Drax hit by record £28m fine by Ofgem

DRAX has been fined £28m by Ofgem for failing to meet environmental targets – the largest penalty ever handed down by the regulator.

The North Yorkshire power station operator was one of six companies under investigation for failing to meet environmental targets under the government’s Community Energy Saving Programme (CESP) but received by far the biggest penalty of the two companies whose punishments were announced today. 

Intergen was fined £11m for their failings, while decisions on British Gas, SSE and GDF/Suez are expected to follow.

Drax’s penalty will be split between a payment of up to £20m used to benefit vulnerable energy consumers through a programme of work to be developed with the charity, National Energy Action, and the remaining £8m to be paid as a fine or delivered as further consumer redress measures.

Dorothy Thompson, chief executive of Drax said: “We take our statutory obligations very seriously and in the case of the CESP we always sought to maintain a compliant position. We believe the design of the CESP was flawed and significant problems were encountered with scheme delivery, the CESP market and the complex arrangements.

“We are deeply disappointed with the magnitude of the fine. However, we believe it is in our shareholders’ interests to settle this matter.”

There was dismay that the failings under CESP were not put into the wider context of the work Drax has been doing to deliver carbon savings.

She added: “Our core competence is in electricity generation and that is the best way for us to serve the needs of the UK in terms of carbon savings. Through undertaking the largest decarbonisation project in Europe, Drax will deliver carbon savings of around 12m tonnes a year through burning sustainable biomass in place of coal.

“Our target under the CESP was to deliver carbon savings of less than 1m tonnes over the lifetime of the energy efficiency measures. By comparison, our biomass conversion will deliver hundreds of millions of tonnes of carbon savings over the same time frame. It is clear to anyone where our efforts are best deployed.”

Under CESP, generators as well as energy suppliers had to deliver energy saving measures to households in low-income areas by the end of December 2012. Drax Power delivered 37.1% of its carbon emissions reduction target which Ofgem said led to “several thousand households in some of the most deprived areas in Britain missing out on energy saving measures”.

The regulator found that senior management at Drax were aware of the serious risk of non-compliance with CESP 18 months before the end of the scheme and decided it had failed to take more timely action to reduce the risk of not delivering its obligation.

Ofgem said it was also a “significant factor” that Drax made no attempt to mitigate the carbon saving shortfall after the deadline had passed.

Sarah Harrison, senior partner in charge of enforcement at Ofgem said: “Drax missed its target by a clear margin, disadvantaging several thousand households in some of the most deprived areas in Britain.

“Not only are these consumers missing out on energy efficiency measures that would help keep their homes warm, they also face higher energy bills as a result. Today’s agreement to pay £28m reflects the seriousness of the consequences of these failings for consumers.”