Author: Alice Roberts

The role of biomass in securing reliable power generation

Key takeaways

  • Since 2021, there has been a sharp rise in the price of electricity, driven by a steep increase in wholesale gas prices in Europe in particular.
  • A number of factors, including the impact of COVID-19 and the effects of the war in Ukraine have contributed to driving gas prices to record highs.
  • The volatility of gas prices means the UK needs to find replacements for the role of gas in helping to balance the electricity grid.
  • Biomass and pumped storage hydro have the capacity to provide reliable, renewable energy to UK homes and businesses, while contributing to keeping the grid stable.

Great Britain, and many other parts of the world, are in a phase of energy uncertainty. Since 2021, soaring power prices have caused energy bills to escalate as much as five-fold and led to a string of collapses of UK energy suppliers.

As of October 2022, the annual energy bill for a UK household with “typical” energy consumption has been capped at £2,500 a year –  96% higher than the winter 2021/22 price cap – the upper limits the rates suppliers can charge for their default tariffs.

The costs of energy to end consumers would be even higher were it not for this energy price guarantee introduced by the UK government on 1 October and currently due to be in place until 31 March 2023. In Germany, the government has committed €200 billion towards a ‘defensive shield’ against surging energy prices, while France has capped energy price increases at 4% for 2022 and 15% from January 2023.

The primary factor in this change is the rise in natural gas prices.

Periods of turbulence driven by commodity prices emphasises the need for a diverse, secure supply of power generation available to the UK grid. As the energy system works through the necessary transition away from fossil fuels to renewable sources, the need for a reliable, low-carbon, affordable power becomes even greater.

What’s driving up gas prices? 

As the world went into lockdown in 2020 the demand for energy, including gas, dropped – and so did supply. When countries began to emerge from lockdown in 2021 and economies started to reboot, supply struggled to keep up with renewed demand, triggering a rise in the price of wholesale gas, and other fuels. The cold winter in 2020-2021 and unusually hot summers in 2021 and 2022 also dented European gas storage levels, further contributing to rising gas prices.

 An already uncertain energy market was further destabilised by Russia’s invasion of Ukraine. This was particularly true in Europe, (most notably Germany) where Russian gas at the time accounted for around 40% of total gas consumption. Gas prices began increase rapidly as a result of factors including fears that Russia would restrict the supply of gas to Europe in response to sanctions against the country, or that an embargo on Russian gas would be introduced.

Constrained gas supplies also increased global demand for alternative sources like liquified natural gas (LNG) imports, which account for about 22% of the UK’s gas. This increase in demand has pushed up the price of these alternatives, forcing countries to compete to attract supplies.

There are several reasons why higher gas prices have such a significant impact on UK energy prices. Firstly, a considerable proportion of UK electricity comes from gas. In the second quarter of 2022, gas represented 42% of the UK energy mix, making it the country’s single largest source of electricity.

The UK also relies heavily on gas to heat its homes. And with those homes being some of the oldest and least energy-efficient in Europe, it takes more gas to heat them up and keep them warm.

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The role of biomass and pumped storage hydro in ensuring security of supply 

In addition to the pressures placed on gas and electricity supplies since 2021, the UK’s journey to net zero depends on increasing reliance on intermittent sources of power, such as wind and solar. As such, there is a renewed need to ensure a diverse range of power generation sources to secure electricity supply globally.

As gas becomes less economical, biomass offers a renewable reliable, dispatchable source of power that can balance the grid and supply baseload power regardless of weather conditions.

The Turbine Hall at Cruachan Power Station

Our four 645 MW biomass-fuelled generating turbines at Drax Power Station make it the largest single renewable source of power in the UK. The plant can produce enough electricity to power the equivalent of five million homes come rain or shine.

Drax’s Cruachan pumped storage hydro power station in the Scottish Highlands also offers National Grid the capacity to store 440 MW of renewable power. By absorbing excess electricity from zero carbon sources, like wind and solar, Cruachan can store and deploy power when the grid needs it most.

The ability of pumped storage hydro and biomass plants to store energy and quickly adjust output as required will become ever more important as the UK’s use of renewables grows and there are fewer spinning turbines connected to the grid.  As renewable, non-intermittent sources of electricity, biomass and pumped storage hydro are central to a safe, economic, and stable electricity grid – and to the UK’s low-carbon energy future.

