Drax plans to cut cost of biomass electricity by a third

By Susanna Twidale

LONDON (Reuters) - Britain's Drax plans to cut the cost of the electricity it generates from biomass by a third over the next 10 years to reduce its reliance on subsidies, its CEO told Reuters.

Drax, which generates about 6 percent of Britain's electricity, has converted three of its previously coal-fired units to using biomass wood pellets, often made from compressed sawdust. A fourth unit conversion will be complete by the end of the year.

The biomass units qualify for renewable subsidies from the government. These were worth about 730 million pounds last year but are set to end in 2027.

"We have a cost of delivering energy from biomass that is about 75 pounds per megawatt-hour (MWh) and we are looking to drive that down to around 50 pounds over the course of the next 10 years," Chief Executive Will Gardiner said.

Wholesale electricity prices in Britain are currently about 50 pounds/MWh.

Gardiner said the company was looking at ways to upgrade turbines to obtain more power from each pellet, as well as reducing the cost of the pellets it produces.

Britain wants to end coal-fired power generation by 2025 and Gardiner said Drax could close its existing coal units earlier than that deadline.

However, plans to replace the coal with gas-fired plants will depend on their ability to generate extra revenue from the government's capacity auctions, which pay plant owners to make back-up power available at short notice.

The last auction, held in February, cleared at a record low of 8.40 pounds per kilowatt per year, well below the level needed to spur investment in large gas plants, Gardiner said.

"As long as one of these auction clears high enough in the next two to four years, then gas plants will be able to be built before the coal comes offline," he said.

One of the biggest winners at the auction were interconnectors, links that transport power between Britain and Europe, which secured a record 10 percent of the total capacity.

Gardiner said the auctions should focus more on securing new sources of domestic generation.

"If it's colder, or the power prices are higher in Europe than they are in the UK, then the power flows from us (Britain) to them (Europe), as it did when the Beast from the East hit," he said.

Research complied by Imperial College London for Drax's Electric Insights report series showed that Britain exported electricity to France during the February cold snap, despite higher than usual domestic demand, because prices were higher across the Channel.

($1 = 0.7116 pounds)

(Reporting by Susanna Twidale; Editing by David Goodman)