UK Coal-to-Biomass Conversion Project to Be Probed by EU

U.K. subsidies for RWE AG’s Lynemouth power plant face a European Union probe amid concerns government aid would give the company too much to convert the site from coal to biomass and may hamper competition.

The European Commission said the actual rate of return paid for electricity generation may be higher than the U.K. estimates and “could lead to overcompensation,” according to an e-mailed statement on Thursday. It also criticized the project’s reliance on “considerable” imports of wood pellets that it said could distort competition in the biomass market.

“The commission is therefore 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,” regulators said.

The Lynemouth plant in Ashington, Northumberland is one of eight U.K. projects, including a Drax Group Plc biomass conversion plan, that aim to generate more electricity from renewable sources. The EU hasn’t yet ruled on Drax’s project in Selby, North Yorkshire.

Shares in Drax Group Plc dropped 3.4 percent at 10.56 a.m. in London and shares in RWE were down 1.6 percent in Frankfurt. Drax shares also fell last year after the U.K. said it was considering removing subsidies to generators that are converting to burn biomass, meaning they may not receive premium payments for the lifetime of a project.

EU regulators must approve large government payments to companies to check they don’t harm rivals. They can prevent the payment of government subsidies.

The U.K.’s contract for difference mechanism guarantees the price clean energy generators receive for power for 15 years. The state program aims to ensure certainty for investors before a more permanent system is introduced. The contracts are part of reforms to the U.K. power market that seek to increase the country’s supply of renewable power.

State aid for MGT Power Ltd.’s biomass power station got EU backing last month because it will reduce carbon dioxide emissions and provide steady energy output, unlike the intermittent supply form wind energy, the EU said.

Copyright 2015 Bloomberg

Lead image: Investigation via Shutterstock

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