The key to sustainable forests? Thinking globally and managing locally

Key takeaways:

  • Working forests, where wood products are harvested, are explicitly managed to balance environmental and economic benefits, while encouraging healthy, growing forests that store carbon, provide habitats for wildlife, and space for recreation.
  • But there is no single management technique. The most effective methods vary depending on local conditions.
  • By employing locally appropriate methods, working forests have grown while supporting essential forestry industries and local economies.
  • Forests in the U.S. South, British Columbia, and Estonia all demonstrate how local management can deliver both environmental and economic wins.

Forests are biological, environmental, and economic powerhouses. Collectively they are home to most of the planet’s terrestrial biodiversity. They are responsible for absorbing 7.6 billion tonnes of carbon dioxide (CO2) equivalent per year, or roughly 1.5 times the amount of CO2 produced by the United States on an annual basis. And working forests, which are actively managed to generate revenue from wood products industries, are important drivers for the global economy, employing over 13 million people worldwide and generating $600 billion annually.

But as important as forests are globally, the key to maximizing working forests’ potential lies in smart, active forest management. While 420 million hectares of forest have been lost since 1990 through conversion to other land uses such as for agriculture, many working forests are actually growing both larger and healthier due to science-based management practices.

The best practices in working forests balance economic, social, and environmental benefits. But just as importantly, they are tailored to local conditions and framed by appropriate regional regulations, guidance, and best-practice.

The following describes how three different regions, from which Drax sources its biomass, manage their forests for a sustainable future.

British Columbia: Managing locally for global climate change

British Columbia is blanketed by almost 60 million hectares of forest – an area larger than France and Germany combined. Over 90% of the forest land is owned by Canada’s government, meaning the province’s forests are managed for the benefit of the Canadian people and in collaboration with First Nations.

From the province’s expanse of forested land, less than half a percent (0.36%) is harvested each year, according to government figures. This ensures stable, sustainable forests. However, there’s a need to manage against natural factors.

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In 2017, 2018, and 2020 catastrophic fires ripped through some of British Columbia’s most iconic forest areas, underscoring the threat climate change poses to the area’s natural resources. One response was to increase the removal of stands of trees in the forest, harvesting the large number of dead or dying trees created by pests that have grown more common in a warming climate.

By removing dead trees, diseased trees, and even some healthy trees, forest managers can reduce the amount of potential fuel in the forest, making devastating wildfires less likely. There are also commercial advantages to this strategy. Most of the trees removed are low quality and not suitable for processing into lumber. These trees can, however, still be used commercially to produce biomass wood pellets that offer a renewable alternative to fossil fuels. This means local communities don’t just get safer forests, they get safer forests that support the local economy.

The United States: Thinning for healthier forests

The U.S. South’s forests have expanded rapidly in recent decades, largely due to growth in working forests on private land. Annual forest growth in the region more than doubled from 193 million cubic metres of wood in 1953 to 408 million cubic meters by 2015.

This expansion has occurred thanks to active forest product markets which incentivise forest management investment. In the southern U.S. thinning is critical to managing healthy and productive pine forests.

Thinning is an intermediate harvest aimed at reducing tree density to allocate more resources, like nutrients, sunlight, and water, to trees which will eventually become valuable sawtimber. Thinning not only increases future sawtimber yields, but also improves the forest’s resilience to pest, disease, and wildfire, as well as enhancing understory diversity and wildlife habitat.

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While trees removed during thinning are generally undersized or unsuitable for lumber, they’re ideal for producing biomass wood pellets. In this way, the biomass market creates an incentive for managers to engage in practices that increase the health and vigour of forests on their land.

The results speak for themselves: across U.S. forestland the volume of annual net timber growth 36% higher than the volume of annual timber removals.

A managed working forest in the US South

Estonia: Seeding the future

Though Estonia is not a large country, approximately half of it is covered in trees, meaning forestry is integral to the country’s way of life. Historically, harvesting trees has been an important part of the national economy, and the government has established strict laws to ensure sustainable management practices.

These regulations have helped Estonia increase its overall forest cover from about 34% 80 years ago to over 50% today. And, as in the U.S. South, the volume of wood harvested from Estonia’s forests each year is less than the volume added by tree growth.

Sunrise and fog over forest landscape in Estonia

Sunrise and fog over forest landscape in Estonia

Estonia has managed to increase its growing forest stock by letting the average age of its forests increase. This is partially due to Estonia having young, fast-growing forests in areas where tree growth is relatively new. But it is also due to regulations that require harvesters to leave seed trees.

Seed trees are healthy, mature trees, the seeds from which become the forest’s next generation. By enforcing laws that ensure seed trees are not harvested, Estonia is encouraging natural regeneration of forests. As in the U.S. South protecting these seed trees from competition for water and nutrients means removing smaller trees in the area. While these smaller trees may not all be suitable for lumber, they are a suitable feedstock for biomass. It means managing for natural regeneration can still have economic, as well as environmental, advantages.

