EnergySource Innovation Stream with Drax Group: Carbon negative power from bioenergy

Well thank you, Randy. Great to be here from a lockdown London. It's probably a little quieter here than it is over there given all the things that are going on, but thank you for having me. Well, it's great to be here.

So for me, personally, I'm at home and I've been largely at home for most of the year up to my house at this point. I've actually unfortunately had the virus and got through that in March. From a business perspective, as a power company we are doing everything we can to keep running and we're doing that well. It's not necessarily that easy because we have a supply chain bringing pellets, a lot of them from the US. So we got to keep that supply chain moving, and for a lot of our folks who actually serve customers, they're all working from home now, so we went pretty rapidly to a virtual call center type environment.

No, it's been fine, thank you.

Great, so I am going to do my best to share my screen here, guys. So hopefully that's... Can you see that pretty well? Already yep, yep that looks great. So why don't I start right in? I'll just give you a bit of an introduction to Drax. Drax is a power company based in the UK, publicly traded, we have a market cap around two billion pounds. Started life as a coal-fired power station in Yorkshire. We generate about 5% of the UK's power and have done for a long time. Over the last 10-15 years we've been on a journey to convert the power station from what was all coal to what is now pretty much all biomass. We'll actually we've already announced that we would expect to stop running coal at the end of March of next year, so about four or five more months. At the company we have a very clear purpose: to enable a zero-carbon, lower-cost energy future, and we have to do that in three ways: by building a long-term future for sustainable biomass, to be a leading provider of power system stability in the UK, and also to give customers greater control of their energy. About a year ago at COP25 in Madrid we announced our ambition to be a carbon-negative company by 2030, which is what I'll spend most of my time now talking about—how we'll use BECCS to do that. So just a little bit of a highlight of our journey. We were back at the beginning of the last decade, we would have been emitting about 23 million tons of CO2 per year as a coal-fired power station. We're down sort of under well under five million last year. Fundamentally, if we add carbon capture and storage to our biomass generation we could deliver as much as 16 million tons of what we like to call negative emissions. And you can see on the right-hand side of that slide, we think we've actually reduced our CO2 intensity pretty much as much as anybody. And fundamentally that's been about this transformation of the business from coal to biomass. Maybe I'll talk first a little bit about that because from an innovation perspective it's an interesting story. There aren't many power stations that have gone the sort of whole hog, 100% conversion from coal to biomass. I highlight three pieces of that. The first and biggest piece physically was building the materials handling piece of it and actually being able to safely manage the biomass. We use wood pellets sourced about 60% from the US, 20% from Canada, 20% from the rest of the world. For those not so familiar with biomass, biomass dust is highly combustible, so it has to be managed very carefully. The actual physical supply chain—the conveyors and those domes—biomass has to be kept dry all the time, so that's quite a significant logistics challenge. If you move up into the generators, the boilers, the electricity generation piece, once you've got the pellets into the mills, Drax is a pulverized fuel boiler. From the mills onward, the process fundamentally doesn't change. Just in the same way you take the coal, crush it, turn it into dust, same with the wood pellets. So from that point on, the challenge is actually not so different from coal. But what many people wondered was whether it was possible to get the same thermal efficiency using biomass as from coal, and we have done that—greater than 39%. Also, could you get the same throughput? Each of our four biomass power generating units at Drax is capable of generating 645 megawatts of power, and we are actually getting as much if not a little bit more from biomass as we were from coal. One of the big challenges is managing the boilers over time, and we've done a lot of interesting things around managing slagging and fouling, the types of things that make biomass or coal boilers degrade over time. But fundamentally, we now have a biomass power station with four 645 megawatt units that are generating as much power as they would have been under coal. Think about the next step.

In this journey, it's really about adding carbon capture and storage. The first point I wanted to make is that the case or the need for negative emissions, we think, is becoming stronger and stronger all the time. What you see here is the Climate Change Committee in the UK. The Climate Change Committee was formed about 12 years ago as part of the Climate Change Act, and their role is to provide advice to the UK government on strategies for decarbonizing and now for hitting net zero in 2050, which is a legally binding target. In their latest scenario, they see about 90 million tons of residual CO2 emissions under their base case scenario in 2050, and they think there will be a need for at least 50 million tons of negative emissions to offset that, and they talk about that coming specifically from BECCS. You can see that our four units could do 16 million of that 50 million tons in negative emissions. The same is true on a global scale. The IPCC scenarios call for using significant amounts of negative emissions and specifically BECCS. Also, there's a strong case for that in the US. So what are we actually doing at the power station? The idea: we will add an absorber column onto the back end of the power station. Everything else stays the same. You pass the flue gas through that absorber, it mixes with a solvent, that solvent is then CO2-rich, you put it back through heat exchange and you take the CO2 out. That CO2 will then go into a pipeline. That pipeline would go from Drax, which is about 60 kilometers inland off the coast of the North Sea, and then the idea is it will go offshore and be stored under the North Sea in a saline aquifer.

