Sustainability at Drax WPAC AGM - 4 November 2015

Drax Group

Drax Group is a world leader in sourcing and providing sustainable, renewable power from field and forest to customer

Source Generate Supply

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Supply

Biomass Evolution at Drax

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Installation and operation of pilot direct injection facility

Installation and operation of second direct injection

facility

Start of co-firing – blending biomass with coal through

existing coal milling equipment

R&D for direct injection of biomass independent of coal

milling equipment

Launch of energy crop programme

Investment in wood yard for processing local energy

crops

Investment in 400MW direct injection facility

Launched biomass sustainability programme

Investment in 100,000t pa straw pellet plant

Re-design and re-launch of energy crop programme

Investment in purpose built biomass train wagons

Completion of 400MW co-firing facility

Extensive trials confirm unit conversion

First unit converted to

biomass

Second unit converted to

biomass

Further investment in R&D to burn high proportions of

biomass through Drax Power Station

Third unit modified for Enhanced Co-

firing

Biomass Evolution at Drax

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2013

First unit converted to biomass

Second unit converted to biomass

2014 2015

Third unit modified for Enhanced Co-firing

Biomass Evolution at Drax

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Moved back up the supply chain to secure the supply portfolio

Drax pellet plants

Drax US port facility

Drax UK port facilities

Fibre contracts for Drax Biomass International

Delivered at Port (DAP)

Free on Board (FOB)(1)

Cost Insurance Freight (CIF)(2)

Delivered to Drax

Forest Harvesting Port storage and handling

Ocean freight Rail Furnace Transport Processing Port storage and handling

Transport

(1)  FOB: buyer arranges freight (2)  CIF: seller arranges freight

Tyne

Hull Liverpool

Immingham

Tyne – in operation, up to Panamax •  2Mt pa throughput, 70kt storage Hull – in operation, up to small Handysize •  1Mt pa throughput, 30kt storage Immingham – Part operational, expansion under way, up to Panamax •  6Mt pa throughput, 200kt storage Liverpool is under construction, up to Panamax •  3Mt pa throughput, 100kt storage

Baton Rouge

Biomass Evolution at Drax

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Amite

Morehouse

Biomass Sustainability

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•  Drax voluntary sustainability principles established in 2008 •  The UK Regulatory framework

•  From April 2014 it has been mandatory to report (but not comply) on the legality and sustainability of biomass for Renewable Obligation Certificates

•  The definition of sustainable is given in the Renewables Obligation

•  Key elements of the sustainability criteria include: §  Carbon stock maintenance §  Local biodiversity §  Environmental §  Social considerations §  Greenhouse gas (GHG) life cycle emissions (covering harvesting,

processing, transport and land-use change)*.

•  To meet legality, the biomass must meet with the EU Timber Regulation - in place since March 2013, which prohibits the trade of illegal timber.

•  UK mandatory sustainability regulation to be effective from December 2015

*There is a trajectory of reducing limits to 2030 (285 kg CO2eq per MWh from 1 April 2014, 200 kg CO2eq per MWh from 1 April 2020 and 180 kg CO2eq per MWh from April 2025)

Legality EU Timber Directive in place since March 2013 Policy requirement to know the origin of all fuels

Sustainability - mandatory from December 2015 Policy requirement to source sustainably Consistency with UK Government requirements (include environmental, social, ethical) GHG(1) life cycle savings - mandatory from December 2015

Chain of Custody

Local issues – markets, biodiversity

Externally audited – supplier audits and Drax ISAE3000

Drax Sustainability System

8 (1) GHG = greenhouse gas

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Today - Evidencing Sustainability

