An oil-fired power station in Kent could be run on palm oil under plans being considered by its owners, Npower.
Many palm oil plantations are grown on areas of cleared rainforest
The German-owned firm said it was looking at the commercial and technical viability of the biofuel after testing it in Littlebrook, Dartford.
It added that no decision had yet been made and environmental factors would be of paramount importance.
A spokesman said as the fuel was carbon neutral it would help reduce the UK's CO2 emissions.
He added: "But we would need to be able to source from sustainable plantations. There's no point in doing something for environmental benefit at one end if it is detrimental to the environment at source."
Following the rising price of crude oil, energy suppliers have been looking at cheaper alternatives such as the use of biofuels.
Npower's owners, RWE, would be eligible for government subsidies if palm oil was used at the plant.
Many palm oil plantations are grown on areas of cleared rainforest in Indonesia and Malaysia, and threaten the habitat of endangered animals including the orang-utan.
Environmental groups are concerned that the overuse of sustainable plantations could cause other palm oil customers to source from ill-managed plantations.
Friends of the Earth warned the use of palm oil as a biofuel threatened to exacerbate climate change.
Campaigner Ed Matthew said: "Current levels of demand for palm oil for the food industry are already threatening the forests of Indonesia with annihilation.
"These forests and the people and wildlife they support simply cannot cope with a steep rise in global demand for palm oil for the energy industry. It will sound the death knell for the orangutan and create further conflict between palm oil companies and local communities.
"But it will also hamper the fight against climate change, the very problem the biofuels industry is supposed to be helping overcome."
Palm oil is found in a wide range of produce on supermarket shelves, including bread, crisps, margarine, cereals, lipstick and soap.