Tag: gas

Capacity Market Agreements

11 March 2021

Investors
Cruachan pylons

Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)
RNS Number : 8747R

T-4 auction – provisional results for existing pumped storage and hydro assets

Drax confirms that it has provisionally secured agreements to provide a total of 617MW of capacity (de-rated 582MW) principally from its pumped storage and hydro assets(1). The agreements are for the delivery period October 2024 to September 2025, at a price of £18/kW(2) and are worth around £10 million in that period. These are in addition to existing agreements which extend to September 2024.

T-4 auction – provisional results for new build system support assets

Drax confirms that it has provisionally secured 15-year agreements for three new 299MW (de-rated 284MW) Open Cycle Gas Turbine (OCGT) projects at sites in England and Wales(3). The agreements are for the delivery period October 2024 to September 2039, at a price of £18/kW(2) and are worth around £230 million in that period.

Artist’s impression of a Drax rapid-response gas power station (OCGT)

Artist’s impression of a rapid-response gas power station (OCGT)

These assets are intended to operate for short periods of time to meet specific system support needs. As the UK transitions towards a net zero economy, it will become increasingly dependent on wind generation and as such, fast response system support technologies such as these OCGTs are increasingly important to the energy system as a means to enable more wind to run more often and more securely.

The total capital cost of these projects is approximately £80-90 million each, with a build time of around two years.

A further OCGT project participated in the auction but exited above the clearing price and did not accept an agreement.

Drax will now evaluate options for all four OCGT projects including their potential sale.

Continued focus on biomass strategy and the development of negative emissions

In December 2019 Drax announced an ambition to become a carbon negative company by 2030 using Bioenergy Carbon Capture and Storage (BECCS) and the Group remains focused on its biomass strategy. In January 2021 Drax completed the sale of its Combined Cycle Gas Generation (CCGT) assets and in March 2021 ends commercial coal generation. Drax believes that its remaining portfolio of sustainable biomass, pumped storage and hydro will be amongst the lowest carbon generation portfolios in Europe.

Enquiries

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media

Drax External Communications: Ali Lewis

+44 (0) 7712 670 888

Website: www.drax.com

Completion of sale of gas assets

1 February 2021

Investors
RNS Number: 4567N
Drax Group PLC
(“Drax”, “the Group”, “Drax Group”, “the Company”; Symbol: DRX)

Drax Group plc is pleased to announce that it has completed the sale of Drax Generation Enterprise Limited, which holds four Combined Cycle Gas Turbine (“CCGT”) power stations, to VPI Generation Limited.

Following the sale Drax no longer operates any CCGTs and on 31 March 2021 will end commercial coal generation, with formal closure of its remaining coal assets in September 2022.

Enquiries:

Drax Investor Relations: Mark Strafford
+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis
+44 (0) 7712 670 888

Website: www.Drax.com

END

Sale of gas assets for £193.3 million and trading update

15 December 2020

Investors
Rye House Power Station, Hertfordshire
RNS Number: 6825I
Drax Group PLC (Symbol: DRX)

(“Drax”, “the Group”, “Drax Group”, “the Company”; Symbol: DRX)

Drax is pleased to announce that it has reached agreement for the sale of Drax Generation Enterprise Limited (“DGEL”), which holds four Combined Cycle Gas Turbine (“CCGT”) power stations, to VPI Holding Limited (“VPI”) for consideration of £193.3 million, subject to customary adjustments. This includes £29.0 million of contingent consideration associated with the option to develop a new CCGT at Damhead Creek.

The transaction is subject to certain customary closing conditions, including anti-trust approval, with completion to take place by 31 January 2021.

The CCGTs have performed well since acquisition by Drax in December 2018, but do not form part of the Group’s core flexible and renewable generation strategy. Drax expects to realise a premium on sale, use the proceeds to develop its biomass supply chain and accelerate its ambition to become a carbon negative business by 2030.

DGEL also holds the Group’s pumped storage and hydro assets and is the shareholder of SMW Limited (the owner of the Daldowie fuel plant). These assets, shares and employees are to be transferred out of DGEL prior to completion and will be retained by Drax.

Highlights

  • Sale of non-core gas generation and development assets for consideration of £193.3 million
    • Expected premium on sale to book value, subject to customary adjustments
    • Returns significantly ahead of the Group’s Weighted Average Cost of Capital (WACC)
  • Accelerates decarbonisation – ambition to become a carbon negative business by 2030
    • UK’s largest flexible and renewable portfolio – largest source of renewable electricity(1)
    • 2.6GW of sustainable biomass
    • 0.6GW of hydro – pumped storage and hydro
  • Continued focus on biomass strategy and system support services
    • Development of a long-term future for sustainable biomass – underpinned by biomass supply chain expansion and cost reduction
    • Development of options for negative emissions technology – BECCS(2)
    • Provision of system support services from biomass, pumped storage and hydro
  • Robust trading and operational performance – outlook remains in line with expectations

Will Gardiner, Drax Group CEO, said:

Drax Group CEO Will Gardiner

Drax Group CEO Will Gardiner in the control room at Drax Power Station [Click to view/download]

 

“By focusing on our flexible and renewable generation activities in the UK we expect to deliver a further reduction in the Group’s CO2 emissions, which should accelerate our ambition to become not just carbon neutral but carbon negative by 2030.

