£1bn Record Subsidy for UK Biomass Burning Enters Final Year

Government support for biomass generation reaches final stretch

The UK’s largest biomass subsidy scheme is winding down after years of controversy. Drax power station currently receives approximately £1 billion each year for burning imported wood pellets. However, the scheme now faces mounting questions about forest impacts and carbon accounting.

This financial support operates through two main mechanisms. The Renewables Obligation scheme and Contracts for Difference payments together fund biomass electricity generation. These were originally designed to support renewable energy development across the UK.

Drax dominates this sector completely. The company runs Europe’s largest biomass power generator and ranks as the UK’s single largest CO2 emitter. In 2024 alone, Drax earned £869 million in public subsidies. That works out at over £2 million per day, most of it from burning imported wood pellets.

The cost lands directly on household bills. This subsidy adds approximately £10 per year to the average UK energy bill. That figure matters when businesses and households already face significant pressure on energy costs.

How biomass emissions appear in carbon calculations

The subsidy system rests on a particular accounting treatment. Drax’s emissions from burning woody biomass are classified as zero-rated in carbon accounting. This classification makes the company eligible for payments intended for genuinely low-carbon energy sources.

Scientific opinion has shifted substantially on this point. The European Academies Sciences Advisory Council now states that woody biomass for power generation cannot be assumed carbon neutral. That represents a significant departure from earlier assumptions.

Government research from 2014 acknowledged the problem. Some biomass sources actually produce more carbon emissions than coal for several decades. Nevertheless, these sources remain classified as low carbon and continue receiving subsidies.

This matters because the classification determines eligibility for support. If biomass emissions were counted at the point of combustion, the economics would look very different. Consequently, the entire subsidy framework depends on maintaining this accounting treatment.

Wood consumption exceeds UK domestic production

The subsidies drive enormous timber consumption. Between 2012 and 2027, Drax alone will have collected more than £11 billion in subsidies. That scale of support has direct consequences for forests.

In 2016 and 2017, Drax burned pellets made from 13.2 million and 13.6 million tonnes of imported wood respectively. That far exceeds the UK’s total annual wood production of approximately 11 million tonnes. Most of this biomass must therefore come from overseas sources.

The industry cannot rely on residues either. Technical constraints prevent most UK biomass power stations from burning wood residues. High bark content corrodes boilers, so the vast majority of stations require processed timber instead. This includes all current and future projects of significant scale.

For UK businesses, this matters in several ways. Supply chain transparency becomes harder to verify when timber crosses multiple jurisdictions. Additionally, companies making forest-related commitments need to understand these consumption patterns. If your supply chain includes energy procurement, the source of that electricity may conflict with sustainability goals.

November 2025 agreement extends support beyond original deadline

The original subsidy scheme was scheduled to end in March 2027. However, in November 2025, the UK government signed a new Contract for Difference with Drax. This agreement extends financial support until March 2031.

The terms include significant operational changes. Under the new agreement, Drax will operate at a maximum load factor of just 27%. That represents less than half its current operating rate. Therefore, the plant will generate substantially less electricity than before.

Meanwhile, the government is also considering a much larger commitment. An additional £31.7 billion subsidy proposal would support biomass with carbon capture and storage at Drax. This BECCS technology would capture emissions from burning biomass for storage under the North Sea.

Researchers emphasize considerable uncertainty about this approach. Since biomass can no longer be assumed carbon neutral, more research is needed to assess whether BECCS can truly deliver negative emissions. That question remains unresolved despite the scale of potential investment.

The timeline matters for business planning. Companies that rely on electricity pricing or carbon accounting need to understand when support schemes change. Similarly, businesses tendering for public sector contracts should recognize that procurement policy may shift as subsidy regimes evolve.

Financial results show record profitability despite subsidy debate

Drax has achieved exceptional financial performance during the subsidy period. The company reported 2024 as its most profitable year in 35 years. Earnings exceeded £1.06 billion, representing a significant return on operations.

Earlier years showed similar patterns. In 2021, the company earned £893 million in subsidies while announcing a £197 million operating profit. Shareholders also received a rising dividend that year. These results demonstrate that subsidies translate directly into commercial returns.

