The project will be carried out by construction company Kaukaan Voima, which is owned by Pohjolan Voima, a privately owned group of companies in the energy sector, and Lappeenrannan Energia, the energy supplier for the Lappeenranta region. UPM has a 42% stake in Pohjolan Voima.

UPM senior vice president of energy Anja Silvennoinen said: “The plant will improve the security of energy supply to our Kaukas mills. It is the latest example of UPM’s long-term strategy to use biofuels in energy production.”

The plant, which is due to start production in spring 2010, will replace the mill’s 30-year-old steam power unit and the majority of the energy generation capacity of the 30-year-old Mertaniemi power plant at Lämpövoima, a subsidiary of Lappeenrannan.

The investment follows UPM’s plans to build a £60m biomass power plant at its Caledonian mill.