“By using carbon capture and storage with biomass (BECCS) at the power station in North Yorkshire to underpin the decarbonisation of the wider Humber region, we believe we would be creating and supporting around 50,000 new jobs and delivering a green economic recovery in the North.

“We greatly value the contribution that our colleagues in gas generation have made to the Group over the last two years. As we focus on a renewable and flexible portfolio, it is right that we divest these gas generation assets and in doing so create value for our shareholders.”

Between 2012 and 2019, through investment in sustainable biomass and hydro, Drax has reduced its carbon emissions by over 85% and become the largest source of renewable electricity in the UK(1).

In December 2019 Drax announced an ambition to become a carbon negative company by 2030. The negative emissions provided by BECCS will offset carbon emissions within the Group’s supply chain and help to offset emissions in harder to abate sectors of the economy, such as aviation and agriculture.

In February 2020 Drax announced an end to commercial coal generation in 2021 and now, by divesting its existing gas generation assets, Drax will further reduce its carbon emissions.

Drax will continue to provide system support services alongside its decarbonisation strategy through its renewable generation portfolio, other development opportunities and demand-side response within its Customers business. These activities provide renewable electricity and a fully flexible generation and supply portfolio, which can support the UK power system as it becomes increasingly reliant on intermittent and inflexible generation sources.

About the assets and transitional arrangements

Rye House Power Station, Hertfordshire

Rye House Power Station, Hertfordshire [Click to view/download]

Damhead Creek (812MW, commissioned in 2001), Rye House (715MW, commissioned in 1993) and Shoreham (420MW, commissioned in 2001) are located in the South-east of England and Blackburn Mill (60MW, commissioned in 2002) in Lancashire, England.

Drax acquired the CCGTs from Iberdrola in December 2018 as part of a portfolio of pumped storage, hydro and gas generation. The majority of the value in the acquisition was ascribed to the pumped storage and hydro assets, which in the first six months of 2020 provided £35 million of Adjusted EBITDA(3). In the same period the CCGTs provided £18 million of Adjusted EBITDA. Group Adjusted EBITDA for the first six months of 2020 was £179 million.

As at 30 June 2020 the gross fixed assets for the CCGTs were £182 million.

The CCGTs also have £89 million of Capacity Market income between 2021 and 2024(4) which will remain with DGEL on completion.

The CCGT business currently employs 121 people in operational roles who will transfer with DGEL on completion.

Drax has agreed a series of transitional services to support the transition through 2021.

Other gas projects

Drax continues to evaluate options for the development of four Open Cycle Gas Turbines and Drax Power Station following the end of coal operations.

Financial

Total consideration is £193.3 million, subject to customary completion accounts adjustments, comprising £164.3 million for the four CCGT power stations and a further £29.0 million of contingent consideration payable on satisfaction of certain triggers in respect of the option to develop a new CCGT at Damhead Creek.

The payment of £164.3 million in respect of the four CCGTs is payable in cash on completion, with an option to defer the payment of £50.0 million until April 2022. The deferred component would carry an interest rate of four percent and be backed by a letter of credit. In the event that the deferral option is exercised Drax intends to convert the payment obligation to cash upon completion for the face value.

Subject to fulfilment of pre-closing conditions, completion is to take place by 31 January 2021.

The sale price represents an expected premium compared to the book value of the assets, subject to customary adjustments and a return over the period of ownership significantly ahead of the Group’s WACC.

Biomass strategy – investment in capacity expansion and cost reduction

Sustainable biomass wood pellet storage domes at Baton Rouge Transit, a renewable fuel storage and logistics site operated by Drax at the Port of Greater Baton Rouge, Louisiana

Sustainable biomass wood pellet storage domes at Baton Rouge Transit, a renewable fuel storage and logistics site operated by Drax at the Port of Greater Baton Rouge, Louisiana [Click to view/download]

The proceeds from the sale of the CCGTs are expected to be used to support the development of the Group’s biomass strategy, through which Drax aims to build a long-term future for sustainable biomass. Drax aims to do this by expanding its supply chain to five million tonnes of self-supply capacity by 2027 (1.5 million today, plus 0.5 million tonnes in development) and reducing the cost of biomass to £50/MWh(5).

These savings will be delivered through the optimisation of existing biomass operations, greater utilisation of low-cost wood residues and an expansion of the fuel envelope to incorporate other low-cost renewable biomass across the Group’s expanded supply chain.

Drax believes that the additional capital and operating cost investment required to deliver this supply chain expansion is in the region of £600 million, which the Group expects to invest ahead of 2027. Drax remains alert to sector opportunities for both organic and inorganic growth.

The Group has identified three models through which it believes it can deliver a long-term future for sustainable biomass, all of which are underpinned by the delivery of its supply chain expansion and cost reduction plans. These options, which are not mutually exclusive, are summarised below. The delivery of one or more of these models by 2027 would enable Drax to continue its biomass activities when the current UK renewable schemes for biomass generation end in March 2027.