Drax has a thorough system to collect and build an evidence base to demonstrate sustainability and legality of biomass 1. In-Country Risk assessments: Information on associated risks that may impact our ability to procure sustainable biomass within a country 2. Sustainability Data Return (SDR): All suppliers complete an SDR to evidence how different parts of the legislation are met - this forms part of the legal contract with the supplier and is a key piece of evidence 3. Supplier Audits: Performed by a third party. Every pellet mill Drax sources from is audited on the ground, prior to delivery. Existing mills are audited on a three year rolling basis 4. Timber Standard Assessment: We assess compliance with the UK Timber Standard on a regional risk basis

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Producers unable to demonstrate sustainability are not approved

All supply contracts include the provision to reject non sustainable supplies

GHG - Supply Chain Life Cycle Analysis

Planting and Harvesting

Pelletising

Ocean Freight

Transportation Port Loading

Port Discharge

Transportation Storage/Site Processing Renewable Power

UK Biomass

Imported Biomass

So why take a new approach?

•  Legislation: •  Different sustainability requirements across Europe means suppliers have

to undertake numerous audits and meet varying levels of compliance •  Adds to the delivered cost

•  Barriers to Trade:

•  Different sustainability requirements limits trade and liquidity •  Transparency:

•  An more open and transparent approach is needed to build Governmental and stakeholder engagement

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Introduction – Sustainable Biomass Partnership (SBP)

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•  The SBP is an industry-led initiative formed in 2013 to provide assurance that woody biomass (chip and pellet) is sourced from legal and sustainable sources.

•  The definition of sustainability varies between EU Member States: SBP meets all current EU requirements (BE, DK, NL, UK).

•  SBP recognizes the credibility of

existing forest certification schemes (FSC/PEFC) and does not wish to compete with or replicate them

•  SBP addresses the gaps and lack of

uptake in existing forest certification schemes.

SBP Framework – Key Features •  Certification of the Biomass Producer (for example, a pellet mill) rather than forest-level.

•  SBP certifies four components: sustainable feedstock, chain of custody, energy and carbon data collection and communication, and energy and carbon balance calculation

•  It aligns closely with FSC and PEFC, and there is a dialogue to enable both schemes to provide alternative solutions

•  FSC and or PEFC FM certified material is accepted as compliant whilst a risk-based approach is used for non-certified material

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The Standards

•  Feedstock Compliance Standard: The principles, criteria and indicators defining the management system needed to verify that feedstock is legal and sustainable

•  Verification of SBP-compliant Feedstock: The method for the evaluation of the risk associated with feedstock

•  Certification Systems: The requirements on Certification Bodies in verifying compliance by SBP certificate holders

•  Chain of Custody

•  Collection and Communication of Data: Methodology for collection and communication of data along the supply chain

•  Energy and Carbon Balance Calculation: Requirements on generators for energy and carbon balance calculations

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A Risk Based Approach

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Implementation of the Standard

•  The field based audits are performed by Certification Bodies (CB’s).

•  SBP requires that they are already carrying out FSC and PEFC audits.

•  Approved Certification Bodies for SBP are: •  NEPCon

•  NSF

•  Certificates have been issued to: •  Westervelt (USA)

•  SBE Latvia Ltd (Europe)

•  AKZ Ltd (Europe)

•  Drax SBP implementation:

•  Will initially run SBP certification scheme in parallel with Drax system to benchmark audit and risk assessment results

•  Target is for all Drax suppliers to be SBP approved by the end 2016

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Summary

•  The Sustainable Biomass Partnership (SBP):

•  Aims to standardise sustainability criteria across Europe

•  Aims to facilitate /support more spot market trading

•  Aims to improve transparency with key stakeholders

•  The standard has been positively received by various EU governments and the EU itself

•  Need to keep up the momentum: •  SBP Certificates are being issued and focus is on improving SBP resources to deliver

certification in a timely manner

•  Drax policy:

•  Drax will run own system in parallel with SBP for an intervening period

•  Drax aims is for SBP to be the primary measure for sustainability by the end of 2016

•  SPB Europe and beyond:

•  Could SBP can gain broader acceptance beyond Europe as standard for wood pellet sustainability

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