Officials from Drax Power Station, and Nigel Adams MP, welcomed the news that the European Commission had finally approved the UK Government’s continuing aid to the project of continuing conversion of power production at Drax from coal to biomass. Nigel said: “This is great news for Drax and after the long delay, I’m pleased that the right conclusion has been reached. The work of converting Drax away from coal, and to biomass, will greatly help the UK both secure its energy supply and simultaneously reduce emissions.”
Drax will now work to finalise the CfD arrangement with the UK Government as soon as possible, allowing the conversion of a third unit at the plant to biomass.
A press release from the European Commission announcing the decision read as follows:
Brussels, 19 December 2016
The European Commission has concluded that UK support for the conversion of one unit of the Drax power station from coal to biomass complies with EU state aid rules. The project will further EU environmental and energy targets without unduly distorting competition in the Single Market.
In April 2015, the UK notified to the Commission its plans to grant state aid for the conversion of one unit of the Drax coal-fired power plant to biomass. The unit will have 645 Megawatt (MW) of electrical power capacity running exclusively on wood pellets. The UK Government intends to support the project with a premium paid on top of the market price of the electricity generated (a so-called “Contract for Difference”). The project will receive the support until 2027 and, according to UK estimates, will generate about 3.6 Terawatt hours (TWh) of electricity per year. The plant is due to use approximately 2.4 million tonnes of wood pellets per year, mainly sourced from the United States and South America.
The Commission opened an in-depth investigation in January 2016 to check that the aid would not lead to overcompensation and undue distortions of competition in the biomass market. A detailed analysis of the project business case was carried out, taking into account the comments received from interested third parties, as well as further information submitted by the UK,. On the basis of this analysis, the Commission has now concluded that the planned premium will not result in overcompensation.
Moreover, the Commission’s investigation into the wood pellet and wood fibre markets found that the increased demand for wood pellets to fuel the power plant could be fulfilled by the market without undue negative side-effects. The Commission concluded that the support will not lead to undue distortions of competition in the market for wood-based products.
On the basis of this analysis the Commission concluded that the project’s contribution to increasing the share of renewable energy produced in the UK outweighs any potential distortions of competition that could be triggered by the government support.
The Drax plant is one of eight projects selected under the Final Investment Decision Enabling for Renewables (FIDeR), a UK support measure for renewable energy projects. The Commission already approved state aid under FIDeR for five projects to develop offshore wind farms, the construction of the Teesside combined heat and power biomass plant and the biomass conversion of the Lynemouth power plant.
The non-confidential version of the decision will be published in the State aid register on the Commission’s competition website under the case number SA.38760 once eventual confidentiality issues have been resolved. The State Aid Weekly e-News lists new publications of state aid decisions on the internet and in the EU Official Journal.