1) Merchant biomass generation at Drax Power Station

Drax believe that biomass has an important role to play in the UK as a flexible and reliable source of renewable energy, supporting increased utilisation of intermittent and inflexible generation across the UK power grid. In March 2027, when the current CfD(6) and ROC(7) renewable schemes end, Drax believes that through a combination of peak power generation, system support services, Capacity Market income and a low-cost operating model for Drax Power Station (including low-cost biomass), this site can continue to operate as a merchant renewable power station.

The four biomass units located in the turbine hall at Drax Power Station have a total capacity of 2.6 GW

The four biomass units located in the turbine hall at Drax Power Station have a total capacity of 2.6 GW [Click to view/download]

2) BECCS

The UK’s Climate Change Committee (CCC) has set out what is required for the country to achieve its legally binding objective of being net zero by 2050. This includes an important role for BECCS to remove CO2 from the atmosphere, creating negative emissions. BECCS is the only large-scale solution for negative emissions with renewable electricity and system support capabilities. Through combining BECCS with its existing four biomass generation units at Drax Power Station, Drax believes it could remove up to 16 million tonnes of CO2 per year – over two thirds of the CCC’s 2035 target for BECCS. In doing so Drax aims to become a carbon negative company by 2030.

The technology to deliver post-combustion BECCS exists and is proven at scale. In September 2020, Drax commenced a trial of one such technology provided by Mitsubishi Heavy Industries (MHI). In addition, Drax is developing innovative technology options, including C-Capture, a partnership between Leeds University, Drax, IP Group and BP, which has developed an organic solvent which could be used for BECCS.

Innovation engineer inspects pilot carbon capture facility at Drax Power Station

Innovation engineer inspects pilot carbon capture facility at Drax Power Station [Click to view/download]

3) Third party biomass supply

Drax expects global demand for wood pellets to increase in the current decade, as other countries develop decarbonisation programmes which recognise the benefits of sustainable biomass for generation. Whilst there is an abundance of unprocessed sustainable biomass material globally, there remains limited capacity to convert these materials into energy dense pellets, which have a low-carbon footprint and lower cost associated with transportation. As a result, Drax expects the global market for biomass to remain under supplied. Drax is therefore exploring options to service biomass demand in Europe, North America and Asia alongside the UK. Establishing a presence in these markets could offer the potential for long-term offtake agreements, providing diversified revenues from other biomass markets.

Trading update

Since publishing its half year results on 29 July 2020 the trading and operational performance of the Group has remained robust.

In the USA, the Group’s Pellet Production business is commissioning 100,000 tonnes of new production capacity at its Morehouse facility in Louisiana as part of its previously announced plans to add 350,000 tonnes across its three existing production sites by 2022. The project is part of the Group’s plan to expand its sustainable biomass supply chain and reduce costs.

The Generation business has continued to perform well in the provision of system support services, responding to both the low and high demand needs of the UK electricity system.

In addition to the successful completion of a major planned outage and upgrade of a biomass unit at Drax Power Station, the Group has progressed its earlier stage development work on BECCS. Alongside the commencement of a solvent trial with MHI, Drax has awarded pre-FEED (Front End Engineering Design) contracts and expects to incur incremental operating costs associated with the development of a full FEED study during 2021.

At its half year results in July 2020 Drax noted that further lockdown measures in the UK in the second half of 2020 could create a small downside risk on the performance of the Customers business, principally in the SME(8) market. Drax is continuing to assess operational and strategic options for this part of the Group.

The Group’s expectations for 2020 Adjusted EBITDA remain in line with market expectations(9), inclusive of the impact of Covid-19, principally in relation to its Customers business. Full year expectations for the Group remain underpinned by good operational availability for the remainder of 2020.

Contracted power sales

Electricity pylons take flexible power generated from water stored in a reservoir at Cruachan Power Station in the Highlands into the national grid

Electricity pylons take flexible power generated from water stored in a reservoir at Cruachan Power Station in the Highlands into the national grid [Click to view/download]

As at 15 November 2020 the power sales contracted for 2020, 2021 and 2022 were as follows:

202020212022
Fixed price power sales (TWh)18.215.26.5
Contracted % versus 2019 full year output1.060.860.38
Of which CfD (TWh) (10)4.81.7-
Of which CCGT (TWh)2.53.10.2
At an average achieved price (£ per MWh)54.848.248
Average price for CCGT (£ per MWh)53.246.554.7

Balance sheet

As announced on 19 November 2020 the Group agreed a new £300 million ESG(11) Revolving Credit Facility (RCF). This replaces an RCF which was due to mature in 2021 and provides increased liquidity, enabling the full facility to be drawn as cash (the previous facility restricted cash drawn to support liquidity to £165 million). The ESG RCF is currently undrawn for cash.

In addition to the ESG RCF, the Group has agreed new infrastructure facilities (£213 million) and a Euro denominated bond issue (€250 million), which replace an existing RCF, Sterling bond and ESG term-loan, reducing the Group’s overall cost of debt and extending its maturity profile to 2030.

As at 30 November 2020 Drax had adjusted cash and total committed facilities of £643 million.

Capital allocation and dividend

The Group remains committed to its capital allocation policy, through which it aims to maintain a strong balance sheet; invest in the core business; pay a sustainable and growing dividend and return surplus capital beyond investment requirements.

