Revised Subsidy Deal Reshapes Drax’s Role amid Environmental and Economic Scrutiny

The Department for Energy Security and Net Zero has admitted that past financial supports to the controversial wood-fired power plant Drax enabled the company to secure disproportionate profits, a situation that burdened taxpayers. In response, a new four-year subsidy extension has been approved, though at a lower rate. Energy minister Michael Shanks explained that previous subsidy arrangements did not deliver a satisfactory outcome for consumers and instead rewarded Drax with excessive profits.

Under the revamped framework, subsidies for the major Yorkshire power station—which currently contributes about 5% of the UK’s electricity and was previously set to expire in 2027—will be halved. Additionally, the plant will shift its operation from being a continuous baseload generator to providing power only when needed, a model known as “dispatchable power.” The government has also implemented the “windfall mechanism,” ensuring that between 30-60% of any profits above expected targets will be returned to consumers if performance exceeds set limits.

Further measures involve introducing more stringent sustainability criteria, with significant financial penalties if expectations are not met. While biomass is recognized as a short-term, cost-effective energy source, government officials acknowledged that without advancements in carbon capture technology, relying on wood as fuel does not present a viable long-term solution. Drax, which depends on billions in government subsidies to remain economically viable, maintains that its biomass sourcing is sustainable and conforms with legal requirements, despite environmental groups questioning these practices.

Critics, including environmental campaigners, have voiced concerns over the continued public funding of Drax in light of dwindling support for other green and community programs. They stress that supporting such a high-emitting power facility could exacerbate environmental degradation and conflict with broader efforts to transition towards a cleaner, net-zero economy. Meanwhile, Drax’s chief executive, Will Gardiner, defended the new arrangement, emphasizing its role in providing energy security, reducing overall system costs compared to new fossil fuel plants, and offering flexibility to balance the UK’s power grid in times of demand.