FT: Drax powers a brighter future with biomass18/11/2013
By Michael Kavanagh
It may be good for the planet but it is explosive stuff. The feedstock behind attempts by Britain’s biggest emitter of carbon dioxide to go green must be protected, not just from rain but from oxygen.
Drax, the power generation business that typically supplies 7 per cent of the UK’s electricity to the grid, is re-engineering itself to generate half of its power from biomass that is so prone to ignition that it must be stored in sealed conditions that would suffocate a human being.
- Built to exploit the nearby Selby mine and other, now exhausted, Yorkshire coal reserves, Drax still burns plenty of the fuel.
Huge heaps of coal, imported from as far away as Colombia and the US stand near its furnaces, open to the elements.
But elsewhere there is evidence of a massive transformation. The clearest proof – four massive domes, each with interiors larger than the Royal Albert Hall, that have been built to store Drax’s new feedstock.
By 2016, three of its six power generation units are scheduled to run on a diet of wood pellets drawn primarily from forestry waste shipped from North America.
Dorothy Thompson, Drax’s chief executive, is careful not to over-claim the environmental credentials of the gradual switch from firing coal to biomass at Drax. “Biomass is not a zero-carbon renewable,” she concedes.
The financial and carbon cost of transporting wood pellets or other forms of biomass used by power generators such as straw, elephant grass and olive residue sees to that.
But, she argues, the shipping of forestry debris at high volume across oceans makes both financial and environmental sense.
Because of its scale, Drax can more than stand its ground on environmental efficiency.
Smaller-scale biomass projects in the UK, aimed at exploiting domestic redundant agricultural or woodmill material, are often burdened by relying on less efficient road transport of feedstock.
Ocean-shipping and rail freighting, combined with “well-established sustainable forestry practice” in the US, Canada and any other potential supplier countries will see Drax emerge as one of the less subsidised suppliers of renewable power this decade, argues Ms Thompson.
“Biomass is well-placed because we are one of the cheaper renewables,” she says.
Last month, dozens of financial analysts were invited to Drax to inspect progress in the UK’s biggest power plant switching half its generating capacity to biomass – a project that is costing £650m-£700m.
The investment involves laying rail track and commissioning rolling stock that must protect Drax’s new feedstock from the elements and deliver it at higher speed and volume than coal, in order to attain similar rates of thermal output.
About a third of the investment – some £225m – is earmarked for the “upstream”, procuring feedstock in North America. Drax plans to build two of its own pellet plants in the southern US and a port facility in Baton Rouge, Louisiana.
Both coal and wood present fire risks during transportation, storage and processing – but wood pellets particularly so because of the highly combustible dust and conditions they create.
That danger has already been demonstrated at Tilbury B – a power station in Essex scheduled for closure that won a new lease of life through a temporary switch to biomass burning. But a fire that begun in February last year clearly showed the operational challenges involved in a switch from coal.
Drax’s plans for three of its six power generation units are based on continually shifting biomass along conveyor belts from tipping pits for processing and firing.
But the four storage domes – based on designs developed for North American grain suppliers – are designed to build some slack into Drax’s logistical operations and act as a buffer to any interruption to supply.
The domes, meanwhile, have been built specifically to avoid any ledges where explosive dust could accumulate. When fully operational, the atmosphere inside will be stripped of oxygen to further reduce the risk of fire.
“It’s supply chain re-engineering – it’s material you can’t store outside,” says Ms Thompson.
Though the US is geared for the mass transportation of dry bulk material, the UK is less so. That has also required Drax to specially commission its own fleet of covered rolling stock and create bespoke port facilities for bringing its biomass to shore.
Analysts who visited last month already have declared themselves impressed. But they along with Drax executives await clarity on what deal might soon emerge from the government concerning changes in future pricing support.
These may – or may not – lead to a decision to push ahead still further with proposals to convert a fourth of its six units to biomass.
Analysts at Bank of America Merrill Lynch welcomed better than expected power levels of 600MW being achieved at Drax’s first fully operating biomass unit and the option Drax now has on applying for contract-for-difference support on the next two units instead of its existing subsidy arrangements.
Such an alternative route to pricing support for its output could be attractive.
According to analysts at UBS: “If the proposed £105/MWh contract-for-difference strike price is confirmed in December, this should prove a very strong catalyst for the stock.”
Meanwhile, brokers at Mirabaud admired the chutzpah of Ms Thompson and the management team in leading Drax’s transformation as many other coal stations face closure.
“They have experimented, designed, engineered, constructed and procured their way out of giant black hole,” said Hugh Kingsmill Moore.