* New biomass plants to get subsidy only if they harness heat too

* Subsidy for new plants to apply only up to 400 MW capacity

* State funding for all biomass plants to be phased out by 2027

By John McGarrity

LONDON, July 18 (Reuters) - New standalone biomass power plants in Britain will not be eligible for some subsidies unless they generate heat at the same time, under new government proposals, meaning many new plants could be cancelled, an industry lobby said.

Britain's government said on Wednesday it aimed to deny public money via guaranteed minimum power prices to dedicated biomass plants that do not generate both heat and electricity.

"The lack of a strike price for new build biomass means support for this important technology has effectively come to an end, and we urge the Government to reconsider," said Gaynor Hartnell, chief executive with the Renewable Energy Association (REA).

She said that as heat output, known as combined heat and power (CHP) could not easily be built into projects that had already been approved, many would be scrapped:

"Developers cannot simply add CHP to these projects retrospectively, so they will most likely be cancelled."

CHP is seen as much more efficient as the heat from power generation is used to warm homes and businesses.

The government is steering a landmark energy bill through parliament that aims to unlock 110 billion pounds ($168 billion) of new energy investment to replace ageing capacity and lower carbon emissions.

Policymakers also plan to restrict subsidies for biomass to 400 megawatts per plant through a different type of subsidy called the Renewables Obligation, as also outlined on Wednesday.

Restrictions on this form of subsidy will only apply to new projects and not conversions from coal-fired power planned by companies such as Drax, Britain's biggest power station.

"It is new, so-called dedicated biomass power stations that will have a cap on subsidies, and not those plants that are switching to wood from coal," a spokeswoman for Drax said.

This means that large scale, controversial imports of wood pellets to Britain will continue.

On Wednesday, Edward Davey, Britain's Secretary of State for Energy and Climate Change, told BBC Radio that importing wood and burning it as biomass was not the long-term answer to the country's energy needs, leading to suggestions that the government was reversing its previously policy of support.

Drax and other large generators switching to biomass from coal will have subsidies phased out by 2027, meaning they will then have to pay all the costs of burning wood instead of the highly-polluting fossil fuel.

"This is something we already knew and does not mark a change in government policy," the Drax spokeswoman added.

Britain's energy ministry said in a statement that it had always been clear that biomass is a transitional technology, "to be replaced by other, lower carbon forms of renewable energy in the medium to long term".

Drax has already converted 660-megawatts of output to biomass, and plans to switch two similar sized units to wood pellets by 2017.

Green groups are concerned that growth in Britain's bioenergy industry will mean the felling of virgin forests for fuel, a practice that was commonplace in Europe and North America before coal was used to power the industrial revolution.

They say that carbon footprint of harvesting trees and shipping wood pellets across the Atlantic is much higher than power companies estimate.

CANCELLATIONS

Drax said the fuel it imports has cut emissions in converted units by 80 percent compared with burning seaborne coal, and that the wood used, much of which is sourced in the southern United States, is certified as sustainable.

But not all plants that have switched to biomass have decided to maintain power generation.

Last week, RWE npower said it would close a newly converted 750-megawatt biomass plant at Tilbury by July 21 because of a forecast drop in UK power prices and lack of capital from the Germany-based parent RWE.

Last year Drax scrapped plans to build a new dedicated biomass plant on its site in North Yorkshire, citing the need for better government support.

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