EP.29 Will Gardiner, Chief Executive Officer of Drax Group

So the reason why we sort of laid out our purpose as we did, which is to enable a zero carbon, lower cost energy future, is the enabling piece of that is key, which is basically we said we're not going to be the eighty percent of the power system that's probably going to be wind and solar out in 2050. We're going to be the other 20, which is going to be supporting the system when there is no wind and there's no sun.

Thank you, John, and very happy to be here. There's plenty to talk about in terms of what Drax is doing, what our industry is doing, the energy transition in general, but...

Well, that's a great question, John. I mean, as everyone probably can tell, I grew up in the U.S. I'm originally from New York. I went to university at Harvard, and when I was in my first year there, I was sort of casting around for what I was interested in doing, what I wanted to major in. And Russian studies was something that was attractive to me for a couple reasons. One was that it was a multidisciplinary major — language, history, literature, economics — and I was interested in all of those things. And so I took it up, went for it, and really what I really enjoyed about that, or the thing that sort of captured my imagination, was a period in Russian, or I guess what was fair to call Soviet history, in the 1920s, sort of before Stalin took over and things took a major turn for the worse, where the Soviet Union was experimenting with different economic models as to what they might do to sort of actually industrialize their economy. So, you know, I finished that, or as I was finishing that, I was sort of looking for a job and thought I might go into government and wasn't too interested or excited by that, and ended up talking to Citibank, and they had a program in Latin America which actually was obviously super interesting, and the thing that captured my attention was, well, this is developing world, so all the ideas that I had then or had been studying about how you industrialize an economy were very relevant to what was happening in Latin America at the time. And so I had the opportunity to go be an expat, I wanted to sort of continue my interest in languages, head overseas, and I said that sounds like a great opportunity, so I went for it.

Again, very good question. I'd like to say that it was some sort of deep philosophical or... but in actual fact, you know, I went down to Washington D.C., I met a couple of congressional offices, wrote a couple of think tanks, and frankly I didn't hear back from them for a while, and they didn't seem to be moving too fast, it all seemed a little bit slow-paced. I went and had an interview at Citibank and a couple of days later they said, 'Would you like the job?' Right. And so to me, I was like, okay, these guys are moving, they're doing stuff, and I would say, hey, that sounds like more the kind of pace I want to go for than being government. So I'm interested and ended up — that's in my — I ended up going. You know, looking back at government, I went after I went to graduate school, I thought about it again, but again I was sort of attracted to being in the private sector and actually moving quickly and able to make a difference in that way. And that's the whole idea that actually companies can do lots of positive things, for example now in the energy transition, as well as governments, I think is also now sort of built into my DNA, and so that's a big part of what we're doing at Drax as well.

The question is to what sort of the role of business in society is. I think has maybe come around full circle, and that the last who knows maybe 40 years, the whole idea of profit maximizing as being the mantra for business has been primary, really often to the exclusion of other stakeholders. And I think, you know, if you go back further than that, there was probably maybe a little bit more of a balanced view, and I think we're coming more to a balanced view now. I mean, so one of the things that, as you know, the corporate governance code in the UK now requires businesses to assess the impact of their actions on all stakeholders. For us at Drax, purpose is a critical element of what we're doing. Our purpose is to enable a zero carbon, lower cost energy future, and I think that for lots of good business reasons, but also beyond that, considering the impact of what we do on all stakeholders makes a lot of sense. You know, I'm not discarding the idea, and obviously our shareholders are very important, and we want to make sure that we do what's best for them too, but it is a more rounded picture in my view.

