The owner of the Drax power plant will give its shareholders a £150m windfall after reporting its highest ever annual profits, 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 waited for more details from the government on a possible subsidy.
Drax told investors it would buy back shares worth £150m after the cost of electricity soared in the wake of Russia’s invasion of Ukraine, helping push the group’s annual profits to £731m for 2022, up from £398m the year before.
It added that it would defer plans to invest about £50m in carbon capture technology at its power plant’s biomass burning units this year while it waits for the government to include the project in its funding scheme.
Will Gardiner, the chief executive of Drax, set out plans to pause the project as it emerged 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, which will be undertaken by the US consulting group Black & Veatch, amid growing concerns over net zero claims around Drax’s bioenergy plant, according to documents released under a freedom of information request by the Financial Times.
Drax’s own climate scientists advised the company in a report that it should stop saying that its biomass power units were “carbon neutral”, and the firm has faced fierce criticism from green groups for earning about £1.7m a day in renewable energy subsidies for burning wood pellets known as biomass, which are produced from forests in Canada.
There are also growing calls for ministers to scrap subsidies for the plant in its upcoming biomass strategy paper expected by the end of June.
The company claims that the carbon emissions released from the power plant are matched by 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 contested by scientists and campaign groups, who argue that importing wood pellets from forests in Canada is not sustainable and may be increasing carbon emissions.
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Drax’s subsidies are due to end in 2027 but the group – which generates about 6% of the UK’s electricity – is hoping to gain new subsidies through the government’s carbon capture programme.
The plans were dealt a blow last month after the government’s long-awaited energy strategy appeared to rule out the project from the initial tranche of projects vying for subsidies.
Gardiner said the company remained “excited about the opportunity” to pursue its biomass and carbon capture plans in the UK. He told investors on Wednesday, before the company’s annual general meeting, that it had “commenced formal discussions with the government” to facilitate the plans by 2030, three years later than planned.
A spokesperson for Drax said: “The science that underpins our approach is complicated, nuanced and evolves, and we take our responsibility to continue to develop our explanation of it very seriously.”
