Revising the RES Law on Biogas: the Necessary Changes

The Government is coming to the realization that the proposed auction system will not provide enough stable support to meet the biogas goals projected in the national plan. See graph below.  See comments of the Polish Biogas Association on the July 2014 draft. The additional biogas energy hoped for 2030 will also be problematic. 

      The initial solution in the July 2014 draft was to use a small auction for projects under 1 MW. The problem is that most agricultural biogas plants in Poland and biogas plants that are necessary to handle organic waste under other EU rules are normally over 1 MW to be economically efficient. The auction itself also poses real problems for biogas projects, which have never been effectively supported by this mechanism. See Del Rio (2013); ECOP FYS (2014).

     The new proposal to have a separate auction for agricultural biogas is an improvement. But this option will face major legal challenge since it discriminates among other forms of biogas without a factual basis. The separate auction should be for forms of biogas with comparable costs of production to meet the EU competition rules.[1]  So AD plants handling organic wastes as well as agricultural biogas plants based on farms should be banded together, since their cost of production is comparable and higher than other forms of biogas (landfills and sewage treatment plants). Small amounts of sewage sludge (up to 20%) can be successfully handled in AD plants (as in Denmark) which remain quite different from sewage treatment plants in costs, market role, and classification.

     However, the whole notion of auctions has proved to be a totally ineffective method to encourage investment in biogas. Where countries have tried to throw biogas into auctions, the results have been universally negative. The Instituto de Investigación Tecnológica in Spain published a detailed review of renewable energy auction experience in every country where it has been attempted. See del Rio and Linares, “Back to the future? Rethinking Auctions for Renewable Electricity Support,” 2013. One of their major points from looking at dozens of different auction systems was as follows:
Unfortunately, these theoretical advantages of auctions come at a cost. Due to the
complexity of the bureaucratic procedures, and also to the planning required ahead,
auctions have higher transaction costs (Finon and Menanteau 2008) which, together
with uncertainties on the final price and the tendering schedule, deter participation by
smaller firms, resulting in a low degree of competition (Butler and Neuhoff, 2008), and
creating opportunities for market power. In turn, this may eliminate the higher
theoretical efficiency of this instrument. Id. at p. 3.

Unfriendly for small projects and actors. A major empirical lesson of tenders is that they are unsuitable for small installations and smaller actors. Competition may thus be affected. It has been argued that some of the aforementioned factors and, namely, information failure and difficult access to finance, have a disproportionately negative impact on small actors and, thus, that the instrument is not suitable for small actors, suggesting that smaller projects should be promoted with a different instrument (Morthorst et al 2005, Mitchell 1995). It is difficult to tell a priori if encouraging large installation or actors instead of small ones is a negative aspect. Although it is explicitly assumed to be so in the specialised literature, size is a double-edged sword. Larger installations facilitate economies of scale in production but a model of distributed generation calls for   smaller plants scattered around the territory.[2] Furthermore, some RE projects are inherently large (offshore wind and concentrated solar power) and tenders may be particularly suitable for these technologies. In contrast, smaller projects may need to be promoted with another instrument.[emphasis added].

    Their conclusion is based on the empirical data, not simply another expert opinion. Auctions may achieve some support “optimization” for large projects, but they kill smaller projects. See See EcoFys, “Design features of support schemes for renewable electricity,” January 2014, p. 66.
 In fact, most auction regimes exempt up to 5 MW projects or even larger. The adverse competitive impact of auctions is especially true of biogas: the ITT study noted that many countries had no biogas projects successfully bid in their auctions.[3] At one point, only 8 % of biogas projects in the Netherlands that won bids were actually built.[4]   If a technology-neutral design is selected, implementing additional measures to stimulate less mature technologies and smaller-scale technologies should be considered.” EcoFys, supra¸page 73. 

     Poland has the most ambitious plans for growth in biogas in the European Union. See graph below. To meet any significant part of those plans requires changes in the support system. Auctions among comparable costs of production biogas (farm plants and AD plants doing organic wastes) would be an improvement. But this amendment will not address the fundamental weakness of auctions as a support system for biogas and other small projects. No country has successfully supported biogas combined heat and power facilities by the auction mechanism.

     The new law should exempt projects under 5 MW from the auctions and provide for continued support through Green Certificates for these projects. The Green Certificates must be approved by the European Commission and must be levelized to reflect the cost of biogas production. See Tomkiel- UOKiK letters to Ministry of Economy, June 5, 2015 and November 28, 2013; Institute for Renewable Energy, Correlation Coefficient Study, July 2013.

     This approach will meet all of the current state aid guidelines and the new guidelines as well. See paragraph 136, State Aid Guidelines, July 2014.

     Finally the expansion of the substrates that can be used in Poland while still qualifying for full support should be done in the amendments.  See PBA comments on July 2014 draft law. There is no reason to restrict the feed-stock for biogas in Poland where the EU allows a broader scope and this also makes good economic and environmental sense.

[1] Auction banding should only be done where there are comparable costs of production and exclusion of one type of biogas with comparable costs would be arbitrary and illegal under EU law. This violates EU law by discriminatory treatment of similar cases. The issue must be evaluated in the light of the general principle of equal treatment, of Article 6 of the Treaty on European Union and of Articles 20 and 21 of the Charter of Fundamental Rights of the European Union [(“the Charter”)]. In   Case C-195/12, Industrie du bois de Vielsalm & Cie (IBV) SA v Région wallonne, European Court of Justice, September 26 2013, the European Court established that Member States cannot discriminate between similarly situated technologies by arbitrary distinctions.  Renewable energy support under European law “must observe the principle of equal treatment and non-discrimination laid down in particular in Articles 20 and 21 of the Charter (see, to that effect, Case C‑401/11 Soukupová [2013] ECR I‑0000, paragraph 28).“

[2] Biogas is the perfect example of distributed energy, where local sources of agricultural waste and products provide a local source of energy that should also be allowed to be used locally. See Mott, “Biogazownie jako wzorcowy model rozproszonej energetyki: lokalne odpady lokalnym źródłem Energii, (2013).   Local, direct sale of the electricity is also imperative to achieve the best results to the economy (decentralizing electricity and lowering its price).

[3]  The Netherlands reverse auction has severely impacted biogas development there. Biogas plants compete in the auction there generally only in a special category of supplying biogas to the natural gas grid (without cross-technology competition).

[1] “The Dutch are having trouble simply getting stuff built. Only eight percent of the biogas projects awarded contracts since 2011 have been completed – and a whopping 98 percent of the PV projects that won auctions last year were apparently not built even though they had to be completed within a few weeks in compliance with auction rules.”  Craig Morris, The Energie Wende Blog, June 25, 2014,


This article is available in Polish in the form of the letter sent by PBA to the Ministry of Economy and the Parliamentary Committee dealing with the draft law.


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