What was the client issue?

RWE faced an in-depth European Commission state aid investigation concerning aid to convert its Lynemouth plant from coal to biomass. The Commission raised concerns that the aid might be illegal under EU state aid rules, due to the potential for the aid to lead to the plant being excessively profitable; and that the fuel requirements of the biomass plant might distort competition in global markets. 

How did we help the client solve it?

Oxera was instrumental in helping the client in its response to the Commission. We prepared the economic evidence to demonstrate that the aid is in line with state aid rules. We undertook an in-depth analysis of the expected profitability of the plant, focusing on the expected evolution of the key cost parameters and their implications for profitability. Oxera’s 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.

Why was the outcome compelling for the client?

As a result of Oxera’s involvement, the Commission concluded 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, meaning that the Lynemouth plant will receive aid until 2027. The case set a precedent for the state aid assessment of similar projects.