Drax to pay £25m penalty for data reporting breach after wood pellet probe

Power station operator Drax has agreed to pay a £25 million penalty after the energy watchdog found it failed to report accurate data on the sourcing of wood pellets it burned at its North Yorkshire plant.

Ofgem carried out a 15-month investigation into the company over data that profiled the sources of pellets it used from Canada between April 2021 and March 2022, such as whether the wood came from sawmills or forests.

Drax has historically faced accusations of burning wood from unsustainable sources overseas as well as claims that it was taking timber from precious rare forests in Canada.

There are no excuses for Drax’s admission that it did not comply with its mandatory requirement to give Ofgem accurate and robust data on the exact types of Canadian wood it utilises

Ofgem chief executive Jonathan Brearley

On closing the investigation, Ofgem said Drax was found to have lacked the necessary data governance and controls, meaning it did not give the regulator accurate and robust data on the type of wood it uses.

The regulator said it found no evidence to suggest the breach was deliberate but was instead “technical in nature”.

Drax will pay £25 million to its voluntary redress fund as a result of the findings, it added.

The company currently gets hefty government subsidies for generating electricity by burning biomass wood chips, which is classified as renewable power.

Proponents of biomass say it can create carbon-neutral energy because trees and other plants first absorb carbon, then are burnt and release the same carbon back into the atmosphere.

However, critics say this assumes the companies only use sustainable wood in their boilers and have expressed doubts over the carbon sequestration logic.

The Government is facing growing calls from environmental groups and campaigners to end the subsidies for firms that burn wood and redirect the money to renewable energy such as wind and solar.

Ofgem said it found no evidence to suggest Drax did not meet the UK’s threshold that a minimum of 70% of biomass must come from sustainable sources in order to receive public funding.

Drax has accepted that it had weak procedures, controls and governance which resulted in inaccurate reporting of data about the forestry type and sawlog content being used

Ofgem chief executive Jonathan Brearley

Ultimately, the data under investigation fell outside the criteria used to determine the amount of subsidies the firm received, it added.

The regulator’s chief executive Jonathan Brearley said: “This has been a complex and detailed investigation.

“Energy consumers expect all companies, particularly those receiving millions of pounds annually in public subsidies, to comply with all their statutory requirements.

“There are no excuses for Drax’s admission that it did not comply with its mandatory requirement to give Ofgem accurate and robust data on the exact types of Canadian wood it utilises.

“The legislation is clear about Drax’s obligations – that’s why we took tough action.

“Drax has accepted that it had weak procedures, controls and governance which resulted in inaccurate reporting of data about the forestry type and sawlog content being used.”

He added: “While Ofgem currently has no reason to believe there have been further instances of non-compliance, we won’t hesitate to act if required.”

Although Ofgem has noted there is no evidence to suggest Drax deliberately misreported its profiling data, we recognise the importance of maintaining a strong evidence base and are continuing to invest to improve confidence in our future reporting

Drax Group chief executive Will Gardiner

The regulator said Drax had “engaged constructively” throughout the investigation.

Drax Group chief executive Will Gardiner said: “Although Ofgem has noted there is no evidence to suggest Drax deliberately misreported its profiling data, we recognise the importance of maintaining a strong evidence base and are continuing to invest to improve confidence in our future reporting.”

Environmental groups said the penalty was a “drop in the ocean” for the firm as they reiterated calls for the UK to end subsidies.

Matt Williams, senior advocate for the US-based Natural Resources Defence Council, said: “This ruling shows how difficult it is to prove that burning wood from forests is good for the environment.

“There’s one simple reason for that – it isn’t.

“The £25 million fine Drax have volunteered to pay is a drop in the ocean compared to the billions they’re asking for in new subsidies.

“The Energy Secretary Ed Miliband must see – it’s not worth paying even more of the public’s money to a company that can’t play by the rules.”

This must be a trigger for the Secretary of State to now fully investigate the major issue here: whether wood burnt in UK power stations is genuinely sustainable

Phil MacDonald, energy think tank Ember

Phil MacDonald, founder of energy think tank Ember, said: “Regulators in the UK, including Ofgem, have weak enforcement powers, and Drax will be relieved today to only receive a £25 million fine for these multiple compliance failures, in light of the more than half a billion pounds it makes every year from public subsidy.”

Citing the National Audit Office’s findings from earlier this year that the Government was unable to adequately assess the sustainability of biomass sourcing, he said: “The Ofgem findings seem to confirm their fears.

“This must be a trigger for the Secretary of State to now fully investigate the major issue here: whether wood burnt in UK power stations is genuinely sustainable.”

An Energy Department spokesman said: “We expect full compliance with all regulatory obligations – consumers rightly expect the highest standard of accountability from generators.

“The size of the redress payment underscores the robustness of the regulatory system and the requirement that generators abide by both the spirit and the letter of the regulations.

“The detail of the investigation and subsequent findings are a matter for Ofgem.”

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