Different methods, similar results

Laws, landownership, and forestry practices differ greatly between the U.S. South, British Columbia, and Estonia, but all three are excellent examples of how local forest management contributes to healthy rural economies and sustained forest coverage.

While there are many different strategies for creating a balance between economic and environmental interests, all successful strategies have something in common: They encourage healthy, growing forests.

Why the Humber represents Britain’s biggest decarbonisation opportunity

Richard Gwilliam, Head of Cluster Development at Drax

Key takeaways:

  • The Humber industrial cluster contributes £18 billion a year to the UK economy and supports 360,000 jobs in heavy industry and manufacturing.
  • As demand for industrial products with green credentials rises and net zero targets demand decarbonisation, businesses in the Humber need to begin implementing carbon capture at scale.
  • The size of the Humber and diversity of industries make it a significant challenge but if we get it right, the Humber will be a world leader in decarbonisation.
  • Without investment in decarbonisation infrastructure the region risks losing its status as a world leading industrial cluster putting hundreds of thousands of jobs at risk.

When the iconic Humber Bridge opened in June 1981, it did more than just set records for its size. It connected the region, uniting both communities and industries, and allowing the Humber to become what it is today: a thriving industrial hub that contributes more than £18 billion to the UK economy and supports some 360,000 jobs.

As the UK works towards a low-carbon future, the shift to a green economy will require new regional infrastructure, that once again unites the Humber’s people and businesses around a shared goal.

While the Humber Bridge connected the region across the estuary waters, a new subterranean pipeline that can transport the carbon captured from industries, will unify the region’s decarbonisation efforts.

It’s infrastructure that will be crucial in helping the UK reach its net zero goals, but also cement the Humber’s position as a global decarbonisation leader.

The Humber Bridge

Capturing carbon across the Humber

Capturing carbon, preventing emissions from entering the atmosphere and storing them safely and permanently, is a fundamental part of decarbonising the economy and tackling climate change. Aside from the chemical engineering required to extract carbon dioxide (CO2) from industrial emissions, one of the key challenges of carbon capture is how you transport it at scale to secure storage locations, such as below the North Sea bed where the carbon can be permanently trapped and sequestered.

Click to view/download

Engineers at Drax Power Station

At Drax, we’re pioneering bioenergy with carbon capture and storage (BECCS) technology. But carbon capture will play an important role in decarbonising a wide range of industries. The Humber region not only produces about 20% of the UK’s electricity, it’s also a major hub for chemicals, refining, steel making and other carbon-intensive industries.

The consequence of this industrial mix is that the Humber’s carbon footprint per head of population is bigger than anywhere else in the country. At an international level it’s the second largest industrial cluster by CO2 emissions in the whole of Western Europe. If the UK is to reach net zero, the Humber must decarbonise. And carbon capture and storage will be instrumental in achieving that.

The scale of the challenge in the Humber also makes it an opportunity to significantly reduce the country’s overall emissions and break new ground, implementing carbon capture innovations across a wide range of industries. These diverse businesses can be united in their collective efforts and connected through shared decarbonisation infrastructure – equipment to capture emissions, pipelines to transport them, and a shared site to store them safely and permanently.

Economies of scale through shared infrastructure

The idea of a CO2 transport pipeline traversing the Humber might sound unusual, but large-scale natural gas pipelines have criss-crossed the region since the late 1960s when gas was dispatched from the Easington Terminal on the east Yorkshire coast under the Humber to Killingholme in North Lincolnshire. Further, the UK’s existing legislation creates an environment to ensure they can be operated safely and effectively. CO2 is a very stable molecule, compared to natural gas, and there are already thousands of miles of CO2 pipelines operating around the US, where it’s historically been used in oil recovery.

A shared pipeline also offers economies of scale for companies to implement carbon capture, allowing the Humber’s cluster of carbon-intensive industries to invest in vital infrastructure in a cost-effective way. The diversity of different industries in the region, from renewable baseload power generation at Drax to cutting-edge hydrogen production, also offers a chance to experiment and showcase what’s possible at scale.

The Humber’s position as an estuary onto the North Sea is also advantageous. Its expansive layers of porous sandstone offer an estimated 70 billion tonnes of potential CO2 storage space.

The Humber Estuary

 

But this isn’t just an opportunity to decarbonise the UK’s most emissions-intensive region, it’s a stage to present a new green industrial hub to the world. A hub that could create as many as 47,800 jobs, including high quality technical and construction roles, as well as other jobs throughout supply chains and the wider UK economy.

