Stewart Dalby: Is Drax a white elephant or green failure?

It seems being green is a cost business won't bear without some sort of government support, argues Stewart Dalby.

Stewart Dalby: Is Drax a white elephant or green failure?
The Drax carbon capture scheme would be a huge leap forward.

While writing last week, as I was, about potential energy white elephants, particularly the Hinkley Point nuclear power station, in Somerset, another possible candidate in the white elephant stakes came up on my radar.

The Drax (LON:DRX) power company is a shareholder in the putative White Rose carbon capture and storage (CCS) scheme which may be built next to its  huge coal and wood chip power station in North Yorkshire (the largest power station in the UK).

Now, after spending £3mln on five years of planning, the company is pulling out of the project because the UK government’s green policy changes have made it too risky to continue.

Several “critical reversals” in government support for renewable energy had made a “severe impact on our profitability”, said Peter Emery, the Drax board member chairing the group developing the White Rose carbon capture project.

There are three differing CCS technologies that are being developed presently. They are known as pre-combustion, post-combustion and oxyfuel. The White Rose CCS Project would, if it goes ahead, employ the oxyfuel technology process.

The intention is to operate as a base load power plant in oxyfuel mode. The plant will generate electricity while capturing the CO2 from the combustion of coal and then clean and compress the CO2 for subsequent pipeline transport and permanent storage beneath the bed of the North Sea.

White Rose may see the construction of a new, state-of-the-art, up to 448MWe (gross) coal-fired oxyfuel power plant with full CCS deployed from the outset.

White Rose would generate enough low carbon electricity to supply the equivalent needs of over 630,000 homes and would be capable of capturing two million tonnes of CO2  per year, some 90% of all CO2  emissions produced by the plant.

The key difference between White Rose, and, say Hinkley Point, is that White Rose would be in the forefront of the drive to combat climate change.

This makes it not just a potential white elephant, but also a green tool which could a secure a victory in the ever intensifying battle to stop climate change.

Delegates to the UN climate change accord due to be struck at a meeting in Paris in December will be told, if they do not already know, that carbon dioxide (CO2 ) is the most prevalent, long lasting greenhouse gas.

So much of it has built up in the atmosphere, where it lingers, that people today breathe in air with carbon dioxide levels of 400parts per million(ppm), up from 275ppm before the industrial revolution.

Scientists say the increase has been enough to raise average global temperatures by nearly one per cent since pre-industrial times, melting glaciers and pushing up sea levels.

Scientists also say it is imperative that temperatures should not rise by more than two per cent, an aim the Paris climate meeting is supposed to deliver.

Warming above that level raises the risk of ‘severe, pervasive and irreversible damage’ according to the UN’s Intergovernmental Panel on Climate Change (IPCC).

Power generation contributes more to global warming than any other industry. Coal is the worst offender but gas plants area also carbon emitting.

ln the UK in 2014, 30% of electricity came from coal-fired power stations, down from 36% the previous year. Thirty per cent came from gas generators up from 27% the previous year.

Against this background building power plants with carbon capture and storage should be something of a holy grail, since the concept first emerged in the 1990s.

Curiously though few UK companies seem very interested in in finding or pursuing the holy grail.

White Rose is one of a dozen carbon capture and storage schemes the UK has vainly tried to get off the round in the past eight years.

The consortium building it is one of two remaining bidders in a government contest for £1bn in funding to build Europe’s first carbon capture plant on a commercially operating power station. The other is at Peterhead in Scotland and involves Shell and the SSE power company.

All other attempts have foundered because they are so expensive. While you can probably build a power station for £1bn, you would not get much change from £3bn, it seems if carbon capture and storage facilities are added on.

Drax has been developing White Rose with consortium partners, France’s Alstom and the BOC industrial gas group.

Leigh Hackett, chief executive of the consortium said Drax’s decision to stop investing in the scheme was “disappointing” but the remaining shareholders were committed to finishing the project. We shall see.

The message seems clear: while many companies pay lip service to the idea of combating climate change, when push comes to shove they do not want to find the money to do anything about it.

As for Drax, there is another aspect to its decision to quit the project. Because it produces using wood chips as well as coal, Drax considers itself a renewable company.

Dorothy Thompson, the chief executive of Drax, building on Emery’s statement, said her company had been forced to withdraw because changes to the subsidy regime had left it short of cash to invest in the White Rose project.

She told the BBC: “The government has removed a tax exemption for renewable power that is sold to industrial companies and we’re the largest generator of renewable power in the UK and this has suddenly removed a stream of income.

“The day it was announced our share price dropped by a third and that simply reduces the amount of cash we have available for future investments.”

So in Drax’s case they believe in fighting climate change, but not without a government subsidy. 

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