Out of the black: Drax prepares for the end of coal
As it prepares for the Government’s ban on coal-fired power by 2025, Yorkshire energy giant is weaning itself off the black stuff
Beneath the distinctive grey curve of a coal plant cooling tower, the yellow of two JCB diggers is stark against a plane of black. For almost fifty years workers at the Drax mega-site in North Yorkshire have shovelled piles of coal, as tall as houses, alongside its 15-storey boilers.
These coal piles are not as big as they used to be. Today the mounds are smaller and the yard flatter; visual evidence, if it were needed, that the UK’S energy system is changing. And Drax along with it.
For decades Drax has embodied the British approach to industry and energy. The construction of the energy giant began in the late 1960s after the discovery of the Selby coalfield. Since then it has steadily and reliably produced almost 8pc of the nation’s electricity from its 2,500-acre site by burning the billions of tons of coal delivered directly to the site by train every year. But ahead of the Government’s looming ban on coal-fired power in the next decade Drax is weaning itself off the black stuff. The power plant consumed more than 9bn tons of coal in 2011. Last year its coal use was just 2.7bn tons, sourced mostly from Colombian mines.
In its place, Drax has imported many more billions of tons of renewable biomass pellets from US tree farms to feed its specially converted units. It now produces 70pc of its electricity from biomass – enough to power Leeds, Manchester, Sheffield and Liverpool – and has slashed its carbon emissions by 80pc.
Its biomass success has been no easy feat. The biomass pellets have a lower energy intensity than coal, meaning one and a half times as much is needed to generate the same power. This means around 16 trains collectively unload about 20,000 tons of pellets every day at the site, six days a week. Here they are carefully transferred into one of four enormous storage domes, each large enough to contain the Royal Albert Hall, before being ground to the consistency of flour and burned at almost 1,060F (570C).
The Government’s decision to U-turn on its support for biomass left the group badly burned and plunged it into years of legal wrangling against the decision. This has not deterred the group from pinning its new vision for the future on further government support.
Its future plans are as audacious in scale as the site itself. In another six years Drax will have kicked its half-century-long coal habit entirely.
To safeguard its future, Drax plans to convert its remaining coal-fired units into the country’s largest gas-fired power plants. At the same time, Drax plans to build what could be the world’s largest battery storage centre. The plans may mean that, in the space of little more than decade, Drax will have morphed from Western Europe’s largest coal plant to the UK’S largest renewable energy plant, before becoming the biggest gas power investor of recent years and a global leader in a battery power.
It has also emerged as the largest business energy supplier outside of the Big Six after snapping up SME energy supplier Opus in a £340m deal earlier this year, which pushed the FTSE 250 generator’s share price to 18-month highs.
Opus supplies gas and electricity to more than 130,000 SME customers, while Drax supplies electricity to about 30,000 primarily industrial and commercial customers through its Haven Power arm.
The pace of change reflects the radical shift in Britain’s wider energy system in the past decade; away from fossil fuels towards low-carbon power, and from far-flung generation giants to flexible, small-scale electricity projects located closer to users. For what was once one of the biggest, most polluting power plants in Europe, the shift could have posed an existential threat.
It will be a new leadership team that will spearhead the severing of Drax’s historic ties to coal after the group announced that Dorothy Thompson, its chief executive for the past 12 years, would step aside to be replaced by Will Gardiner, the chief financial officer.
He will undertake the reinvention of Drax alongside Andy Kloss, the boss of Drax Power, and Jonathan Kini, boss of the power giant’s retail arm. The handover will take place at the end of this year, and the full transition within five or six years.
Today, Drax is a power plant of two halves: the past and the future. On the one side, three power units use biomass pellets to generate power, on the other, three units continue to burn coal. One of the remaining coal burners is trialing a switch to biomass, and the other two have been earmarked for gas-fired power units, which can be used to ramp up to fill in for renewable power when wind and solar power wane.
“Our plan is to be off coal well before the 2025 cut-off,” says Kloss. “We want to either be offering renewable power through our four biomass units, or enabling that low-carbon future by providing flexibility.”
The plans would create a 3.6GW gas-burning giant, the UK’S biggest and one of few major investments in gas-fired power in the past decade at a time when other generators are abandoning large-scale units in favour of small, nimble generation.
Kloss is betting that major power plants still have a role to play in powering Britain’s homes and businesses, and that Government will agree. An estimated 10GW of coal
capacity is due to close by 2025 and by 2030 around 8 to 9GW of nuclear capacity is expected to follow suit. At the same time demand is expected to climb by almost a fifth and jitters around the UK’S new nuclear start-ups continue.
Kloss is hoping to win a contract to supply power in the Government’s next capacity auction in 2019. This would allow the coal-to-gas conversion to take place by 2023 – just ahead of the Government’s 2025 ban on coal-fired power.
But he also believes Drax could play a role in smoothing the volatility an influx of renewables into the energy system is causing for transmission system operator National Grid.
The faster than expected roll-out of wind farms and solar panels will help meet rising demand, but Kloss warns that their overall impact risks destabilising the energy system by distorting the voltage and frequency.
This means National Grid has a trickier task than matching a megawatt-hour of demand with a megawatt-hour of supply.
To keep the grid stable, and the lights on, the system operator must carefully maintain the voltage and 50 hertz frequency of the power in the system. In these terms, not all megawatts are created equally.
It is an unsurprising stance from a company that for the past decade has made the case for biomass.
But the emergence of a multibillion-pound market to provide balancing services backs up the belief that providing flexibility could prove a financially sustainable path forward for Drax.
In 2010 the cost of balancing the grid by contracting “ancillary services” to meet demand, balance the system, and help cushion the grid against outage shocks was £500m a year. The cost is now already £1bn, and the projections are for £2bn in costs by 2020, four times the cost of 10 years earlier. It is a growing market Drax hopes to tap.
“The thing about electricity is that it has to work second by second. You can’t play averages when it comes to what is available and what is required,” says Ian Foy, head of the plant’s ancillary services.
It should fall to large power plants to act as “shock absorbers” for the energy system in that they can balance the frequency and provide what National Grid refers to as “responsive power”, which helps to move electricity around the system.
“By 2035 there will be no coal, and very little gas,” says Kloss “There is an economic argument for new gas plants. The need for flexibility is there. But the transparency that all finance people need is lacking. National Grid know they need to be more transparent, but we worry they won’t be transparent enough.”
Drax is no stranger to lobbying Government or fighting for its place in Britain’s future energy mix. Coal may be dead but Drax is ready to rise from its ashes.
Drax believes major power plants will still have a role to play in powering Britain’s homes and businesses in the future