Comments of the Polish Biogas Association on the Ministry's Proposed Biogas Auction Reference Prices

POLISH BIOGAS ASSOCIATION COMMENTS ON SUGGESTED REFERENCE PRICES

September 2015

     The proposed reference prices released by the Ministry of Economy for the first auctions under the new law significantly understate the support necessary for anaerobic digestion plants. The numbers proposed are as follows:

1) agricultural biogas plants with a capacity of 1 MW - 450 zł / MWh

2) agricultural biogas plants with a capacity exceeding 1 MW - 435 zł / MWh

3) biogas plants using biogas from landfills - 210 zł / MWh

4) biogas plants using biogas from wastewater treatment plants - 400 zł / MWh

5) biogas plants using biogas other than in paragraphs 3 and 4 - 340 zł / MWh

Analysis

     There is no data from any source that we are aware of to support the price set in the proposal for agricultural biogas under items 1 and 2. Basic biogas costs for agricultural plants of various sizes were set out by the European Biogas Association in 2010. See graphic below.  Recent studies show that these costs have not gone down and are slightly increasing. See below.

     The cost of producing biogas energy is also well-documented in other reports.  The Fraunhofer Institute in Germany reported German prices for all types of biogas to be between 14 and 21 Euro cents/kWhr.  “Levelized Cost of Electricity Renewable Energy Sources,” November 2013.  A Club of Bologna study in 2012 also reported a similar range of prices:

“"The electricity generating costs decrease with increasing plant size and amount from about 15 to 25 Ct/kWhel." Id.  This is very consistent with both the EBA and Fraunhofer numbers. Somewhat higher figures were reported in a study for the Oxford University Institute for Energy Studies – 18 to 34 Euro cents/kWhr. Floris van Foreest, “Perspectives for Biogas in Europe ,”  NG 70, December 2012.

      The published proposal is inconsistent with the data and analyses supplied by the Institute for Renewable Energy that studied the subject in detail in 2013.  IEO expressed the cost of production by a coefficient for green certificate values added to the price of electricity.

RES installation to support with "green certificates" system	Technology code		2013***		2017****
		OSR*		IEO**	OSR	IEO
agriculture biogas 200-500 kW	T1	1.50		2.89	1.41	2.98
agriculture biogas 500-1000 kW	T2	1.45		2.49	1.36	2.58
agriculture biogas >1000 kW	T3	1.40		2.19	1.32	2.26
landfill biogas > 200 kW	T4	1.10		-	1.00
water treatment plant biogas >200 kW	T5	0.75		1.30	0.67	1.24

Source: IEO, “Analiza Dotycząca Możliwości Określenia Niezbędnej Wysokości Wsparcia Dla Poszczególnych Technologii Oze W Kontekście Realizacji „Krajowego Planu Działania W Zakresie Energii Ze Źródeł Odnawialnych,” 2013.

     These figures range from 27 to 21 Euro cents/kWhr for agricultural biogas and are based on Polish data, somewhat higher than the other reported data using 2013 real cases.

     There is also no indication that the cost of biogas energy production is going down as it is with other technologies. “Despite the increase in the efficiency of biogas production, rising costs of the manufacturing of plant components and the substrates (biomass) further cost reductions are not expected anymore.” Döhler and Paterson , supra.

“Improvement of the technical, economic and ecological efficiency of biogas production -future challenges for the agricultural engineering sector,” Helmut Döhler and Mark Paterson( 2012).

     None of the published data supports the 450 PLN/MWhr figure (only 10.7 Euro cents/kWhr).

     The methodology used by the Ministry seems to be fatally flawed in several ways. The operating costs are inordinately low and are inconsistent with IEO and every other study we have seen. See table below.  The assumption that projects will always to able to sell heat is inconsistent with the experience on farm-based plants, which are at the heart of the policy of the Council of Ministers.  The IEO, OSR and UPEBI results are comparable to the published data cited above, while the Ministry’s proposed reference price is seriously at odds with all published reports.

