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Renewable Energy

Question for Department for Business, Energy and Industrial Strategy

UIN HL7205, tabled on 24 April 2018

To ask Her Majesty's Government what is (1) the annual subsidy paid to Drax power station for burning wood pellets and (2) the estimated total cost of funding the Swansea Bay tidal lagoon project; and what measurement has been made of the polluting effects of each of those schemes.

Answered on

3 May 2018

In 2016/2017 Drax generated 11.3 TWh of electricity under the Renewables Obligation for which they received around £470m[1]. Drax also receives payments under the Contracts for Difference (CfD) scheme from the Low Carbon Contracts Company. Based on available information, we estimate that Drax received around £120 million in 2016/17 (in 2011/12 prices) in CfD payments. Whilst Drax co-fires biomass and coal, it only receives support for the proportion of electricity generated from biomass, which includes wood pellets.

The developer estimates the capital cost of funding the proposed Swansea Tidal Lagoon project to be approximately £1.3bn.

Contracts for Difference are awarded for the purpose of encouraging low carbon electricity generation. All projects receiving support under the Renewables Obligation and the Contracts for Difference financial incentives mechanisms must comply with relevant greenhouse gas measures and standards on sustainable sourcing of feedstock. All electricity generators must comply with relevant environmental regulations.

[1] In 2011/12 prices and based on Drax receiving 10,986,268 Renewables Obligation Certificates ( ROCs) with the notional value of each ROC estimated to be £43.10. [The RO does not pay a direct subsidy. Instead, it places an obligation on UK electricity suppliers to present to Ofgem a certain number of ROCs in respect of each MWh of electricity supplied each year, or to make a payment per ROC (the “buy-out price”) into a buy-out fund. Ofgem issue ROCs to generators in relation to the amount of renewable electricity that they generate and the relevant support rate. Generators sell their ROCs to suppliers or traders, with or without the electricity generated, as tradable commodities. After Ofgem’s administration costs have been deducted, the money from the buy-out fund is recycled on a pro-rata basis to suppliers who presented ROCs. The price of a ROC is not fixed and is a matter for negotiation between the generator and supplier/trader. However, the notional value of a ROC is considered to be the buy-out price, plus the value of the recycled buy-out fund payments].