Drax sees challenging year, remains confident in biomass

By Anna Simet | February 26, 2016

Despite a tough year influenced by severe deterioration of the commodities market and a challenging regulatory environment, Drax had a very good operational year and stands ready to convert more units to biomass, said CEO Dorothy Thompson during the company’s Q4 and full-year 2015 financial earnings meeting.

From 2014 to 2015, earnings per share declined by 52 percent, and net profit decreased by 56 percent. Thompson attributed the plummeting shares to the U.K. government’s decision to remove the Climate Change Levy exemption for renewable electricity, which was announced last July and implemented in August.  

Thompson noted that 2016 would remain challenging due to continued deterioration in commodity markets and future impacts of the loss of levy exemption certificates.

Operationally, the company’s Baton Rouge, Louisiana, port facility is now operational and exporting pellets, Thompson reported, and it’s Morehouse, Louisiana, and Amite, Mississippi, pellet plants are operational and working up to full capacity. “We had a really, really difficult winter—so much rain—and it has hampered progress, but progress is still pleasing,” she said.

At the end of 2014, Drax became predominantly a biomass generator with two units fully converted under the United Kingdom’s Renewables Obligation. “In regulatory terms, the U.K. sustainability standards are now mandatory, and we’re confident that we’re compliant with them,” she said.

Thompson emphasized Drax’s dedication to and belief in sourcing feedstock sustainability, saying “it’s something we take very, very seriously at Drax. I want to be clear—we never take wood from any forest in decline, we do not cause deforestation, we never work in countries that lack proper regulation. We only source wood from forests that grow back and stay as forests, and we never source from protected areas.”

Thompson mentioned that the Sustainable Biomass Partnership, formed by industry stakeholders in 2013 to help producers of biomass inputs demonstrate compliance with a growing array of country-specific certification requirements, has made good progress developing sustainability standards. “SBP is handling something like 60 approval applications,” she said. “We expect SBP to very much become the global standard for biomass sustainability, and we were very pleased when in December, Ofgem (the U.K. government regulator for gas and electricity markets) confirmed that all biomass certified by SBP will be compliant with the U.K.’s mandatory sustainability standards, which became mandatory Dec. 1.”

Thompson provided an update on the conversion of Drax’s third coal unit to biomass. The project is now in phase two investigation for state aid clearance, she said. “We really look forward with talking directly with EU on the investigation…the consultation will close early next month. We continue to press for support for more biomass conversions, we stand ready to convert more units, and we believe others are also interested now that it’s been demonstrated that the biomass tech works well, is safe, reliable and flexible.”

Thompson added that another major reason that Drax believes biomass is an important part of the government’s proposal to take coal off of the system by 2025 is it’s affordability as a large-scale renewable.  She mentioned a recent study Drax published, conducted by ERA and Imperial College, found that on a whole system-cost basis, biomass is £7-£35 per megawatt-hour more affordable than other technologies and could save consumers in the region of £2 billion, assuming another 500-MW biomass conversion is done. “We think it’s a rather conservative assumption…the current administration has been clear—when it comes to new renewable generating capacity, affordability is a critical criterion.”