Drax goes for growth on a grand scale

1 January 2009

How can a rather old and inefficient coal plant (at least by the standards of today’s ultrasupercritical technology) become a major player in the brave new world of renewables? Biomass is the answer.

Drax, with an installed coal-fired capacity of 6 x 660 MWe, is the UK’s biggest coal fired plant. But once its ambitious biomass aspirations are fulfilled owner/operator Drax Group estimates it will be supplying at least 15% of the UK’s renewable power and up to 10% of the country’s total electricity. The plant is already co-firing to the tune of 10% of thermal input, with fuels such as wood pellets and chips, rape meal pellets and cakes, whole crop maize and sunflower husks.

But not content with currently having under construction the world’s largest dedicated co-firing facility – increasing the station’s co-firing capability to 500 MW by mid-2010 – Drax has now entered into a joint development agreement with Siemens Project Ventures to build, own and operate three new 300 MW stand-alone dedicated biomass-fired generation plants in the UK.

This “expansion of our renewables business is expected to deliver significant attractive long-term growth opportunities,” says the company, with each plant meeting “a mid-teens equity return hurdle based on current market scenarios” and “expected to have a pay-back period of within 6 years from commencement of operations.”

Drax says the new plants once operational will deliver essential baseload generation capacity to the UK electricity market, “making a significant contribution to the UK’s renewables target and supporting national security of supply requirements.”

The power generator believes biomass-fired generation has a strong strategic fit with its existing business and will enable the company to deliver additional value from its core competencies of production, trading, biomass procurement and handling and project execution.

Drax notes it has an established biomass business management team in place and already purchases significant volumes of biomass in accordance with its established sustainable sourcing policy. Some 2 million t/y will be needed for the new co-firing facility and 1.3 million t/y for each of new stand alone plants, but, says Drax, the total is only a small fraction of the commercially managed forest potential and there are additional resources in the form of agricultural residues, short rotation crops and recovered biomass.

No commitments to construction contracts or financing have been yet been made for new plants, but Drax says it expects to finalise these arrangements over the next 12-18 months. Feasibility studies done so far have confirmed the attractiveness of the value proposition.

Under the terms of the joint development agreement with Siemens the intended ownership of the biomass-fired generation business will be split 60% Drax and 40% Siemens Project Ventures. Drax will manage and operate the biomass business and will also be responsible for all biomass procurement and trading. It is proposed that the plants will use Siemens’ turbine technology. Siemens, which would also supply generators and long term maintenance services for its scope of supply, has a long standing relationship with Drax, a notable recent project being the major steam turbine reblading programme at the Drax power plant.

It is understood that the boilers will be of the circulating fluidised bed type, as favoured, for example, by the Finns for biomass combustion. Boiler suppliers have not yet been named, but Foster Wheeler would be a strong contender as would Metso Power (Kvaerner).

Drax has secured rights to deep water port sites at Immingham and Hull for two of the proposed biomass plants (see map). The company is also progressing a number of options for the third site, including land at the Drax power station itself. The planning application process for each of the two secured sites, including required consents, has recently started, the company reports.

Current estimates of the total capital cost of the new stand alone biomass power plant investment programme are around £2 billion, including investments in ancillary biomass logistics and processing facilities. Construction of the first plant is targeted to start in late 2010, following execution of the construction and financing contracts and agreed capital commitment, with the first plant expected to be operational in 2014.

“We are strongly of the view that investment in the generation sector will provide attractive returns,” says Dorothy Thompson, chief executive of Drax. “We believe our venture into dedicated biomass-fired generation underpins our commitment to reducing the carbon footprint of electricity generation from the continued, but necessary, reliance on fossil fuels, whilst delivering secure and reliable supplies of electricity.”

The aim of the three plant strategy is to generate economies of scale and replication, with sharing of spares and standardisation of operations, pooled resources and shared learning across the sites, and “leverage” on engineering, procurement and construction contracts, with scope to reduce cost per plant through multiple builds.

The “value drivers” for the new biomass plants, as seen by Drax, are shown in the diagram left. In particular the new scheme for banded ROCs (see right) would appear to contribute to the attractive project returns of the new stand alone biomass plants.

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