EU said that it supports UK’s plan to encourage renewable energy use, but is should not give certain operators an unfair advantage over competitors.
The investigation will now focus on whether public funds used to support the Drax project are limited to what is necessary and do not result in overcompensation.
EU said in a statement: "It will also assess whether the positive effects of the project in achieving EU energy and environmental objectives outweigh potential competition distortions in the market for biomass."
Upon conversion, the third unit of the coal plant in Selby, England, will be fuelled with wood pellets to generate 645MW of renewable energy. Two units of the plant have already been switched to biomass earlier.
The plant is expected to require approximately 2.4 million tons of wood pellets annually which will be sourced from the US and South America.
The UK expects the project to generate about 3.6 TWh of electricity annually and would operate until 2027.
A Drax spokesman said: "We welcome this announcement as the next step towards the full conversion of our third generating unit from coal to sustainable biomass.
"A positive outcome will result in half our power station running on biomass.
"This will improve the security of UK electricity supply and, in saving more than 12 million tonnes of carbon per year, play a critical role in helping the UK meet its climate change targets."
