Referral of the proposed subsidy to Drax Power Limited by the Department for Energy Security and Net Zero
Source: gov.uk (2025-07-10)

The Subsidy Advice Unit (SAU) has published a report providing advice to the Department for Energy Security and Net Zero (DESNZ) concerning its proposed subsidy to Drax Power Limited (Drax).

Administrative timetable

Final report

10 July 2025: The SAU has published its report providing advice to DESNZ concerning the proposed subsidy to Drax. The report sets out the SAU’s evaluation of DESNZ’s Assessment of Compliance of its proposed scheme with the requirements set out in the Subsidy Control Act 2022.
- Final report (https://www.gov.uk/government/publications/report-on-the-proposed-subsidy-to-drax-power-limited-by-the-department-for-energy-security-and-net-zero) (10.7.25)
Request from DESNZ

30 May 2025: The SAU has accepted a request for a report from DESNZ concerning its proposed subsidy to Drax. This request relates to a Subsidy of Particular Interest.

The SAU will prepare a report, which will provide an evaluation of DESNZ’s assessment of whether the subsidy complies with the subsidy control requirements (Assessment of Compliance). The SAU will complete its report within 30 working days.

Information about the subsidy provided by DESNZ

Biomass generation is a significant and reliable contributor to the UK’s energy mix. Large-scale biomass plants, converted from coal, can provide dispatchable power and currently contribute around 5% of UK electricity generation. Current government support for these plants ends in 2027. At this point, we do not anticipate that there would be sufficient incentive for these generators to continue operating without support.

In 2024, a consultation was held on whether transitional support should be provided for large-scale biomass generators. After careful consideration of the responses, the government believes there is a case in principle for development of a short-term support mechanism for large-scale biomass generators. This decision recognises, on the basis of the consultation responses and advice received from the National Energy System Operator, that the continued operation of these plants plays an important role in bolstering our security of supply between the late 2020s and early 2030s by providing low-carbon, dispatchable electricity to the grid.

During the consultation all parties who felt that they met the eligibility criteria for support were invited to come forward with evidence of meeting the criteria. Government also outlined that any decision to provide support would be subject to agreeing a deal that represents value for money for consumers, satisfactory completion of sustainability and eligibility checks, and completion of a subsidy control assessment. Following independent advice received from National Energy System Operator (NESO), the government announced its decision to consider agreeing a short-term low carbon dispatchable Contract for Difference (CfD) with Drax Power Limited (Selby).

The CfD is government’s established mechanism for ensuring capacity adequacy and incentivises investment in all forms of low carbon generation technologies. The generator sells the electricity into the market at a variable market price. If the reference (baseload) market price falls below the agreed strike price, then the generator receives a top-up payment equal to the difference between the strike price and the market price. When the market price exceeds the agreed strike price, the generator pays back the difference.

The proposed CfD arrangement with Drax will be limited to a duration of four years (1 April 2027 to 31 March 2031). Importantly, this will include a generation collar with a cap for the load factor eligible for subsidies set at 27%, representing a significant reduction compared to existing support. This means Drax will only be supported to generate power when the system and consumers really need it. When intermittent renewables are abundant, Drax won’t generate, and consumers will benefit from cheaper wind and solar instead. The proposed short-term arrangement will secure reliable power from Drax at a strike price of £113MWh (2012 prices).

We estimate the total value of the proposed subsidy to be around £470 million per year (2023 to 2024 prices and subject to market changes). Consequently, we expect the resulting total costs to consumers to be significantly lower than those incurred under the existing funding schemes. The proposed CfD halves the level of consumer subsidies to Drax compared to existing arrangements (under the Renewables Obligation and CfD), saving nearly £6 per household in annual bills. Additionally, we estimate that this will lead to a saving of £170 million in subsidy in each year of the agreement compared with the alternative of procuring gas in the capacity market.

The proposed arrangement (which will be subject to a final decision by the Secretary of State) will also include an Excess Returns Mechanism, requiring a payment to be made to the Low Carbon Contracts Company (LCCC) if Drax’s returns exceed certain thresholds. The approach may be expanded to other large-scale biomass plants subject to appropriate discussions. In the longer term, it is possible that such plants may be converted to Bioenergy with Carbon Capture and Storage (BECCS) facilities.

Information for third parties

If you wish to comment on matters relevant to the SAU’s evaluation of the Assessment of Compliance concerning DESNZ’s proposed subsidy to Drax, please send your comments on the date stipulated in the timetable above. For guidance on representations relevant to the Assessment of Compliance, see the section on reporting period and transparency in the Operation of the subsidy control functions of the Subsidy Advice Unit (https://www.gov.uk/government/publications/guidance-on-the-operation-of-the-subsidy-control-functions-of-the-subsidy-advice-unit/operation-of-the-subsidy-control-functions-of-the-subsidy-advice-unit).

Please send your submissions to the public authority xxx@xxx.xx (mailto:xxx@xxx.xx)

Please also provide a contact address and explain in what capacity you are making the submission (for example, as an individual or a representative of a business or organisation).

Notes to third parties wishing to make a submission

The SAU will only take your submission into account if it can be shared with DESNZ. The SAU will send a copy of your submission to DESNZ together with its report. This is to allow the public authority to take account of the submission in its decision as to whether to make or modify the scheme or its assessment. We therefore ask that you provide express consent for your full and unredacted submission to be shared. We also encourage you to share your submission directly with DESNZ using the email address provided above.

The SAU may use the information you provide in its published report. Therefore, you should indicate in your submission whether any specified parts of it are commercially confidential. If the SAU wishes to refer in its published report to material identified as confidential, it will contact you in advance.

For further details on confidentiality of third party submissions, see identifying confidential information in the Operation of the subsidy control functions of the Subsidy Advice Unit (https://www.gov.uk/government/publications/guidance-on-the-operation-of-the-subsidy-control-functions-of-the-subsidy-advice-unit/operation-of-the-subsidy-control-functions-of-the-subsidy-advice-unit).

Contacts
- CMA press team: xx-xxxx-xxxx or xxx@xxx.xx (mailto:xxx@xxx.xx)