Where is everything happening in the UK? We're working on a bunch of different fronts to make this happen. We've developed a coalition for negative emissions to make the case for this. We've also enabled a group of companies in the Humber region working together as an industrial cluster to work on putting together the infrastructure for this. The UK government has committed about 800 million pounds as a first step in enabling carbon capture and storage infrastructure in the UK. So if I think about the overall program, there are probably four pieces that need to come into play. One is the infrastructure, and the government is well underway at enabling that to happen. The current state: the Zero Carbon Humber industrial cluster that we are part of put together a proposal to get government funding for the next step, and we should learn more about that in December. If all goes according to plan, the pipeline would start building that pipeline and offshore infrastructure in 2024. Secondly, it happens in our own technology development. We're in the process of trialing a couple of different solvents to enable the carbon capture, and we would expect to be through a pre-feed process in the middle of next year, moving into a feed study. We would expect to be ready to make a final investment decision to start developing the project somewhere in the early to mid 2024 time frame, in line with that pipeline. The UK government, aligned with industry and a bunch of different players in CCS, is working on the right regulatory model to enable this, and there is a lot of active work going on there. We expect over the course of the next two or three years that will be firmed up, again in line with the objective of getting everything ready to go in 2024. In short summary, we think that BECCS and other negative emissions technologies are going to be key to reducing emissions and delivering net zero. BECCS is a great way to do that, is ready and proven, and we think it's also a very attractive value for money solution. So Randy, I'm going to stop sharing and stop presenting there and be ready to take any questions.

Yeah, no, that's a great question, Randy. It's something we think about and worry about all the time, because if it's not sustainable and it's not actually delivering positive carbon outcomes, it doesn't make a lot of sense. The first point I would start with is that the regulatory framework we have in the UK has very strict requirements. We need to be able to say where all of our wood pellets come from, that they come from forests that are being managed properly, that they are growing. We also have further policy ourselves: we are committed to not damaging biodiversity, for example. The fundamental point for me is that if we are getting our wood either as a residue— fundamentally, almost half of what we use is coming from sawmill residue, so something that really is not impacting the forest directly at all. The second thing is that those things coming from the forest need to be coming from forests that are growing. We are actually clear that there is more CO2 in the forest the following year than there was before, that's stored in that forest. Just by way of example, the forest cover and carbon stock in the southeast of the US, where we get a lot of our fiber from, is about 50% bigger now than it was back in the 1960s. So it's a combination of making sure that you have positive forest outcomes and that you can verify those. The verification is part of this: do you have people actually working on that verification process, checking regularly and working with forest management? So we have our foresters who work with our suppliers to understand what fiber we're getting, and we have a different team, what we call sustainability foresters, actually verifying that everything is done the right way. We are a member—every pellet that we use has to be certified by the Sustainable Biomass Program, a certification body that ensures this is done right. And as I said, we have to submit regulatory filings with Ofgem here in the UK every year that effectively say where every one of those pellets came from and that they meet very strict sustainability criteria.

That's a very, very, very good question. So we, as we've been ramping up the idea and getting more excited about BECCS, we've been doing a lot of work on that question, among others. For example, the whole value for money question is another critical one. So we did some work last year with McKinsey and we looked at the question on a global basis: how much biomass did we think there would be? We applied sustainability filters that are a bit more stringent than the ones applied to us today. You start with the full forest, you are only able to use part of the growth in one year, then you only use residuals, you exclude big parts of areas where there is risk of loss of biodiversity, etc., and you have a whole set of filters. You end up using something less than 1% of the fiber that is available. With that fiber, we think there is enough biomass that you could actually deliver about four gigatons of BECCS, effectively negative emissions. Just to give a sense, that's about the amount of emissions you get in today's world from the aviation industry. So there is a limit and it has to be managed carefully, but fundamentally it can make a significant difference.

No, so we do. I mean, just to give you some of the math: if you deliver one megawatt hour of power, it is about 900 kilograms of CO2 associated with that. The idea is that that is recaptured in the forest, so that's what makes it neutral. In order to get that fiber from the forest through the pellet plants into the power station in the UK, there is about 140 kilograms of CO2 involved in that process. So that is real, let me acknowledge that. It's something we're working on. We're looking at ways we can reduce the carbon footprint of shipping, for example through wind-based technologies. One of the other things I think is ultimately important about BECCS, interesting about BECCS longer term, is if you think about the cost profile of BECCS, the logistics costs and the pelletizing costs are a big part of it, in line with that carbon footprint. So if you were to start now and we are working on this, we're not necessarily just going to do this at Drax, but we'll do this somewhere where you can optimize for some of those logistics costs. You think about a place like Louisiana, southeast of the US. You put a power station next to a sawmill or in the middle of a bunch of them, you bring in the sawmill, you don't need to pelletize it, you just put it right into the boilers, then you generate power, capture the CO2, and then you tap into a CO2 pipeline. There are lots of CO2 pipelines in Louisiana already. So from an economic and also a carbon perspective, that could be a pretty interesting thing we're exploring, something we might do.

