Controversial plans for a £5 million biomass plant near Tenbury Wells have suffered a setback after a bid for nearly £1 million in funding was rejected by a development agency.

Advantage West Midlands has said it is no longer considering the application for up to £965,000.

AWM announced earlier this year it would be reviewing all the projects it was considering after central government said less money would be available to regional development agencies as a result of the recession.

An AWM spokesman said: “In the present climate, we are having to focus all our efforts on projects that make maximum impact in the short-to-medium term, protecting jobs and businesses.”

The project was first put forward in 2007 by CJ Day Associates, consulting engineers, the same company proposing to build a biomass plant at Bishop’s Castle.

The plant was planned for Tenbury Industrial Estate and was designed to provide enough power for 2,500 homes. More than 2,000 residents signed a petition against the scheme.

It was originally due to go ahead in 2008, but a planning application was never submitted, which stalled the funding application.

Chris Day, CJ Day Associates director, said: “We are awaiting the outcome of the planning application at Bishop’s Castle before proceeding any further with the Tenbury project.”

Chris Dell, of Tenbury Tourism Group, said: “Tourists don’t go to market towns to see power stations.”