Drax In Talks With UK Government For £2 Billion CCS Project

By Michael Kern - Mar 30, 2023

British power giant Drax surged by 5% in early trading on Thursday after it disclosed that it was in talks with the government about a proposed carbon capture project. 

Britain intends to bolster its energy security and independence through investment to move towards more affordable and cleaner energy sources. 

One such initiative includes carbon capture and storage projects. 

Drax aims to capitalize on this push and develop a £2 billion CCS project alongside its 2.6 GW biomass power plant in northern England. 

Drax paused the project temporarily, asking for clarity from the government over the funding model.

On Thursday, Drax disclosed that it had been invited to start bilateral discussions with the government to continue the project. 

Drax CEO, Will Gardiner, said in a statement that the company stood ready to progress its £2 billion investment plan with the government's proper engagement and a fast decision-making process.

Initially, Drax's share prices fell by over 12% when the government announced that it had not chosen the Drax project for its Track-1 scheme, which is part of its £20 billion per year funding initiative announced this month for carbon capture technology. 

Shares bounced back and jumped 5% after the company revealed it was in talks with the government.

Drax is concerned that its existing subsidy scheme for the biomass units, which provide approximately 6% of Britain's electricity, would expire in 2027, making the units unviable, according to its spokesperson. 

Analysts at Citi stated in a research report that "The concern now for Drax is how do they fill the cashflow cliff that exists post-2027."

Biomass power generation has received significant disapproval from environmental activists who argue that it is not carbon-neutral or sustainable. 

Further, they claim that the production of pellets can contribute to deforestation. 

Drax maintains that it only uses wood residuals or byproducts from trees primarily used for lumber and that sustainably managed demand for wood from forests can help increase forest growth.

Drax's proposed CCS project is considered significant progress in Britain's efforts to improve energy security and reduce carbon emissions. 

According to Drax, the scheme would translate into removing as much as 16 million tonnes of carbon dioxide per year from the environment.

The project's development is dependent on government clarity and fast decision-making. 

Drax and the government look forward to their discussions and hope that the outcome of the talks leads to the successful development of one of the most significant CCS projects for energy security and emission reduction in Britain.

By Michael Kern for Oilprice.com