Drax Group Plc’s planned UK subsidy contract for a 645-MW biomass-fired unit is being investigated by the European Commission. The EC wants to determine if the contract follows the EU state aid rules. The power plant received a £1.7 billion subsidy contract from UK’s government for the third of its six units.
Now, the power plant wants to change three of its units from coal to biomass, according to ConBio.
The “Contract for Difference” (CfD) implies compensations from the moment when the average wholesale price of electricity decreases below a determined strike price. Thus, Drax would be paid £105 for every megawatt-hour (MWh) of biomass-fired power the unit generated until 2027.
The unit now runs on approximately 85% biomass, which qualifies it for less subsidies estimated to be about £80-£85/MWh. Still, the CfD indicates that it has to work at a 100pc conversion, a thing that is now under EC analysis.
The EU already made Drax shares fall 5% after it stated that the rate of return from the subsidies “could be higher than the parties estimate and could lead to overcompensation”.
This third unit will operate until 2027, according to UK reports. It will generate about 3.6 TWh of power annually and consume about 2.4 million tonnes of wood pellets annually. The wood pellets will be imported from the USA and South America.
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