Source · Select Committees · Public Accounts Committee
Recommendation 20
20
Rejected
Bilateral Drax agreement raises value-for-money concerns due to high subsidy rates.
Conclusion
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
Government Response 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 term.
Government Response
Rejected
HM Government
Rejected
3.1 The government disagrees with the Committee’s recommendation. 3.2 It is important to recognise that the proposed contract with Drax was not intended to set the path to the adoption of power BECCS for large-scale generation. 3.3 Rather, the priority was to secure electricity supply at the lowest cost to tax- and billpayers by ensuring that we could deliver dispatchable biomass generation to the UK grid without the additional cost of procuring this via the Capacity Market auction. The proposed contract retains optionality for a future power BECCS transition. Retaining this optionality was a secondary objective to security of supply. 3.4 The Contract for Difference (CfD) framework cannot bind generators to investment decisions beyond the 2027-31 contract term without effectively binding the government to a policy decision on power BECCS; the full assessment to support this decision hasn’t yet been undertaken. 3.5 Moreover, the inclusion of contractual requirements around the transition to power BECCS would have exposed the government to an unacceptable level of legal risk, and taxpayers to unacceptable cost risks until any full assessment of power BECCS has been finalised.