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EC investigation into state aid for Drax biomass power plant

The European Commission (EC) is looking at whether the Government’s underwriting of a £75m loan for conversion of the UK’s largest power plant to biomass broke EU rules.

Last April, Drax Group announced that private funding for its facility from Friends Life would be the first in the UK to be underpinned by a guarantee from the Treasury. This allowed it to reach a wider group of investors.

This was part of the Government’s UK Guarantees Scheme, launched last year to provide up to £40bn to help infrastructure projects struggling to access finance.

Environmental campaigners Friends of the Earth (FoE) then launched a joint complaint with Bristol Energy Co-operative (see document right) claiming that the funding breached EU state aid law as the Government had not sought approval from the commission.

The EC confirmed its investigation in a letter to FoE saying: “We forwarded the complaint to the UK authorities in November 2013.”

A Treasury spokesperson told MRW the Treasury replied to the EC in January.

Jake White, legal advisor at the pressure group, told MRW: “In EU law, if states want to give ‘state aid’ to businesses, they have to get the EC’s approval before they grant the aid or, in this case, before they enter the guarantee. In this case HM Treasury did not do that.”

White argued that even if state aid was granted without approval it was still possible to get EC backing after the event.

But he doubted this aid would have been approved for two reasons:

  • FoE believes the guarantee does not comply with guidelines issued by the commission
  • A significant environmental impact from the Drax plant

A spokesperson for the EC said it was too early “to prejudge whether this could lead to a formal state aid investigation.”

The Treasury spokesperson said: “The UK Guarantees scheme is supporting infrastructure delivery as part of the Government’s long term economic plan. Clear processes are in place to ensure that any guarantees comply with state aid rules.”

A spokesman for Drax said: “Drax only uses sustainable biomass. All of our biomass is independently audited and it delivers carbon savings of over 80% compared to the coal we would have used.

“There is no  shortage of residues and thinnings from other forest industries which would otherwise go to waste or be burnt on site.”

According to FoE, Drax’s biomass plans will require pellets made from seven million oven-dried tonnes of wood each year, making it the biggest biomass-burning power station in the world.

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