The effects of state aid to the Drax power plant in the UK now under investigation

In April 2015 plans were published to convert the Drax coal-fueled power plant so, that one unit would run entirely on biomass, wood pellets that would likely be imported from the States or South America. It has been calculated, that this converted unit would be capable of producing 645 MW of renewable energy. There has been set a “strike price” for the electricity created by this unit and if the actual sales fall below this price, the operator of the plant would receive extra payments on top of the actual sale profits. All bodies of European Union fully support the use of renewable energy and the state aid system in EU has had positive effects on the development and installation of technology that utilizes natural renewable energy. However, the possibility of competition distortion must always be remembered and taken into consideration.

Recently the Commission has opened an in-depth investigation into the effects of state aid of the Drax Power plant. After a preliminary analysis, the Commission is concerned that the estimates that have been made of the converted plant’s economic performance have been too conservative, and the actual rate of return would lead to overcompensation through the state aid system. Another initial concern is, that the amount of wood pellets that will be required by Drax is considerable when compared to the global wood pellet market. The conversion project could therefore cause severe distortion to the competition in the European biomass market. The commission is concerned that the negative effects to completion could outweigh the positive effect on the 2020 targets for renewable energy use. Further investigation into this matter will follow.