Drax faces political storm over claims it used loophole to keep £639m from bill payers
The chair of a leading Westminster panel has vowed to investigate reports Drax has been switching off one of its biomass units to reduce pay-outs to customers last winter.
Angus MacNeil, SNP MP and chair of the energy security and net zero committee told City PM the latest accusations were “concerning” and could be included in its upcoming review of customer protections.
He said: “These are concerning reports which merit further investigation, I will bring these facts to my wider committee for further deliberation. Further, my committee have an inquiry ‘Preparing for Winter’ and we will be looking at customer protections offered by Ofgem and if the legislation is robust enough regarding price controls.”
This follows former secretary of state for energy and climate change and current Liberal Democrat leader Ed Davey accusing Drax of “acting in in bad faith.”
“This is gaming the contract, which is supposed to protect consumers in these circumstances,” he said to Bloomberg yesterday.
Former BEIS minister Jacob Rees-Mogg accused Drax of “playing the system while shipping wood from Canada to the UK to burn, which is not environmentally friendly.’
“It’s a racket,” he told The Daily Mail last night.
Drax is under fresh scrutiny from MPs after Bloomberg accused Drax of slashing generation for weeks at a time from a taxpayer supported biomass generator covered by a profit cap agreed with the government.
This would have required them to hand back £639m to households, according to Bloomberg’s calculations, but instead Drax generated biomass power from other units covered by lucrative legacy renewable contracts without any profit caps.
The idle generator, known as ‘Unit 1’, has received £1.4bn in subsidies since a deal was first secured with Whitehall seven years ago.
Drax has slammed Bloomberg’s reports as “false, inaccurate, and misleading.”
It argues that the company prioritised units that were hedged with supplies, and that it would have cost households more to generate from units on shorter term arrangements or spot prices.
Ofgem to clamp down on generator activity
Ofgem does not have the powers to unpick contractual arrangements between the government and generators, but it has announced plans to adjust the so-called ‘balancing mechanism’ – which will now be scrutinised by energy security and net zero committee to ensure they are sufficiently stringent.
The watchdog wants to prevent generator owners from being able to hold back supplies, so they can no longer harness higher prices on the market for turning on back-up generation at times of peak demand – which would include biomass generators.
While this has been within the rules, it led to generators charging prices of up to £6,000 per megawatt hour for long duration supplies, leaving National Grid’s electricity system operator with a bill of £3.1bn to keep supply and demand matched through 2021-22.
This was then imposed on consumers at the height of the energy crisis – who were already grappling with record energy costs.
Last year, Drax reported a profit of £731m, up from £398m in 2021, cashing in on soaring power prices.
Collectively, it has received £6bn in green energy subsidies from British taxpayers over the last four-decades.
The company is currently locked in talks with the government over a potential £2bn biomass carbon capture project, with Drax looking for its legacy renewable contracts to remain supported over the development of the project.
This project is considered crucial in securing future revenues for Drax beyond 2027, when its existing subsidy for burning wood pellets in its power plant will come to an end.
Drax has been approached for comment.