New Financial Support for Biogas in Poland [expanded version]
Randy M. Mott JD, vice president
Polish Biogas Association,
President of Central and Eastern
Europe Renewable Energy Solutions (CEERES)[1]
The European Commission finally approved
the new amendment and total Polish RES support package. SA.43697 Polish support
scheme for RES and relief for energy-intensive users (December 13, 2017). The decision frees the way for new
auctions in 2018 and likely running into 2021 and maybe beyond.
The Energy Regulatory Agency has announced a new agricultural biogas[2] auction reference price of 570 PLN/MWh which is the highest yet proposed in Poland.
"The most, nearly 18 billion zlotys, or almost half of the entire budget approved by Brussels, may be absorbed by - planned by the government - increase in production in biogas installations from the current 1 TWh per year to 4 TWh in 2020. At the same time, achieving this goal in such a short time seems to be impossible, but most likely by 2020 the government will at least contract a comparable volume in installations that will be built at the beginning of the next decade."
The one ripple is that the special Polish blue certificates for biogas plants that have a separate quota requiring utilities to buy them have been removed to a separate notification to the Commission. This is potentially a problem since the separate blue certificates for biogas have been criticized as inconsistent with EU competition rules (they are not technologically-neutral for example). My guess is that the delay is intended to force existing biogas plants into the 2018 auctions rather than their risking the blue certificate program getting shut down by the EU.
Otherwise, the outcome for biogas is quite good in Poland. The problem has been the delays to date and the interruption of projects under development. Investors who take a longer view will now find the market will be one of the most dynamic in Europe by next year.
The most profitable business model is
biogas plants (1-2 MW) that qualify as “agricultural biogas” and utilize food,
meat and poultry processing wastes. These plants require steel digesters and
other odor controls as well as special waste reception halls and higher
temperature pretreatment equipment. But their higher capital costs is more than
offset by their lower cost of substrate and the sale of heat back to the
processing plants or the district heating system. The new auction price in addition
to heat sales will provide a sound long-term revenue model for new biogas
plants.
However, I would like to see a more clear
rule on the use of household food wastes in “agricultural biogas” plants,
especially since the EU is moving to require separate collection and management
of food wastes in the Circular Economy package.[3] Biogas is the safest[4] and most cost-effective
way to deal with food wastes.[5] Food wastes will have to
carry a gate fee to cover the cost of pre-treatment, including removal foreign
objects, but the price is still lower than landfilling.[6]
Biogas in Poland has largely followed the
German farm biogas model. This has been a difficult path with subsidies much
lower than in Germany. Heat utilization and irregular price fluctuations in
feedstock costs (using grain and silage) have also made the long-term business
model more unstable. See Doehler chart above on the cost of substrate for a
farm plant. The “low tech” approach of a farm plant has lower capital costs but
also lower profitability.
We have been the major source of biogas
cost data to the Polish Government over the past several years[7] and are convinced that the
new reference price will be adequate for these investments. The optimum plant
size is 1-2 MW and the auction mechanism will place over 1 MW plants in a separate
auction with a slightly lower price support level (550 PLN/MWh).
The economics of each project will determine if the larger size should
be bid in the over 1 MW auction.
The auction mechanism itself is not
well-suited for biogas plants, as we have argued over the years. The front-end
cost of a biogas project are proportionally larger than most other RES
technologies. This can be mitigated by the “cookie cutter” approach with
project development of multiple locations in tandem. Most of the technical
documents, including the design and environmental assessment, can be done from
templates and adjusted by location. The substrate and heat agreements will
likewise be tailored from templates. This effort and other “economies of scale”
require a larger investment to pursue
multiple projects, which is also more attractive for private equity investors.[8]
The major barrier to biogas development in
Poland has been the instability of the government support mechanism and rules.
The new EU decision and Polish legal changes will address this concern and
allow the development of intelligent and well-conceived projects for the first
time. The benefits of biogas development[9] are well-known and
politically accepted in Poland, as recognized by the new commitment of the
government to promote it.
For more information: contact Randy Mott, randymott@ceeres.pl
[1] Mr. Mott was the author of the principal
biogas position paper on the new RES law in Poland.
[2]
Definitions of agricultural biogas is found in art. 2 Section 2 of the
Act of 20 February 2015. Renewable energy sources (Journal of Laws of 2015.
Pos. 478 as amended.) “the Law on Renewable Energy Sources.” Under this
provision,
agricultural biogas is the gas produced by the anaerobic digestion of
agricultural raw materials, byproducts of agriculture, liquid or solid animal
manure, byproducts, waste and residues from the processing of agricultural
products or forest biomass, or plant biomass harvested from areas other than as
evidenced in agricultural or forestry, with the exception of biogas derived
from raw materials originating from sewage treatment plants and landfills.
[3]
European Parliament, “Towards a Circular Economy – Waste Management in
the EU,” September 2017. http://www.europarl.europa.eu/RegData/etudes/STUD/2017/581913/EPRS_STU(2017)581913_EN.pdf See also European Biogas Association, “Contribution of anaerobic
digestion to the European Circular Economy,” August 22, 2015.
[4] A thermophilic biogas plant
operates at 50-52 degrees C and will destroy virtually all pathogens in the
first hour of digestion, while the time in the digester will average more than
15 days.
[6] The
“other biogas” auction reference price is 385 PLN/MWh, which means that only
very large biogas plants dedicated to using household food waste would be
feasible and those would have to carry significant surcharges to the waste
producers, i.e. the public. It is not clear that this is the intent of the
auction rules.
[7] CEERES
letter to Ministry of Economy, May 22, 2013 and references. Published http://gramwzielone.pl/bioenergia/7203/pismo-do-ministerstwa-gospodarki-w-sprawie-wsparcia-dla-biogazowni-rolniczych
[8] Our
business model for biogas does not assume any grants. State aid must be
deducted from the price support offered for electricity, so it is a rather
circular route that adds time, delays and red tape to a project. Generally,
this is not worth the headaches, especially for a serious commercial-scale
biogas developer.
Comments