The owner of the Drax power plant will give its shareholders a £150m windfall after reporting its highest annual profit ever, thanks in part to record electricity prices.
The FTSE 250 company also said it was pausing investment in its controversial carbon capture project while it awaited further details from the government on a potential subsidy.
Drax told investors it would buy back £150m worth of shares after the cost of electricity skyrocketed following Russia’s invasion of Ukraine, helping push the group’s annual profits to £731m by 2022, compared to £398 million the previous year.
It added that it would hold off on plans to invest around £50m in carbon capture technology in its power plant’s biomass combustion units this year while it waits for the government to include the project in its financing scheme.
Will Gardiner, Drax’s chief executive, laid out plans to pause the project after news broke that the energy regulator has opened an investigation into whether the company’s activities are aligned with biomass sustainability rules.
Ofgem has launched the investigation, to be carried out by US consulting group Black & Veatch, amid growing concerns over net-zero claims surrounding the Drax bioenergy plant, according to documents released under a freedom of information request. from the Financial Times.
Drax’s own climate scientists advised the company in a report that it should stop saying its biomass power units were “carbon neutral”, and the company has faced strong criticism from environmental groups for earning about 1, £7m a day in renewable energy subsidies for burning wood. pellets known as biomass, which are produced in the forests of Canada.
There are also growing calls for ministers to remove subsidies for the plant in their next biomass strategy document expected by the end of June.
The company claims that the carbon emissions released by the power plant match the emissions absorbed by the trees as they grow, making the electricity generated carbon neutral. By adding carbon capture technology to the plant, it could generate “carbon negative” power, according to Drax.
These claims have been disputed by scientists and campaign groups, who argue that importing wood pellets from Canada’s forests is unsustainable and may be increasing carbon emissions.
Drax’s subsidies will end in 2027, but the group, which generates around 6% of the UK’s electricity, hopes to get new subsidies through the government’s carbon capture programme.
The plans received a blow last month after the government’s long-awaited energy strategy appeared to rule the project out of the initial tranche of projects vying for subsidies.
Gardiner said the company remained “excited about the opportunity” to continue with its biomass and carbon capture plans in the UK. She told investors on Wednesday, ahead of the company’s annual general meeting, that she had “started formal discussions with the government” to ease plans for 2030, three years behind schedule.
A Drax spokesperson said: “The science behind our approach is complicated, nuanced and evolving, and we take our responsibility to continue developing our explanation very seriously.”