Ofgem statement: Drax investigation and renewables obligation subsidies
Investigation
- Publication date
- Company
- Drax Power Limited
- Industry sector
- Generation and Wholesale Market
- Scheme name
- RO
This statement provides additional detail on Ofgem’s investigation into Drax Power Limited and how reporting requirements under the Renewables Obligation apply.
There has been significant public interest in KPMG reports prepared for Drax Power Limited (Drax), and suggestions about what these reports concluded with respect to Drax’s receipt of Renewables Obligation (RO) subsidies.
Ofgem’s role to is to administer schemes, including the RO, on behalf of government. This includes ensuring biomass generators comply with the regulations, as set out by government in legislation. Ofgem takes compliance with scheme regulations extremely seriously and there can be serious consequences where any non-compliance is identified.
What the rules say
A core part of the regulations is that large generators (greater than 1MW) must comply with the 'land use' criteria, which means that they need to demonstrate that over 70% of their biomass each month comes from sustainable sources. Generators must demonstrate they meet these requirements to be eligible for scheme funding. A third-party certification scheme certifies whether or not the biomass is sustainable1. In line with these legislative requirements, these large generators are required to report against the sustainability criteria on a monthly basis, where these monthly submissions are subjected to an annual external audit by an independent auditor.
Separate to a generator's requirements to meet the sustainability criteria, the legislation also requires generators of greater than 50kW to report to Ofgem on additional sustainability characteristics of the biomass they use, such as the type of biomass and its country of origin. This is called their 'annual profiling’ data.
‘Annual profiling’ data, and its reporting, is not linked to scheme funding however accurate reporting is still required and 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.
Enforcement investigation and consideration of KPMG reports
On 31 May 2023, Ofgem opened an investigation into whether Drax was in breach of annual profiling reporting requirements relating to the RO scheme.
In the course of our enforcement investigation we reviewed over 3,000 documents, interviewed individuals within Drax at a range of levels and reviewed information from a range of sources. As part of this review Ofgem was given access to KPMG reports commissioned by Drax, which Ofgem reviewed in detail as part of its investigation.
KPMG was commissioned by Drax to undertake a detailed review of its Canadian supply chain processes and reporting practices, from the forests of Western Canada to the power station in North Yorkshire. This was a forensic exercise, and not an audit.
The KPMG work looked at a range of topics including chain of custody, certification, accounting, port practices and covered biomass sustainability, subsidy claims and profiling data, producing multiple reports – these reports were shared with Ofgem on a confidential basis during its investigation. The reports are internal documents prepared for Drax. Drax has advised us that they are covered by legal privilege; only Drax has the power to lift this. We have, however, encouraged Drax to share the KPMG reports with colleagues in government and are pleased that they provided access to colleagues in the Department for Energy Security & Net Zero in February 2025.
Ofgem is aware that questions have been raised around whether the KPMG reports contain evidence that Drax was in breach of its sustainability obligations and therefore wrong to receive RO funding. Ofgem has reviewed the reports in detail and did not find evidence to support this.
Expectations of generators regarding assurance and self-reporting
The onus is on generators to meet their obligations in full. It is right that generators should take steps to assure themselves of their compliance position – for example by commissioning external reviews – and they should proactively raise any issues or concerns with Ofgem. We want to see a culture of transparency, which fosters trust in the generation market and gives confidence that any subsidies received are fully compliant.
It is a generator’s responsibility to ensure they are fully compliant with their obligations, and that they have the appropriate internal controls, governance, and assurance processes in place to do so. It is critical that generators notify Ofgem where they are not confident that they have reported correctly, including where there are any issues or concerns with the information reported to Ofgem (for example any inaccuracies, omissions, or concerns about the reliability of the information provided).
We take accurate and complete reporting extremely seriously and, should any non-compliance or fraudulent behaviour be identified at any point, we are prepared to take the strongest possible action under available powers. It’s critical that generators can demonstrate they are fully compliant and eligible to receive public funding (we note that total value of the RO scheme in 2023-24, across all generator types, was £6.7 billion – a significant value). Accordingly, we expect generators to notify Ofgem of any concerns they may have around their full compliance with obligations at the earliest opportunity. When doing so, they may provide their view on impact or materiality to help to provide context, however we note that as the administrator of the RO scheme, it is Ofgem’s role to determine materiality.
We may consider a failure to notify Ofgem of such concerns as a breach of a generator’s RO obligations or conditions of their accreditation, and it may be an aggravating factor in any compliance or enforcement action. It is critical that generators’ CEOs and Boards (or, where not applicable, other senior leaders with responsibility for oversighting the company as a whole) have appropriate oversight of, and confidence in, the assurance regimes that underpin accurate reporting to Ofgem. This includes confidence in data drawn from their supply chain and any third parties they rely upon.
Enforcement outcomes and global audit
Ofgem takes compliance with sustainability and reporting regulations extremely seriously, and expects all generators to provide data which is accurate, timely and complete. We found that Drax had misreported their annual profiling data for 2021/22.
As set out in our published decision statement, 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.
As a result of the misreporting, the company made a £25m payment into our Voluntary Redress Fund and resubmitted that data. They have also agreed to conduct an independent audit of the profiling data covering 98% of their global supply chain for 2023/24. The audit will also provide Ofgem with commentary on the accuracy of Drax’s future profiling data reporting. This is the largest audit of its kind and will be a significant exercise. It is intended to provide Ofgem and the public with assurance that Drax has appropriate governance and controls in place across its global supply chains to support accurate reporting such that they are compliant with their legal obligations.
The independent audit will be completed to the internationally recognised standard and completed to a “reasonable” level of assurance. We have provided Drax with the audit’s scope and requirements and our role will be to make sure this process is appropriately targeted and robust so that we can be confident in the outputs. The audit will be submitted to Ofgem for our independent assessment and the findings will be published.
If any additional evidence of misreporting or other rule breaches come to light following the audit, we will take this extremely seriously and it could lead to further enforcement action.
1 See Chapter 4 of the Woodfuel Advice Note Version 2: https://assets.publishing.service.gov.uk/media/5a7f7c53ed915d74e33f6ba2/Woodfuel_Advice_Note_v2_Feb2017.pdf