Drax Group, the operator of the largest power station in the UK, has been found deficient in its reporting of sustainability metrics related to the wood pellets used for electricity generation.
According to findings from the energy regulator, Drax did not provide adequate evidence regarding the sourcing of biomass shipments imported from Canada during the period from April 2021 to March 2022.
As a result, Drax will incur a penalty of £25 million and must refile its data concerning the types of forestry and the proportions of saw logs utilized in its operations.
The renewables obligation scheme, overseen by Ofgem since its introduction in 2002, aims to promote the generation of electricity from renewable sources across the UK. Power suppliers are required to demonstrate compliance by submitting renewables obligation certificates annually.
If a supplier lacks sufficient certificates to prove compliance with renewable sourcing mandates, they are obligated to deposit funds into a buyout scheme, which redistributes proceeds based on the number of certificates presented. Under regulatory stipulations, at least 70% of a generator’s biomass shipment must be derived from sustainable sources.
Drax operates its eponymous power station located in North Yorkshire, where it has converted former coal-fired units to utilize biomass wood pellets, qualifying for renewable energy subsidies due to the carbon absorption of trees during their growth. However, the practice of burning biomass has faced scrutiny from certain scientists and environmental advocates.
The investigation confirmed that there was no evidence indicating Drax’s biomass was unsustainable, nor were there findings of any misallocation of renewables obligation certificates.
Ofgem’s chief executive, Jonathan Brearley, stated, “This has been a complex and thorough investigation. Energy consumers expect all companies, especially those receiving substantial public subsidies, to adhere to statutory obligations.”
He added, “Drax’s admission of non-compliance regarding its obligation to provide accurate data is unacceptable, prompting swift regulatory action.”
The Department for Energy Security and Net Zero emphasized the necessity for full compliance with regulatory standards, highlighting that consumers expect top-tier accountability from energy generators. The significance of the penalty reflects the strength of the regulatory framework and the expectations for adherence to both the essence and specifics of regulations.
Furthermore, Drax is set to initiate an independent external audit of its reporting standards and the profiling data from its global supply chain for the compliance period from April 2023 to March 2024. The investigation, which began in May 2022, has reached its conclusion.
Will Gardiner, the CEO of Drax, expressed relief that the investigation uncovered no evidence of failure in meeting sustainability criteria or improper issuance of renewables obligation certificates. He acknowledged the importance of maintaining a strong evidence foundation and reaffirmed Drax’s commitment to enhancing the reliability of its future reporting.
Drax’s stock, having increased by 18% over the past year, saw a slight decline of 3p, or 0.5%, during lunchtime trading, settling at 652½p.