Lynemouth Biomass Gets EU Go Ahead For £1.1bn Subsidy
By Paul Homewood
h/t AC Osborn
I sometimes if I have followed Alice down into Wonderland!
The Telegraph reports:
One of Britain’s dozen remaining coal-fired power plants is to be converted to burn wood pellets shipped in from North America, after the European Commission approved a £1bn subsidy contract for the project.
RWE’s Lynemouth power station in Northumberland is due to close by the end of this year under environmental rules, but will now be resurrected as a biomass plant following EU state aid approval for the consumer-funded subsidies.
The 420 megawatt plant, which produces enough electricity to power 450,000 homes, could be up and running again within 18 months, subject to a final investment decision early next year, RWE said.
The decision also boosted Drax, the Yorkshire coal plant that is awaiting state aid approval of a similar subsidy contract for the conversion of one of its units to burn biomass.
Drax power plant, and a cat. Photo: Bloomberg
Drax shares rose almost 13pc on the back of the decision, although the company issued a statement cautioning against assuming it too would be approved.
Under the terms of the subsidy contract, awarded in April 2014, Lynemouth will be paid a fixed price of £105 for every megawatt-hour of biomass-fired power it generates until 2027 – well over double the current market price of power.
The plant is due to burn 1.5 million tonnes of wood pellets each year, mainly shipped in from the US and Canada as well as Europe.
The National Audit Office last year warned that the subsidies could be higher than needed because of the way ministers awarded them. It estimated that the subsidies for Lynemouth would be worth £1.1bn in total, although that assumed conversion by the end of this year.
However the EC concluded that in the case of Lynemouth there was “no risk of overcompensation”.
Drax is in the process of converting from coal to biomass and was awarded a similar subsidy contract for the third of its six units, which it went on to convert earlier this year.
If the contract wins state aid approval it would be more lucrative than the current ‘renewables obligation’ subsidy that the unit currently qualifies for.
John Musk, analyst at RBC Capital Markets, said it was “difficult not to see a direct read-across to Drax” from the Lynemouth decision but said Drax still expected its contract to be subject to a full state aid investigation which could take six to nine months.
A Drax spokesman said the EC decision was “encouraging” but that the projects had “different underlying technical and economic assumptions”.
The company’s hopes of converting a fourth unit remain in doubt with uncertainty over whether ministers will award any more subsidies for biomass.
Any units that keep burning coal will be forced to shut by 2025, under Government plans.
A DECC spokesman said: “Our priority is providing clean, secure and affordable energy for hardworking families and businesses.
“We are the first country to give an end date to using unabated coal and this decision is another step in the right direction – helping us increase the diversity of our energy mix as we move towards a low carbon future.”
Just look at DECC’s priorities again:
Providing clean, secure and affordable energy
Well, biomass certainly is not “clean”, under any definition of the word. Demand for wood pellets is creating huge environmental problems in America, and their burning here is just as polluting as coal.
As for CO2, biomass will not do anything to reduce actual (as opposed to EU defined ones) of CO2 in the short or even medium term.
And affordable? Lynemouth will receive a guaranteed, and index linked, price of £105/MWh (at 2012 prices) till 2027, more than double the market price.
Secure? Depends on how long the US is willing to see its forests being destroyed.
£1.1bn? And for what?