Subject to the continued good operational performance and overall impact from Covid-19 remaining in line with the position Drax set out in April 2020, the Group continues to expect to pay a dividend for the 2020 financial year of 17.1 pence per share (approximately £68 million), a 7.5% increase on 2019. This is consistent with the policy to pay a dividend which is sustainable and expected to grow as the strategy delivers an increasing proportion of stable earnings and cash flows.

Enquiries

Drax Investor Relations:

Mark Strafford

+44 (0) 7730 763 949

Media

Drax External Communications:

Ali Lewis

+44 (0) 7712 670 888

Website: www.drax.com

ENDS

Notes

Turning waste into watts

3 September 2020

Sustainable bioenergy
Fields being ploughed by tractor

Think of carbon emissions and the image that comes to mind is often of industrial sites or power generation – not of what we eat and what we throw away. But food waste is a major contributor of greenhouse gas emissions.

Globally, food loss and waste from across the food chain generates the equivalent of 4.4 gigatonnes of carbon dioxide (CO2) a year, or about 8% of total greenhouse gas emissions.

But what if there was a way to reduce those emissions and generate power by using discarded food and other organic waste like grass cuttings or nut shells? A technology known as anaerobic digestion is increasingly making this idea a reality.

How anaerobic digestion works

All organic waste products have energy in them, but it’s tied up in the form of calories. When food and vegetation rots, microorganisms break down those calories into gases and other products.

Methane or Ammonium molecules. Science concept. 3D rendered illustration.

Methane or Ammonium molecules.

Exactly what these ‘other products’ are depends on whether there is any oxygen present. With oxygen, the products are water, CO2 and ammonia, but remove oxygen from the equation and a very valuable gas is produced: methane (CH4). The lack of oxygen is also what gives anaerobic digestion its name – when oxygen is present it becomes aerobic digestion.

During the anaerobic digestion process, bacteria and other microorganisms break down organic matter, gradually deteriorating complex polymers like glucose or starch into progressively simpler elements, such as alcohol, ammonia, CO2 and, ultimately, CH4, a biogas with huge potential as a fuel for other processes.

Anaerobic power in practice

The CH4 produced in anaerobic digestion is incredibly useful as a fuel – turn on a gas hob or stovetop and it’s predominantly methane that provides the fuel for the flame. The chemical compound is also the main component in the natural gas that makes up much of Great Britain’s electricity supply.

This means using anaerobic digestion to create CH4 out of waste products turns that waste into a valuable power source. But it’s not as simple as putting a bag over a rubbish tip and hoping for the best.

Instead, anaerobic digestion is carried out in large tanks called digesters. These are filled with feedstocks from biological substances that can include anything from food scraps, to alcohol and distillery waste, to manure. Under the right conditions microorganisms and bacteria begin to digest and breakdown these substances into their basic elements.

The air quantity and temperature of the digesters is carefully regulated to ensure the microorganisms have the best possible environment to carry out the digestion of the feedstock, with different types of feedstock and microorganisms operating best in different conditions.

The biogas created as a result of this digestion is then captured, ready to be turned into something useful.

biogas plant

Making use of biogas

Three different things can happen to the biogas produced during the course of the digestion. Locally, it can be combusted on-site to provide further heat to regulate the temperature of the anaerobic digestion units.

Or, it can be combusted in a combined heat and power (CHP) generator, where it can generate electricity to be used on site — for example to power a farm — or sold through energy suppliers such as Opus Energy onto wider regional or national electricity networks. This biogas electricity is an important element of Great Britain’s energy supply, accounting for 6,600 GWh or 7.3% of all power generated by solid and gaseous fuels in 2017.

Some of the biogas can even be cleaned to remove CO2, leaving behind pure methane that can be pumped onto natural gas grids and used to provide heat and power to households. Government research estimates a fully utilised biogas sector could provide up to 30% of the UK’s household gas demands.

After the digestion process has been completed and the biogas has been removed, what is left behind in the digester is a mass of solid matter called digestate. This is extremely rich in nutrients and mineral, such as potassium and nitrogen, making it an excellent soil enhancer.

Where anaerobic digestion is being used today

Today, much of anaerobic digestion power is generated on farms – unsurprisingly, given the ready access to biological waste material to use as feedstock. As well as a potential source of electricity and heat, it also gives farmers access to a new revenue stream, by selling electricity or biogas, as well as reducing utility and fertiliser costs.

While many of these installations are smaller scale, some can get quite big. Linstock Castle Farm in North Cumbria, for example, has a biogas facility with a 1.1 megawatt(MW) operating capacity, enough to power as many as 2,000 homes at a time. It was originally installed by the farmers as a more cost-effective way of growing their business than buying more dairy cows.

Biogas plant on a farm processing cow dung as a secondary business activity

There is, however, potential for anaerobic digestion to operate on an even larger scale. In the US, the city of Philadelphia is developing a system that will link all newly built households together into a network where food waste is automatically collected and transported to a biogas generating facility.

Closer to home, Northumbrian Water uses 100% of its sludge, the waste produced from purifying water, to produce renewable power via anaerobic digestion. It’s estimated to have reduced the carbon footprint of the facility’s operations by around 20%, and saved millions of pounds in savings on operating costs.

