The European Commission is investigating the Contract for Difference (CfD) scheme in relation to the conversion of the Lynemouth coal power plant to biomass.
The Commission is assessing whether the scheme breaks EU rules on state aid by over-compensating energy firm and operator RWE for its commercial costs rather than a wider economic necessity.
Officials are also considering whether the benefits of meeting energy and environmental objectives “outweigh potential competition distortions” in the biomass market.
A spokesman for DECC downplayed the investigation: “This is a normal part of the Commission’s process and we will continue to work together to help resolve its concerns. Biomass is an important transitional and cost-effective renewable technology.”
Analysis from the Commission suggests that the Government’s initial calculations were too conservative with regards to the plant’s annual electricity production, its efficiency and the cost of sourcing wood pellets.
Under CfDs, generators and developers receive a fixed strike price for the electricity they produce for 15 years.
DECC said these contracts are vital to give investors the confidence they need to pay the up-front costs of major infrastructure projects.
The plant is estimated to operate until 2027 and produce an annual power output of 2.3TWh from wood pellets imported from North America.
The CfD scheme faced a legal challenge in August 2014 from Drax, an operator of the other approved biomass CfD scheme. In that instance, the Government won a High Court challenge after rejecting one of Drax’s biomass conversion schemes.
|Drax Unit||Drax||Biomass conversion||645||Selby, North Yorkshire|
|Lynemouth||Lynemouth Power||Biomass conversion||420||Ashington, Northumberland|