British innovation as a global export

As industries of all kinds across the world race to decarbonise, there’s an increasing demand for products with green credentials. If we can decarbonise products from the region, such as steel, it will give UK businesses a global edge. Failure to follow through on environmental ambitions, however, will not just damage the cluster’s status, it will put hundreds of thousands of jobs at risk.

Breaking new ground is difficult but there are first-mover advantages. The products and processes trialled and run at scale within the Humber offer intellectual property that industrial hubs around the world are searching for, creating a new export for the UK.

But this vision of a decarbonised Humber, that exports both its products and knowledge to the world, is only possible if we take the right action now. We have a genuine global leadership position. If we don’t act now, that will be lost.

Through projects like Zero Carbon Humber and the East Coast Cluster, alongside Net Zero Teesside, the region’s businesses have shown our collective commitment to implementing decarbonisation at scale through collaboration.

As a Track 1 cluster, the Humber presents one of the UK’s greatest opportunities to level up – attracting global businesses and investors, as well as protecting and creating skilled jobs. We need to seize this moment and put in place the infrastructure that will put the Humber at the forefront of a low-carbon future.

Healthy forests need markets

Forest in LaSalle catchment area

View translated versions [PDFs]:

Key takeaways:

  • Misunderstandings about the role primary woody biomass plays in providing secure, reliable and renewable power will have negative and material impacts across Europe and around the world.
  • Planned policy changes in Europe risk increasing costs to heat people’s homes, jeopardising energy security and failing to meet critical climate targets, potentially harming forest health globally.
  • European Parliament proposals to introduce a cap and a subsidy ban on utilising sustainably sourced, harvesting residues are deeply flawed and will have negative impacts on the ability for Europe to meet its decarbonisation targets. 
  • Proposals to introduce a cap and “phase down” the use of primary woody biomass are deeply flawed and fail to recognise the critical role markets for low-grade, low-value wood play in ensuring positive outcomes for climate and nature.
  • Biomass should not be sourced from high-quality, high-value sawlogs. EU policy decision making on primary woody biomass should ensure this is the case, not restrict good, sustainable sources of biomass such as harvesting residues or the co-products of forest management.
  • Without a market for low-grade or low-value wood there is less incentive for landowners to invest in sustainable forestry practices, reducing the overall health of forests and increasing the risk of pests, disease, and forest fires.

Introducing restrictions to reduce the use of primary woody biomass will not stop harvesting from taking place, which is primarily driven by long-lived, solid wood product sectors

Biomass is the EU’s largest source of renewable energy by some distance. In 2020, solid biomass – woodchips, pellets, and renewable waste materials – accounted for 40% of the final consumption of renewable energy.

Solid biomass, like wood pellets, comes from low-grade or low-value wood from actively managed working forests. The sale of this wood provides a vital revenue stream for commercial foresters practising sustainable forest management. But proposed changes to the EU’s Renewable Energy Directive (RED III) will lead to unintended consequences for sustainable forestry and the energy sector.

An incentive for active forest management

The low-quality or low-value wood used by the biomass sector includes the residues from practices like thinning – periodically felling a proportion of the forest to promote healthy, vigorous growth. This is an important element of active forest management. Fewer trees mean less competition for light, water and nutrients, while the removal of weaker and diseased trees protects against the spread of pests.

Less competition and danger helps landowners grow more high-value sawlogs, which can be sold for construction and other solid-wood product using sectors. This market dynamic makes sawlogs too expensive to use for biomass pellet production.

Thinning also minimises the risk of wildfire, maximises carbon sequestration and improves biodiversity. In the US Southeast, for example, thinning has helped to restore habitats for rare and threatened species that thrive in open pine forests.

Wood removed through thinning includes logs that are too small, misshapen or simply unsuitable to be sold as sawlogs, as well as treetops and branches.

Click to view/download

The proposed amendments under RED III would confusingly put both valuable sawlogs and low-grade wood  under the EU classification of ‘primary woody biomass’.

The proposal would also place extreme restrictions around how energy produced using primary woody biomass is accounted for in progress towards renewable energy targets. This will negatively  impact the market for low-value wood and in turn, reduce economic incentives to sustainably manage forests. Proposals to introduce a cap and “phase down” of this type of material will stunt the entire growth of the sector, which is at odds to widely held views globally that demand for sustainable biomass will increase towards 2050.

Why markets matter

Without a market for lower quality or lower value wood, there is less incentive to manage forests sustainably. This increases the risk of pests, disease and wildfire, and compromises the long-term health of the forest. Wood that would be removed through thinning or final harvest, for example, may be left to rot on site or be burned.

