Sir Ed Davey has accused energy giant Drax of “gaming” its contract after allegations emerged it had kept more then £600 million of profits after changing its operations during last year’s energy crisis.
Bloomberg reported that Drax, which burns wood pellets in Yorkshire to generate electricity, powered down generation at the unit as the energy crisis raised market rates for electricity.
The website said if it had kept the site running at full capacity, Drax would have returned an estimated £649 million in profits to consumers.
Lib Dem leader Sir Ed Davey said the revelation suggested the company is “acting in bad faith” and “against the national interests”.
The opportunity stemmed from a subsidy arrangement called “contracts for difference”, in which the Government supports low-carbon electricity generation by protecting developers from volatile wholesale prices.
In return, if market prices rise above what it costs to generate the power, the arrangement flips and Drax has to send the difference back to energy suppliers who by law then reduce what they charge consumers.
While there is no suggestion Drax broke any rules, Sir Ed Davey’s criticism of their actions has raised eyebrows in Tory circles.
He’s been accused of “generating hypocrisy”, given he was the Energy Secretary who brought in the law during the Coalition Government.
Sir Ed was Secretary of State for Energy and Climate Change from 2012 to 2015, when the Lib Dems were in Government with the Tories, and was responsible for negotiating Contracts for Difference in 2014.
Sir Ed is also on record for praising the scheme used by Drax, which he is now pointing out flaws in.
In a 2012 speech to the CBI, he said: “The key thing here is certainty”.
“Contracts for Difference can help smooth out market volatility, not only minimising costs to the consumer, but also making investment and financing decisions easier.
“And because energy still needs to be sold in the market, there are still powerful incentives to encourage operational efficiency.”
In response to these allegations, a spokesperson for the Lib Dems said: “Contracts for Difference have made the UK the world leader in renewable power – with offshore wind prices falling below fossil fuel.
“But instead of building on that success, the Conservative government have sat by and failed to protect consumers from skyrocketing fossil fuel prices, whilst allowing oil giants and firms like Drax to make billions unfairly from pensioners and families.”
Drax has said Bloomberg’s report is “misleading” and argued they had made the “responsible decision… to minimise risk to Britain’s energy security and our business”.
