British power group Drax is looking to take advantage of green tax credits in the US

U.K. power generation business Drax plans to make a big push in the U.S., helped by President Joe Biden’s green energy tax breaks under the Inflation Reduction Act.

Chief Executive Will Gardiner said the tax breaks are the “icing on the cake” as it plans to spend $4 billion to build two new power plants in the southern United States, with more to come.

The new plants are part of Drax’s strategy to become a leader in ‘negative emissions’, which it can sell as credits to other companies looking to offset their emissions.

The company’s biomass power plants burn pellets made from organic materials, such as wood chips, to generate electricity.

This process emits carbon dioxide, but is considered a renewable technology according to international carbon accounting rules.

Drax has signed a memorandum of understanding with Respira, a carbon broker, to buy carbon removal credits from its US projects.

It already has pellet production plants in the United States. According to Gardiner, the country is attractive for new power plants because of its proximity to biomass supplies and carbon storage.

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The commercial interest of US plants has also been boosted by tax credits under the IRA, which are worth $85 per ton of CO2 stored.

“The IRA is icing on the cake in some ways,” Gardiner said. “The tax credit we would have access to was already $40 per tonne before the IRA. It’s obviously improved, but it’s only one piece of the puzzle.”

The push into the US is likely to heighten UK concerns about the US attracting green investment due to generous IRA tax breaks.

Drax plans to continue to develop carbon capture technology at its North Yorkshire plant and is looking to invest £3 billion in this, as well as expanding its Cruachan hydroelectric power station in Scotland.

It continues to negotiate with the British government to support its investment plans in the country.

Gardiner said the discussions had been “very specific”, adding: “The most important thing we need is certainty around our revenue streams; based on this, we can make the necessary investment.”

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In the United States, “the supportive investment environment created by the Deinflation Act is spurring action,” the company added.

Drax generates about 5 percent of Britain’s energy at its flagship station in North Yorkshire, as well as hydro and gas-fired power plants.

Biomass pellet plant operated by Drax in Louisiana, USA
Biomass pellet mill operated by Drax in Louisiana. The company has selected two locations for the new U.S. plants, but has yet to name them

It has converted its power plant in North Yorkshire to run on biomass instead of coal, most of which is imported from the US.

In the United Kingdom, the transition to biomass received significant support, and these subsidies will end in 2027.

Presenting his plans as part of Tuesday’s capital market day, Gardiner said that Drax is a “growing and sustainable international enterprise”.

Planned new US power plants are still in the early stages, with a final investment decision due in 2026 and commissioning by 2030.

It has selected two initial locations in the southern United States, but has not yet named them, and negotiations are continuing.

It reviews nine other sites in the United States.

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Investment in both the US and UK remains dependent on milestones, including “further progress on trade agreements and clarity on regulatory and funding mechanisms,” the company said.

Drax’s plans come after RWE announced on Tuesday that it would use carbon capture technology at gas-fired power plants in the UK.

RWE is “testing the feasibility” of adding emissions-reducing technology to plants in Pembroke, Wales, and Staythorpe, Nottinghamshire.

It is drawing up plans to build a new gas-fired carbon capture plant in Stallingborough, Lincolnshire.

Drax shares rose 3 percent to 638 pence in London, while RWE shares were at 40.98 euros in Frankfurt by early afternoon.