The European Commission has opened an investigation into whether the conversion of Drax power station in the UK from coal to biomass firing breaches state aid rules.
The 4000 MW power plant is in the process of being converted and in 2014 was awarded a contract for difference (CFD) contract by the UK government, which effectively guarantees it a minimum power price for the electricity it generates using biomass.
Drax said that the European Commission's investigation was "in line with expectations" as it was part of the process for obtaining state aid approval for the CFD contract.
The Commission said that it would investigate whether public funds are limited to what is necessary to support the conversion of Drax's third unit to biomass, and whether it would distort the market. In a statement it said it "fully supports member state efforts to increase the use of renewable energy and pursue EU energy and climate objectives".
It added: "At the same time, EU state aid rules make sure that the cost of such support for consumers is limited and does not give certain operators an unfair advantage over competitors".
Drax was awarded a strike price of £105/MWh. This compares with the current day-ahead power market price of £37/MWh.