Contracts for Difference (Miscellaneous Amendments) (No. 2) Regulations 2025

Lord Birt Excerpts

Monday 23rd June 2025 Lords Chamber

[Lord Lilley (Con)]

My Lords, it is an unusual pleasure for me to be able to support the noble Baroness, Lady Bennett of Manor Castle, but tonight my cup floweth over, since I am also able to agree with the noble Lords, Lord Kerr of Kinlochard and Lord Sikka. I agreed with almost every word that both had to say. The noble Baroness, Lady Bennett, and I approach this issue from opposite perspectives. The noble Baroness is primarily concerned about reducing CO₂ emissions; I am primarily concerned about reducing the cost of energy. But we both reached the same conclusion that this statutory instrument is fundamentally indefensible.

The whole process of subsidising the Drax power station illustrates the absurdities to which net zero is leading us. It is not just the cost, or the pretence that we are reducing CO₂ emissions when this is the biggest emitter of CO₂ in the country; it is about all the attempts to cover up and obfuscate both the enormous costs and the minimal benefits. When you start believing in fairy tales—the fairy tale that achieving net zero will be costless—you end up denying reality and being economical with the truth.

Let me give a few examples of that obfuscation. The excellent report of the Secondary Legislation Scrutiny Committee, on which the noble Lord, Lord Kerr, sits, drew attention to the failure of the Explanatory Memorandum to even mention Drax. Yet it is over-whelmingly the major beneficiary from the proposed contracts for difference. Clearly, the department hoped we would not see that this was yet another bung to the company. That report also highlighted the repayment made by Drax of some £25 million. Yet there is no clear explanation of what exactly the company had done wrong that required that repayment. It is pretty clear that it is, in effect, hush money to cover up non-compliance with the sustainability regulations.

Another example is the reference in the PAC report Government’s Support for Biomass to the investigation conducted by Bloomberg in 2022, which concluded that Drax may previously have gamed the system to the detriment of consumers. It alleges that

“Drax shut down power generation and sold wood pellets on the open market to avoid paying back £639 million of subsidies as wholesale electricity prices spiked”.

Although the Department for Energy Security and Net Zero reassured the PAC that

“the new arrangements will be more robust, it did not offer any explanation of how it had made sure that there would be no loopholes that allow Drax to continue to game the system”.

Then there is the failure to publish the KPMG review of the Drax supply chain. The Secondary Legislation Scrutiny Committee called on the Government to publish that audit before this debate. I am not aware that the Government have done so. The Minister did not in his introduction explain whether he had done so and, if not, why. I will ask him to address that issue when he returns at the end of this debate. The report may not belong to Drax, but as the noble Lord, Lord Kerr, said, the Government are the customer. They insist on a number of conditions that Drax has to fulfil; they could easily insist that publication of that report is one of them.

Will the Government commit to reporting to Parliament the outcome of the independent audit commissioned by Ofgem? When I worked in the City as a financial analyst, if ever I came across a company about which there were so many unanswered questions, I would have guessed it was run by Robert Maxwell or someone of that ilk.

So, how much is Drax costing us? Since 2022, support for Drax has cost the Government—that is, the taxpayer—£6.5 billion. According to the consultancy Ember, that figure was rising at nearly £1 billion a year before this latest measure. This CFD will cost £113 per megawatt hour at the value of the pound in 2012, which has risen with inflation since then and will rise further in future. The PAC admits that that is

“far more than will be paid to offshore windfarms and other renewable generators”

under recently awarded contracts for difference.

The justification given by the company and, presumably, accepted by the Government is that electricity from Drax is dispatchable and therefore worth substantially more than intermittent electricity from wind or solar generators. That raises the question: why have the Government not accepted Professor Dieter Helm’s recommendation that all electricity generators should bid for the cost of firm power; that is, including the additional costs they will impose on the system for back-up power for when the wind does not blow or the sun does not shine? Instead, the Government palm us off with references to the levelised cost of energy, which is practically meaningless and not something that anyone ever pays.

Then we come to sustainability. Will the new sustainability criteria incorporated in the CfDs apply to electricity generated outside a CfD? CfDs will apply only 27% of the time. That is a question the PAC raised. Again, I hope the Minister will answer that when he replies to this debate.

The idea that burning wood pellets is sustainable, given that they emit more CO₂ per megawatt hour even than coal, is hard to credit, especially given the additional emissions involved in collecting the timber, drying it, pelletising it, and transporting it from western Canada, often across the continent and then across the Atlantic. The theory is that felled trees will be replaced and fallen branches would have decayed and emitted CO₂. I planted 30 trees around my house nearly four decades ago, not to mention more since, and it will be several decades before they are ready to fell. Lots of old branches that were lying around then are still lying around and have not yet rotted, perished and emitted their CO₂.

Anyone who thinks that sustainability is to be measured on a timescale of at least half a century, and probably a century, cannot seriously be arguing that we are in a climate crisis. If we have a century to get the CO₂ back that we are emitting now, we are not in a climate crisis. That, in effect, is what the Government are saying by asking us to go on subsidising Drax. I shall certainly support the noble Baroness, Lady Bennett, if she calls a vote on her amendment.

