- DESNZ and the Low Carbon Contracts Company have signed a four-year Low-Carbon Dispatchable Contract for Difference with the 420 MW Lynemouth biomass power station.
- The contract will run from April 2027 to March 2031 at a strike price of £154/MWh in 2024 prices. Subsidised generation will be capped at a 27% annual load factor, with a minimum winter requirement and a mechanism to claw back excess profits.
- The total subsidy has been estimated at approximately £260m and is projected by government to be about half the support Lynemouth would receive under its existing arrangements.
The UK government has signed a four-year support contract with Lynemouth Power Station, securing the Northumberland biomass plant’s continued operation after its existing subsidies expire in March 2027.
The Low-Carbon Dispatchable Contract for Difference (CfD) will run from 1 April 2027 until 31 March 2031 and guarantee Lynemouth a strike price of £154/MWh in 2024 prices, equivalent to £110.46/MWh in 2012 prices. The final terms were signed on 8 July and published by the Department for Energy Security and Net Zero (DESNZ) the following day.
Lynemouth has three generating units with a combined capacity of 420 MW. Originally commissioned as a coal plant in 1972, it was converted to run entirely on wood pellets in 2018. Its existing support through the Renewables Obligation and renewable CfD arrangements ends on 31 March next year.
The new contract is deliberately designed to reduce output rather than support continuous baseload generation. Subsidised electricity will be limited to a maximum 27% annual load factor, although Lynemouth will also face a minimum winter-generation requirement intended to ensure capacity is available during periods of high demand or weak wind and solar output. Electricity generated above the cap will not receive the CfD top-up.
The Competition and Markets Authority’s Subsidy Advice Unit estimated the contract’s total value at around £260mn in 2024 prices. Under the standard CfD structure, Lynemouth will receive the difference between its strike price and a seasonal reference electricity price. An excess-returns mechanism requires 30% of annual profits above a lower threshold to be returned to the contract counterparty, rising to 60% above an upper threshold.
DESNZ said the new arrangement should halve Lynemouth’s subsidy compared with its existing support. It has also raised the proportion of fuel that must meet sustainability requirements from 70% to 100%, cut the permitted supply chain emissions threshold and excluded material from primary and old-growth forests. Payments can be withheld for non-compliant consignments, while repeated breaches could result in contract termination.
The government says the deal will preserve up to 300 skilled jobs at the plant and the Port of Tyne. However, it has explicitly ruled out further support for unabated biomass generation at Lynemouth beyond 2031, giving the owner and workforce four years to develop an alternative future for the site.
Biomass controversy
The contract is best understood as an insurance policy for the electricity system rather than an endorsement of biomass as a long-term source of baseload power.
Government modelling assumes Lynemouth can provide dispatchable, lower-carbon electricity when the alternative would be unabated gas. The 27% collar is intended to prevent the station running whenever cheaper wind and solar are available, while preserving its ability to generate during periods of system stress.
That approach has acquired additional relevance after three summertime electricity margin notices highlighted the value of capacity that can respond independently of the weather. However, the relatively high strike price and estimated £260mn subsidy mean the government will face scrutiny over whether storage, demand response or other flexible technologies could provide equivalent security more cheaply.
The deeper controversy concerns biomass itself. Lynemouth says its pellets are sustainably sourced and independently certified, while environmental campaigners argue that harvesting, processing and transporting North American wood can create substantial near-term carbon emissions and damage forest ecosystems.
The tighter sourcing rules and 2031 end date represent an attempt to contain those risks. Politically, the agreement bridges a difficult period: retaining firm capacity through the clean power transition without committing consumers to indefinite subsidies for unabated wood burning.
