Lords Committee criticises proposed arrangements for financial support for the Drax power station

The Regulations propose to extend the Contracts for Difference scheme (CFD) to existing large-scale biomass electricity generators for the period 2027 to 2031 and to the Drax power station in Yorkshire in particular, if they provide value for money and meet the eligibility criteria.

The CFD scheme is the Government’s main mechanism for supporting the generation of low carbon electricity in Great Britain.

Large-scale biomass generators burn wood pellets to generate electricity and currently contribute around 5% of the electricity generated in the UK. Most of this wood is imported, largely from the US, from the EU and from Canada. The aim of the proposals is to prevent security of supply risks after 2027 when current support schemes for many biomass generators expire. Under the CFD scheme, financial support for generators is ultimately paid for by consumers through their energy bills.

The report raises these key concerns:

• Value for money - The Committee questioned whether the new arrangements would provide value for money for consumers given that Drax would be receiving a higher unit price than that paid for other forms of renewable power.
  
  
• Effective compliance and assurance regime – While recognising that the draft CFD Regulations would include strengthened sustainability criteria, the Committee expressed concerns about the adequacy of the compliance and assurance regime that will be used to ensure that generators such as Drax meet the sustainability standards. A 2024 report from Ofgem which looked at Drax’s sustainability reporting found a lack of “adequate data governance and controls” at the company as a result of which Drax made a £25 million redress payment. A review of Drax’s supply chain processes and reporting practices was carried out by KPMG but has not been published.
  
  
• Inadequate Explanatory Memorandum - the Explanatory Memorandum to the draft CFD Regulations prepared by the Department for Energy Security and Net Zero (DESNZ) failed to explain that the main and immediate beneficiary of the proposed new arrangements would be Drax. Drax is by far the largest biomass generator in the UK and has already received funding of around £6.5 billion since 2002.

Baroness Lea of Lymm, Member of the Secondary Legislation Scrutiny Committee, said: 

“We welcome that the Department for Energy Security and Net Zero and Ofgem has committed to strengthening the sustainability criteria and compliance and assurance regime for the new arrangements. However, given that there are serious concerns about the sustainability and value for money of large-scale biomass electricity generation in the UK and about Drax’s compliance record, we are concerned whether the new arrangements will be robust enough to enable Ofgem and the Department to hold Drax to account.  

“Moreover, the new strengthened sustainability criteria will only apply to the electricity that Drax generates under a contracts for difference (CFD) agreement. It is not clear to us which environmental standards will apply to the electricity generated by Drax outside the CFD scheme, and how any sustainability standards outside the CFD agreement will be enforced.

“We have drawn the draft Regulations to the special attention of the House and indicated that it may want to raise these issues with the Minister during the debate.”