I think it's absolutely key, John. I mean, when I joined Drax five years ago, the company had a couple of very important things going for it and a lot of challenges. So it had this incredible history of having made this transformation to biomass in a very radical way, and we should come back and get into that in more detail. So that was a real strength. And on the other side, the question was what was Drax's future going to be. So if you think about it in that context, why would anybody want to come work there? So I think what I wanted to do is make sure that the idea that the skills and the capabilities that Drax had — the asset base, generating power using biomass — I think very valuable and very important to the UK power system. But more importantly, the engineering skills and the mentality where the company said, 'I'm going to do something that hasn't been done before,' and if you link that to the purpose which is about we've gone from having more than 20 million tons of CO2 emissions to about two, and it will be lower next year, we'll be coming off coal at the end of March. If you focus on that mission and purpose, you can get, I think, really we can attract people who otherwise wouldn't come. And some of the problems we're trying to solve by doing that — for example, the whole question of biomass sustainability — we are world leaders in that field. We passionately believe that the biomass we use has to be sustainable, and given that challenge, we can get some great people who are really interested in that topic. So the purpose and the vision is absolutely key.

It's really sort of in some ways a sort of paradoxical, or maybe it will sound that way. One is I think a very sort of profound sort of belief, confidence, and sort of self-belief in what you're trying to achieve, right? So that whole idea that the purpose of what we're trying to do, that I have a lot of confidence and passion and commitment to delivering that, sort of at one end of the spectrum. But at the same time, I think sort of having the humility and the self-awareness also to realize that you don't have all the answers, that you're going to need help along the way, that you need to actually have — for example, the way I like to work with my team is I've encouraged them to push me as opposed to the other way around, and to help me achieve the things that I want to achieve. So it's a sort of an interesting combination of — I need to sort of recognize, be humble, and sort of be real in a sense and recognize that there are lots of things that I don't know and I will need help with. Our own time having that sort of passionate sort of mission and vision and desire to achieve what I think we need to achieve — to some extent they are contradictory impulses, right? You're the guy leading the charge, you're the guy drumming up the enthusiasm and telling people why what you're doing is important, and at the same time questioning yourself on all of those things.

Yeah, interesting. Yeah, I mean, yeah. Laurie's response was you got your people who can skate to where the puck is and see the future, and I just felt like that was almost too — I did challenge her on that, it seems almost like too high a bar to say that CEOs can see the future, in a sense, but I can see why that's important in the power sector. And certainly the visionaries — I mean, if you take somebody like a company like Orsted, and you sort of ask the question, did they, as Laurie would have suggested, see the future and skate to the puck, or did they create that future, right? Yeah, yeah. I mean, I'm not sure I don't have the answer to that question, yeah, but it's an interesting question to think about because I'm not sure that offshore wind would be where it is now without a lot of the things that they had done. That's a really good point, yeah. And what looks like chance and luck or vision may well have just been a lot of hard work to shape the world around your strengths. That's very good. That's actually one of the things I believe is that getting to where you get to is never sort of predetermined, and it is the outcome of a lot of small decisions and a lot of hard work along the way, and sort of choosing each right turn at the right time.

No, sure. I mean, I think the first one may be an obvious one: it was the decision to start exploring the whole idea of converting to biomass sort of in the first place. If you actually go back and you talk to people on my teams, people like Jason Shipson who's my head of innovation, and you listen to some of the stories, I mean, we've tested for example hundreds of different fuel types, right? And so we've done co-firing, we've done local sourcing, we've done international sourcing. So in some ways, one of the things that I think is fascinating is the decision to start in the first place and then put an incredible amount of sort of detailed hard work and effort behind the whole process. It's probably the first step in the journey. Second one was clearly, as you said, very good and strong engagement with government, and I think at the time the interesting thing is that there was, in some ways, a lot more enthusiasm for biomass then than maybe in a general sense there is now, and so there was a nice sort of strong tailwind in that sense. But if I sort of the one decision that strikes me as being the critical one was at some point the company was advancing along a path of doing sort of co-firing biomass across multiple units — that was the system that was sort of technically being designed and that the government was supporting. And at least I wasn't personally involved, but the way the story has been told to me, that sort of all of a sudden the government came out and said, well, actually, we're only going to support biomass if it's 100% and without co-firing, right? And all of a sudden the team was like, oh my gosh, how are we going to deal with that, right? And the key decision or the key — I'm not sure you call it decision — the key sort of engineering feat, if you will, that was achieved was actually being able to switch from a co-firing of 10, 20 to 100% biomass generation and actually have it work well. And that is still, I think, something that not very many other power stations have achieved, right? So the question was, could you still generate 645 megawatts of power from — which is what coal would generate — could you do that with biomass? The answer is yes. Could you be 39% efficient as we were on coal? The answer is yes. And so could you have the same ramp rates? Yeah. So fundamentally, the team, our team of engineers, done an amazing job, was able to actually sort of pivot and get to a point where actually we're able to do pretty much exactly what we were doing on coal now with biomass, and that to me was a real breakthrough.

