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Drax: how finance can power ‘carbon negative’ energy generation

Author: ICAEW Insights

Published: 11 Nov 2021

Drax’s senior finance manager Chris Simpson explains how finance is helping achieve the former coal power station’s goal of becoming the world’s first ‘carbon negative’ energy generator - the success of which is critical to the UK achieving its own net-zero goals.

As events draw to a close at the global climate conference in Glasgow, it might be easy to lose focus on the details amidst a blizzard of announcements from world leaders, negotiators and captains of industry.

But behind the scenes Drax - once a solely coal-fired generator but now a producer of renewable energy - has been mapping out the trajectory to sustainable energy using bioenergy with carbon capture and storage (BECCS).

BECCS is the process of capturing and permanently storing carbon dioxide – in Drax’s case under the seabed - from sustainable biomass (organic matter) energy generation.

“We've done all of the testing. We've proved that this can work at scale. We're now ready to ramp up and do it at scale subject to the correct support from the government,” says ICAEW member and Drax group senior finance manager Chris Simpson.

The Committee on Climate Change has made it clear that negative emissions are essential to the UK economy and the net zero ambition because there will always be sectors that continue to generate carbon whatever measures they put in place. Carbon negativity will compensate for this.

The North Yorkshire-based group has already invested hundreds of millions of pounds in technology and innovation over the past decade, transforming the FTSE 250 company from a single site, coal-power generator of electricity to a sustainable energy business with interests across the globe. 

Drax’s plans are also part of the Zero Carbon Humber Project, which recently won £75m in funding. Zero Carbon Humber forms part of the East Coast Cluster, which aims to remove almost 50% of all UK industrial carbon dioxide emissions by 2040. The Cluster is now a Track One bid and will enter negotiations for support from a £1bn fund.

Investment in the finance team has paid dividends

To aid the company’s transition, the finance team has been pivotal. It has grown from around 30 people a decade ago to more than 100 employees in finance and treasury alone in 2021. Simpson has only been with Drax for 14 months, but just in that short time he says, “the one thing to be sure of is that Drax doesn't stay the same”.

Ambitious plans require significant investment though. The investment in the finance team has clearly paid dividends because “finance supports the business in answering some of the questions around what being carbon negative looks like from a capital point of view”. 

With the radical business-wide transition, the finance team has also moved from a siloed, divisional structure, with each team having capabilities covering a broad range of financial skills reporting through a central divisional finance director, into a more matrix structure. It comprises financial control, financial planning and analysis, with the likes of treasury and tax sitting alongside. 

“My colleagues in financial planning and analysis can answer the question of how much investment we need, how it will be used and what returns we will see. Our treasury team reveals what's the best way to source that capital and get those cash inflows to be used in the development. 

“And, finally my team, which is financial control and reporting, answers the question of how we ensure that those who provide that capital can rely on accurate, timely financial information for all of our stakeholders,” Simpson says.

If the investment is not economically viable then the business won’t be sustainable, however admirable the ‘carbon negative’ aim is. To this end, the finance team provided the board with critical analysis when it was considering buying pellet plants in North America, culminating in the acquisition of Pinnacle Renewable Energy. By acquiring the pellet plants to make biomass, it reduced the average cost of production. 

The acquisition of Pinnacle has added 2.9 million tonnes of biomass production capacity, taking the Group’s total to 4.9 tonnes, more than doubling the company’s capacity. Of that 4.9 tonnes, Drax will have 2.9 tonnes available for self-supply. 

The reason not all of it is available for self-supply is that the acquisition opened up new markets to the group, particularly in Asia, which is set to see significant growth in biomass over the coming years.

“That's a key factor in ensuring biomass as a sustainable component for the UK’s generation infrastructure. It's all well and good having the technology there, but if you can't make the economics work then it’s not sustainable,” Simpson says.

Green Keystone

BECCS is the cornerstone of Drax’s (and the UK’s) goal to reach net zero by 2030, but it is also pursuing other carbon emissions reductions strategies. The company is upgrading its turbines to make them more energy-efficient, replacing circuit breakers to reduce potential carbon dioxide emissions, and is also looking at ways to cut emissions from its supply chain. 

Working patterns at Drax have also dramatically changed since the onset of the pandemic. Most staff are now working in a blended way. This intentionally feeds into the company’s ambitious goal not just to reduce emissions but remove them from the atmosphere.

This initially forced way of working because of COVID-19 led the finance team to deliver Drax’s annual report while working entirely from home for the first time. The most recent half-yearly update, Simpson says, was almost entirely delivered from home.

In addition to power generation, Drax is also one of the biggest suppliers of renewable electricity to businesses, by annual consumption, through Drax Energy Solutions and Opus Energy and is also working to help its customers decarbonise, too.

Preparation for net zero has been in the planning stage for almost two decades, the next decades will see the real transition take effect to the benefit of the whole world.

Box-out: Drax’s route to net zero

The evolution of the business from coal-powered to clean energy generators can be tracked on an almost year-on-year transition. 

By 2012, Drax had completed a £100m, five-year-long project to upgrade both the high and low-pressure steam turbines, saving around a million tonnes of carbon dioxide: the equivalent to taking 275,000 cars off the road.

That same year, Drax committed to moving from coal to biomass for three of its generating units. As Drax was heading towards biomass creation and storage, the business began developing pellet manufacturing capabilities from 2015 to help with the creation of the biomass supply chain.

By 2020 Drax had announced the end of commercial coal generation at its power station for the last two remaining coal units. Drax will however retain these under capacity market obligations until September 2022 to ensure the grid remains stable. By 2027, subject to the right government support, the first BECCS unit at Drax Power Station could be operational. A second BECCS unit could be operational in 2030, permanently removing at least eight million tonnes of CO2 from the atmosphere each year.

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