In British Columbia, forest owners must, by law, dispose of waste wood, meaning millions of tonnes are burned, releasing an estimated 3 million tonnes of CO2 a year into the atmosphere.

The biomass sector has long operated in Europe and North America; regions where deforestation is currently not a threat to working forests even with the sustained use of biomass which might become categorised as ‘primary woody biomass’.

Through sustainable management the US South, where Drax sources around a third of our biomass, saw annual forest growth increase by 112% between 1953 and 2015, while forest coverage increased by 108%.

Supporting biomass this decade to decarbonise the next

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Key takeaways

  • Biomass and carbon removals through bioenergy with carbon capture and storage (BECCS) can help sectors that are essential, but struggle to decarbonise like agriculture, steel, cement, and aviation, move away from fossil fuels
  • Policy decisions made now must support the ongoing development of biomass and BECCS to ensure their role in a net zero future.
  • Legislation and regulation must support the scale up of negative emissions technologies now, which should include strong ambition and importantly, realistic timeframes.

Reaching climate goals depends on decarbonisation across every sector of the global economy, all the way through the supply chain. For carbon-intensive industries, such as steel, cement, chemicals and the aviation sector, this is a huge challenge.

Bioenergy, produced from sustainably sourced biomass wood pellets, can play a crucial role in replacing fossil fuels and reducing emissions from these industries. The addition of bioenergy with carbon capture and storage can even allow such industries to take the crucial step of becoming carbon negative.

Achieving ambitious BECCS plans in Europe requires action now to put in place the policy framework, and support for the advancement of biomass technologies throughout the 2020s, that can enable BECCS to be delivered at scale in the 2030s.

Proposed changes to biomass support in the 2020s in the EU’s Renewable Energy Directive (RED III) could help reach this goal, but policy decisions must be realistic and not set unachievable expectations, or hamper investment in these critical solutions. Specifically, BECCS is unlikely to be scaled up until later in the 2020s, inevitably after 2026. REDIII must acknowledge this and direct support for carbon capture technologies on similar timelines to overall EU emissions reductions targets, for example 2030.

Decarbonising heavy industry clusters

One of the key ways to tackle industrial emissions is through the decarbonisation of Europe’s industrial clusters. Zero Carbon Humber aims to be the world’s first net zero cluster by 2040 through shared carbon capture and storage (CCS) and hydrogen infrastructure.

Drax Power Station serves as an anchor for the project, with BECCS technology already at a more advanced stage than at any other project around the world. Through the emissions removals BECCS makes possible, we aim to be a carbon negative business by 2030 and play a key part in decarbonising the Humber – the UK’s single most emissions intensive region.

BECCS technology, at Drax and globally, depends on sustained collaboration between governments and industries. Importantly, Drax is on track to deliver the first scaled up BECCS project by 2027. We are working with government and industry to ensure both infrastructure availability and appropriate monitoring, reporting and verification is in place at the same time.

Fuelling the future of intensive industries

Negative emissions technologies, such as BECCS, have a key role to play in decarbonising other hard-to-abate industries.

Steel, cement, and chemical production processes require high amounts of energy. Today the vast majority of this comes from fossil fuels. However, biomass, and carbon removal through BECCS, can rapidly decarbonise these carbon-intensive sectors.

Sustainable aviation fuels (SAF) offer another way to decarbonise a vital, but emissions-heavy industry. Research into SAF is ongoing, with a range of feedstocks currently in the mix, including animal fats, vegetable oils, and algae. But the production of these fuels has its own carbon footprint, and BECCS has the potential to mitigate this.

The Sustainable Aviation Fuels Innovation Centre at the University of Sheffield, the first research and testing centre of its kind in Europe, is set to open in 2023. The facility will lead R&D into how BECCS can be used in the manufacture of zero-carbon fuels.

Sustained research and investment into biomass and BECCS innovation are crucial throughout this decade, to prepare essential technology for the next. According to the Intergovernmental Panel on Climate Change (IPCC), 10bn tonnes of CO2 may need to be captured by negative emissions technologies annually between now and 2050 to prevent catastrophic climate change.

BECCS is the most scalable of these and has the potential to be integrated into a wide range of industries. But the right action and policies are needed now to create net zero industries by 2050.

