Drax Power in strike-price talks with UK for biomass electricity

29 November 2012 17:13 Source:ICIS

Drax Power, the UK's largest independent electricity generator, is in advanced discussions with government over the setting of a strike-price for its biomass conversion projects, it was revealed on Thursday.

The news emerged as the Department of Energy and Climate Change (DECC) published its energy bill before parliament, which included details of the long-term feed-in tariff with contracts for difference (FiT CfD) regime (see separate story), under which strike prices will be set.

In addition to the Drax Power discussions, a number of offshore wind developers have also opened talks with DECC, energy secretary Ed Davey told ICIS, while strike-price negotiations with EDF Energy over its Hinkley Point plant remain ongoing.

The talks are proceeding under the "final investment decision enabling project", a means of guarding against delays to projects during the transitional period from the previous support mechanism, the renewables obligation, to FiT CfDs.

"We've already had quite a lot of interest from developers in different sectors," Davey said. "This measure is not just for nuclear - and the interest we have seen has proved that."

DECC energy markets and networks director Jonathan Brearley said: "We have been approached by some offshore wind developers, but the companies want to maintain their confidentiality.

"The one company that has been happy to put their name on record about having discussions with us for their biomass developments is Drax."

Evidence

The interest being shown by developers is the first concrete evidence that FiT CfDs - the financial instruments that will drive low-carbon power generation in the UK for years to come - are being tentatively well-received by the industry, which is at least prepared to enter into negotiations with DECC.

Drax Power's mammoth conversion plans amount to three of its 645MW coal-fired units being modified to burn biomass over the next five years, with the first conversion expected to be complete next year (see EDEM 14 November 2012).

Should Drax successfully negotiate a strike price with DECC, it will be able to sell output from its converted units at wholesale market prices as before. But should this price fall below the set strike-price, Drax will receive a top-up payment from the FiT CfD counterparty, a government-owned company to be established under the energy bill.

Whereas should the wholesale price outturn above the set strike-price, Drax would be required to refund the additional income to the counterparty.

A spokeswoman for Drax Power failed to return calls on Thursday.

DECC expects to publish details of its ongoing talks, including the prices that it settles with developers at, in the first half of next year. JS

By Jamie Stewart