There have also been experiments with using biogas to power vehicles. The ‘Bio-Bus’ was the first bus in the UK to be powered by biomethane made from food, sewage and commercial liquid waste, and ran between Bath and Bristol Airport.

But anaerobic digestion power is not a magic bullet. It will be right in certain situations, but not all. If utilised effectively, anaerobic digestion and biogas could fill a vital role in national electricity and gas networks, while at the same time helping dispose of waste products in an environmentally-friendly and cost-effective way.

Could hydrogen power stations offer flexible electricity for a net zero future?

26 August 2020

Power generation
Pipework in a chemical factory

We’re familiar with using natural gas every day in heating homes, powering boilers and igniting stove tops. But this same natural gas – predominantly methane – is also one of the most important sources of electricity to the UK. In 2019 gas generation accounted for 39% of Great Britain’s electricity mix. But that could soon be changing.

Hydrogen, the super simple, super light element, can be a zero-carbon emissions source of fuel. While we’re used to seeing it in everyday in water (H2O), as a gas it has been tested as an alternative to methane in homes and as a fuel for vehicles.

Could it also replace natural gas in power stations and help keep the lights on?

The need for a new gas

Car arriving at hydrogen gas station

Hydrogen fuel station

Natural gas has been the largest single source of electricity in Great Britain since around 2000 (aside from the period 2012-14 when coal made a resurgence due to high gas prices). The dominance of gas over coal is in part thanks to the abundant supply of it in the North Sea. Along with carbon pricing, domestic supply makes gas much cheaper than coal, and much cleaner, emitting as much as 60% less CO2 than the solid fossil fuel.

Added to this is the ability of gas power stations to start up, change their output and shut down very quickly to meet sudden shifts in electricity demand. This flexibility is helpful to support the growth of weather-dependant renewable sources of power such as wind or solar. The stability gas brings has helped the country decarbonise its power supply rapidly.

Hydrogen, on the other hand, can be an even cleaner fuel as it only releases water vapour and nitrous oxide when combusted in large gas turbines. This means it could offer a low- or zero-carbon, flexible alternative to natural gas that makes use of Great Britain’s existing gas infrastructure. But it’s not as simple as just switching fuels.

Switching gases

Some thermal power stations work by combusting a fuel, such as biomass or coal, in a boiler to generate intense heat that turns water into high-pressure steam which then spins a turbine. Gas turbines, however, are different.

Engineer works on a turbine at Drax Power Station

Instead of heating water into steam, a simple gas turbine blasts a mix of gas, plus air from the surrounding atmosphere, at high pressure into a combustion chamber, where a chemical reaction takes place – oxygen from the air continuously feeding a gas-powered flame. The high-pressure and hot gasses then spin a turbine. The reaction that takes place inside the combustion chamber is dependent on the chemical mix that enters it.

“Natural gas turbines have been tailored and optimised for their working conditions,” explains Richard Armstrong, Drax Lead Engineer.

“Hydrogen is a gas that burns in the same way as natural gas, but it burns at different temperatures, at different speeds and it requires different ratios of oxygen to get the most efficient combustion.”

Switching a power station from natural gas to hydrogen would take significant testing and refining to optimise every aspect of the process and ensure everything is safe. This would no doubt continue over years, subtly developing the engines over time to improve efficiency in a similar way to how natural gas combustion has evolved. But it’s certainly possible.

What may be trickier though is providing the supply of hydrogen necessary to power and balance the country’s electricity system. 

Making hydrogen

Hydrogen is the most abundant element in the universe. But it’s very rare to find it on its own. Because it’s so atomically simple, it’s highly reactive and almost always found naturally bonded to other elements.

Water is the prime example: it’s made up of two hydrogen atoms and one oxygen atom, making it H2O. Hydrogen’s tendency to bond with everything means a pure stream of it, as would be needed in a power station, has to be produced rather than extracted from underground like natural gas.

Hydrogen as a gas at standard temperature and pressure is known by the symbol H2.

A power station would also need a lot more hydrogen than natural gas. By volume it would take three times as much hydrogen to produce the same amount of energy as would be needed with natural gas. However, because it is so light the hydrogen would still have a lower mass.

“A very large supply of hydrogen would be needed, which doesn’t exist in the UK at the moment,” says Rachel Grima, Research & Innovation Engineer at Drax. “So, at the same time as converting a power plant to hydrogen, you’d need to build a facility to produce it alongside it.”

One of the most established ways to produce hydrogen is through a process known as steam methane reforming. This applies high temperatures and pressure to natural gas to break down the methane (which makes up the majority of natural gas) into hydrogen and carbon dioxide (CO2).

The obvious problem with the process is it still emits CO2, meaning carbon capture and storage (CCS) systems are needed if it is to be carbon neutral.

“It’s almost like capturing the CO2 from natural gas before its combusted, rather than post-combustion,” explains Grima. “One of the advantages of this is that the CO2 is at a much higher concentration, which makes it much easier to capture than in flue gas when it is diluted with a lot of nitrogen.”

Using natural gas in the process produces what’s known as ‘grey hydrogen’, adding carbon capture to make the process carbon neutral is known as ‘blue hydrogen’ – but there are ways to make it with renewable energy sources too.

