Brussels launches probe into Drax loan

It said Brussels has informally warned the UK that the country’s support of big renewable energy projects, including Drax’s biomass conversion, may harm competition through heavy subsidies.

Drax, near Selby in North Yorkshire, is Britain’s biggest power station and was offered a £75m guarantee by the British government last April for a switch from coal to biomass, becoming one of the first projects to benefit under the UK Guarantees Scheme.

The scheme was launched in December 2012 to provide £40bn of guarantees to kick start infrastructure projects struggling to access finance.

The British government is underwriting a £75m loan that Drax took from investments provider Friends Life to convert half its Yorkshire station’s generating units to burn wood pellets and other fuels known as biomass.

In theory it should be carbon neutral because it will only release CO2 already absorbed by the plants as they grew and the gas will then be reabsorbed by new plants being grown for fuel.

However, Friends of the Earth has lodged a state aid complaint against the burning of biomass, arguing it had the potential to produce more overall greenhouse gas emissions than coal. It says that the huge agricultural operation to create biomass itself consumes energy and releases carbon while the CO2 from burning may take decades to be reabsorbed during which time it will have harmful effects on climate.

The group believes that the UK guarantee might have favoured Drax by lowering the cost of the Friends Life loan, and the guarantee was also not formally notified to the European Commission as it should have been.

According to the FT, the commission wrote to Friends of the Earth in late January, saying it had started a “preliminary investigation” into the complaint, and was awaiting a response from the UK.