Drax to pay £25m after reporting failures over wood pellets

The owner of Britain’s biggest power station has failed accurately to report sustainability data about the sourcing of wood pellets it burns to generate electricity.

The energy regulator has found that Drax failed to provide sufficient evidence over the profile of its woody biomass consignments imported from Canada between April 2021 and March 2022.

Drax will pay £25 million in redress and will resubmit its data for the compliance period relating to the forestry type and saw-log proportions used in its plant.

The renewables obligation scheme, which is administered by Ofgem, was introduced in 2002 to encourage power companies to generate electricity from renewable sources in Britain. Suppliers meet their obligations by presenting the regulator each year with renewables obligation certificates.

Where they do not have enough certificates to show that they have sourced enough electricity from the specified renewable sources, they must pay into a buyout fund, the proceeds of which are paid back to suppliers based on how many certificates they have presented. Under the rules, at least 70 per cent of a generator’s biomass shipment must be classified as sustainably sourced.

Drax produces electricity at its eponymous power station in North Yorkshire. It has converted four units at the former coal-fired facility to burn biomass wood pellets that qualify for renewable energy subsidies on the basis that trees absorb carbon as they grow, offsetting the carbon emitted when they are burnt. However, burning biomass for energy has been controversial among some scientists and environmental groups.

The investigation did not find any evidence that Drax’s biomass was not sustainable, nor that the company had been issued with renewables obligations certificates incorrectly.

“This has been a complex and detailed investigation,” Jonathan Brearley, Ofgem’s chief executive, said. “Energy consumers expect all companies, particularly those receiving millions of pounds annually in public subsidies, to comply with all their statutory requirements.

“There are no excuses for Drax’s admission that it did not comply with its mandatory requirement to give Ofgem accurate and robust data on the exact types of Canadian wood it utilises. The legislation is clear about Drax’s obligations. That’s why we took tough action.”

The Department for Energy Security and Net Zero said: “We expect full compliance with all regulatory obligations. Consumers rightly expect the highest standard of accountability from generators. The size of the redress payment underscores the robustness of the regulatory system and the requirement that generators abide by both the spirit and the letter of the regulations.”

The FTSE 250 group also will commission an independent external audit of the profiling data from its international supply chain and its reporting standards for the compliance period between April 2023 and March 2024. The Ofgem investigation, which was opened in May last year, has now been closed.

“It is welcome that Ofgem has found no evidence that our biomass failed to meet the sustainability criteria of the renewables obligation scheme, nor that the [renewables obligation certificates] we received for the renewable power we produced had been provided incorrectly,” Will Gardiner, 60, the chief executive of Drax, said.

“Although Ofgem has noted there is no evidence to suggest Drax deliberately misreported its profiling data, we recognise the importance of maintaining a strong evidence base and are continuing to invest to improve confidence in our future reporting.”

Shares in Drax shares, which have risen by 18 per cent over the past year, were down by 3p, or 0.5 per cent, at 652½p in lunchtime trading.