Drax power plant to cut carbon capture investment despite record £1bn profit

The owner of the Drax wood-burning power plant will slow its investment in carbon capture to reduce its emissions, despite securing an extra three years of government subsidies and earning record profits above £1bn last year.

Drax Group said it would commit less investment to fitting the technology at the North Yorkshire power plant unless the government provided clarity over the returns it could expect to make from the upgrade.

The company signalled the slowdown just weeks after the government agreed to pay extra public subsidies worth about half a billion pounds a year to help the company develop its carbon capture project after 2027, when its current subsidy regime ends.

The company lobbied for the extra support from 2027 to 2031, arguing it was necessary to keep the power plant running while it develops the scheme, which could begin operating in the 2030s.

On Thursday, however, Drax said it would “commit less development investment” to its strategic investments – including carbon removals, 24/7 renewable power, datacentres and energy storage – “until we receive greater certainty on appropriate regulatory structures and investments returns”.

The warning came alongside the company’s financial results, which showed that it had made the highest earnings in its 35-year history. Its adjusted earnings rose to £1.06bn last year, narrowly above its profits of £1.01bn the year before.

The profits are largely built on the billion-pound subsidies given to Drax for burning biomass, which is considered a form of renewable energy despite claims from climate scientists that it may increase emissions in the short term.

The new support payments from 2027 will be halved from the current level after the energy minister Michael Shanks said the previous subsidy arrangement had allowed Drax to make “unacceptably large profits”. He said the new deal would be a “step-change in value for money and sustainability”.

The government insisted that Drax, which supplies about 5% of the UK’s electricity, would be used only as backup for when wind and solar power was in short supply, playing a “much more limited role” in future.

Drax has claimed that burning biomass is carbon neutral because growing trees absorbs as much carbon dioxide as they release when burned as biomass pellets. It believes fitting carbon capture technology to the flues of the power plant would make its generation “carbon negative”.

The claims are disputed by climate scientists, who have questioned the company’s carbon accounting. Drax also faces growing concerns over the sustainability of the wood it sources for its biomass. It agreed last year to pay a £25m fine after the energy industry regulator found it had submitted inaccurate data.

The FTSE 250 company’s power generation increased by more than a quarter last year, according to Drax, with only a single major planned outage, which it completed ahead of schedule.

The Drax Group’s chief executive, Will Gardiner, said: “We produced over 25% more dispatchable renewable power in 2024, keeping the lights on for millions of homes and businesses, while supporting thousands of jobs throughout our supply chain.”

He described the new subsidy arrangement as “a major milestone for the business” that would mean the site would “continue to generate electricity for the country, especially when the wind isn’t blowing and the sun isn’t shining”.

The government was approached for comment.