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

The Sunday Telegraph - Money & Business - - Front page - JILLIAN AMBROSE

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

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