EU investigating British government's help on Drax biomass loan

* Commission: too early to say whether will be full inquiry

* Friends of the Earth say imported biomass is not green

BRUSSELS, Feb 25 (Reuters) - EU competition authorities have begun preliminary inquiries into whether a British government guarantee on a loan for Drax Group (LSE: DRX.L - news) to convert coal-fired power generation to biomass was fair, the European Commission said on Tuesday.

The inquiry follows a complaint from environmental campaigners, who have raised concerns that biomass - made from trees and other plant matter - does not necessarily lower carbon emissions and should not get government aid.

"We have asked the UK authorities for information about this. At this stage, it would be premature to prejudge whether this could lead to a formal state aid investigation," Commission spokesman Antoine Colombani said.

In April last year, the British government offered a guarantee on a 75 million pound ($125 million) loan Drax took out to convert three of its six generating units at the Drax Power Station at Selby, North Yorkshire, into burning biomass.

Friends of the Earth (FoE), which raised the complaint together with energy cooperative Bristol Community Energy Limited, said it believed the loan guarantee broke EU rules on state aid, which require member states to notify the Commission and that there must be no market distortion.

"Government support for infrastructure projects is essential but only for the right sort of projects - those that help us reduce our impact on the planet and meet legally binding climate targets," Friends of the Earth Bioenergy Campaigner Kenneth Richter said.

Scientific research has shown that many forms of biomass are much less sustainable than they appear at first sight.

FoE said Drax's biomass plans would require pellets made from 7 million oven-dried tonnes of wood a year, making it the world's biggest biomass-burning power station, and that the need to import trees was particularly environmentally unsound.

EU policy-makers have in the past worked on the assumption biomass is carbon-neutral because emissions generated when it is burnt for heat or power are offset instantly by the growth of more biomass.

Opponents say that is a misleading assumption and biomass can lead to higher, rather than lower carbon emissions.