The European Commission has launched an “in-depth” investigation into the UK Government’s plan to use public funds to pay for the conversion of a coal plant to biomass.
Under current plans, the project in Lynemouth, northeast England, would run solely on wood pellets and have the capacity to generate 420MW of electricity. It would require 1.5 million tonnes of wood pellets every year, sourced mainly from the US, Canada and Russia.
The UK Government said it would support the project under its Contracts for Difference scheme, guaranteeing a ‘strike price’.
That means the generator of the Lynemouth power plant will earn money from selling the electricity into the market and when average wholesale price is below the strike price, it will receive a top-up payment.
The Commission said it aims to make sure the public funds used to support the project are “limited to what is necessary and do not result in overcompensation”.
It added: “The Commission has concerns the actual rate of return could be higher than the parties estimate and could lead to overcompensation.”
It is also concerned that “on balance the measure’s negative effects on competition could outweigh its positive effect on achieving EU 2020 targets for renewable energy”.
DECC said this is a “normal part of the Commission’s process” and would continue to work together to help resolve its concerns.
The Commission will give interested parties a chance to express their opinions before reaching a final decision.
The coal-fired plant is operated by Lynemouth Power, a subsidiary of RWE Supply and Trading.