Drax Pauses Plans for Crucial Energy Storage Site as Costs Rise

(Bloomberg) -- Drax Group Plc paused plans to upgrade a pumped storage facility in Scotland, dealing a blow to the UK government’s drive to develop a clean-power grid.

The government set up a subsidy mechanism to bolster long duration storage projects — such as the 600 megawatt Cruachan II — which are key to its clean power strategy. Drax said it won’t participate in the first phase of that plan because of rising costs and uncertainty over the return on capital investments.

The UK needs to increase its long duration storage to 4-6 gigawatts to reach its goal of having a clean power grid by 2030. The move by Drax shows how sensitive those plans are to decisions by companies that are balancing shareholder demands and profitability when developing projects.

Drax said it will continue to evaluate the investment case for the project and explore further enhancements to the Cruachan site. The company said it will also engage with the government and regulator about a “policy environment which could sufficiently de-risk and incentivise investment in such projects.”

The government’s so-called cap and floor subsidy mechanism was meant to address the “revenue uncertainty” that it highlighted as a reason for the lack investment in long-duration storage over the past few decades.

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