    Source: UPEBI (September 2015).

     PBA also questions the use of a 5% return, especially since Poland agreed to a 15% return[1] in evaluating Joint Implementation projects under the Kyoto Protocol. See CDM Methodology for Additionality. No one is compelled to make these investments and the equity markets move funding to the areas of highest return.  The history of biogas in Poland is instructive, from 2005 to 2011, with electricity and Green Certificates, biogas plants could receive about the same 450 PLN/MWhr as proposed now. Only a small number have been built and those have largely relied upon government grants for a substantial part of their capital costs.[2]  History has proven that more support than this level is necessary to drive investment in this sector.[3] The uncertainty of the auction also makes the incentives worse.

     The final category of “other biogas” – item 5 – includes anaerobic digestion of substrates within the definition of biogas in the new law, including some material not listed in “agricultural biogas.” There is no basis for setting “other biogas” lower than agricultural biogas, because this category also involves having to construct anaerobic digesters to produce methane. The material handling issues for these more complex plants are larger and more costly than farm plants. These AD plants use organic wastes and biodegradable material from a broader range of sources. However, the cost of these AD plants is higher than “agricultural plants” since they must normally provide pre-treatment of substrates, operate at higher temperatures, and provide a higher degree of environmental protection and odor control. Their reference price should be at least the same as “agricultural plants.”[4]    

Conclusion

     Biogas plays a vital role in the plans to meet the 2020 target in Poland. The current National Action plan approved by the European Commission calls for 980 MW of biogas by 2020. The draft Energy Plan for 2050 lowers that number, but calls for 1800 MW of biogas by 2050 in Poland.  These are ambitious goals given the very low level of market development of biogas in Poland in 2015.

     The statutory criteria require that the differences in support be based on objective factors, principally the cost of production. Biogas has the further advantage under these criteria providing more reliable and stable electricity than most other sources as well as meeting other important policy objectives.

     There appears to be no objective and factual basis for the low reference price levels proposed for biogas. There is also no hope whatsoever of achieving the policy goals for biogas at this level of support.

     PBA urges the Ministry to review the actual cost of production and to re-formulate biogas reference prices based on actual data.[1] We have provided numerous European sources on the subject as attachments to these comments.

Respectfully submitted,

Polish Biogas Association

Randy M. Mott, Vice president                                         September  2015

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[1]  The availability of co-generation support (now uncertain) as well as grants obviously may provide more support in some cases. But neither of these support mechanisms is assured or adequate to provide for the level of biogas development in the approved government policies on biogas.

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[1]  The IRR used is a pro forma figure, which often makes assumptions that do not turn out as beneficial in reality. But without an attractive estimate of the return at the beginning of the investment assessment, there will be no funding.

[2]  There will never be enough government grant funding to create a significant part of the 1800 MW of biogas described in the Government’s draft Energy Plan for 2050. Nor will grants constitute a significant fraction of the 980 MW target for biogas in 2020 (or the lower 2020 figure in the 2050 document). If grants are used, a project will automatically have a lower reference price under the state aid intensity test in any event.

[3]  German biogas development, often cited as the model by Polish officials, provided much higher levels of support than now proposed in Poland. See Spath,”The Success Factors Of The Development Of Biogas Within Germany - A Case Study,”  University of Twente, 2013 (thesis). German CAPEX and OPEX during this period actually slightly lower than what we face today. See Döhler and  Paterson, supra, graphic above.

[4]  PBA also has requested that “other biogas” plants be allowed to take 20% sewage sludge by volume and not be classified “sewage treatment plants.”  This is the rule applied in Denmark and it provides many benefits to local communities. The only rationale for a lower reference price is lower cost of production of energy. This occurs at sewage treatment plants where methane collection is simply added to existing, required waste water treatment structures. AD plants using small volumes of sewage sludge have the same or higher costs than farm plants and cannot be fairly classify in this other distinct category.