A coal-fired power plant which produced twice the legal amount of toxic gas for seven years has been awarded a £10m state subsidy to produce electricity for a single year.

Aberthaw in Barry, in the Vale of Glamorgan, describes itself as “one of the most efficient coal-fired power stations in the UK”.

However, in September last year, the European Court of Justice ruled that it had breached the legal limit for nitrogen oxide for seven years, emitting more than double the permitted level.

The power plant was one of the successful bidders in a capacity market auction held by the National Grid on behalf of the Government. The Business Secretary has still to formally approve the results.

Nearly 40 per cent of the contracts went to gas power stations, while a further fifth went to coal and biomass plants. The money is paid regardless of whether any electricity is actually produced and is designed to ensure electricity can be generated quickly when needed.

The Government said it was planning to phase out “unabated coal” by 2025 and the amount of spare electricity capacity to be provided by the fossil fuel would fall over the next few years.

However, legal activist group ClientEarth, which has successfully sued the Government twice over its plans to cut air pollution, said it was “unacceptable” that Aberthaw, run by energy giant RWE Generation, would receive £10m of public money to produce electricity in 2017-18.

ClientEarth's chief executive, James Thornton, said: “The Government has agreed to dole out millions of pounds of public money to a coal power station already condemned as polluting way above its allowed limit, but at the same time assures us we will see a managed transition away from coal by 2025 – or earlier. What are investors supposed to think?

“Coal capacity will certainly need to be used to secure supply during the transition, but only within reason.

“Giving this kind of incentive to recognised polluters is a total affront to human health and to those fighting for a swift move to a low-carbon energy system.”

Lower-carbon energy generators should be given preference over the most polluting plants in the auctions, ClientEarth argued.

The group has also criticised the £1bn of public money given to power station Drax for a biomass conversion project.

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In September, a report by Greenpeace and Friends of the Earth said Aberthaw, which can produce electricity for 1.5 million homes, had the third highest emissions of nitrogen oxides of any industrial installation in the whole of the European Union.

“Hundreds of people’s lives are ended prematurely as a result of pollution from Aberthaw power station every year,” the report said.

“This pollution also causes tens of thousands of days of lost productivity through sick leave, and hundreds of thousands of days of illness every year.

“The pollution is responsible for causing asthma symptoms in children, bronchitis in children, chronic bronchitis in adults, hundreds of hospital admissions every year, and low birth weight in babies.

“Over the 45 years since it started operating, pollution from this one power station alone is likely to have caused the premature deaths of more than 3,000 people in Wales, and 18,000 across a wider area.”

At that time, RWE said it “remains fully compliant” with emissions permits.

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“We will work with the UK and Welsh governments and Natural Resources Wales (NRW) to accommodate the changes to the way the station is regulated as a result of the EU ruling which will enforce an alternative interpretation of the legislation,” it added.

National Grid said the results of the Capacity Market auction, which is run according to rules issued by the Government, still had to be confirmed by Ministers.

The Department for Business, Energy and Industrial Strategy said: “We have set out our proposals to phase out unabated coal power generation by 2025, and are already seeing a significant reduction in the role that coal will play in the capacity market year on year, with 43 per cent less coal winning agreements to provide Britain’s electricity capacity for 2021 than for 2017.”

RWE said in a statement that it was “investing £5m in technology that will significantly lower the station’s NOx [nitrogen oxide] emissions”.

“Aberthaw Power Station is vital to the UK’s short term security of electricity supply as a partner to renewable technologies,” the firm said. “Aberthaw remains fully compliant with all permits that control emissions from the site.”

It said the station would reduce its generation levels this year and “this combination of fewer operating hours and lower emissions will ensure that Aberthaw Power Station can provide security of electricity supply for Wales and beyond into the 2020s”.

“Later this year the UK will experience some of the tightest generation margins in many years,” RWE added.

“The recent capacity market auction has procured capacity to ensure that the country has adequate supply available for the coldest months.