European Commission approves state aid for Lynemouth conversion

By Erin Voegele | December 02, 2015

The European Commission has announced that U.K. support for the conversion of the Lynemouth power station from coal to biomass complies with EU state aid rules. The U.K. informed the EC of plans to support the conversion project in Dec. 2014.

The Lynemouth conversion is one of eight renewable energy projects selected for the first contracts under the U.K.’s electric market reforms. In 2013, the U.K. Department of Climate Changed announced that the government had sent out draft investment contracts to a total of 16 renewable energy projects that had progressed to the next stage of the final investment decision (FID) enabling for renewables process. In mid-December 2013, DECC announced that only 10 of those projects had been found to be provisionally affordable under the budget caps released earlier that month. The list of projects was later reduced to eight. Those projects, including the 299 MW biomass-fired Teesside project, a Drax biomass unit conversion, and the Lynemouth Power biomass conversion signed contracts in June 2014, along with five off-shore wind projects.

In February, the EC announced it was opening an in-depth investigation to assess whether the U.K.’s plans to support the biomass conversion of the coal-fired Lynemouth power plant are in line with European Union state aid rules. According to information released by the EC at that time, the investigation aimed to ensure public funds used to support the project are limited to what is necessary and do not result in overcompensation. The investigation was also to assess whether the positive effects of the conversion in achieving EU energy and environmental objectives outweigh potential competition distortions in the market for biomass.

In a statement issued Dec. 1, the EC said that in light of the comments received from interested third parties as well as detailed technical information submitted by the U.K., the commission is now satisfied that the submitted parameters are robust and present no risk of overcompensation. The commission also indicated its investigation did not find any evidence of market distortion in the global wood pellets market and noted it is satisfied that the measures will not lead to undue distortions of competition in the market for other wood-based products.

Once the conversion is complete, the Lynemouth facility will have the capacity to generate 420 MW of electricity from wood pellets. The U.K. government intends to support the project in the form of a premium paid on top of the market price of the electricity generated, known as a Contract for Difference. The project will receive aid until 2027 and, according to U.K. estimates, will generate about 2.3 TWh of low-carbon electricity per year. The plant is due to use approximately 1.5 million metric tons of wood pellets per year, mainly sourced from the U.S., Canada and Europe.

“This is fantastic news for the Lynemouth project and the stations 134 strong workforce,” said Vaun Campbell, managing director at Lynemouth Power Ltd. “As a full coal-to-biomass conversion, this project is a win-win for all involved. The North East region and the local economy also benefits as supply chains and other infrastructure are created.”

“Once operational the project generates 420MW, with 390MW export of low carbon electricity to the national grid, supporting the Government’s climate change targets,” Campbell continued.

“It has been a long journey with delays to the decision impacting the project but we can finally now move towards hopefully making an investment decision,” he said.

The European Commission has now approved state aid for seven of the eight renewable energy projects. In addition to Lynemouth project’s recent approval, the Teesside project was awarded approval Jan. 22, 2015. The five off-shore wind projects were granted European Commission approval in July 2014 as part larger announcement from the commission that indicated the U.K’s Contracts for Difference (CfD) subsidy program is in line with EU state aid rules. The Drax conversion project is still awaiting EC state aid approval.