Drax Pays £25M Penalty for Misreporting Biomass Burner Sustainability Data

Drax Group (LSE:DRX) will pay a £25 million penalty to the energy regulator's redress fund following an investigation that uncovered inaccuracies in the company’s reporting of the types of wood used in its biomass burners. This investigation focused on whether Drax had provided misleading data as part of the UK’s renewable energy regime.

Shares in the FTSE 250-listed company saw a 1.6% rise to 666p in early trading, reflecting that the regulatory action was less severe than some investors had anticipated. Ofgem's probe was prompted by allegations that Drax had utilized wood from protected forests in Canada, despite these areas being designated as 'no go zones' for biomass sourcing.

The regulator's investigation revealed that Drax had insufficient data governance and controls, which led to misreporting in its annual submission for 2021-2022. Drax struggled to provide adequate evidence to support the accuracy of its reporting on forestry types and sawlog proportions for Canadian wood deliveries.

However, Ofgem did not find evidence suggesting that Drax had been improperly issued Renewable Obligation Certificates (ROCs) or failed to meet the government's sustainability criteria, which mandate that at least 70% of biomass must come from sustainable sources to qualify for ROC funding.

In response to the findings, Drax has agreed to pay the penalty and will submit a revised annual profiling report. The company also plans to commission an independent external audit of its international supply chain for the period from April 2023 to March 2024, covering 98% of its supply chain.

Ofgem Chief Jonathan Brearley stated, “This has been a complex and detailed investigation. Energy consumers expect all companies, especially those receiving significant public subsidies, to comply with statutory requirements. There are no excuses for Drax’s failure to provide accurate data on the Canadian wood used.”

Matt Williams, Senior Advocate for the Natural Resources Defense Council, criticized Drax, highlighting that despite receiving substantial public funds, the company failed to adhere to environmental protection rules. He pointed out that the fine, while significant, pales in comparison to the billions sought in new subsidies. Williams urged Energy Secretary Ed Miliband to reassess the value of further public funding for a company that does not comply with environmental standards.