The government has confirmed it will halve subsidies for Drax Power Station from 2027, saving consumers £170 million per year.
The decision, which follows a review of biomass support, will allow Drax to continue operating under stricter conditions but at a much smaller scale.
Drax, which currently generates about 5% of the UK’s electricity, has relied on government subsidies to burn biomass – but ministers have now ruled that the existing support structure is no longer justifiable.
The new deal cuts subsidies by 50%, reducing costs for households by nearly £6 per year.
At the same time, the plant will shift to a much more limited role, operating at a maximum 27% load factor—meaning it will only be used when renewable generation is low.
The move follows warnings from energy system operators that shutting Drax down too soon could risk energy security, as alternative gas-fired plants would not be ready in time.
However, ministers insist that any continued role for biomass must come with tougher sustainability rules.
A key concern has been supply chain emissions, with previous subsidies allowing Drax to make significant profits despite concerns over the sustainability of imported wood pellets. Under the new agreement, the company must comply with stricter environmental standards, aligning with updated climate science and international best practices.
The decision also reflects concerns over value for money.
Ministers have ruled that subsidies must be restructured to prevent excess profits, ensuring taxpayer support is used efficiently.
While bioenergy with carbon capture and storage (BECCS) has been highlighted as a potential future decarbonisation tool, the technology is not yet ready at scale and was not a factor in this decision.
Drax puts on positive spin
Reacting to the new framework, Drax Group CEO, Will Gardiner said: “The Government’s low-carbon dispatchable CfD framework for biomass, announced today, is an investment in UK energy security, which will result in a net saving for consumers and support the delivery of Clean Power 2030.
“Drax Power Station is the UK’s largest power station and provides secure capacity equivalent to over 80% of Hinkley Point C. The power station plays a critical role in UK energy security, providing c.10% of all UK renewable energy and over 50% at certain times of peak demand, with enough reliable power for 5 million homes.
“Under this proposed agreement, Drax can step in to increase generation when there is not enough electricity, helping to avoid the need to burn more gas or import power from Europe, and when there is too much electricity on the UK grid, Drax can turn down and help to balance the system.”
Biomass rethink?
The Labour government’s shift signals a more cautious approach to biomass, balancing the need for grid stability with cost control.
Frankie Mayo from analysts Ember added: “This is good news for consumers, and bad news for Drax. The new subsidies end afterin four years, are much lower than previously enjoyed, and with far more restrictions.
“This is one way to reduce consumer bills, in the long term it is important that the government forges ahead with building a modern power system to bring down costs for households for good.”
With Drax’s role now significantly reduced and subsidies set to be slashed, attention will turn to how the company adapts—and what this means for the future of biomass in the UK’s energy mix.
