Dorothy Thompson: taking on the power challenge

Despite her modesty on the technical side, Drax Power chief executive Dorothy Thompson has a shrewd understanding of the realities facing her industry.

By Andrew CavePublished: 11:23PM BST 11 Jul 2009

Mrs Thompson, chief executive of Drax Power, explains that she does not actually get involved in running the huge Yorkshire site Photo: Lorne Campbell/Guzelian
Dorothy Thompson was worried about having her picture taken in a hard hat underneath the giant cooling towers at Drax, Britain’s biggest coal-fired power station.
“It’s not really what I do,” said Mrs Thompson, chief executive of Drax Power, explaining that she does not actually get involved in running the huge Yorkshire site that is the company’s only asset.

“I wouldn’t say I am the strongest person technically, but we have plenty of other very competent people to do that. What I like to do is work on strategy and plan for the long-term.”
There is plenty of that with the power industry buffeted by legislation on carbon emissions, security of supply issues and the short-term implications of recession.
In May, the Government indicated that it wants all UK power stations to retro-fit facilities to capture and store the carbon emissions they produce – something Mrs Thompson is nervous about trialling at Western Europe’s largest coal-fired power plant.
This week, more stipulations for the industry are expected to emerge in the Government’s announcement of its national strategy for climate change and energy.
As Britain’s single largest carbon emitter by site, Drax will be heavily affected, but Mrs Thompson is far from a career power station manager. Her route has been through asset financing and banking, before working as assistant group treasurer for PowerGen and then running the European business of InterGen, the power-generation subsidiary of Shell and Bechtel.
She looks every bit an investment banker in her smart trouser suit and stresses that Drax’s business involves not only producing power but also buying fuel and selling electricity through the wholesale markets. However, her modesty on the technical side belies a shrewd understanding of the financial, environmental and operational realities of her industry.
“We have the most efficient coal station in the UK and generate 7pc of the UK’s power each year,” she said, “but Drax is unusual because we sell all our power to the wholesale market. We don’t supply direct to people. We run a very complex engineering plant but we also trade in very sophisticated commodity markets for power, coal and carbon.”
Mrs Thompson’s role as a banker-turned power company chief executive is rather suitable for Drax, a single power station which became a listed company as a result of asset finance machinations and banking deals.
The station was built in the 1970s and early 1980s by the Central Electricity Generating Board, became part of National Power on privatisation and was later sold to US group AES. But when Mrs Thompson arrived in 2005, her first task was to address a capital structure crisis that arose as a consequence of the collapse of US power giant Enron.
“This is where it gets colourful,” she said, calmly explaining how AES bought Drax on the back of a long-term sales contract with TXU Europe, which went into liquidation as part of Enron’s collapse.
The sales contract also effectively collapsed and AES could not service the debts it had taken on to buy Drax, so it effectively walked away from the power station, leaving the shareholdings in the power station stapled to its debt. The shareholders became distressed-debt hedge funds and the business was put up for sale, attracting three offers.
Mrs Thompson’s solution was to list the business, which she did three and a half years ago, with Drax shareholders converting their debt into equity and gaining a listing price up to 20pc higher than the trade offers for the company.
“That set us on a secure capital footing,” she said, “and it also meant that we looked at the business through a slightly different frame. When you’re looking at a business that’s struggling to pay its debt, it’s all about survival. But when you’re looking at a business with a sound capital structure, it’s about how you can really deliver value for shareholders.
“Drax did have quite a serious strategic challenge in its carbon emissions. Once we had a solid strategy on how to run the business itself, we looked at how we could address this.”
The environmental challenge is immense, as Drax is twice the size of any other coal-fired power station.
Mrs Thompson’s plan is three-fold. Firstly, Drax is investing £100m in upgrading technology to save 1m tonnes of its 20m annual carbon emissions. “It’s equivalent to 275,000 cars being taken off the road, so it’s not immaterial.”
