Drax talks operations, supply chain, Brexit in half-year results

By Anna Simet | August 01, 2016

Drax Group plc had a very good first half of the year operationally, is generating 70 percent of its electricity from renewable resources, has drastically lowered its emissions and the Sustainable Biomass Partnership continues to grow, according to Dorothy Thompson, Drax CEO, who presented the company’s half-year results on  July 26.

While profitability was lackluster, Thompson said it is notable that Drax is reducing its dependency on commodity prices. Production of wood pellets at Drax Biomass has been going “very well,” she said. “The plants and the port are operating well, so now we're looking at options for growth for that business.”

After discussing the company’s biomass sourcing and sustainability efforts, which include five key principles that Thompson said are strictly adhered to, Thompson provided an update on the Sustainable Biomass Partnership. “One of the things that has been very positive over this period is the progress with the SBP,” she said. If you recall, this is the group of major biomass generators who have clubbed together to create a certification system for sustainable biomass.”

Thompson said there are currently over 100 applications for certification, the vast majority of who are biomass producers. “But, it also includes traders and end users, so we have people certified in the whole chain of custody, from origin to plug…that's a very high take-up, and it's clear that SBP is actually going to be the certification of choice for the vast majority of this market.”

Thompson mentioned Brexit when describing policy changes that occurred during the first half of the year, but did not indicate it was of much concern to Drax at this time, and said the company looks forward educating he country’s new government of the benefits of biomass. “We see a new government as a positive for us,” she said. “Biomass is the most affordable, renewable large-scale for the consumer. We are flexible. We are reliable…this is becoming more and more of an important role to be played in the electricity system. We look forward to making the case for biomass in future unit conversions to the new government.”

Also related to Brexit, Thompson said that In terms of where Drax currently stands with it outstanding Contract for Difference (CfD) for conversion of its third biomass unit, it is “progressing well through the system. It's now really quite far advanced,” she said. “Unfortunately, EU does take a summer holiday, but we have had clear advice from both U.K. officials and EU officials following Brexit they will continue the process as normal.”

Drax expects to secure approval under state aid for the CfD in the fall, she said. “We really would wish to participate in future auctions for CfDs, and in this context, we were very pleased that the Competitions and Markets Authority, in its recent investigation, concluded that future auctions should be on a technology-neutral basis…we believe biomass would be highly competitive, especially if it was a truly fair auction and based on the final cost for the consumer.”

Thompson went on to discuss other positive developments and trends, including Drax’s emission reductions and supply chain successes. Nitrous oxide emissions are down 60 percent when compared to the same period last year, she said, for two reasons—an increase in biomass generation, but also investment in state-of-the-art NOx abatement technology.

The operation of the utility’s supply chain is another bright spot, according to Thompson. “This is very important, because biomass it not a liquid fuel,” she said. “Having an efficient and effective supply chain is very important. And when we designed the supply chain, we designed in optionality, so we could be absolutely confident that we have the biomass at the plant when and where required…I'm pleased to say we've actually had absolutely no generation disruption as a result of not-sufficient biomass, so our supply chain is working very well.”

Thompson said Drax is evaluating the potential to grow its supply chain business. “Ideally, we'd like 20 to 25 percent of our biomass to be self-supply,” she said. “There are real benefits to self-supply in this business…and that would mean roughly a doubling of our current capacity.”

Drax is also looking at opportunities to sell to third parties, she added.

Thompson emphasized that Drax is continuing to work on its future biomass technology, and that Drax continues to “stand ready to convert further biomass units, which we think will be a good part of the future solution for the U.K. energy sector.”