As part of Liz Truss’s £150bn freeze on energy bills, renewable and nuclear power producers are being asked to supply electricity below current market prices. Officials have begun “negotiating” with generators of older wind, solar and nuclear power contracts, which have benefited from windfall profits as the price of natural gas has soared, to persuade them to switch to newer, less lucrative deals. which lock in lower return rates for guaranteed long-term income. It is understood that Drax, which owns the huge North Yorkshire power station complex and is Britain’s single biggest source of carbon emissions, could also trade units 2 and 3 at its plant, which receive certificate of obligation payments (ROC) for burning biomass wood pellets, making them eligible for the scheme. Producers are not obliged to negotiate with the government as the scheme is voluntary. Drax has yet to confirm if she plans to rework her contract. It said it was “working with the government to find ways we can support the country during the energy crisis this winter.” But there are growing fears that the government is in a weak negotiating position as producers will need to be persuaded to forgo high prices that are unlikely to come down for some time, meaning officials could rush to deals that later turn out to be bad deals for taxpayers the spike in wholesale gas prices quickly recedes. Think tank Ember estimates that from 2012 to 2027, when Drax’s ROC subsidies end, it will have collected more than £11 billion in government payments. It is understood that the new contracts could span between 10 and 15 years, opening the possibility that Drax could gain government support for another decade. The company has drawn criticism from scientists and campaigners who have argued that burning wood to generate electricity is not green at all and may even increase the CO2 emissions that are causing the climate crisis. Nuclear plant owners Centrica and EDF are keen to take the initiative and have already started talks with ministers. The initiative was officially unveiled hours before parliament was suspended for the Queen’s period of mourning. Charlotte Nichols, Labor MP and member of the business, energy and industry strategy select committee, said: “It is vital that the terms of these renegotiated contracts receive proper parliamentary scrutiny as it risks locking in higher prices in the long term and to continue excessive subsidies for technologies we are moving away from as we move toward our net zero goals. “Such long-term economic decisions cannot simply be made unilaterally as a knee-jerk response to our current energy crisis and must be properly debated, with alternatives, before decisions are made that cannot later be chosen. Particular scrutiny must be given to any deal with Drax given the existing levels of government support.” Conservative MP Pauline Latham said: “The Government is right to be looking at ways to reduce energy bills. But they should avoid locking bill payers into expensive new 15-year contracts to subsidize energy sources with dubious environmental credentials. Instead, we should focus on building new renewable energy sources that are nine times cheaper than natural gas.” Friends of the Earth head of policy, Mike Childs, said: “During a cost of living crisis and with wind and solar so cheap, it’s amazing that the government is considering spending more public money on Drax. “If the company is going to get more subsidies, the government should at least ensure full transparency and proper parliamentary scrutiny.” Truss and the chancellor, Kwasi Kwarteng, have opposed the surprise taxes, but the EU’s decision to impose an emergency levy may increase pressure on Truss to follow suit. The Times reported that some power producers believe a windfall tax would be better than being forced to sign cut-price contracts. Drax said in July that pre-tax profits jumped to £200m in the first half of the year, from £52m in the same period a year earlier, helped by high electricity prices. It upgraded annual profit forecasts and signed a deal with National Grid to keep its coal-fired operations open through the winter. Over the past 12 months, its stock has risen 63% to 709p, valuing the company at £2.84bn, after peaking at 831p. in April. Subscribe to the Business Today daily email or follow Guardian Business on Twitter @BusinessDesk Kwarteng said last month, when he was business and energy minister, that importing wood for burning at the Drax power station was “not sustainable” and “doesn’t make any sense”. A Drax spokesman said: “Drax is working in partnership with the government to find ways in which we can support the country during the energy crisis this winter. “We also plan to invest £3 billion by 2030 in critical renewable energy infrastructure projects, including bioenergy with carbon capture and storage and pumped hydro storage, which will support energy security as well as jobs.”