Bridging the skills gap to a net zero future starts with education

Jane Breach, Community, and Education lead for Drax Power Station

Key takeaways:

  • Decarbonising the Humber industrial cluster could create as many as 50,000 new jobs – requiring a workforce skilled in the low carbon technologies.
  • Drax’s engagement with local education establishments is important to us as a good neighbour to communities and in bridging the emerging skills gap.
  • We’ve worked closely with nearby Selby College to create a syllabus that will equip both current and future Drax employees with skills for low carbon technologies, including hands-on carbon capture, usage, and storage engineering.
  • Across the UK decarbonising businesses must identify what skills their future employees will need and work with educators to deliver curriculums.

At Drax, we have a long-lasting commitment to promoting Science, Technology, Engineering, and Maths (STEM) education in the Yorkshire and Humber region and beyond.

Delivering the Zero Carbon Humber and the East Coast Cluster initiatives means that we will need a highly skilled labour force to help us reach the region’s goal of building the world’s first net zero industrial region. In practice, this will create roughly 50,000 new jobs in the region – requiring a workforce who are proficient in new and emerging low carbon technologies.

Businesses in education

We have a responsibility to be a good neighbour, support education in our local area, to help secure our talent pipeline, and provide inspiration.

Bruce Heppenstall Drax Plant Director, Lewis Marron, Drax 4th Year Apprentice, and Liz Ridley Deputy Principal at Selby College.

One way we’re helping to develop the next generation of green economy colleagues is through our partnership with nearby Selby College. In 2020, we announced a £180,000 five-year partnership with the college, aimed at supporting education and skills. Last year, we expanded our partnership even further and developed the UK’s first educational programmes dedicated to carbon capture.

Working together, we secured more than £270,000 in funding from the government for the programme, enabling the college to create a new training course in carbon capture, usage, and storage (CCUS) technologies. Our engineers work closely with the college, developing a syllabus that will equip both current and future Drax employees with the vital skills needed to operate negative emissions technology.

This even includes a rig that mirrors the CCUS equipment used in our bioenergy with carbon capture and storage (BECCS) pilot, giving students the chance to work with real equipment rather than just the theory. We believe that by showing students the kind of work we do on-site we can give them a deeper understanding of how we operate.

The Department of Education highlighted the success of our partnership as an example of how business and education can work together – something I believe is crucial to bridging the emerging low carbon skills gap.

The skills gap and future STEM workers

Our work with Selby College has highlighted the significant need to educate and upskill the UK’s workforce in low carbon technologies as quickly as possible. Although most organisations recognise the need to decarbonise, they are uncertain about what they and their employees need to do to achieve this.

There are a lot of conversations about the need for green skills and re-skilling employees in carbon-intensive sectors but to put a real definition on what’s needed is a lot harder. Every company must examine its business plan and try to unpick what skills they will need in 10, 20, or even 50 years down the line – and in such a fast moving world this can prove to be a real challenge.

At Drax, we’re committed to building on our values, as an innovative and best in class place where we care about what matters. We aim to do this by identifying training needs that are linked with new technologies beyond just BECCS, and working together with educators to make sure the relevant courses can either be distributed to other SMEs and large companies or adapted to help retrain people in other sectors.

Our commitment to STEM and education starts with young people and a hands-on curriculum delivered by our engineers to help support teachers. We want to develop deeper, more impactful education programmes that offer them multiple interactions with Drax, our engineers and operations throughout a person’s education.

In my role, you don’t always see the immediate impact. However, when you start talking to people, you realise that you’ve impacted them at some stage on their career journey. That impact is what’s really important to us and to building a net zero Humber.

Find more information about our partnership with Selby College here.

Acquisition of 90,000 tonnes Canadian pellet plant

RNS Number: 8081U
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

The plant, which has been operating since 1995, has the capacity to produce 90,000 tonnes of wood pellets a year, primarily from sawmill residues. Around half of the output from the plant is currently contracted to Drax.

The plant is located close to the Group’s Armstrong and Lavington plants and the port of Vancouver, and has 32 employees, who are expected to join Drax.

Following completion of the acquisition the plant is expected to contribute to the Group’s strategy to increase pellet production to 8 million tonnes a year by 2030.

The acquisition is expected to complete in Q3 2022.

Drax CEO, Will Gardiner

Will Gardiner, Drax Group CEO said:

“We look forward to welcoming the Princeton pellet plant team to Drax Group as we continue to build our global pellet production and sales business, supporting UK security of supply and increasing pellet sales to third parties in Asia and Europe as they displace fossil fuels from energy systems. Drax’s strategy to become a world leader in sustainable biomass, supports international decarbonisation goals and puts Drax at the heart of the global, green energy transition.”

