UK power generation business Drax is planning a big push into the US, lured by President Joe Biden’s green energy tax incentives under the Inflation Reduction Act.
Will Gardiner, chief executive, said the tax breaks were the “icing on the cake” as he set out plans to spend $4bn building two new power plants in the southern US, with the potential for more to follow.
The new plants are part of Drax’s strategy to become a leader in “negative emissions”, which can be sold in the form of credits to other companies looking to offset their emissions.
The company’s biomass power plants burn pellets made from organic matter such as wood chip to generate electricity.
This process emits carbon dioxide but is considered a renewable technology under international carbon accounting rules.
Drax has signed a memorandum of understanding with Respira, a carbon broker, 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 the proximity of biomass supplies and carbon dioxide storage sites.
The commercial case for the plants in the US has also been boosted by tax credits under the IRA, worth $85 per tonne of carbon dioxide stored.
“The IRA is in some ways the added icing on the cake,” Gardiner said. “The tax credits we would have access to were already $40 per tonne before the IRA. Obviously that’s improved, but it’s only one piece of the puzzle.”
The push into the US is likely to fuel concerns in the UK about the US attracting green investment because of the generous tax breaks under the IRA.
Drax is still planning to develop carbon capture technology at its plant in North Yorkshire, aiming to invest up to £3bn in that as well as expanding its Cruachan hydroelectric plant in Scotland.
It remains in talks with the UK government over support for its investment plans in the country.
Gardiner said discussions were “very concrete”, adding: “The key thing we need is certainty around our revenue streams; on the back of that we can make the investment required.”
In the US, the “supportive investment environment created by the Inflation Reduction Act is stimulating action”, the company added.
Drax generates about 5 per cent of Britain’s power from its flagship station in North Yorkshire as well as hydroelectric and gas-fired power plants.
It has converted its North Yorkshire power station, so it now runs on biomass instead of coal, with much of the biomass imported from the US.
It has been heavily subsidised in the UK to convert to biomass, with these subsidies set to end in 2027.
Setting out its plans as part of a capital markets day on Tuesday, Gardiner said Drax was a “growing and sustainable international business”.
The planned new US power plants are at an early stage with a target for a final investment decision in 2026 and to be up and running by 2030.
It has chosen two initial sites in the south of the US but has not yet named them, with negotiations continuing.
It is evaluating nine other sites in the US.
Investment in both the US and the UK still depends on milestones including “further progress on commercial arrangements as well as clarity on regulatory and funding mechanisms”, the company said.
Drax’s plans come as RWE on Tuesday announced moves to use carbon dioxide capture technology in gas-fired power plants in the UK.
RWE is “testing the feasibility” of adding technology to strip emissions from existing plants in Pembroke, Wales, and in Staythorpe, Nottinghamshire.
It is also developing plans to build a new gas-fired power station with carbon capture attached in Stallingborough, Lincolnshire.
Drax’s shares rose 3 per cent to 638p in London, while RWE’s shares were steady at €40.98 in Frankfurt by early afternoon.