UK utility Drax needed to buy 20.5% fewer EUAs in 2015 as it continued to convert more of its power output from coal to wood pellets, according to its annual results on Tuesday.
Drax bought 13.2 million EUAs in 2015 for an average price of £5.10 (€6.54), it said, which was down on the 16.6 million EUAs it bought in 2014 for an average price of £4.60.
Drax’s power generation remained flat year-on-year at 26.7 TWh. However, at 15.2 TWh it produced 19% less coal-fired power than in 2014 as it gradually shifted its output to biomass, which is rated as zero emissions under the EU ETS.
More than half of Drax’s generation was from biomass by Q4 2015, but over the whole year the company had a 43:57 % ratio of biomass to coal output, compared to 29:71 % ratio in 2014.
Two of Drax’s six generating units now burn wood pellets, mainly sourced from the US. Since summer 2015 it has partially co-fired a third with biomass but its investment to fully convert it is still pending clearance under EU state aid rules.
The biomass units operate round-the-clock as baseload power, while the coal generation operates more intermittently, a Drax spokesman said.
Despite its lower EUA demand, Drax said its carbon costs increased by £31 million year-on-year in 2015, which contributed to a 10% fall in its gross profit to £390 million.
Much of this is likely due the government’s near-doubling of its carbon floor tax last April. The levy rose to £18/tonne from £9.55, while EUA prices also gained year-on-year.
The floor tax rise, coupled with rising renewables output and falling power and gas prices, has hit the UK’s ageing coal-fired generating fleet, with plants owned by SSE and Engie flagging earlier-than-expected closures in the past month.
The UK aims to close all coal-fired units by 2025, and Drax CEO Dorothy Thompson told Reuters that as a result her company may opt to mothball its coal units and solely focus on biomass.
“The fastest, most affordable and safest way to reduce carbon emissions is to further deploy the world leading biomass technology Drax has pioneered to upgrade more of the UK’s existing coal fired power stations to sustainable biomass,” she said in the results statement.
“With the right support framework, we stand ready to help the UK decarbonise further.”
By Ben Garside – ben@carbon-pulse.com