Electrolysis is already an established technology, where an electrical current is used to break water down into hydrogen and oxygen. This ‘green hydrogen’ cuts out the CO2 emissions that come from using natural gas. However, like charging an electric vehicle, the process is only carbon-neutral if the electricity powering it comes from zero carbon sources, such as nuclear, wind and solar.

It’s also possible to produce hydrogen from biomass. By putting biomass under high temperatures and adding a limited amount of oxygen (to prevent the biomass combusting) the biomass can be gasified, meaning it is turned into a mix of hydrogen and CO2. By using a sustainable biomass supply chain where forests absorb the equivalent of the CO2 emitted but where some fossil fuels are used within the supply chain, the process becomes low carbon.

Carbon capture use and storage (CCUS) Incubation Area, Drax Power Station

Carbon capture use and storage (CCUS) Incubation Area, Drax Power Station

CCS can then be added to make it carbon negative overall, meaning more CO2 is captured and stored at forest level and in below-ground carbon storage than is emitted throughout its lifecycle. This form of ‘green hydrogen’ is known as bioenergy with carbon capture and storage (BECCS) hydrogen or negative emissions hydrogen.

There are plenty of options for making hydrogen, but doing it at the scale needed for power generation and ensuring it’s an affordable fuel is the real challenge. Then there is the issue of transporting and working with hydrogen.

“The difficulty is less in converting the UK’s gas power stations and turbines themselves. That’s a hurdle but most turbine manufacturers already in the process of developing solutions for this,” says Armstrong.

“The challenge is establishing a stable and consistent supply of hydrogen and the transmission network to get it to site.”

Working with the lightest known element

Today hydrogen is mainly transported by truck as either a gas or cooled down to minus-253 degrees Celsius, at which point it becomes a liquid (LH2). However, there is plenty of infrastructure already in place around the UK that could make transporting hydrogen significantly more efficient.

“The UK has a very advanced and comprehensive gas grid. A conversion to hydrogen would be more economic if you could repurpose the existing gas infrastructure,” says Hannah Steedman, Innovation Engineer at Drax.

“The most feasible way to feed a power station is through pipelines and a lot of work is underway to determine if the current natural gas network could be used for hydrogen.”

Gas stove

Hydrogen is different to natural gas in that it is a very small and highly reactive molecule,  therefore it needs to be treated differently. For example, parts of the existing gas network are made of steel, a metal which hydrogen reacts with, causing what’s known as hydrogen embrittlement, which can lead to cracks and failures that could potentially allow gas to escape. There are also factors around safety and efficiency to consider.

Like natural gas, hydrogen is also odourless, meaning it would need to have an odourant added to it. Experimentation is underway to find out if mercaptan, the odourant added to natural gas to give it a sulphuric smell, is also compatible with hydrogen.

But for all the challenges that might come with switching to hydrogen, there are huge advantages.

The UK’s gas network – both power generation and domestic – must move away from fossil fuels if it is to stop emitting CO2 into the atmosphere, and for the country to reach net zero by 2050. While the process will not be as simple as switching gases, it creates an opportunity to upgrade the UK’s gas infrastructure – for power, in homes and even as a vehicle fuel.

It won’t happen overnight, but hydrogen is a proven energy fuel source. While it may take time to ramp up production to a scale which can meet demand, at a reasonable cost, transitioning to hydrogen is a chance to future-proof the gas systems that contributes so heavily to the UK’s stable power system.

Capacity Market agreements for existing assets

9 March 2020

Investors
Engineer below Cruachan Power Station dam

RNS: 3530F
Drax Group plc
(“Drax” or the “Company”; Symbol:DRX)

Drax confirms that it has provisionally secured agreements to provide a total of 2,562MW of capacity (de-rated 2,333MW) from its existing gas, pumped storage and hydro assets(1). The agreements are for the delivery period October 2023 to September 2024, at a price of £15.97/kW(2) and are worth £37 million in that period. These are in addition to existing agreements which extend to September 2023.

Drax did not accept an agreement for the 60MW Combined Cycle Gas Turbine (CCGT) at Blackburn Mill.

A new-build CCGT at Damhead Creek and four new-build Open Cycle Gas Turbine projects participated in the auction but exited above the clearing price and did not accept agreements.

Enquiries:

Drax Investor Relations: Mark Strafford
+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis
+44 (0) 7712 670 888

Website: www.drax.com

Notes:

  1. Existing assets – gas (Damhead Creek, Rye House, Shoreham and three existing small gas turbines at Drax Power Station), Cruachan Pumped Storage and the Galloway hydro scheme (Tongland, Kendoon and Glenlee).
  2. Capacity Market agreements stated in 2018/19 real-terms, with payments indexed to UK CPI.

END

Capacity Market agreements for existing assets and review of coal generation

31 January 2020

Investors
Drax's Kendoon Power Station, Galloway Hydro Scheme, Scotland

RNS Number : 6536B

T-3 Auction Provisional Results

Drax confirms that it has provisionally secured agreements to provide a total of 2,562MW of capacity (de-rated 2,333MW) from its existing gas, pumped storage and hydro assets(1). The agreements are for the delivery period October 2022 to September 2023, at a price of £6.44/kW(2) and are worth £15 million in that period. These are in addition to existing agreements which extend to September 2022.

