EU greenlights RWE’s Lynemouth biomass plans

RWE’s plans to convert its Lynemouth coal-fired power plant to biomass have been awarded EU state aid approval, paving the way for a final investment decision early next year and bolstering the outlook for biomass generator Drax.

The German company said in a statement on Tuesday that it would now advance its plans to convert the site to a 390MW biomass-fired power plant, down from its 420MW capacity as a coal plant.

RWE Supply and Trading chief commercial officer Andree Stracke said the greenlight is a “win-win” for all stakeholders, contributing to decarbonised security of supply, local jobs and the economy of the north east of the UK.

But investors say the EU’s decision to approve the project also bodes well for Drax.

The generator’s third conversion project plans – which are still awaiting state-aid clearance – secured the same deal through the Contracts for Difference (CfD) regime and is therefore “directly comparable” to the Lynemouth plans.

Whitman Howard utilities analyst Angelos Anastasiou said: “Given that the situation with Drax’s third unit conversion is directly parallel to that of Lynemouth, it would seem reasonable to assume that Drax’s unit should also be cleared by the EC when it is reviewed.”

“There should now be a considerable degree of confidence that it will be cleared by the EC and that it will be operating under CfDs in the not too distant future, rather than co-firing under the RO as it currently is,” he added.

Drax shares rocketed 13 per cent following RWE’s news to almost 255.5 pence by midday.

Shares in the generator are still at a discount to trading levels of around 285 pence seen at the start of November, and are less than half the value at this time last year at over 600 pence per share.