Recommendations & Conclusions
4 items
3
Conclusion
22nd Report - Government’s support for …
Rejected
We are not convinced the transitional support agreement between DESNZ and Drax provides good value for money for consumers. Government announced in February 2025 that it had agreed heads of terms for a deal to support Drax that will run from 2027 to 2031. The new support package means Drax …
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We are not convinced the transitional support agreement between DESNZ and Drax provides good value for money for consumers. Government announced in February 2025 that it had agreed heads of terms for a deal to support Drax that will run from 2027 to 2031. The new support package means Drax will only be supported to operate for a maximum of 27% of the time, meaning that Drax will be operating less than half as often as it currently does. Government estimates that this will save each household around £6 a year. However, there was no element of competition in reaching this agreement and Drax will receive a higher unit price, albeit for a more flexible type of power, than some renewable power generators that won their contracts through competitive auctions. There have been suggestions that the current contractual arrangements may have allowed Drax to avoid making repayments to the government. The new agreement also requires Drax to source 100% of its fuel from sustainable sources (an increase on the current requirement of 70% which applies to all generators). The government has missed an opportunity to incentivise continued investment in BECCS in its transitional deal with Drax, which includes no mention of BECCS. Indeed, there have been recent press reports that Drax is withdrawing funding from carbon capture. 5 recommendation DESNZ should also consider how it can include clauses into the transitional support agreement to prompt Drax to begin transitioning to BECCS.
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Government response AI summary
The government disagrees with the recommendation, stating the proposed Drax contract prioritized secure, low-cost electricity supply over BECCS transition. It argues that including BECCS contractual requirements would expose the government to unacceptable legal and cost risks before a full assessment is finalized.
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HM Treasury
18
Conclusion
22nd Report - Government’s support for …
Rejected
In February 2025, the Minister for Energy issued a statement confirming that the government had agreed heads of terms with Drax power station for financial support between 1 April 2027, when current support arrangements end, and 31 March 2031. The Minister set out that the extension of its support for …
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In February 2025, the Minister for Energy issued a statement confirming that the government had agreed heads of terms with Drax power station for financial support between 1 April 2027, when current support arrangements end, and 31 March 2031. The Minister set out that the extension of its support for Drax is necessary, despite their concerns about the continued use of unabated biomass, to secure the UK’s energy supply while alternatives are developed.54
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Government response AI summary
The government explicitly disagrees with the Committee's (implied) recommendation regarding the Drax power station contract, explaining that the agreement prioritised securing electricity supply at the lowest cost and retaining future BECCS optionality, rather than committing to large-scale BECCS adoption which carries unacceptable legal and cost …
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HM Treasury
19
Conclusion
22nd Report - Government’s support for …
Rejected
DESNZ is clear that the agreement is intended to improve on current arrangements. Firstly, Drax will play a smaller role in the power system than it currently does. This means that Drax will receive support for a maximum of 27% of the time in each year, less than half of …
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DESNZ is clear that the agreement is intended to improve on current arrangements. Firstly, Drax will play a smaller role in the power system than it currently does. This means that Drax will receive support for a maximum of 27% of the time in each year, less than half of the time it currently does (which DESNZ estimates will save each household around £6 a year). This reduction also accords with CCC advice that unabated biomass should not be supported at high load factors after 2027. Secondly, DESNZ expects the agreement to reduce the amount of subsidy that Drax receives each year by £170 million compared to the alternative of procuring gas and includes a claw–back provision for profits over a certain level.55
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Government response AI summary
The government explicitly disagrees with the Committee's (implied) recommendation regarding the Drax power station contract, explaining that the agreement prioritised securing electricity supply at the lowest cost and retaining future BECCS optionality, rather than committing to large-scale BECCS adoption which carries unacceptable legal and cost …
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HM Treasury
20
Conclusion
22nd Report - Government’s support for …
Rejected
Despite the new terms of the agreement, there are risks that the support will not offer consumers value for money. The agreement was reached through bilateral negotiations with Drax and included no element of competition.56 While the government claims that the new arrangements will reduce consumer subsidies to Drax, it …
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Despite the new terms of the agreement, there are risks that the support will not offer consumers value for money. The agreement was reached through bilateral negotiations with Drax and included no element of competition.56 While the government claims that the new arrangements will reduce consumer subsidies to Drax, it will be paid £113 per megawatt hour (in 2012 prices) for the electricity it generates–far more than will be paid to offshore windfarms and other renewable generators under recent Contracts for Difference.57 After our evidence session, we received correspondence from Drax stating that it considers the strike price is justified because it provides dispatchable power which is available at any time, rather than the intermittent power provided by most renewable generators. As 54 Statement by the Secretary of State for Energy Security and Net Zero, UIN HCWS424, 10 February 2025 55 Statement by the Secretary of State for Energy Security and Net Zero, UIN HCWS424, 10 February 2025; Q74 56 Q 43 57 Qq 10– 11 15 biomass generators also have to pay for fuel, Drax argues that a fairer price comparison would be gas–fired power stations, which are markedly more expensive.58
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Government response AI summary
The government disagrees, stating that the proposed contract with Drax was intended to secure electricity supply at the lowest cost without the cost of procuring this via the Capacity Market auction, and the CfD framework cannot bind generators to investment decisions beyond the 2027-31 contract …
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HM Treasury