UK power group Drax pushed to take advantage of green tax credits in the US

Lured by President Joe Biden’s green energy tax incentives under the Inflation Reduction Act, UK power generation business Drex is planning a major push into the US.

Will Gardiner, the chief executive, said the tax break was “icing dust” as he planned to spend $4 billion to build two new power plants in the southern US, with more likely to follow.

The new plants are part of Drax’s strategy to become a leader in “negative emissions,” which can be sold as credits to other companies that offset their emissions.

The company’s biomass power plants burn pellets made from organic material such as wood chips to generate electricity.

The process emits carbon dioxide but is considered a renewable technology under international carbon accounting rules.

Drax has signed a memorandum of understanding with carbon broker, Respira, to buy carbon removal credits from its US projects.

It already has pellet production plants in the US. Gardiner said the country was attractive for its new power plants because of its biomass supply and proximity to carbon dioxide storage sites.

The commercial case for plants in the US is also boosted by tax credits under the IRA, which cost $85 per ton of carbon dioxide stored.

“The IRA is icing on the cake in some ways,” Gardiner said. “Before the IRA we had access to tax credits of $40 a tonne. Obviously this has improved, but it is only one piece of the puzzle.

Generous tax breaks under the IRA are likely to fuel UK concerns in the US about attracting green investment.

Drax is still planning to develop carbon capture technology at its plant in North Yorkshire, with plans to invest up to £3bn as it aims to expand its Cruachan hydroelectric plant in Scotland.

It is in talks with the UK government to support its investment plans in the country.

Gardiner said the discussions were “very concrete”, adding: “The key thing we need is certainty around our revenue streams; behind that we can make the necessary investments.

In the US, “the supportive investment climate created by the Inflation Reduction Act is stimulating action”, the company said.

Drax generates around 5 per cent of the UK’s electricity from its head station in North Yorkshire, as well as hydro and gas-fired power plants.

It has converted its North Yorkshire power station so it now runs on biomass instead of coal, with most biomass imported from the US.

Converting it to biomass is heavily subsidized in the UK, which is due to expire in 2027.

Setting out his plans as part of Capital Markets Day on Tuesday, Gardiner said Drax was a “growing and sustainable international business”.

Planned new US power plants are in an early stage with a target for a final investment decision in 2026 and to be operational by 2030.

It has chosen two initial sites in the US South but has not yet named them, with talks ongoing.

It is evaluating nine other sites in the US.

The company said investment in both the US and UK still depended on milestones including “further progress on commercial arrangements as well as clarity on regulatory and funding mechanisms”.

Drax’s plans come as RWE announced on Tuesday plans to use carbon dioxide capture technology in gas-fired power plants in the UK.

RWE is “testing the feasibility” of adding the technology to reduce emissions from existing plants in Pembroke, Wales, and Stethorpe, Nottinghamshire.

It is also developing plans to build a new gas-fired power station with attached carbon capture in Stallingborough, Lincolnshire.

Drax shares rose 3 per cent to 638p in London, while RWE shares in Frankfurt were steady at €40.98 by midday.

Lured by President Joe Biden’s green energy tax incentives under the Inflation Reduction Act, UK power generation business Drex is planning a major push into the US.

Will Gardiner, the chief executive, said the tax break was “icing dust” as he planned to spend $4 billion to build two new power plants in the southern US, with more likely to follow.

The new plants are part of Drax’s strategy to become a leader in “negative emissions,” which can be sold as credits to other companies that offset their emissions.

The company’s biomass power plants burn pellets made from organic material such as wood chips to generate electricity.

The process emits carbon dioxide but is considered a renewable technology under international carbon accounting rules.

Drax has signed a memorandum of understanding with carbon broker, Respira, to buy carbon removal credits from its US projects.

It already has pellet production plants in the US. Gardiner said the country was attractive for its new power plants because of its biomass supply and proximity to carbon dioxide storage sites.

The commercial case for plants in the US is also boosted by tax credits under the IRA, which cost $85 per ton of carbon dioxide stored.

“The IRA is icing on the cake in some ways,” Gardiner said. “Before the IRA we had access to tax credits of $40 a tonne. Obviously this has improved, but it is only one piece of the puzzle.

Generous tax breaks under the IRA are likely to fuel UK concerns in the US about attracting green investment.

Drax is still planning to develop carbon capture technology at its plant in North Yorkshire, with plans to invest up to £3bn as it aims to expand its Cruachan hydroelectric plant in Scotland.

It is in talks with the UK government to support its investment plans in the country.

Gardiner said the discussions were “very concrete”, adding: “The key thing we need is certainty around our revenue streams; behind that we can make the necessary investments.

In the US, “the supportive investment climate created by the Inflation Reduction Act is stimulating action”, the company said.

Drax generates around 5 per cent of the UK’s electricity from its head station in North Yorkshire, as well as hydro and gas-fired power plants.

It has converted its North Yorkshire power station so it now runs on biomass instead of coal, with most biomass imported from the US.

Converting it to biomass is heavily subsidized in the UK, which is due to expire in 2027.

Setting out his plans as part of Capital Markets Day on Tuesday, Gardiner said Drax was a “growing and sustainable international business”.

Planned new US power plants are in an early stage with a target for a final investment decision in 2026 and to be operational by 2030.

It has chosen two initial sites in the US South but has not yet named them, with talks ongoing.

It is evaluating nine other sites in the US.

The company said investment in both the US and UK still depended on milestones including “further progress on commercial arrangements as well as clarity on regulatory and funding mechanisms”.

Drax’s plans come as RWE announced on Tuesday plans to use carbon dioxide capture technology in gas-fired power plants in the UK.

RWE is “testing the feasibility” of adding the technology to reduce emissions from existing plants in Pembroke, Wales, and Stethorpe, Nottinghamshire.

It is also developing plans to build a new gas-fired power station with attached carbon capture in Stallingborough, Lincolnshire.

Drax shares rose 3 per cent to 638p in London, while RWE shares in Frankfurt were steady at €40.98 by midday.