Supermarket giant Tesco has announced plans to build the UK's first Combined Heat and Power plant to be fuelled entirely by straw.

The company said it has been granted approval to begin work on the 5MW plant at its distribution centre in Goole, adding that it expected the facility to save up to 17,000 tonnes of CO2 emissions a year.

The company said that the facility will provide enough carbon neutral power to run up to eight Tesco superstores, adding that any unused electricity that it generates will be pumped back into the grid, while a special filter system will ensure particulates that result from the burning of the straw are captured.

Tesco claimed that the £12m power plant should deliver a return on investment from the £12m plant within six years, at which point the energy it generates will prove cheaper than that provided from the grid.

David North, community and government director at Tesco, said that the project was likely to serve as a forerunner for similar initiatives in the future, adding that the company had already identified five sites that would be suitable for further biomass technology.

The news was welcomed by David Williams, chief executive of renewable energy specialist Eco2 and chairman of the Biomass Sub-Group of the government's Renewable Energy Advisory Board, but he warned that Tesco was likely to face a number of technical challenges if it is to make the project a success.

"The problem with smaller scale biomass projects is that it is harder to get high levels of efficiency out of the process," he said. "Tesco will have to work to get the perfect heat load from the plant to get good levels of efficiency. Straw is also a particularly difficult feedstock for biomass plants as it proves highly corrosive on boiler components."