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State aid: European Commission opens in-depth investigation into Lynemouth power plant

The Commission has (19 February 2015) opened an in-depth investigation (case number SA.38762) into whether the UK’s plans to support the conversion of the Lynemouth coal power plant to biomass accord with EU State aid rules.

It is proposed to support the project by a “Contract for Difference” whereby the price of the electricity generated is fixed at a “strike price”: when the average wholesale price of electricity falls below the strike price the generator at Lynemouth will receive a top-up payment.

The Commission is concerned (i) that the parties’ financial calculations and estimates in relation to key cost parameters may be too conservative, such that the actual rate of return may prove higher than anticipated and lead to overcompensation; and (ii) that subsidising the volume of wood pellets required (1.5 million tonnes per annum, sourced mainly from the USA and Canada) might significantly distort competition in the biomass market, thus outweighing the positive effects of the project in relation to the EU 2020 targets for renewable energy.

Read more here.