Drax unit 2 closes in on CfD, set to bypass renewables obligation

UK generator Drax Power appears set for an early investment contract under the government’s flagship contracts for difference (CfD) renewable energy subsidy scheme, with the appeal court the company’s only remaining hurdle.

According to an investor’s statement published by the generator on Thursday evening, the Department of Energy and Climate Change (DECC), “now intends to award Drax an investment contract” for its second unit conversion under the CfD. The department was unable to provide immediate comment on Thursday morning.

The apparent decision follows a review that DECC was instructed to carry out by the High Court last week ( see EDEM 14 July 2014 ).

One of two 645MW coal-fired units that Drax entered for an early CfD was surprisingly dropped from the scheme in April after being included on a list of 10 provisionally affordable projects ( see EDEM 23 April 2014 ).

But Drax did not take the shock decision well, and challenged it having never received “a satisfactory explanation”.

So now a caveat remains in place: DECC is appealing the High Court’s decision to quash its exclusion of Drax – and if the Court of Appeal finds in favour of DECC, Drax’s second unit will not enter the CfD.

Gaining a CfD would keep Drax’s second 645MW unit, which will be converted from burning coal to biomasss, out of the renewables obligation.

Should the unit enter the alternative scheme – which is still possible, although now less likely – the generator would control assets with the potential to push 7.6m ROCs (renewables obligation certificates) into the market, according to ICIS figures.

This is almost 10% of the entire RO market’s total and, with each unit standing as the single largest chunk of renewables capacity in the UK, a huge amount of generation across just two individual units.

ICIS numbers show 7.6m ROCs would swing the value of a single certificate by a touch under £5.00/ROC using projections for the 2016/17 compliance period, around 12% of the total value.

Drax already has one 645MW biomass-fired unit under the RO. The generation potential is arrived at assuming a 64% load factor for coal-to-biomass conversions, broadly in line with industry standards. Jamie Stewart

See sister publication European Clean Energy Markets (ECEM) for ICIS assessments of UK ROC/Nordic elcertificate valuations. For more details, call +44 207 911 1919 or email: sales@icis.com