Drax Power Limited: Ofgem Investigation

Lord Hunt of Kings Heath Excerpts

Monday 11th November 2024 Lords Chamber

[Baroness Boycott]

To ask His Majesty’s Government what assessment they have made of Ofgem’s investigation into Drax Power Limited, which found “Drax misreporting data” and “being unable to provide Ofgem with sufficient evidence … to support the reliability of its profiling data reporting of forestry type”, and what plans they have to ensure that companies receiving public subsidies are not able to claim them without concrete evidence.

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

My Lords, Ofgem’s investigation found that Drax had failed to report data accurately. Data misreporting is a serious matter and the Government expect full compliance with all regulatory obligations. Drax’s £25 million redress payment underscores the robustness of the regulatory system.

[Baroness Boycott (CB)]

My Lords, I thank the Minister for that Answer. KPMG was commissioned by Drax to look into the results; this was done in secret at its behest, and it was reported in this week’s issue of Private Eye. It corroborated that Drax had provide inaccurate data to Ofgem and that there was evidence of

“material financial misstatement … fraud or misconduct”.

Therefore, we cannot trust Drax to be honest or to behave honourably. Will the Minister use his good offices to put an end to the enormous subsidy that we pay to Drax on an annual basis, which, according to one of the latest adverts put out by an environment group, is costing every individual in this country £100 a day?

[Lord Hunt of Kings Heath (Lab)]

My Lords, on the issue of data, I have checked with Ofgem. At the moment, it has no reason to think that Drax is not compliant, but it will not hesitate to act if required. On the question of subsidy to Drax, the noble Baroness is referring to the ROC system of subsidies, which the last Government oversaw for many years. The ROC comes to an end in 2027. The last Government issued a consultation on whether there should be transitional subsidy arrangements. We are considering the results of that work at the moment.

[Baroness Bloomfield of Hinton Waldrist (Con)]

Noble Lords will remember the “Panorama” exposé of the illegal sourcing of wood pellets from Canadian forests, a charge vigorously denied at the time by Drax. Our Conservative Government introduced the strict criteria that allowed Ofgem to conclude that there was not “sufficient evidence”. What plans do this Government have to ensure that Ofgem can continue to investigate any company receiving a subsidy?

[Lord Hunt of Kings Heath (Lab)]

My Lords, it is clearly very important that companies in receipt of the ROC payments—and, indeed, where their biomass electricity generation is classified as low-carbon—are acting according to sustainability criteria. The last Government issued a call for evidence in 2021 and then took two years to publish a strategy, in 2023. On the revision of sustainability criteria, they rather ducked it, saying that they would produce a cross-sector consultation this year, which never happened. We are now working on that. It is clear that sustainability criteria need to be kept up to date. We will ensure that that happens.

[Lord Birt (CB)]

My Lords, I have seen the deeply troubling allegations presented by a staff whistleblower to at least one member of the Drax board. It is troubling reading. They allege outright dishonesty, cover-up, offers of under-the-table bribes and naked threats by some senior Drax executives. Has the Minister seen this evidence, or, as already mentioned, KPMG’s internal investigations following the BBC “Panorama” report on Drax? If not, given the substantial public funding that Drax receives, will he ask to see them?

[Lord Hunt of Kings Heath (Lab)]

My Lords, I am grateful to the noble Lord. I have seen the media reports, but I have to say to the House that it is the responsibility of Ofgem to make judgments as to whether a company is applying the sustainability criteria. The issue before us today is data information. Clearly, Ofgem found that Drax was not complying with the requirements—hence the redress payment. However, it did not find that Drax was not complying with sustainability criteria.

[Lord Teverson (LD)]

My Lords, given the amount of private money that has been spent in this area, is it not important for Ofgem to be rather more ahead of the curve on these issues? I notice in the report that Drax is now going to have external audit. Why did it not have this before? More importantly, why does not Ofgem get off its backside and go to the United States and Canada to check these items out for itself? Is it about to do that?

[Lord Hunt of Kings Heath (Lab)]

My Lords, first, it is not for Ministers to tell Ofgem how to regulate; we have to rely on its rigorous approach. Secondly, in the US and Canada, we depend on the rigorousness of the regulators locally. Ofgem’s job is to ensure that, as a whole, sustainability criteria are correct. I do not believe that it would be fair to say that Ofgem is not doing a thorough job. That is not my experience.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, it is clear that this Government know that what is coming from Drax is not renewable energy. At the moment, every single energy bill payer in Britain pays Drax for renewable energy. It is not renewable; the company emits 12 million tonnes of carbon a year. The Government know that and choose to allow international regulations to cover it up.

[Lord Hunt of Kings Heath (Lab)]

My Lords, I do not recognise what the noble Baroness says. It is true that Drax is an emitter of carbon but that is offset—netted off—by the new forestry growth that takes place and absorbs the carbon. This is not a fanciful notion by the Government; the International Energy Agency, the IPCC and the Committee on Climate Change all accept that biomass, as long as sustainability criteria are applied and accepted, is in that way a low-carbon renewable energy.

[Lord Forsyth of Drumlean (Con)]

My Lords, is not the problem, as the noble Baroness has said, that the idea that cutting down trees in North America and California, turning them into pellets, dragging them across the Atlantic Ocean using diesel-powered ships, shipping them across the country and then burning them at Drax is somehow saving the planet is mad?

[Lord Hunt of Kings Heath (Lab)]

My Lords, I realise that it sometimes sounds counterintuitive. None the less, the carbon emitted during the supply-chain process, and in the process at Drax and places like it, is netted off by the growth in forestry, which absorbs the carbon. That is a well-accepted international approach. It produces 2.6 gigawatts at Drax, 4% of our electricity generation in this country, with over 2,500 people employed in the local region, and it is classified as renewable.

[The Earl of Effingham (Con)]

My Lords, the Government have introduced further environmental levies, which the OBR predicts will add an additional £2.8 billion to electricity bills between 2025 and 2030. Can the Minister please explain what support the Government will offer to consumers so they are not adversely affected by this move?

[Lord Hunt of Kings Heath (Lab)]

I remind the noble Lord that policy costs on bills have increased from £115 on average in 2010 to an estimated £309 in 2024, so a lot of this increase occurred under his Government and the previous Conservative and Lib Dem Administrations. If we are serious about going towards clean power and net zero then we have to accept that we must finance the development of new energy-generating structures, and that is the case for biomass. Equally, that has to be done under sustainability criteria regulations that will ensure it happens. As for the OBR, its analysis has highlighted that delayed action on reaching net zero will have significant negative fiscal and economic impacts.

[Lord Watts (Lab)]

My Lords, is this not a case of the regulators letting down the public again? Do we not need to have more accountability for our regulators? I suggest that each regulator has to produce an annual report that goes to a committee of the House of Commons, so that we can review what they are doing. At the moment, they are badly letting us down.

[Lord Hunt of Kings Heath (Lab)]

My Lords, I think that, by implication, my noble friend is being critical of Ofgem, but I must say that that is not my experience. Ofgem is actually a rigorous regulator. It produces an annual report, and of course it would appear before a Select Committee if required.