Enquiries:

Drax Investor Relations: Mark Strafford
+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis
+44 (0) 7712 670 888

Website: www.Drax.com

END

View RNS here

Half year results for the six months ended 30 June 2022

RNS Number: 6883T
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Six months ended 30 JuneH1 2022H1 2021
Key financial performance measures
Adjusted EBITDA (£ million)(1)(2)225186
Continuing operations225165
Discontinued operations – gas generation-21
Net debt (£ million)(3)1,1011,029
Adjusted basic EPS (pence)(1)20.014.6
Interim dividend (pence per share)8.47.5
Total financial performance measures from continuing operations
Operating profit (£ million)20784
Profit before tax (£ million)20052

Drax CEO, Will Gardiner [click to view/download]

Will Gardiner, CEO of Drax Group, said:

“As the UK’s largest generator of renewable power by output, Drax plays a critical role in supporting the country’s security of supply. We are accelerating our investment in renewable generation, having recently submitted planning applications for the development of BECCS at Drax Power Station and for the expansion of Cruachan Pumped Storage Power Station.

“As a leading producer of sustainable wood pellets we continue to invest in expanding our pellet production in order to supply the rising global demand for renewable power generated from biomass. We have commissioned new biomass pellet production plants in the US South and expect to take a final investment decision on up to 500,000 tonnes of additional capacity before the end of the year.

“As carbon removals become an increasingly urgent part of the global route to Net Zero, we are also making very encouraging progress towards delivering BECCS in North America and progressing with site selection, government engagement and technology development.

“In the UK and US we have plans to invest £3 billion in renewables that would create thousands of green jobs in communities that need them, underlining our position as a growing, international business at the heart of the green energy transition.”

Financial highlights

  • Adjusted EBITDA £225 million up 21% (H1 2021: £186 million)
  • Strong liquidity and balance sheet – £539 million of cash and committed facilities at 30 June 2022
    • Expect to be significantly below 2 times Net Debt to Adjusted EBITDA by the end of 2022
  • Sustainable and growing dividend – expected full year dividend up 11.7% to 21.0 p/share (2021: 18.8 p/share)
    • Interim dividend of 8.4 p/share (H1 2021: 7.5 p/share) – 40% of full year expectation

Engineers at Cruachan Power Station

Progress with strategy in H1 2022

  • To be a global leader in sustainable biomass – targeting 8Mt of capacity and 4Mt of sales to 3rd parties by 2030
    • Addition of 0.4Mt of operational pellet production capacity
    • New Tokyo sales office opened July 2022
  • To be a global leader in negative emissions
    • BECCS – UK – targeting 8Mt of negative emissions by 2030
    • Planning application submitted and government consultation on GGR business models published with power BECCS business model consultation expected “during the summer”
    • BECCS – North America – targeting 4Mt of negative emissions by 2030
    • Ongoing engagement with policy makers, screening of regions and locations for BECCS
  • To be a leader in UK dispatchable, renewable power
    • >99% reduction in scope 1 and 2 emissions from generation since 2012
    • UK’s largest generator of renewable power by output – 11% of total
    • Optimisation of biomass generation and logistics to support security of supply at times of higher demand
    • Planning application submitted for 600MW expansion of Cruachan and connection agreement secured

Outlook for 2022

  • Expectations for full year Adjusted EBITDA unchanged from 6 July 2022 update which reflected optimisation of biomass generation and logistics to support UK security of supply this winter when demand is high, a strong pumped storage performance and agreement of a winter contingency contract for coal

Future positive – people, nature, climate

  • People
    • Diversity and inclusion programme – inclusive management, promoting social mobility via graduates, apprenticeships and work experience programmes
    • Continued commitment to STEM outreach programme

An apprentice working in the turbine hall at Drax Power Station, North Yorkshire

  • Nature and climate
    • Science-based sustainability policy fully compliant with current UK and EU law on sustainable sourcing and aligned with UN guidelines for carbon accounting
    • Biomass produced using sawmill and forest residuals, and low-grade roundwood, which often have few alternative markets and would otherwise be landfilled, burned or left to rot, releasing CO2 and other GHGs
    • Increase in sawmill residues used by Drax to produce pellets – 67% of total fibre (FY 2021: 62%)
    • 100% of woody biomass produced by Drax verified against SBP, SFI, FSC®(4) or PEFC Chain of Custody certification with third-party supplier compliance primarily via SBP certification

Operational review

Pellet Production – increased production, flexible operations to support UK generation, addition of 0.4Mt of capacity 

