Drax faces formal investigation over wood pellets burnt for power

The UK’s energy regulator has launched a formal investigation into power company Drax over whether the wood pellets burnt to generate electricity in its plant breached sustainability rules.

Ofgem last year began examining whether Drax had complied with the UK’s biomass sustainability rules, and escalated the probe into an investigation announced on Wednesday. Shares in Drax fell about 5 per cent by midday.

“We are investigating whether Drax Power Limited is in breach of annual profiling reporting requirements relating to the renewables obligations scheme and other related matters,” the regulator said.

The probe began after a BBC documentary raised questions about whether the wood that Drax had procured from Canada was sustainably sourced.

Opinion is divided among scientists over whether burning woody biomass for energy is an environmentally sustainable and low-emissions alternative to fossil fuels. Advocates say the carbon dioxide emitted from burning wood is offset by that absorbed by the trees as they grow.

Ofgem seeks to avoid launching formal investigations, but can escalate audits and other regulatory activity if no resolution to an issue has been found and it is concerned about potential wrongdoing.

Drax said the opening of an investigation “does not imply any finding of non-compliance” and said it would “co-operate fully throughout this process”.

It also said it had appointed an unnamed third party to verify the accuracy of its biomass sustainability data last year, but declined to share the findings. “Drax is confident in the compliance of its biomass,” it said.

Drax has maintained that the wood it uses is sustainable, and says it only takes residual wood from other industries and does not harvest forests itself.

As part of its initial inquiry, Ofgem commissioned a third party, US-based consulting group Black and Veatch, to audit Drax’s woody biomass, which it notified the power company about in February. B&V was also selected by Drax in 2021 to help the company with research, engineering and technical support over a three-year period.

Under the UK rules, at least 70 per cent of a power generator’s woody biomass consignment must be classified as sustainable. Compliance is demonstrated via industry certification schemes such as the Sustainable Biomass Program, or through the collection of evidence that demonstrates the rules have been met.

Will Gardiner, Drax chief executive, was a board member of the SBP until this year. Kyla Cheynet, Drax’s director of sustainability for its US operations, is listed as sitting on the SBP’s technical committee, while David McCallum has served as both the SBP’s and Drax’s company secretary.