British power generator Drax is planning a big move into the US, lured by President Joe Biden’s green energy tax incentives under the Lower Inflation Act.
Chief Executive Will Gardiner said the tax break was “icing on the cake” as he laid out plans to spend $4 billion to build two new power plants in the southern U.S., with more likely to follow .
The new plant is part of Drax’s strategy to become a leader in “negative emissions,” which can be sold as credits to other companies seeking to offset their emissions.
The company’s biomass power plants burn pellets made of organic matter such as wood chips to generate electricity.
The process emits carbon dioxide, but is considered a renewable technology under international carbon accounting rules.
Drax has signed a memorandum of understanding with carbon broker Respira to purchase carbon removal credits from its US projects.
It already has pellet production plants in the United States. The country is attractive for its new power plants because of its proximity to biomass supplies and carbon dioxide storage, Gardner said.
The business case for US plants is also being driven by IRA tax credits, worth $85 per tonne of CO2 stored.
“In some ways, the IRA was the icing on the cake,” Gardner said. “Before the IRA, the tax credit we could get was already $40 a ton. Obviously that’s improved, but it’s only part of the puzzle.”
A foray into the US could exacerbate UK concerns about attracting green investment in the US, where IRAs offer generous tax breaks.
Drax still plans to develop carbon capture technology at its North Yorkshire plant, aiming to invest up to £3bn in doing so, and to expand its Cruachan hydropower station in Scotland.
It is still in talks with the British government to support its investment plans in the country.
Gardner said the discussions were “very specific,” adding: “The key thing we need is to identify our revenue streams; on that basis, we can make the investments we need.”
In the U.S., “the supportive investment climate created by the Inflation Reduction Act is spurring action,” the firm added.
Drax produces around 5% of the UK’s electricity from its flagship power station in North Yorkshire, as well as hydroelectric and gas-fired plants.
It has revamped its North Yorkshire power station so it now runs on biomass rather than coal, much of which is imported from the US.
In the UK, it has received substantial subsidies to switch to biomass, which are due to end in 2027.
Gardiner laid out its plans at Tuesday’s capital markets day, describing Drax as a “growing and sustainable international business”.
Planned new U.S. power plants are in the early stages, with the goal of making a final investment decision by 2026 and being operational by 2030.
It has chosen two initial sites in the southern United States, which have not yet been named, and negotiations continue.
It is evaluating nine other sites in the United States.
Investments in the U.S. and U.K. remain contingent on milestones, including “further progress on commercial arrangements and clarity on regulatory and funding mechanisms,” the company said.
Drax’s plans come as RWE announced on Tuesday that it will use carbon dioxide capture technology in gas-fired power plants in the UK.
RWE is “testing the feasibility” of adding technology to remove emissions from existing plants in Pembroke, Wales, and Staythorpe, Nottinghamshire.
It is also drawing up plans to build a new gas-fired power station with carbon capture at Stallingborough in Lincolnshire.
Shares in Drax rose 3 percent to 638 pence in London, while RWE shares in Frankfurt were steady at 40.98 euros in the early afternoon.