We do. And the interesting thing is that we sort of get to the point in the story that I've just reached with you, and we say we went for 100%, and oftentimes I'll be talking to the senior execs at those different power stations or power companies, they'll say, 'Well, my engineers don't want to try that.' And one of the things that I've found is — I don't want to generalize too much — but a good, well-run coal-fired power station is not necessarily a place you want to innovate, right? The guys are very capable and very good at doing what they're doing, it's a fundamentally dangerous thing, and it's all about availability and at the end of the day you want to keep running as you're running, and so there are sort of barriers in a sense to innovation in that sense. But maybe the sort of follow-on from your point is that there are definitely markets where there's more opportunity and starting to happen, and we're starting to look at those, right? So whether that's Japan, whether there is already an attractive subsidy regime, so there's lots of co-firing that's already starting to happen, but the Japanese government I think announced over the summer the need to retire I think it's 30 gigawatts of coal, and so the opportunity to do more there — we're looking at getting involved there. There was a sort of — we've been doing a bunch of work, I should actually say more accurately, some of our sort of pellet trade associations have been doing a bunch of work in Germany, trying to get a regulatory regime in there in Germany that is attractive for biomass, probably primarily for CHP and district heating, for example, and I think that has some intention promise. And fundamentally, when BECCS becomes more widespread, I think there's a real opportunity to do more with that. So, yeah.

But yeah, I think so. If I mean fundamentally, I think we think that if I sort of think about the different pieces of value that we think we are really capable of bringing to the table, so one is the pellet supply chain, and that's really not only about making and delivering the pellets, it's about doing that in a sustainable way. And again, we're happy to talk more about that, but the whole question of sustainability is again central to what we do, and we need to be — I mean, I believe personally and very passionately that if what we do doesn't contribute to a healthy and growing forest and result in more CO2 being captured than otherwise would be the case, then I don't think it's something we should do, right? And we have a very effective supply chain that does deliver that. So that's sort of one way to get involved. The technical capability we have, I think that's another way we can get involved, what I was describing before. But on the other side of that, for us to sort of venture out and start to be a majority owner of a power station in another country where we were going to be doing the trading, etc., that's probably beyond where we want to go in terms of like the sustainability, the provenance of biomass.

There are certification schemes. You mentioned at the top of the podcast that I'm a board member of the Sustainable Biomass Program, and this is a certification scheme that effectively certifies that the biomass is sustainable. And some of the attributes that that biomass would have would be one is that you can absolutely verify exactly where it's come from, so it doesn't come from old growth forests, it doesn't come from places where there's been damage to biodiversity, it comes from forests that are growing and healthy, and there's data attached to that that can describe its carbon footprint, etc. So the key thing about the Sustainable Biomass Program, which is the certification scheme that is accepted in pretty much all of the countries that are doing biomass at scale, but actually does it — and the answer is yes, if you have that certification, then you can actually be confident you know where it's coming from. Okay, you pass a bunch of tests, you're a pellet producer, you pass a bunch of tests, and then you can claim it, and it's trusted and relied upon. Yeah, exactly. And I agree. And again, make no mistake, there are ways of using biomass that don't make sense, right? Or what we like to call that there's good biomass, which is I think what we're using and what the Sustainable Biomass Program would certify, and then there's bad biomass which doesn't have those qualities where it can be a problem. So it's again very important that we do it in the right way.

