This week Ofgem, the energy regulator for Great Britain, announced (click here) the closure of an investigation originally opened in May this year relating to whether Drax Power Limited (“Drax”) had breached its annual “profiling reporting” requirements regarding the Renewables Obligations (“RO”) scheme.
The RO scheme was conceived to encourage power generation from renewable sources in the UK and came into effect in 2002 in Great Britain, and Northern Ireland in 2005. A brief summary of the case as per the Ofgem announcement and case closure statement (click here) is outlined below:
- The investigation focussed on Drax’s data governance and controls to inform its reporting of profiling data to Ofgem in order to comply with its obligations under the Renewables Obligation Order 2015 (“ROO” – click here);
- Drax Power Station is accredited to generate renewable power under the RO scheme using biomass fuel and, as such, Drax is required to report the types of biomass that it has used to Ofgem;
- Annual profiling data is the reporting of ‘additional biomass characteristics’ which is not used for the issuing of ROCs;
- Accurate profiling information is important for several reasons including:
- Helps to improve statistics on biomass use and to monitor the effects of biomass use on the areas of origin;
- The information enables the Secretary of State to understand and monitor the extent to which both primary forests and sawlogs are used in woody biomass;
- This is particularly relevant where energy companies are receiving significant consumer support from a Government environmental scheme.
- Drax claims ROCs under the RO scheme in respect of power generated from woody biomass that meets the greenhouse gas criteria and the land criteria;
- In the 2023/24 year Drax was issued 9,279,992 ROCs at an estimated value of GBP 548 million – the investigation did not find any evidence to suggest that Drax have been issued with ROCs incorrectly;
- The investigation concluded that there was insufficient data governance and controls in place that had contributed to:
- Drax misreporting data in relation to their annual profiling submission to Ofgem for compliance period 1 April 2021 to 31 March 2022 (“CP20”); and
- Drax being unable to provide Ofgem with sufficient evidence demonstrating how its CP20 annual profiling submission had been arrived at, and unable to support the reliability of its profiling data reporting of forestry type and sawlogs for Canadian consignments for that same period.
- Ofgem concluded that this constituted two breaches under Articles 82(4), 78, 80(1) of the ROO and Standard Licence Conditions (SLC) 13 read with its Conditions of Accreditation regarding profile data reporting, and with regard to responding to requests for information from Ofgem;
- Ofgem did not find evidence of deliberate misreporting but concluded that Drax failed in complying with its profiling data obligations under the RO scheme;
- Ofgem notes the importance of accurate data reporting, particularly when in relation to a significant sized scheme participant like Drax;
- Ofgem expects Drax to provide accurate information on which its determination was made regarding profiling data, and energy companies like Drax must have appropriate data governance and controls in place to support the reporting of profiling data to Ofgem;
- In increasingly common practice by Ofgem, the investigation did not escalated to a formal enforcement action but was rather resolved via “alternative action” – a lighter touch approach than resorting to a formal enforcement procedure;
- In accepting the findings of Ofgem’s investigation, Drax agreed the following settlement:
- Drax will pay GBP 25 million into Ofgem’s Voluntary Redress Fund;
- Drax will re-report their CP20 annual profiling submission in respect of forestry type and saw log proportions;
- Drax has confirmed several remediation actions including the updating of its policies and procedures around the reporting requirements relating to data profiling under the RO;
- Drax will commission an independent external audit of the profiling data from its international supply chain and its profiling data reporting for the compliance period 1 April 2023 to 31 March 2024 (i.e. CP22) covering 98% of Drax’s supply chain.
- Ofgem notes explicitly that Drax engaged constructively with their case team during the investigation and this cooperation will continue beyond the closure of this investigation.