Once aimed at transforming its energy production, Drax Group, owner of Britain’s largest power station, shifted from burning coal to using biomass, specifically wood pellets. However, this transition has become contentious.

The controversy escalated after Drax converted four of its six units in North Yorkshire to burn biomass, leading to debates among scientists and environmental advocates over the sustainability of using imported wood to produce electricity. The results of an Ofgem investigation, which examined the company’s reporting practices concerning its biomass sources, have further stirred criticism against the energy provider.

Ofgem has imposed a £25 million penalty on Drax due to inadequate governance and controls over its data concerning wood sourced from Canada between March 2021 and April 2022.

The regulator’s finding revealed that Drax could not substantiate how it derived its annual profiling submission and the accuracy of its forestry type and saw logs reporting for Canadian biomass during this period.

Last year, Drax imported 90 percent of the biomass utilized in its operations from Canada and the United States. In response to the findings, Drax is now expected to engage a third-party auditor to evaluate its data and resubmit information for the period in question.

Will Gardiner, CEO of Drax Group, emphasized the importance of a solid evidence base and assured ongoing investments aimed at increasing confidence in future reporting.

Initiated in May 2022, the Ofgem investigation scrutinized the historic data submitted by Drax and other biomass power generators concerning the sourcing of woody biomass. These data are essential for compliance, but they do not directly influence the issuance of renewable obligations certificates.

The investigation did not find instances of Drax wrongfully acquiring renewables certificates, which are government-issued subsidies funded through consumer energy bills, nor did it determine that the company failed to meet the minimum requirement for at least 70 percent of biomass to originate from sustainable sources to qualify for financial assistance.

Sustainably sourced wood is defined as coming from areas managed according to the Forest Europe Sustainable Forest Management Criteria or equivalent principles.

Last year, Drax received £548 million in renewables obligations certificates and £599 million in 2022. This support system obligates electricity suppliers annually to present a specific number of certificates per megawatt hour supplied or pay into a buyout fund.

These certificates represent renewable electricity generated by certain power companies, providing them with additional revenue that can be traded with other operators or sold to suppliers. The biomass units at Drax qualify for these subsidies based on the principle that trees absorb carbon during growth, which offsets emissions produced when biomass is burned.

Ofgem’s penalty is notable as it is one of the largest levied by the regulator and accounts for nearly a third of the £77 million in penalties ordered last year.

However, the independent energy think tank Ember criticized the lengthy investigation as insufficient, suggesting Drax would be relieved to receive only a £25 million fine given the more than £500 million it generates annually from public subsidies.

The closure of the investigation has been perceived as a win for Drax, potentially enabling further extensions of its subsidies, which are set to expire in 2027. Drax aims to extend support until the decade’s end, coinciding with plans to integrate carbon capture technology into at least one of its biomass units, known as BECCS.

Analysts from RBC Capital Markets noted that the conclusion of the investigation removes uncertainties affecting Drax’s stock price since May 2022, affirming that there are no major sustainability issues with its biomass.

Nonetheless, the findings regarding misreporting contribute to ongoing criticisms from environmental groups challenging the sustainability claims made by Drax. Critics argue that counting biomass as sustainable fails to account for the lengthy growth cycles of forests, which are needed to offset carbon emissions.

Research from Ember indicates that Drax is the largest carbon emitter in Britain, responsible for nearly 3 percent of emissions, or 11.5 million tonnes of carbon dioxide in the previous year. Drax has disputed this analysis, claiming it ignores accepted methods of carbon accounting.

A 2022 BBC Panorama investigation revealed that wood from specific regions in British Columbia was utilized for wood pellets supplying British electricity generation. Drax countered that it did not source wood from those areas and clarified that the majority of materials used for its pellets are by-products from timber processing, such as sawdust and wood chips.