Drax did not accept agreements for its two coal units(3) at Drax Power Station or the small Combined Cycle Gas Turbine (CCGT) at Blackburn Mill(4) and will now assess options for these assets, alongside discussions with National Grid, Ofgem and the UK Government.

A new-build CCGT at Damhead Creek and four new-build Open Cycle Gas Turbine projects participated in the auction but exited above the clearing price and did not accept agreements.

T-4 Auction

Drax has prequalified its existing assets(5) and options for the development of new gas generation to participate in the T-4 auction, which takes place in March 2020. The auction covers the delivery period from October 2023.

CCGTs at Drax Power Station

Following confirmation that a Judicial Review will now proceed against the Government, regarding the decision to grant planning approval for new CCGTs at Drax Power Station, Drax does not intend to take a Capacity Market agreement in the forthcoming T-4 auction. This project will not participate in future Capacity Market auctions until the outcome of the Judicial Review is known.

Enquiries:

Drax Investor Relations
Mark Strafford
+44 (0) 7730 763 949

Media:

Drax External Communications
Matt Willey
+44 (0) 0771 137 6087

Photo caption: Drax’s Kendoon Power Station, Galloway Hydro Scheme, Scotland

Website: www.drax.com

Climate change is the biggest challenge of our time

Will Gardiner, Chief Executive Officer, Drax Group

28 July 2019

Opinion
Drax Group CEO Will Gardiner

Climate change is the biggest challenge of our time and Drax has a crucial role in tackling it.

All countries around the world need to reduce carbon emissions while at the same time growing their economies. Creating enough clean, secure energy for industry, transport and people’s daily lives has never been more important.

Drax is at the heart of the UK energy system. Recently the UK government committed to delivering a net-zero carbon emissions by 2050 and Drax is equally committed to helping make that possible.

We’ve recently had some questions about what we’re doing and I’d like to set the record straight.

How is Drax helping the UK reach its climate goals?

At Drax we’re committed to a zero-carbon, lower-cost energy future.

And we’ve accelerated our efforts to help the UK get off coal by converting our power station to using sustainable biomass. And now we’re the largest decarbonisation project in Europe.

We’re exploring how Drax Power Station can become the anchor to enable revolutionary technologies to capture carbon in the North of England.

And we’re creating more energy stability, so that more wind and solar power can come onto the grid.

And finally, we’re helping our customers take control of their energy – so they can use it more efficiently and spend less.

Is Drax the largest carbon polluter in the UK?

No. Since 2012 we’ve reduced our CO2 emissions by 84%. In that time, we moved from being western Europe’s largest polluter to being the home of the largest decarbonisation project in Europe.

And we want to do more.

We’ve expanded our operations to include hydro power, storage and natural gas and we’ve continued to bring coal off the system.

By the mid 2020s, our ambition is to create a power station that both generates electricity and removes carbon from the atmosphere at the same time.

Does building gas power stations mean the UK will be tied into fossil fuels for decades to come?

Our energy system is changing rapidly as we move to use more wind and solar power.

At the same time, we need new technologies that can operate when the wind is not blowing and the sun is not shining.

A new, more efficient gas plant can fill that gap and help make it possible for the UK to come off coal before the government’s deadline of 2025.

Importantly, if we put new gas in place we need to make sure that there’s a route through for making that zero-carbon over time by being able to capture the CO2 or by converting those power plants into hydrogen.

Are forests destroyed when Drax uses biomass and is biomass power a major source of carbon emissions?

No.

Sustainable biomass from healthy managed forests is helping decarbonise the UK’s energy system as well as helping to promote healthy forest growth.

Biomass has been a critical element in the UK’s decarbonisation journey. Helping us get off coal much faster than anyone thought possible.

The biomass that we use comes from sustainably managed forests that supply industries like construction. We use residues, like sawdust and waste wood, that other parts of industry don’t use.

We support healthy forests and biodiversity. The biomass that we use is renewable because the forests are growing and continue to capture more carbon than we emit from the power station.

What’s exciting is that this technology enables us to do more. We are piloting carbon capture with bioenergy at the power station. Which could enable us to become the first carbon-negative power station in the world and also the anchor for new zero-carbon cluster across the Humber and the North.

How do you justify working at Drax?

I took this job because Drax has already done a tremendous amount to help fight climate change in the UK. But I also believe passionately that there is more that we can do.

I want to use all of our capabilities to continue fighting climate change.

I also want to make sure that we listen to what everyone else has to say to ensure that we continue to do the right thing.

Britain’s power system has never been closer to being fossil-free

Iain Staffell, Imperial College London

23 July 2019

Opinion
Drax EI header

Electricity generation is decarbonising faster in Britain than anywhere else in the world.[1] Changes to the way we produce power over the last six years have reduced carbon emissions by 100 million tonnes per year.[2]

The carbon savings made in Britain’s power sector are equivalent to having taken every single car and van off our roads.[3]

This puts Britain at the forefront of the wider trend towards clean electricity. Coal generation is collapsing in Germany, having fallen 20% in the last year due to rising carbon prices. Renewables have beaten fossil fuels as the largest source of generation in Europe. A third of America’s coal power stations have retired over the last decade as they switch to cleaner natural gas.

