last coal power plant. It is the UK’s biggest polluter, producing double the emissions of our largest gas station, operated by RWE at Pembroke.

As a result, the Government have to make difficult decisions which result in high levels of subsidy, burdening the taxpayer further. Will the Minister confirm what estimates have been made as to how much CO₂ will be released by burning trees at Drax for another four years, and how that compares to using gas to generate the same power?

Ultimately, we must consider the cost of the new agreement. At £160 per megawatt hour in today’s money, the new deal for Drax is 15% higher than its existing agreement of £138 per megawatt hour. Indeed, Baringa’s analysis has shown that bill payers will continue to pay over £450 million a year in subsidies to burn trees. Will the Minister confirm that the Government intend to carry out an independent analysis of how much the increased strike price will cost the British taxpayer? Will he give his word that Drax will not be allowed to burn wood from primary forests during its generation? Finally, while we welcome the new sustainability criteria, will he explain what steps will be taken to make this enforceable in practice?

I thank the Government for their Statement on short-term support for large-scale biomass generation as part of the UK’s energy generation mix. The Government inherited from the Conservatives a system where large-scale state subsidies are provided for the burning of biomass. This form of energy generation currently plays an important role in our energy system, providing some 5% of our national energy needs. These subsidies are worth some £2 million a day. Over time, Drax has received billions of pounds in government subsidies and from bill payers because wood pellets are classed as a source of renewable energy. Lucrative government subsidies are due to come to an end in 2027, hence the Statement before us today. The new agreement reached with Drax will run from 2027 to 2031 and will see the power station used only as a back-up to cheaper renewable sources of power such as wind and solar.

We can have lots of arguments about the sustainability calculations used to justify Drax. I listened with interest to the noble Lord, Lord Krebs, speaking on the Great British Energy Bill on Report last night, and I am not a scientist and do not have the exact answers. What I will say is that shipping wood across the Atlantic has a carbon footprint. Repeated incidence of old-growth forest being felled and burned undermines credibility and must stop.

Finally, the very fact that the Government are looking at carbon capture and storage to prolong the life of Drax is telling. Labour’s new plan will allow for four more years of unabated wood burning, which produces 18% more CO₂ than burning coal, according to the IPCC data. It takes nearly 100 years for this carbon to be pulled back from the atmosphere. Climate change driven by CO₂ emissions is clearly the greatest threat to humanity’s survival. Even a 100-year, long-term carbon-neutral Drax is hardly beneficial to anything we need to achieve to effect any real change in the race for humanity’s survival.