Drax’s decision to abandon five years of planning for a carbon capture and storage system next to its huge North Yorkshire power station is the most visible sign yet of how green energy subsidy cutbacks are jolting investors.
Several “critical reversals” in government support for renewable energy had made “a severe impact on our profitability”, said Peter Emery, the Drax board member chairing the group developing the White Rose carbon capture project.
“We’ve also got concerns about the government’s future support for the low carbon agenda and that’s left us in a position where we are no longer confident we can persuade our shareholders that this is an attractive investment, given the obvious risks,” he told the Financial Times.
“The government has to make difficult decisions based on affordability and, in turn, so are we,” he added, in a thinly veiled dig at Amber Rudd, the energy secretary, who says subsidy cuts are needed to protect hard-working British families.
U-turns on support for renewable energy have sent a chill through the green investment community that had been buoyed by David Cameron’s previous vow to head the greenest government ever.
Since the Conservatives won the May election, ministers have reduced support for wind and solar power, ended the Green Deal home energy saving programme and raised questions about the level of future support for renewable energy projects.
The changes have prompted the CBI, the biggest business lobby, and others to insist that ministers must spell out a more coherent energy policy.
White Rose is one of more than a dozen carbon capture projects the UK has tried in vain to get under way in the past eight years. Such systems theoretically offer a way for fossil fuel companies to keep burning coal or gas in power stations without affecting the climate. They trap greenhouse gas pollution before it can warm the atmosphere, and store it deep underground.
But efforts to build them have repeatedly foundered around the world because they are so expensive.
To date, there is only one commercial power station with carbon capture in the world — the Boundary Dam plant in Canada that opened last year — even though governments have committed $24bn to the technology over the past 14 years.
Drax has already invested £3m in White Rose, but would have had to spend much more if the project had gone ahead.
Drax’s share price has been battered over the past 18 months as ministers have reined in support for wood pellets, a renewable fuel the company has started burning at its coal power station, the UK’s biggest.
The biggest blow came in July when the government unexpectedly decided that clean power companies would have to start paying a climate-change tax.
Drax’s move could spell disaster for UK efforts to build Europe’s first carbon capture plant at a commercially operated power station.
The company has been developing White Rose with consortium partners, France’s Alstom and the BOC industrial gas group.
Leigh Hackett, chief executive of the consortium, said Drax’s decision to stop investing in the scheme was “disappointing”, but the remaining shareholders were still committed to finishing the project.
However, other carbon capture developers have made similar commitments in the past to troubled projects that have eventually failed.
White Rose’s future still depends on getting some of the £1bn the government has been offering for carbon capture ventures in a competition dating back to 2007.
The contest has collapsed before, in 2011, when all but one bidder pulled out, and the remaining consortium, led by Scottish Power, could not agree funding terms with the government.
The White Rose consortium is one of two groups left in the UK’s £1bn race. The other includes Shell, which plans to capture carbon from a gas power plant in Scotland and store it in depleted reservoirs below the North Sea.
The energy department said the government was “committed to developing carbon capture in the UK”, and would continue to negotiate with the two remaining bidders. A decision on the competition is expected early next year.
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