This has been something of a journey for Drax in the sense that I remember, must have been one of the first weeks that I joined at the end of 2015, Norges Bank announced that they were effectively blacklisting Drax because we were using coal. And that to me was, again in my view, one of the very good examples of how negative the ESG sort of approach could be, right? So here you have a company that's done a massive amount to decarbonize, and because they're still using some coal, they get blacklisted by the world's largest investor. So that was not a helpful thing, right? Now the positive side of that story is last year, Norges Bank sort of unblacklisted us, whatever the term is, and are an investor and actually sort of has recognized the fact that we've made huge progress to come off coal. And I think that's where the whole ESG movement is going — the recognition that there are companies trying to do the right thing, and you need to understand in detail what they're about. I think their investors and funds that are focused in that way are sort of adding more sophisticated analysis to their toolkits, in addition to looking at the Carbon Disclosure Project or TCFD or all the different acronyms, all the different system analytics, all the different programs. Because one of the challenges with all those different scoring systems is that different systems can give very different outcomes to the same company because they have different ways of approaching the problem, right? So I think a key thing for Drax is that we are now getting lots of interest from people who recognize the decarbonization story that we've had today with biomass. They're also starting to recognize or get very interested in the possibilities around negative emissions, and we're going to be making more steps in that direction. I think gas is increasingly challenged — you would have seen in the Climate Change Committee's report from a couple days ago on the sixth carbon budget, the comments there, I think they're saying that no more unabated gas should be built post-2030. So there's more ways we will keep moving in that direction.

No, it's a very good question, John. I think if you take the E, the S, and the G, I think if you try to cover all three of those, there's going to have to be some qualitative elements to that. I think though that there will be increasingly in some areas — so for example, in the whole area of carbon, the world is going to start becoming much more metrics driven, right? And actually, as we get more — I mean, again, this sort of comes back to my thoughts around negative emissions. I mean, if negative emissions — so for you know, by which I mean the actual removal of, let's say, a ton of CO2 from the atmosphere — if that becomes a tradable commodity, and I think it will be, then you have something that actually people stand up and say, okay, we've got something that has real value, and so there will be metrics around those types of things, right? So pieces of the ESG agenda — so what is your carbon footprint, which will be we will be able to increasingly measure in sophisticated ways that people will be putting value on — I think those will become real hard metrics, right? Some of the other things, which is, you know, what's my community impact, I think people will recognize the importance of those, but it'll be more judgmental.

It's a great question and something we think about a lot. Just give you a story when I first became the CEO about three years ago, one of the questions that I asked the team to address very explicitly was, is Drax a good name for the company? Because on the one hand, you Google Drax and you get all sorts of strange answers. If you think about what some of the environmental NGOs think about Drax, they're not a very good story for some of them. Think about the coal history, again not a great story. But we did quite a lot of research on that and we actually discovered that for people who are involved in the power industry, people involved in engineering, there was a real appreciation for some of the things that Drax had done. So we said okay, we're going to start there and build on that. And we've made real progress in helping people understand what we're doing. The biomass part of it is probably more challenging because it's not a simple story to tell. We need to get people to the point where we say what we're doing is actually helping make forests more healthy, as opposed to the visions people might have of just chopping down trees, which by the way we don't do. We only use trees that are residuals or have no better use. So the key thing is we are telling that story and I think we are convincing people that makes sense. But the interesting thing for me, what I think is exciting, is the reason why we laid out our purpose as we did, which was to enable a zero carbon, lower cost energy future. The enabling piece is key: we said we're not going to be the 80% of the power system that's probably going to be wind and solar out in 2050, we're going to be the other 20% that is going to be supporting the system when there is no wind and no sun. That's the story where we are now and that's going to be central to our story going forward. But again, not that easy to explain, but for people in the power sector, I think people get that.