For SMEs, this financial picture raises practical questions. Energy procurement decisions affect bottom-line costs. Therefore, understanding where subsidies flow helps businesses evaluate the true cost of different energy sources. If subsidies artificially lower biomass electricity prices, that influences market competition.

Public procurement adds another dimension. Businesses supplying the public sector increasingly face carbon reduction requirements. However, if subsidized biomass appears low-carbon in official accounting, tender evaluations may not reflect actual emissions. That creates complexity for companies trying to demonstrate genuine environmental improvement.

Core facts about UK biomass subsidies

• Drax power station receives approximately £1 billion annually in biomass subsidies, adding roughly £10 per year to average household energy bills.
• Biomass emissions from burning wood pellets are classified as zero-rated in carbon accounting, making them eligible for renewable energy subsidies.
• Drax burns between 13 and 14 million tonnes of imported wood annually, exceeding the UK’s total domestic wood production of approximately 11 million tonnes.
• The November 2025 Contract for Difference extends Drax subsidies until March 2031, with operations limited to a 27% load factor.
• The government is considering an additional £31.7 billion subsidy for biomass with carbon capture and storage technology at Drax.
• Drax reported 2024 as its most profitable year in 35 years, with earnings exceeding £1.06 billion alongside substantial subsidy income.

What UK businesses should consider as subsidy schemes evolve

Energy procurement strategies need regular review as subsidy frameworks change. If your business locks into long-term electricity contracts, understanding the underlying generation mix becomes important. Furthermore, contracts that appear competitive today may look different when subsidy support ends or changes.

Carbon accounting poses specific challenges. Many businesses now report Scope 2 emissions from purchased electricity. However, if grid electricity includes subsidized biomass with questionable carbon credentials, your reported emissions may not reflect reality. This matters particularly for companies making net-zero commitments or responding to customer expectations.

Supply chain due diligence extends to energy sources as well. Businesses with forest-related commitments should understand the connection between biomass subsidies and timber consumption. For example, if your sustainability policy prohibits sourcing from certain forest types, you may need to verify that your electricity supplier doesn’t fund those same practices through biomass procurement.

Public sector suppliers face additional considerations. Procurement frameworks increasingly emphasize carbon reduction and environmental standards. As a result, businesses need to understand how their energy choices affect tender evaluations. If assessment criteria rely on official carbon accounting that treats biomass as zero-emission, you should consider whether that aligns with your actual environmental impact.

The BECCS proposal introduces further uncertainty. If the government commits £31.7 billion to carbon capture technology at biomass plants, that investment will influence energy policy for decades. Businesses planning long-term sustainability strategies should monitor this decision carefully. It may affect everything from electricity pricing to carbon market dynamics.

Risk management also deserves attention. Policy changes create commercial uncertainty, particularly when subsidy schemes represent such large sums. Companies with significant energy costs should model scenarios where biomass support ends or changes substantially. That preparation helps protect against sudden cost increases or supply disruptions.

For manufacturing and energy-intensive sectors, these dynamics directly affect competitiveness. If competitors in other jurisdictions pay different prices for electricity due to varying subsidy regimes, that creates uneven playing fields. Therefore, businesses should engage with policy consultations when they occur and ensure their concerns reach decision-makers.

Where to find detailed policy information and official guidance

The Department for Energy Security and Net Zero publishes detailed information about renewable energy subsidies and contracts. Their official guidance explains how different support mechanisms work and when schemes are scheduled to change.

Ofgem administers several renewable energy schemes, including the Renewables Obligation. Their website provides technical guidance on eligibility and payments for different generation types.

The Low Carbon Contracts Company manages Contracts for Difference agreements. They publish details about specific contracts and payment terms for individual generators.

For broader context on UK energy policy and carbon accounting, the Committee on Climate Change provides independent analysis. Their reports examine whether current policies align with net-zero commitments and offer recommendations for improvement.

Businesses seeking tailored advice on energy procurement and carbon reporting can contact our compliance team for guidance specific to their sector and circumstances. We also offer training through SBS Academy on interpreting carbon accounting standards and managing energy-related emissions reporting.