[Lord Birt (CB)]

My Lords, we are a remarkably united House tonight. I too support the amendment tabled by the noble Baroness, Lady Bennett of Manor Castle. I am not the first to say that the case for biomass is very weak. It is, in effect, a historical anomaly. As others have said, biomass emits more carbon than coal. As the noble Lord, Lord Lilley, just pointed out, it takes decades—perhaps half a century, perhaps even longer—to reclaim that carbon from the atmosphere.

Actually, Drax’s homework has been marked. Nobody has mentioned the remarkable and excellent “Panorama” documentary made by Joe Crowley just under three years ago, which demonstrated very clearly that Drax was burning primary ancient forests, which would be exceptionally difficult, if not impossible, to replace. That, in my view, is unconscionable. Nobody has said this so far, but Drax is not an organisation that inspires any confidence. For those who saw “Panorama”, it put up a remarkably weak case for what it was doing. Its handling of a senior executive whistleblower—again, not mentioned so far—was, to put it mildly, unsavoury.

I appreciate the difficulties that Drax presents for the Government. It is a major employer. It produces a significant share of our national electricity supply, as others have pointed out—we could not possibly close it down tomorrow—and it gives that energy supply on tap. The question for the Minister, which I hope he will address in his closing remarks, is: will the Government, who must have heard the passion, power and effectiveness of the arguments from across the House this evening, now consider a proper long-term plan for the phasing out of Drax and for reinvesting in real renewables?

[Earl Russell (LD)]

My Lords, I too speak in favour of the amendment tabled in the name of the noble Baroness, Lady Bennett, against the Motion tabled by the noble Lord, Lord Wilson of Sedgefield. This SI makes existing large-scale biomass electricity generators eligible for contracts for difference. The Government argue that that is needed to prevent security of electricity supply risks after 2027, when the current schemes for many biomass generators expire.

--- Later in debate ---

[Lord Wilson of Sedgefield (Lab)]

I thank the noble Lord for that intervention. We were not trying to exaggerate anything. We are comparing that with the fact that, if we do not do this, we will end up with the price of gas at £170 million per year compared with some saving to households. We have to bear that in mind as well.

There was talk about the outcome of Ofgem’s investigation into Drax. The recent comprehensive Ofgem investigation into Drax compliance entered its report in August 2024. It found no evidence that Drax had incorrectly received subsidy payments, and no subsidies were issued for unsustainable biomass. However, Drax accepted the findings of the investigation and made a redress payment of £25 million. Ofgem’s investigation was very comprehensive and included a careful review of the KPMG report, as well as a wider review of more than 3,000 other documents. Both the Government and Ofgem are confident in this conclusion. Moreover, Ofgem has required Drax to undertake a full international audit of the profiling data from its supply chain. I hope that answers the concerns that noble Lords may have.

To address the other points on the Ember report on Drax being Britain’s largest CO₂ emitter in 2023—this also answers the question about trees, and not all trees take four decades to grow—the carbon in biomass is emitted as carbon dioxide from the chimney of the power plant when the biomass is burned. However, the carbon dioxide emissions from sustainable biomass are part of the biogenic carbon cycle. Unlike fossil carbon, which was turned into gas or coal millions of years ago, the carbon released was recently absorbed from the atmosphere and is reabsorbed continuously through regrowth.

Woody feedstocks for bioenergy are typically low-value forestry—sawmill residue from trees that would have been felled regardless for higher-value usage. Therefore, in contrast with fossil emissions, we can consider sustainable biomass systems to be carbon neutral at the stack when taking forest growth, harvest and product use into account.

What you also have to realise with this SI is that one of the parts of it is about sustainability. Part of the contract is that biomass comes from 100% renewable sources, not 70%, so that is a massive increase. We will appoint someone to examine and look into the sustainability of the whole process.

We can have criticisms, and I think we all agree that we do not see this as the long-term answer to the energy problems that we have, but it is fair to say that we have to be realistic. We cannot be ideological purists. We could have an energy gap of 5%, and biomass provides 5% of our energy needs. We should not be blind to that fact. We are making improvements. It is about the regulations and not just about Drax; Lynemouth is talking about taking part in this process as well. It does not matter about the size of the biomass facility; they can all be part of this.

I finish by saying that the draft regulations in front of the House today will enable the Government to continue to deliver security of supply at the lowest cost for consumers, while protecting and enhancing vital sustainability measures. I commend the draft regulations to the House.

[Lord Birt (CB)]

There was a clear and welcome hint at the beginning of the Minister’s remarks that Drax was temporary, not here permanently. Are the Government considering framing an ordered plan, with a timeline to close down Drax?

[Lord Wilson of Sedgefield (Lab)]

I will get back to the noble Lord on that. I have said—and I think we all agree—that this is not the long-term future for our energy needs. But we have a shortage of supply, and this SI helps to fill that over the short term. In the meantime, we want to invest more in wind—offshore and onshore—tidal and all the other renewable energy sources. We need and want to do that, and this Government are committed to that.