Yeah, it has been very short. And fossil fuels playing a massive role. Absolutely. So it is a small digression. There's that old saying, when the wind doesn't blow and the sun doesn't shine, and solar and wind people tend to get upset that that's getting wheeled out again, but as far as I'm concerned it is fundamental: keeping the lights on in January in the evening when it's sub-zero, at the moment our only answer to that on the grid is fossil fuels, with the exception of the Drax biomass power generation. Of course there's bits and pieces like nuclear and the Cruachan pump storage, John, you gotta remember that too.

So what happened there, John, is that as Dorothy was the CEO, I was very much involved in this process when I was CFO. We were looking at the board and saying what is it that we think is critical that we have to make sure we have the credibility and the knowledge around the table of the challenges that we face. Recognizing that the whole world of the NGOs was one which we needed to engage with in a better way, we basically said we need to find someone who has a deep background in sustainability, understands the nuances of the issues, and can help us engage in that space. That's really what led us to David. He brings that to the table. He has a very interesting background: he was involved in business, I think private equity before that, so he has a sharp business mind, but he's very passionate about making sure that we follow Section 172 and consider all of our stakeholders and these issues in the round, which is very helpful. He keeps us honest. For example, the Sustainable Biomass Program is in the middle of doing a review of our standard, and it's a multi-stakeholder organization with a multi-stakeholder board. Making sure that standard is well accepted and has credibility across civil society is super important. David's advice and guidance has been very useful in that space.

I think it's less about uncertainty in measuring things and more about understanding the facts on the ground. For example, the wood that we use is effectively a byproduct of other things happening in the forest. It's either residual from a sawmill or limbs and tops from a harvest where the objective is to get sawlogs, which is where the value in most forests comes from. The other question is what is the counterfactual? What else would that biomass have been used for? In Canada, some of the wood that our suppliers use would otherwise have been stacked by the side of the road and burned on the spot. They're using that wood to generate power, displacing fossil fuel, so it's hard to argue that's a worse use. But if you argue that biomass otherwise would have been used for fuel anyway, it's much more about the counterfactual. The final point is understanding the impact on the forest. If you have a forest that is mature and stops growing, it doesn't capture any more CO2. If you selectively harvest parts of that forest every year so it continues to grow, it will capture more CO2 every year. Because the trees planted in a managed forest tend to be bigger than the ones they replace due to advances in forestry management, you're actually contributing to a growing carbon stock. It helps to increase the carbon stock, not the reverse, at a forest level.

The way I think about that is that people illegally deforesting in the Amazon are not doing that because they want to make wood pellets. They're doing that because they want to create grazing land for the cows you just mentioned. So if you provide that incremental economics to the forest owner that actually encourages him to plant more trees, that's a good thing.

If you think about the economics of biomass, there are three broad categories: the cost of the actual fiber itself, the lowest cost fiber comes from areas where trees grow fastest. The best places are probably the southern parts of South America, Uruguay, southern Brazil, far from the Amazon. Eucalyptus there can go to maturity in seven years, so the return to the forest owner can be quite high. The other big part of the cost is logistics. The closer you are to the source of biomass, the better, and that also has a better carbon outcome. We are very much supportive of trying to use domestic material, but the UK forest industry is very small, which is why we import most of our wood pellets. We can get more from Europe, and we try to have a diversified base. But the sustainability criteria are important: the US forests in the Southeast have very well established rules and reporting around how they manage their forests, which is critical. So far, the costs of the fiber have outweighed the cost of logistics, which is why we get a lot of our pellets from the Southeast.

