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Oxera’s economic analysis key to RWE’s Lynemouth state aid clearance

A recent in-depth European Commission state aid investigation considered whether aid to convert RWE’s Lynemouth plant from coal to biomass might be illegal under EU state aid rules. In February 2015, the Commission raised concerns that the aid might lead to the plant being excessively profitable, and that the fuel requirements of RWE’s biomass plant might distort competition in global markets.

As economic adviser to RWE in responding to this investigation, Oxera was instrumental in helping RWE to demonstrate that the aid is in line with state aid rules. As a result of Oxera’s involvement, the Commission concluded on 1 December 2015 that state support from the UK for the conversion of the Lynemouth power station from coal to biomass complies with EU state aid rules. The Commission found that the project will further EU environmental and energy goals without unduly distorting competition.

Oxera undertook in-depth analysis of the expected profitability of the plant, focusing on the key cost parameters and their implications for profitability. Our analysis demonstrated that the key parameters are robust and do not lead to the plant being excessively profitable as a result of the aid. We also developed the competition arguments to demonstrate that the plant’s fuel requirements are unlikely to significantly distort competition in global markets. The Oxera team was led by Partner, James Kavanagh, and Senior Consultant, Nicole Robins.

As a result of the Commission’s decision to approve the aid, the Lynemouth plant will receive aid until 2027. The case sets a precedent for the state aid assessment of similar projects.
Read the European Commission’s press release here.