Drax to Halt Further Investment in White Rose Carbon CaptureAlex Morales and Weixin Zha
White Rose is one of two plans competing for government funds
Drax's partners say they're still committed to the project
Drax Group Plc pulled out of a plan to build the U.K.’s first commercial-scale power plant equipped with a carbon capture and storage system, a blow to the government’s ambition to spur the technology crucial to protecting the climate.
Drax will withdraw as a partner in Capture Power Ltd., the developer of the White Rose project, the U.K. electricity generator said Friday in a statement on its website. It cited the “drastically different financial and regulatory environment” from two years ago. Capture Power, whose other partners are Alstom SA and BOC Group Ltd., said it was committed to the plan.
“We are in a very different financial situation today than we were two years ago when we decided to invest in the project,” Drax Chief Executive Officer Dorothy Thompson said Friday in an interview on BBC Radio 4’s “Today” program. “We, like government, are facing choices on affordability.”
Drax’s withdrawal from the project, valued at between 1 billion pounds ($1.5 billion) and 2 billion pounds, is the clearest signal yet that a succession decisions by Prime Minister David Cameron’s administration to slash support for renewable energy is chilling investors.
“The most recent effect is the government has removed a tax exemption for renewable power that’s sold to businesses, and we are the largest generator of renewable power in the U.K.,” Thompson said. “This has suddenly removed a stream of our income.”
The government on July 8 said it would remove an exemption for renewable power generators had from a climate change tax. Drax shares fell 28 percent that day. The stock rose as much as 3.9 percent in London on Friday, the most in almost a month. It was up 3 percent to 247.5 pence at 9:56 a.m.
Thompson said Drax will now focus on converting its coal-fired units to biomass. The owner of Britain’s biggest power plant has already converted two of its six units to run on biomass instead of coal. It’s working on its third conversion.
“We had wanted to do both: biomass and carbon capture and storage,” she said. “We don’t have the funds. We believe the rapid deployment of biomass is the right solution for us.”
The withdrawal of Drax from White Rose is the latest in a succession of blows to U.K. attempts to commercialize the technology, designed to strip carbon emissions from power plants and pump them permanently underground.
Together with Alstom and BOC, Drax was looking to capture as much as 90 percent of the carbon emissions from a new 448-megawatt coal-fired power station in a storage facility under the North Sea. The project is competing alongside an SSE Plc and Royal Dutch Shell Plc venture at Peterhead in a competition for 1 billion pounds of government funding.
That competition, announced in 2012, followed an earlier one dating back to 2007 that failed to award any funding. The government in 2011 withdrew from talks with the last remaining bidder, Iberdrola SA’s Longannet project, saying the costs of fitting the technology at the coal-fed plant were too high.
Drax said Friday it will carry on funding preliminary studies and technology development work that’s due finish within the next year, but it won’t participate in building the White Rose project. It will continue to make the site it owns accessible for construction. White Rose was the only project that applied for a European Union fund for as many as 12 carbon capture projects in July.
“Drax’s decision not to invest further in the project is disappointing, but we are keen to confirm that Capture Power remains committed to delivering the White Rose CCS project,” Capture Power Chief Executive Officer Leigh Hackett said in a statement.
A final investment decision is dependent on the outcome of preliminary studies, funding, and securing a contract with the government, he said.