Drax: Further details of EU investigation now available

By Erin Voegele | February 04, 2016

The European Commission recently published additional details pertaining to its in-depth investigation to assess whether the U.K.’s plans to support the conversion of an additional unit of the Drax power plant to operate on biomass are in line with European Union state aid rules. 

On Jan. 26, Drax released a statement in response to the release of additional investigation details, noting it welcomes the opportunity to work with the U.K. government and EC to complete the state aid clearance process.

Details published in the report include a confirmation that the contract was notified with a strike price of £100 ($144.22) per MWh in 2012 prices indexed annually to the Consumer Price Index. The total budget for the project is an estimated £1.3 billion. The internal rate of return for the project is estimated at 4.7 percent on a real, pretax basis. According to the report, the proposed investment contract would end March 31, 2027. After this date, the U.K. expects the plant to close as it is not expected to be financially viable.

The report also indicates the unit conversion is designed to operate at 645 MW nominal electrical power output, with a mean net load factor of 70.5 percent. Overall, the unit’s generation is expected to account for approximately 1.1 percent of the average annual future electricity generation in the U.K.

The unit will use approximately 2.4 million dry tons of wood pellets per year. According to the report, wood pellets used in the Drax facility will have to satisfy the U.K. sustainability criteria, including a minimum of 60 percent greenhouse gas (GHG) savings against the average fossil grid intensity in the union. The criteria will increase to a minimum of 72 percent GHG savings starting in April 2020, and a minimum of 75 percent savings in April 2025. The sustainability criteria also contains provisions to protect biodiversity and to avoid unsustainable practices.

The report notes that Drax plans to procure wood pellets for the unit mainly via long-term offtake contracts. The biomass fuel would predominantly come from new pellet plant developments. Approximately 60-80 percent of the wood pellets required by Drax will be imported from the southeastern U.S., with approximately 16 percent expected to be sourced from South America. The remaining pellets would come from other regions, including Canada and Europe. In order to hedge supply risk, Drax is expected to source 100,000 metric tons per year on the spot market. That accounts for slightly more than 4 percent of the wood pellets required by the unit.

The conversion project is expected to save approximately 28.8 million tons of carbon dioxide over the lifetime of the investment contract and supply an average of approximately 3.6 TWh of electricity per year.

A full copy of the report can be downloaded from the EC website.