Government support for biomass plant sparks EU state aid probe

6 Jan 16
The European Commission is to investigate whether the UK’s plans to subsidise the conversion of part of a coal power plant to operate on biomass are a breach of state aid rules.

The in-depth investigation, announced yesterday, will assess whether the public funds used to support the conversion of the Drax coal power plant in North Yorkshire will result in overcompensation and market distortion, outweighing the positive environmental benefits.

The commission said it “fully supports member states’ efforts to increase the use of renewable energy and pursue EU energy and climate objectives”. However, it added that state aid rules must be upheld to prevent certain operators gaining an unfair advantage over competitors.

Under the plans, if the average wholesale price of electricity falls below a fixed price set by the government for energy generated from biomass conversion projects, Drax will receive a top-up on the money it earns from selling its electricity into the market.

The European Commission will look into whether this amounts to overcompensation. It also said it is concerned that estimates of the converted plant’s economic performance might be too conservative and could also lead to overcompensation.

In addition, the converted unit of the Drax plant will run entirely on wood pellets sourced mainly from the US and South America. This will require a considerable amount – 2.4 million tonnes annually – of wood pellets compared to the volume of the global wood pellets market. 

The commission said the demand for wood pellets from Drax alone could significantly distort competition in the biomass market.

In a statement on its website, Drax said it welcomed the opportunity to work with the UK government and the European Commission to complete the state aid clearance process.

It said: “This is the next step in the process for obtaining state aid approval and is in line with expectations.”

Last December, the commission approved a similar conversion at a plant in Lynemouth, Northumberland, owned by German energy group RWE.

The Drax conversion project is one of eight major renewable energy projects selected for government support and funding in April 2015. 

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