I'll take this from a UK perspective because this is where we're working on it first. There are several quite effective and proven mechanisms that have worked for other types of renewables. Effectively, when you generate power using BECCS and the negative emissions, the process gives you two commodities: one is the power and the other is the negative emissions. In the same way that biomass has an incentive regime today, or the way offshore wind has worked, we would like the first project to be one where the government provides a contract for difference: a price for the power and a price for the negative emissions, both relative to a reference price. For example, if you gave me 50 pounds per megawatt hour for the power, then we would sell the power into the wholesale market and the government would make up the difference. You do the same for the negative emissions. Everyone has their own view of where carbon prices might be or should be. Just by way of example, the recent Morgan Stanley report had a base case for the EU ETS being at about 100 euros a ton by 2030. At that kind of level, if I got a contract from the UK government for that level for a 10 or 15 year period, we could make this work. In the first instance, we would need that contract to be a first-of-a-kind project and we would need some revenue certainty to make the investments needed. This is a billion pound plus project. But the interesting thing for me is if carbon prices continue to rise, which I think they will, and if we're going to get to net zero, I think that's critical. Then BECCS has got a really interesting potential to be very economic and ultimately be free-standing on its own as long as we can get a credit for the CO2 we capture that is equivalent to the tax that other people might pay.

That's a very good question. The interesting thing about this is that in some ways the US is ahead of the UK on carbon capture, to be honest. Some of the good things happening in the way the UK process is evolving is you have concerted government efforts to work with industry to put clusters of industrial infrastructure in place. This is obviously very geographically specific, and the infrastructure is a big part of the cost. So getting government-private sector partnership to work on putting infrastructure in place is a critical piece. The second piece is the regulatory framework. How do you establish a regulatory framework? The UK is a significantly smaller country but it's one regulatory entity, so they can do that in a way that works. The US utility market is probably not at this similar size, but the interesting thing about the US is that conceptually, if you take 45Q plus the California Low Carbon Fuel Standard, etc., I think there are interesting ways we could potentially apply those things to BECCS. That's one of the things we'll start working on: how to enable those standards to work with BECCS. I think it's a really interesting opportunity.

Let me see if I can answer this. When we generate, I'll give you our portfolio. Today we still have some coal, some gas, some biomass. When we generate with coal, we pay the EU ETS. Similarly on gas. On biomass, we do not. Biomass does not attract the EU ETS. But the key is that right now the EU is debating this topic: what happens when you get carbon removal technologies? What I think would make a lot of sense is if I generate a ton of carbon removal, I should earn one of those ETS credits. I think a really interesting play there, both from a logical point of view and from improving market dynamics, if you have both users of credits and creators of credits, you've got better supply and demand dynamics. I think that could be quite interesting. Now you asked me what happens in the UK. The UK is all up in the air. We should be leaving the EU in about seven weeks, and I think we're going to hear on December 12th how the UK equivalent of either an ETS-type system or a tax will work.

So the fact that the chemistry makeup means there are the emissions levels of NOx and SOx are very low. That is a very direct benefit of biomass. We put in place FGD for our coal, which we don't need to use with the biomass. Desulfurization is not required, which is very good from both an environmental and a cost perspective. Actually, when you add the CCS, it's quite interesting because to get the level of absorption of the CO2 to separate it from the rest of the flue gas, you need a very clean stream of flue gas. So as we put that in place, we will be significantly reducing any other particulates. Our particulate emissions are already quite low, but with the CCS we will reduce them further. So once we have the CCS infrastructure on top of the biomass, the flue gas that would go out, the depleted flue gas, would be quite clean.

Yeah, yeah, exactly.

We're working with something that was actually announced last week, it's now called the Northern Endurance Partnership. Effectively, there are two industrial clusters in the UK in England working on this. One is in Humberside, where we are, about three-quarters of the way up the east coast of England, and then there's Teesside, the next river north, another industrial area. Both of us are relatively well situated to access this saline aquifer called Endurance, about 60 kilometers off the coast. This Northern Endurance Partnership includes BP, Equinor, and a bunch of other oil and gas companies with lots of North Sea offshore experience. They will be managing the offshore storage piece. The interesting part that needs to be worked out is how that ultimately gets managed from an infrastructure perspective, from a build-out perspective. There's a real opportunity for the government to say, 'We'll start with the Northern Endurance Partnership and that one aquifer, but then as the system grows, if you have a hub-and-spoke opportunity, you can start from there and then access lots of offshore storage in the North Sea.'

Let me talk more broadly about that. The simple answer to the last part is we haven't been storing it, we've been releasing it back to the atmosphere. That's not completely the answer because some of it, what we've created is a carbon engineering research park at Drax where we have partners looking at using it for other things. For example, we have a company looking at using biogenic CO2 for making animal feed. So there are test projects happening. We've got two different pilots. One is with a company called C-Capture, capturing a ton a day, and they are using a next-generation solvent which we think is very interesting because it's organic and therefore over time lower costs, and it has attractive dynamic properties which means it will take less energy. We're also working with MHI and Shell on a couple of other pilots.

Thank you, Randy. I appreciate it. Enjoy being here. Thanks everybody, have a good day.