Britain’s coal power stations made international headlines in May for sitting completely idle for two full weeks. But coal is only part of the story.

The second quarter of 2019 saw three major milestones that signal Britain’s progress towards a clean power system:

  1. The carbon content of electricity hit an all-time low, falling below 100 g/kWh across a whole day for the first time;
  2. Renewables hit an all-time high, supplying more than half of Britain’s electricity over a full day; and
  3. For the first time ever, less than a tenth of electricity was produced from fossil fuels.

Going below 100 grams

100 grams of CO2 per kWh is an important number. Two years ago the Committee on Climate Change recommended it as the target for 2030 that would mean our electricity system is in line with the national commitment to decarbonise.

Britain’s electricity has dipped below 100 grams for single hours at a time, but until now it had never done so for a full day.

June 30th was a sunny Sunday with a good breeze that brought a 33°C heatwave to an end. Electricity demand was among the lowest seen all year while wind output was at a three-month high.   The carbon intensity of electricity sat below 100 g/kWh for half of the day, falling to a minimum of just 73 g/kWh in the mid-afternoon. Carbon emissions averaged over the day were 97 g/kWh, beating the previous record of 104 g/kWh set a year ago.

Fig 1 – Britain’s generation mix during June 30th that delivered electricity for less than 100g of carbon per kWh. Click to view/download.

Going above 50% renewables

June 30th was a record-breaker in a second way. Wind, solar, biomass and hydro supplied 55% of electricity demand over the day – smashing the previous daily record of 49% set last summer.

For the first day in the national grid’s history, more electricity came from renewables than any other source.

That day, Britain’s wind farms produced twice as much electricity as all fossil fuels combined. A quarter of the country’s electricity demand was met by onshore wind farms, and 15% from offshore.[4]

Despite several reactors being offline for maintenance, nuclear power provided nearly a fifth of electricity; again, more than was supplied by all fossil fuels.

Heading towards fossil-free electricity

The rise of renewable energy has been a major factor in decarbonising Britain’s electricity, complemented by the incredible fall in coal generation.

Every single coal plant in Britain has sat idle for at least two days a week since the start of spring.

It has been three years since Britain’s first zero-coal hour. A year later came the first full day, and earlier this year we saw the longest coal-free run in history, lasting 18 days. This summer could see the first full month of no coal output if this trend continues.

Fig 2 – Number of hours per week with zero generation from Britain’s coal power stations. Click to view/download.

Attention must now shift from ‘zero coal’ to ‘fossil free’.

Unabated natural gas (without carbon capture and storage) needs to be removed from the grid mix by 2050 to tackle the climate crisis and ensure the UK hits net-zero emissions across the whole economy.

At the start of this decade, Britain’s power system had never operated with less than half of electricity coming from fossil fuels.

As renewables were rolled out across the country the share of fossil fuels has fallen dramatically. By 2014, the grid was able to operate with less than one-third from fossil fuels, and by 2016 it had gone below one-fifth.

On May 26th, the share of fossil fuels in Britain’s electricity fell below 10% for the first time ever.

Fig 3 – The record minimum share of fossil fuels in Britain’s electricity mix over the last decade, with projections of the current trend to 2025. Click to view/download.

This record could have gone further though. During the afternoon, 600 MW of wind power was shed – enough to power half a million homes.

National Grid had to turn off a tenth of Scotland’s wind farms to keep the system stable and secure.

This wind power had to be replaced by gas, biomass and hydro plants elsewhere in the country, as these were located closer to demand centres, and could be fully controlled at short notice. This turn-down coincides with ten straight hours where power prices were zero or negative, going down to a minimum of –£71/MWh in the afternoon. National Grid’s bill for balancing the system that day alone came to £6.6m.

If the power system could have coped with all the renewable energy being generated, fossil fuels would have been pushed down to just 8% of the generation mix.

This highlights the challenges that National Grid face in their ambition to run a zero carbon power system by 2025 – and the tangible benefits that could already be realised today. If the trend of the last decade continues, Britain could be on course for its first ‘fossil-free’ hour as early as 2023. This will only be possible if the technical issues around voltage and inertia at times of high wind output can be tackled with new low-carbon technologies.

Other countries are grappling with questions about whether renewables can be relied on to replace coal and gas. Britain is proof that renewables can achieve things that weren’t imaginable just a decade ago.

Zero carbon electricity is “the job that can’t wait”. Britain only has a few more years to wait before the first “fossil-free” hours become a reality.

[1] Over the last decade, the carbon intensity of electricity generation in Britain has fallen faster than in any other major economy. Source: Energy Revolution: Global Outlook.

[2] In the 12 months to July 2019 carbon dioxide emissions from electricity generation totalled 60.5 million tonnes. In the 12 months to July 2013 these emissions were 160.2 million tonnes. Both figures include emissions from imported electricity, and from producing and transporting biomass. See Electric Insights and our peer-reviewed methodology paper for details of the calculation.

[3] In 2017 the UK’s cars emitted 70 million tonnes of CO2 and light-duty vehicles emitted 19 million tonnes. Source: BEIS Final greenhouse gas emissions statistics.

[4] Electric Insights now provides data on the split between onshore and offshore wind farms. Typically, around 2/3 of the country’s wind power comes from its onshore wind farms.