Biomass Generation

Earl Russell Excerpts

Wednesday 12th February 2025 Lords Chamber

[Lord Offord of Garvel (Con)]

My Lords, I begin by welcoming a more limited role for Drax in our energy power system. However, we must acknowledge that because of the Government’s ideological energy policy—which prioritises naturally unreliable renewable technologies —more biomass subsidies are required. This would not be the case if the Government focused their attention on flexible and reliable baseload power. We must look for a more pragmatic approach: one which prioritises cheap, stable and reliable energy. It goes without saying that Drax’s biomass plant is not clean nor is it cheap. In fact, according to non-profit think tank Ember, burning wood at Drax produces a staggering four times the emissions of our last coal power plant. It is the UK’s biggest polluter, producing double the emissions of our largest gas station, operated by RWE at Pembroke.

As a result, the Government have to make difficult decisions which result in high levels of subsidy, burdening the taxpayer further. Will the Minister confirm what estimates have been made as to how much CO₂ will be released by burning trees at Drax for another four years, and how that compares to using gas to generate the same power?

Ultimately, we must consider the cost of the new agreement. At £160 per megawatt hour in today’s money, the new deal for Drax is 15% higher than its existing agreement of £138 per megawatt hour. Indeed, Baringa’s analysis has shown that bill payers will continue to pay over £450 million a year in subsidies to burn trees. Will the Minister confirm that the Government intend to carry out an independent analysis of how much the increased strike price will cost the British taxpayer? Will he give his word that Drax will not be allowed to burn wood from primary forests during its generation? Finally, while we welcome the new sustainability criteria, will he explain what steps will be taken to make this enforceable in practice?

[Earl Russell (LD)]

I thank the Government for their Statement on short-term support for large-scale biomass generation as part of the UK’s energy generation mix. The Government inherited from the Conservatives a system where large-scale state subsidies are provided for the burning of biomass. This form of energy generation currently plays an important role in our energy system, providing some 5% of our national energy needs. These subsidies are worth some £2 million a day. Over time, Drax has received billions of pounds in government subsidies and from bill payers because wood pellets are classed as a source of renewable energy. Lucrative government subsidies are due to come to an end in 2027, hence the Statement before us today. The new agreement reached with Drax will run from 2027 to 2031 and will see the power station used only as a back-up to cheaper renewable sources of power such as wind and solar.

We can have lots of arguments about the sustainability calculations used to justify Drax. I listened with interest to the noble Lord, Lord Krebs, speaking on the Great British Energy Bill on Report last night, and I am not a scientist and do not have the exact answers. What I will say is that shipping wood across the Atlantic has a carbon footprint. Repeated incidence of old-growth forest being felled and burned undermines credibility and must stop.

Finally, the very fact that the Government are looking at carbon capture and storage to prolong the life of Drax is telling. Labour’s new plan will allow for four more years of unabated wood burning, which produces 18% more CO₂ than burning coal, according to the IPCC data. It takes nearly 100 years for this carbon to be pulled back from the atmosphere. Climate change driven by CO₂ emissions is clearly the greatest threat to humanity’s survival. Even a 100-year, long-term carbon-neutral Drax is hardly beneficial to anything we need to achieve to effect any real change in the race for humanity’s survival.

The Liberal Democrats see biomass as a fundamentally inefficient method of producing electricity, and we strongly believe that it should not qualify as a form of renewable energy. The Government’s plan to continue to subsidise the Drax power plant causes environmental harm and is not beneficial compared to investment in renewable energy. It does not provide good value for money for our bill payers. We are concerned that, although this plan would cut the amount of wood Drax is burning by 50%, the price is still lucrative—indeed, I see in the news that Drax’s share price has risen by 11% this week.

We are deeply concerned about the destruction of primary forests. The new agreement states that the wood must be 100% sustainably sourced. How will the Government verify that this is the case, when it has not been in the past? Further, I ask the Minister to publish the 2022 KPMG report into Drax’s record on claiming subsidies on a false basis. Are the Government prepared to publish that report?

