EC fears market distortion: plans in-depth investigation of new Drax conversion

Plans to convert a third unit (of six) at the Drax power station to burn biomass, instead of coal, have received a knock after the European Commission announced plans for an in-depth investigation of whether government support for the project would breach State Aid rules.

At issue is a Contract for Difference awarded by the Department of Energy and Climate Change (Decc), which would give Drax a fixed price for electricity generated at the 645MW unit.

The Commission had two concerns. First, it thought Decc had underestimated performance levels at the converted unit so the fixed price agreed would mean “the actual rate of return could be higher than the parties estimate and could lead to overcompensation”. Second, it was concerned that the project would distort competition in the global biomass market – the unit would require 2.4Mt of wood pellets each year, a significant proportion of the market.

The Commission could require alterations in the terms of the agreement, for example to reduce the rate of return. If it decides to make conditions, or if the project fails State Aid tests, Drax Power could still take the conversion ahead with support from the Renewables Obligation.

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