Then there’s an £80m programme to swich Drax from coal to a mix of coal and biomass-burning wood and other agricultural by-products. Drax already has the capacity to use 100MW of its 4,000MW capacity for biomass, but is building the capacity to increase that to 500MW.
The power station group has trialled 67 types of biomass so far and selected about 20 types that it expects to source regularly – Mrs Thompson’s favourite is straw pellets. “We expect to burn between 1.5m to 1.8m tonnes of biomass a year, which would make us the UK’s biggest user of biomass.”
“Biomass is difficult to source – it’s much less dense than coal, so physically it’s much bigger to handle – you have to keep it very dry and you need a lot of storage. But we’re doing all this because we believe there’s a lot you can do in the here and now.
“A lot of climate change is about the ultimate solution, but we think you shouldn’t ignore the fact that you can make some very good near-term solutions.”
For coal, Mrs Thompson accepts that the ultimate solution is carbon capture and storage, but this is unlikely to be available as a proper commercial technology before 2020 and she does not believe that a station the size of Drax should be used as a guinea pig for essentially unproven technology.
The third phase is a £2bn programme with Siemens Project Ventures to build three 300mw biomass plants in Drax, Immingham port and another site to be decided. If it all goes ahead, the plants are expected to become operational between 2014-2016, when Drax reckons they will produce about 15pc of the UK’s renewable electricity. Renewable power as a whole is slated by the Government to produce 35pc of the nation’s electricity by 2020.
Amongst the barriers to all these plans is the recession, which has led to a 5-6pc fall in UK electricity demand since October.
“It’s hard to know whether it’s because people can’t afford the bills or whether it’s because the recession is so deep that actually there simply isn’t the demand there,” said Mrs Thompson.
“The bills component will change because wholesale electricity prices have more than halved in the last nine months, and you would expect more of that to feed through to end users. But part of it is without doubt the economic challenge that the UK faces.”
A short-term drop in demand for power will ease Britain’s security of supply issues in the short term, but there is still expected to be a serious capacity challenge around 2016 when acid-rain legislation may cause large wholesale plant closures in the UK.
“It does affect us,” said Mrs Thompson, “but we’re confident that there’s a good case for retro-fitting the necessary equipment.”
Drax’s biomass plans have not stopped the power station being targeted by environmental protesters, and Mrs Thompson is critical of security abuses.
“We had a very major protest in 2006 and a proportion of the protesters made it totally clear that they did not feel that in any way they should consider or obey our safety regulations on site. Their objective was to get onto the site and cause damage, with no respect for safety and security.
“Power stations are just inherently dangerous places and safety is paramount, so I don’t think you should put other peoples lives at risk in that way. I hope that there is a greater appreciation now that we have worked hard to deliver material carbon savings.”
Mrs Thompson’s own work path came through degrees in economics from the London School of Economics and Political Science before her early banking career.
“I worked on financings of everything from power steering and gear factories to cocoa plantations and pulp mills,” she said.
“You need a real mix of skills. I love the complexity of the combination between the different types of markets we’re involved in. What I do here is very different from banking. There’s a whole part that’s about having very good systems, very good processes and keeping a strong orientation on safety all the time.”
She never particularly targeted being a chief executive and nor does she see herself as a beacon for women’s rights, despite being one of only four women leading Britain’s top 100 companies.
She is also not the sort to join women-in-business action groups. “Women are definitely in the minority in our industry, but we really believe in having the best person for the job. I believe in equal access for women, but I think that in many areas we already have that.”
Dorothy Thompson's CV
Born: 1960
Homes Islington, London and York
Married with two children
Education St Mary's, Shaftesbury; London School of Economics
Car Diesel Lexus
Hobbies Skiing, sailing, diving and hiking
Favourite film Breakfast at Tiffany's
Favourite book The English Patient
Other jobs Non-executive director at Johnson Matthey