No, I don't believe we can. The Committee on Climate Change's report requires BECCS specifically in all of the scenarios they released. They talk about anywhere between 50 and 100 million tons of BECCS a year in 2050. They say we would need about 23 million tons of BECCS in 2035. It's not just that you will need it, it can also be a lower cost and more feasible way of doing things. Everyone talks about the importance of sustainable aviation fuel, but it's not here yet. I could do BECCS if you give me the right support mechanism, I could be up and running in 2027. BECCS is here and now, it can capture CO2 at scale, and it's important for the whole system to get to net zero. On a global scale, we did a lot of work with McKinsey on how much sustainable biomass could be done. The number we came up with, using stringent sustainability criteria, is about four gigatons, roughly equivalent to the amount of emissions from aviation today. In addition to being necessary, it can be a lower cost way of getting there. If it costs me say a hundred pounds a ton, it's going to cost a lot more to get to sustainable aviation fuels. So why wouldn't we choose the lower cost ways of decarbonizing?

I'll give you the general answer and then a track-specific one. First, we're working hard now at full speed to get BECCS up and running as fast as we can, and the fastest we would be ready is 2027. If we wait five more years, it'll be 2032. The Committee on Climate Change says we need 23 million tons by 2035. We could do 16 million tons at Drax alone. No one else in the country can do a fraction of that. If you try to do as much negative emissions by planting trees, you'd have to plant as many trees as would cover all of Wales. Direct air capture is hugely more expensive and difficult to scale. So we have to start now. The second point is that we're looking at opportunities to do BECCS at Drax and in other parts of the UK and the US. For example, if you had a power station right by a sawmill and took the sawdust directly into the boiler and tapped into an existing CO2 pipeline in Louisiana, it would be a very low cost way to do this. The thing about Drax is it's a ready-made opportunity to do this at scale. By 2027, without further government support, we would stop running. If we can convert it to do BECCS, we can make a huge difference to the UK's climate change ambitions. If we don't, we'll probably shut it down and you'll have to find the 16 million tons somewhere else.

The answer to your question is yes and yes. It might become harder. Once those coal fired power stations, or the Drax power station, once they stop rotating and stop doing that for any length of time, you have the cost of maintaining them in working order, which gets into the tens of millions over time, and the risk of infrastructure deterioration. Drax power station is 50 years old already. To have it sit idle for a couple of years is not a risk we want to take. But the other part of your question is absolutely: we are also exploring building a new biomass power station with CCS, that's an exciting idea we're looking at as well.

I'm going to correct that, John. We don't really have seven years. If I have confidence in the government support mechanism by the end of next year, I will press the button on my FEED study and be up and running by 2027. If I don't, I'll start pushing it out. So we have a year or two to get comfortable that we want to spend the money.

That's absolutely the story we think we have to tell. The UK is unusually well positioned to be the first in the world to do this. We have the biomass sustainability regime, the biomass power generating capability, not just Drax. We have the ability to be a global leader in CCS, we have the offshore skills from the oil and gas industry, we have the aquifers to store CO2. My argument to government is if we start now and give the supply chain confidence, we can absolutely be a global leader and export that capability.

I'm going to hedge: underrated in the sense that power markets as implemented and impacted by the government, for example the carbon tax in the UK, have played a huge role. The market alone will not get us where we need to go, but markets with government influence, the government using the markets wisely to do what they want, is absolutely going to be an important part.

I would say probably underrated. There is a lot of skill transfer and knowledge transfer that happens within companies more easily than across them. Also, the ESG impact from companies headquartered in Western Europe can have a big impact in countries where otherwise that might not be the case.

I think it's probably overrated. Maybe I qualify: the ESG movement as a specific movement, overrated. Societal pressure for companies to do the right thing is absolutely having a big impact, but that's more general than a specific movement.

Guys, John, I'm going to drop in one final thought if I may. I don't know if you saw this, but Occidental Petroleum, which is one of the world's biggest oil companies, has a very big carbon capture and storage business already. They announced that their vision is to transform themselves into a carbon management company. Let's leave you with that thought, because that's really the vision I have for Drax: ultimately our business is going to be about negative emissions and managing carbon.