Ofgem Decision: investigation into Drax Power Limited

Investigation
  • Open
  • Decision proposed
  • Closed
Publication date
Company
Drax Power Limited
Industry sector
Generation and Wholesale Market
Scheme name
RO

Decision of the Gas and Electricity Markets Authority to close its investigation into Drax Power Limited

On 31 May 2023, Ofgem opened an investigation into whether Drax Power Limited (“Drax”) was in breach of annual profiling reporting requirements relating to the Renewables Obligations (“RO”) scheme and other related matters.

The investigation focused on the data governance and controls Drax had in place to inform its reporting of profiling data to Ofgem in order to comply with its obligations under the Renewables Obligation Order 2015 (“ROO”).

This document sets out the findings of Ofgem’s investigation, actions taken by Drax to resolve the issues and our reasons for closing the investigation through the agreement of alternative action.

The investigation was not focused on the issuance of Renewables Obligation Certificates (“ROCs”) to Drax and our findings do not suggest that there would have been any impact on the level of subsidy Drax received under the RO scheme.

1. Background

1.1 The Renewables Obligation (“RO”) is a government scheme designed to support large-scale renewable electricity generation in the UK by helping to support the generation of electricity in the UK from renewable sources. The RO scheme places an obligation on suppliers in the UK to present Ofgem with a specified number of Renewables Obligation Certificates (“ROCs”) per MWh of electricity supplied, which they obtain from accredited generators. The obligation is set annually.

1.2 Drax Power Station is accredited under the RO scheme for the use of biomass in the generation of renewable electricity. Under the RO scheme, Drax is required to report to Ofgem on the types of biomass that it has used.

1.3 Annual profiling data is the reporting of ‘additional biomass characteristics’ and is not used for the issuing of ROCs. Under the RO scheme created by ROO, Drax claims ROCs in respect of electricity generated from woody biomass that meets the greenhouse gas criteria and the land criteria. In the 2023/24 year Drax was issued 9,279,992 ROCs at an estimated value of £548 million. During this investigation, we did not find any evidence to suggest that Drax have been issued with ROCs incorrectly.

2. Investigation outcome

2.1 The investigation concluded that there was an absence of adequate data governance and controls in place that had contributed to: (i) Drax misreporting data in relation to their annual profiling submission to Ofgem for compliance period 1 April 2021 to 31 March 2022 (“CP20”); and (ii) Drax being unable to provide Ofgem with sufficient evidence demonstrating how its CP20 annual profiling submission had been arrived at and unable to support the reliability of its profiling data reporting of forestry type and sawlogs for Canadian consignments for that same period.

2.2 This amounted to two breaches under Articles 82(4), 78, 80(1) of the ROO and SLC 13 read with its Conditions of Accreditation in respect of profile data reporting and in respect of responding to requests for information from Ofgem.

2.3 Therefore, whilst we have not found evidence to suggest deliberate misreporting, having considered the available evidence we have concluded that Drax failed in complying with its profiling data obligations under the RO scheme.

2.4 Ofgem takes the importance of accurate data reporting very seriously, in this case by a company of significant size and a major scheme participant. Accurate information is important for a number of reasons, including helping to improve statistics on biomass use and to monitor the effects of biomass use on the areas of origin. This information is intended to enable the Secretary of State to understand and monitor the extent to which both primary forests and sawlogs are used in woody biomass, which has consequences for carbon emissions and biodiversity. This is particularly the case for areas where energy companies are receiving considerable energy consumer support as a consequence of a Government environmental scheme. We publish information on annual biomass use under the RO scheme on our website.

2.5 Ofgem is entitled to expect Drax to provide accurate information on which its determination was made in relation to profiling data. Energy companies must have the appropriate data governance and controls in place to support the reporting of profiling data to Ofgem.

2.6 We consider that this investigation is suitable for resolution via alternative action, as per our Enforcement Guidelines.

2.7 Drax has engaged constructively with the case team during the investigation and will continue to engage with Ofgem in this regard following closure of the investigation. Ofgem assessed this as appropriate because:

  • Drax has accepted the findings of the investigation set out at para 2.1, 
  • Drax has agreed to re-report their CP20 annual profiling submission in respect of forestry type and saw log proportions and, 
  • Drax has confirmed it has updated its policies and procedures around the reporting requirements relating to data profiling under the RO; however, it will commission an independent external audit of the profiling data from its international supply chain and its profiling data reporting for the compliance period 1 April 2023 to 31 March 2024 (referred to as CP22). This audit will cover 98% of Drax’s supply chain. Ofgem will hold Drax accountable for the delivery of this audit which aims to provide Ofgem with the assurance of the accuracy of its future reporting. The findings of the audit will be published.

2.8 This decision is subject to Drax submitting a payment to Ofgem’s Voluntary Redress Fund by no later than 28 days from the date of this letter, in the amount of £25,000,000.00.
 

Notes to Editors 

1. The Renewables Obligation (RO) is a government scheme designed to support large-scale renewable electricity generation in the UK. The RO scheme places an obligation on suppliers in the UK to provide Ofgem with a specified number of Renewables Obligation Certificates (ROCs) per MWh of electricity supplied, which they obtain from accredited generators. The obligation is set annually.

2. Drax Power Station is accredited under the RO scheme for the use of biomass in the generation of renewable electricity. Under the RO scheme, Drax is required to report to Ofgem on the types of biomass that it has used.

3. Under the RO scheme, Drax claims ROCs in respect of electricity generated from woody biomass that meets the greenhouse gas criteria and the land criteria. In the 2023/24 year Drax was issued 9,279,992 ROCs at an estimated value of £548 million.

4. The investigation did not find any evidence suggesting that Drax does not meet the government’s threshold that a minimum of 70% of biomass must come from sustainable sources in order to receive scheme funding. Under the ROO, Drax provided an independent annual sustainability audit report for CP20 which provided assurance that reporting has been accurate in relation to the land and greenhouse gas emission criteria.

5. This means that we did not find any evidence to suggest that Drax has been issued with ROCs incorrectly. The investigation found that the misreported data was technical in nature and would not have impacted the level of subsidy Drax received under the RO scheme.

6. Annual profiling data is used by the relevant authorities to monitor the sector and to inform future policy. It may also be used for statistics, responding to queries from the public and for publications. We will also publish a summary of this information alongside the RO Annual Report.