(Bloomberg) -- The UK government can’t adequately show that biomass generators comply with sustainability requirements, according to the National Audit Office.  

The “lack of evaluation” of the effectiveness of generators — such as Drax Group Plc — to burn wood pellets at power stations needs to be addressed, the agency said in a report. Ministers are consulting on extending biomass subsidies beyond 2027, and the report recommends an impact assessment should be published before a decision is made. 

“If biomass is going to play a key role in the transition to net zero, the government needs to be confident that the industry is meeting high sustainability standards,” Gareth Davies, head of the NAO said. “Government must review the assurance arrangements for these schemes, including ensuring that it has provided adequate resources to give it assurance over the billions of pounds involved.” 

Biomass can access subsidies as it is considered a renewable energy source, with the pellets consumed usually drawn from offcuts from commercial forests in the US and elsewhere. However, without government funding, the generation method isn’t likely to be profitable. Drax is planning to add carbon capture technology to its units and is seeking further support. 

The report “serves as a reminder of the scale of financial support required by the sector, especially Drax” according to Jenny Ping, an analyst at Citigroup Inc. She added that any government decisions around this could be delayed especially due to the upcoming election.

Drax shares traded 1.8% higher by 8:30 a.m. in London, following an earlier dip.

The UK sees biomass as one way to help it reach its emissions goals if generators adhere to some sustainability criteria. There is some disagreement on its carbon accounting, with environmental groups saying that burning pellets releases carbon faster than the next generation of trees can absorb it. 

Last week, the government proposed new support contracts for Drax’s biomass-fired power plant as it figures out a way to bridge a gap between current subsidies ending and new ones starting in 2030, when carbon capture could start. The carbon capture technology, known as BECCS, that Drax aims to use to increase its green credentials and gain further subsidies “has yet to be proven on a commercial basis in the UK” according to NAO.

The UK’s Climate Change Committee, which advises the government, has acknowledged that achieving net zero is dependent on solutions like bioenergy with carbon capture and storage, which will help offset emissions from other industries,” a Department for Energy Security and Net Zero spokesperson said.

(Updates with additional details and analyst comments.)

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