The new proposals will see a halving in the use of Drax and a saving on subsidies of £147 million. Will those savings be redirected into other renewable projects? Under this proposal, Drax can step in to increase energy generation and provide flexibility where it is needed. Is this not just an energy marriage of convenience? Will the Government consider reclassifying Drax as being not a renewable source? It is time to stop calling it such; if the Government need that power generation for flexibility, clearer labels should be given.

The Liberal Democrats are clear that we would ensure that 90% of the UK’s electricity is generated from renewables by 2030—and that would not include biomass. When will the statutory instrument be published? I am pleased that the Government have halved the subsidies for Drax, but I hope that further progress is possible.

Finally, I wish to challenge the Minister. This Government should agree to ask NESO to write an independent report, to be produced relatively quickly, examining: the impacts of ending all subsidies to Drax; how those funds could be replaced and used for alternative renewables technologies; and what the resulting impact would be on our energy security and journey to net zero.

[The Minister of State, Department for Energy Security and Net Zero (Lord Hunt of Kings Heath) (Lab)]

I am grateful to the noble Lord and the noble Earl for their comments. I understand, of course, that this is a sensitive area and that there are concerns, as noble Lords across the House have expressed. Equally, we have taken advice from the National Energy System Operator. It has advised us that Drax will play an important role in delivering security of supply between 2027 and 2031. It is true that we could seek to replace Drax, but that would probably be with new gas-fired power stations. We believe that there would be significant risks in relying on that approach, and that what has been taken is a pragmatic decision.

I noted what the noble Lord, Lord Offord, said. I would point out, though, that it was the then Secretary of State for DESNZ who, under the Conservative Government, put their name on the planning approval for Drax’s plans for BECCS at the Selby site. The decision letter stated that the project would

“support the transition to Net Zero by 2050”.

I will respond to some of the points that noble Lords have made. The important thing is that the agreement reached ensures that Drax plays a much more limited role in the system, providing low-carbon dispatchable power only when that is really needed. Drax currently runs around two-thirds of the time; that means it provides power, even when other renewable sources are abundant. Under the new arrangement, Drax is being supported to operate only at a maximum load factor of just 27%, operating less than half as often as it currently does. This will be guaranteed by the design of the dispatchable contract for difference that has been agreed. What that means is that when renewable power is abundant, Drax will not generate and consumers will benefit from cheaper wind and solar instead.

On cost, the new deal halves the subsidies for Drax compared with existing support. That is the equivalent of a saving of nearly £6 per household per year. Our analysis shows that this will save consumers £170 million in subsidy in each year of the agreement, compared with the alternative of procuring gas in the capacity market.

Your Lordships’ House has expressed a lot of concern about the obviously important questions on the measurement of sustainability over the past few months. I too was interested in the analysis by the noble Lord, Lord Krebs—this was some time last night—as the chair of the challenge group that exists at Drax. We will increase the proportion of woody biomass that must come from sustainable sources from 70% to 100%. We will significantly cut the allowable supply chain emissions to a level in line with the stricter regulations currently operating in the rest of Europe, as some noble Lords here have asked for, and exclude material sourced from primary forest and old-growth forest from receiving support payments. There are substantial penalties if these criteria are not met.

I know that there is concern about the regulatory system, but Ofgem has shown that it is prepared to act, and has acted. We will continue to make sure that our independent regulator has the support it needs to do what is necessary. We should have some faith in Ofgem’s ability to monitor and police this.

On the future of Drax, this new arrangement takes us from 2027 to 2031. We have not made any decisions post 2031, but we want to have proper options. We are setting up an independent review to consider how options for greenhouse gas removal, including large-scale power BECCS and DACS, can assist the UK in meeting our net-zero targets.

On the KPMG reports, Ofgem considered those as part of its detailed investigation into Drax. These are internal reports that the company commissioned and I cannot make a commitment on that, but I will take it away to see what I can do.

Overall, it seems to me that this is a—what is the word?—pragmatic response to a challenging question. The fact is that Drax makes an important contribution to our generating capacity. Equally, noble Lords will know that the Government have taken note of their concern about the general issue of sustainability by increasing the requirements. This is a four-year agreement and, clearly, we will come back to this important issue in the next few years.