Drax deal to convert coal units to biomass burning under threat

Plans for the UK's largest power station to convert more of its coal units to burn less carbon-intensive biomass wood pellets are being investigated by the European Commission.

The Drax plant in North Yorkshire has already converted two of its six units from coal and, according to The Times, struck a deal with the government in April 2014 to convert a third.

However, the European Commission is worried the £1.7bn package of subsidies that form part of the contract, which will see Drax paid £105 per megawatt hour of electricity, could breach its rules on state aid.

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Among the cornerstones of the European Central Market, state aid restrictions are designed to prevent national governments from offering incentives that give companies or sectors in one country an unfair competitive advantage. The rules were cited when the European Court of Justice endangered Scotland's plans for minimum alcohol pricing in December. They are also being used to clampdown on so-called "sweetheart" tax deals between some member states and companies such as Starbucks and Amazon.

In the case of Drax, the Commission has said it will "investigate further to make sure that the public funds used to support the Drax project are limited to what is necessary and do not result in overcompensation". Last year, the EC gave approval to German energy conglomerate RWE to undertake a similar conversion at its coal plant in Lynemouth, The Guardian says.

Converting to wood pellets, which are produced from sustainable soft-wood forests, can dramatically reduce carbon emissions from electricity generation. A report from PricewaterhouseCoopers has estimated that emissions could be reduced by as much as 86 per cent. The UK has committed to closing all coal-fired plants within the next decade.

Shares in Drax fell more than 4.5 per cent yesterday to 221p. A spokesperson said: "We welcome this announcement as the next step towards the full conversion of our third generating unit from coal to sustainable biomass."