  • Adjusted EBITDA up 13% to £45 million (H1 2021: £40 million)
    • Pellet production up 54% to 2.0Mt (H1 2021: 1.3Mt) (including Pinnacle since 13 April 2021)
  • Addition of c.0.4Mt of new production capacity
    • Commissioning of Demopolis and Leola, expect to reach full production capacity in H2 2022
  • Total $/t cost of $146/t(5) – 2% increase on 2021 ($143/t(5))
    • Increase in utility costs in Q2-22 (>20% increase)
    • Fuel surcharge – barge and rail to port (> 10% increase)
    • Commissioning costs at Demopolis and Leola plants
    • Net reduction in other costs, inclusive of optimisation of supply chain to meet reprofiling of Generation
    • No material change in fibre costs
  • Areas of focus for further savings – wider range of sustainable biomass fibre, continued focus on operational efficiency and improvement, capacity expansion, innovation and technology
  • Continue to target final investment decision on up to 0.5Mt of new capacity in H2 2022

Generation – increased recognition of value of long-term security of supply from biomass and pumped storage

  • Adjusted EBITDA from continuing operations £205 million up 24% (H1 2021: £165 million)
    • Optimisation of biomass generation and logistics to support security of supply at times of higher demand
    • Summer – lower power demand, lower power generation and sale of reprofiled biomass
    • Winter – maximise biomass deliveries to support increased generation at times of higher demand
    • Four small, planned biomass outages completed in H1, supporting higher planned generation in H2-22
    • Strong portfolio system support performance (balancing mechanism, ancillary services and optimisation)
    • Higher cost of sales – logistics optimisation, biomass and system costs
  • Six-month extension of coal at request of UK government – winter contingency contract for security of supply
    • Closure of coal units in March 2023 following expiration of agreement with ESO at end of March 2023
    • Fixed fee and compensation for associated costs, including coal
    • Remain committed to coal closure and development of BECCS, with no change to expected timetable
  • As at 21 July 2022, Drax had 25.4TWh of power hedged between 2022 and 2024 on its ROC and hydro generation assets at an average price of £95.9/MWh, with a further 2.3TWh equivalent of gas sales (transacted for the purpose of accessing additional liquidity for forward sales from ROC units and highly correlated to forward power prices) plus additional sales under the CfD mechanism
Contracted power sales 21 July 2022202220232024
ROC (TWh(6))11.78.84.5
Average achieved £ per MWh87.298.3109.5
Hydro (TWh)0.30.1-
-Average achieved £ per MWh133.1242.0-
Gas hedges (TWh equivalent)(0.1)0.51.9
-Pence per therm361.0145.8135.0
Lower expected level of ROC generation in 2023 due to major planned outages on two units

Customers – renewable power under long-term contracts to high-quality I&C customers and decarbonisation products

  • Adjusted EBITDA of £24 million (H1 2021: £5 million loss) – continued improvement following impact of Covid-19
    • principally in the SME business
    • Includes benefit of excess contracted power sold back into merchant market
  • Continued development of Industrial & Commercial (I&C) portfolio
    • 9TWh of power sales – 21% increase compared to H1 2021 (5.7TWh)
    • Focusing on key sectors to increase sales to high-quality counterparties supporting generation route to market
    • Energy services to expand the Group’s system support capability and customer sustainability objectives
  • SME – increasingly stringent credit control in SME business to reflect higher power price environment

Other financial information

  • Total operating profit from continuing operations of £207 million (H1 2021: £84 million), including £130 million mark-to-market gain on derivative contracts and £27 million of exceptional costs
  • Total profit after tax from continuing operations of £148 million includes an £8 million non-cash charge from revaluing deferred tax balances following confirmation of UK corporation tax rate increases from 2023 (H1 2021: £6 million loss including a £48 million non-cash charge from revaluing deferred tax balances)
  • Capital investment of £60 million (H1 2021: £71 million) – primarily maintenance
    • Full year expectation of £290–£310 million, includes £120 million for Open Cycle Gas Turbine projects, £20 million BECCS FEED and site preparation, and £10 million associated with new pellet capacity, subject to final investment decision (FID)
  • Depreciation and amortisation of £121 million (H1: £89 million) reflects inclusion of Pinnacle for a full six months, plant upgrades and accelerated depreciation of certain pellet plant equipment in line with planned capital upgrades
  • Group cost of debt below 3.6%
  • Cash Generated from Operations £185 million (H1 2021: £138 million)
  • Net Debt of £1,101 million (31 December 2021: £1,044 million), including cash and cash equivalents of £288 million (31 December H1 2021: £317 million)
    • Continue to expect Net Debt to Adjusted EBITDA significantly below 2 times by end of 2022, reflecting optimisation of generation and logistics to deliver higher levels of power generation and cash flows in H2 2022

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