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The European Commission has launched an in-depth investigation into whether plans to support the biomass conversion of the Lynemouth coal power plant is in line with state aid rules.
The Commission will investigate to make sure the public funds used to support the project, owned by RWE, are “limited to what is necessary and do not result in overcompensation”.
It will also assess whether the positive effects of the project in achieving EU energy and environmental objectives outweigh potential competition distortions in the market for biomass.
In December 2014 the UK government put forward plans to subsidise the conversion of the 420MW Lynemouth coal-fired power station to run on wood pellets via the contracts for difference (CfD) regime. The project is predicted to operate until 2027 and supply 2.3TWh of electricity.
In its preliminary analysis, the Commission considered that the parties’ financial calculations and estimates regarding key cost parameters may be “too conservative”.
The Commission has concerns that the actual rate of return could be higher than the parties estimate and could lead to overcompensation.
The Commission is also concerned the amount of wood pellets required for the Lynemouth project could “significantly distort competition in the biomass market”.
In a statement, project owner RWE said this is a “normal part of the process”.
It added: “We remain hopeful the matter will be resolved, but this is disappointing as it further delays our ability to make an investment decision on the project.”
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