Piero Mattirolo AdMil srl

Strada Savonesa 9, 15057 Tortona AL

How to reach national GHG-targets? Biomethane as a biofuel in Italy

European Biomethane Conference Berlin, 20th June 2016

About FIPER FIPER stands for Italian Federa2on of RenewableEnergy Producers, represen2ng suppliers of woodybiomass, district hea2ng, as well as biogas/biomethane.Sinceitsfounda2on,in2001,ithasbeenFIPER’smissiontosupportthe industry of combined heat&power genera2on (CHP) fromwoody biomass and biogas, while contribu2ng to a cleanerenvironment, reducing air and soil pollu2on, respec2ng thelandscapewheretheplantsarelocated.

2

3

83 biomass district heating plants 132 agricultural biogas and gasification plants 372MW installed heating capacity at the source 1150 MWt end-user heating capacity 25 MWe power capacity from CHP 80,00 MWe from farm biogas 1580 km district heating network 720.000 t woody biomass used 61 Million Euro heating value 520 jobs within associated and linked companies 16.380 connected district heating users 364.000 t of CO2 savings from combined heat & power generation 110 Million litres of heating oil saved (as of 31/7/2015)

FIPER in figures

Italy: Situation vs 2020 targets

(2020 Overall Target) 17%

(2020 Transports Target) 10%

6,3%

Overall share, 17,1%

1,0%

Transports, 4,5%

16,1%

Electricity, 33,4%

5,7%

Heating & Cooling, 18,9%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

40,0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020 target

(Eurostat – SHARES)

Italy is doing well in RES

•  The 2020 global renewables target of 17% was met by Italy in 2014, well ahead of schedule

•  These results are due to the very strong growth in renewable electricity, particularly in the period 2009-2013, owing to very generous incentives

•  While renewables did well, both in the heating and cooling, as well as in the electrical sectors, transports remain well below their specific target

Biomethane in Italy

One of the worlds most capillary and

wide-reaching grids

Europe’s largest gas car market (2.700.000 units, including 800.000 CNG powered vehicles) and a

matching network of about 1000 filling stations,

covering continental Italy and Sicily

There is in Italy, a combination of 3 key elements, which can’t be found in any other market:

A wide presence of anaerobic digesters (1235

at the end of 2014)

Natural gas in transport

1.  Natural gas in transport is an Italian specialty2.  77% of NG vehicles in the EU circulate in Italy3.  The number of NG filling sta2ons exceeds 1100 and consump2on was over 1,1

bcm in 2015; more filling stations are expected with implementation of DAFI4.  NG vehicle sales have by far outperformed the regular vehicle market

900.000

800.000

700.000

600.000

500.000

400.000

300.000

200.000

100.000

0

2000 2003 2005 2008 2010 2012 2014

Vehicles - Italy

LD CNG vehicles in circula2on HD CNG vehicles in circula2on

3.000

0

1.000

2.000

4.000

5.000

6.000NG buses and trucks - European Union 2014

MD+HD Buses

MD+HD Trucks

7

Roadside CNG filling sta2ons (n.) Natural gas consumed in transport (Mcm)

0

200

400

600

1.000

1.200

2000 2003 2005 2008 2010 2012 2014 2015*

Italy

filling sta?ons & gas consump?on

800

Natural gas in transport

Natural gas in transport in the EU

1

10

100

1.000

Natural gas (CNG) consump?on in transport (log scale) ktoe, 2014 (Eurostat)

Eurostat 2014 (ktoe)

Italy 862Germany 178Bulgaria 100France 91Spain 51Sweden 51Netherlands 30Czech Republic

25

Austria 17Greece 14Portugal 12Lithuania 5Finland 4

Croa2a 3

Belgium 2Estonia 2

Hungary 1

EU28 1.448

Biomethane is set to play a key role in Italy

5%5,5%

6,5%

7,5%

9%

10% 10% 10%

1,2% 1,2% 1,6% 1,6% 2%

0%

2%

4%

6%

8%

10%

12%

2015 2016 2017 2018 2019 2020 Q% Advanced biofuel

2021 2022

Biofuel and advancedbiofuel trajectories

Q%

1.  Based on the obligation, placed on gasoline and diesel sellers2.  Sellers trade GreenTicketsamong each other3.  Biofuels must be certified as sustainable4.  Biofuels Bill2014 established the trajectory from 2015 to 2022 for the

biofuel quota obligation5. ͞Advanced biofuels͟are introduced: biofuels produced from biomass frac2on of

wastes and residues, animal manure, sewage sludge, grape marcs, wine lees, nut shells, non-food cellulosic materials, etc...

6. The sub-target in advanced biofuels is a way to promote advanced biofuels (including bio-methane from waste and residues)

Subsidy schemes

•  For unspecified use •  Direct uptake by GSE

Grid injection

•  Via natural gas grid •  Direct delivery Car fuel

•  Via natural gas grid •  Direct delivery CHP

Subsidies: the Biomethane Bill (5/12/2013)

Grid injection (payments per energy volume)

Transport (granting

Green Tickets - CIC)

CHP (electrical tariff)

3 separate incentive schemes:

Ø  2020BiofuelsTarget:10%inenergycontent

Ø  Energyconsump?onby2020:1,33*1012MJ

Ø  Equivalenternergyfrombiofuels:1,33*1011MJ

Ø  ILUC Direc?ve: max 7% from conven?onal biofuels (Biodiesel, Bioethanol, HVO)

=0,93*1011MJ.If100%Biodiesel(37,4MJ/kg)=2,5Mton

Ø  CENEN590Dieselallowsformax7%biodieselinvolume=only1,75MtonBiodiesel,

therefore,justhalfof10%reneablestargetin2020

Ø  Howcantheremaining5%becovered?

Ø  Only fromHVOfromUCO/animal fats (not limitedto7%by ILUC, norbyCENEN

590)+advancedbiofuels,thereforebyBiomethane

Transports demand forecasts (Unione Petrolifera, 2016)

Ø  Totalfossileenergyby2020:1,33*1012MJ, 2,5%ofwhich(DoubleCoun?ng)=

3,3*1010MJ,correspondingto:

Ø  If100%Biomethane(50MJ/kg):920MSm3(660*106kg)

Ø  If100%HVOfromUCO(44MJ/kg):750.000tons

Ø  Bioehtanolcouldonlyplayalimitedinfluenceinthemix

Ø  Ifbothproducts(HVOandBiomethane)wereavailable,themixwouldreflecttheir

respeciveavailability

Covering the missing 5% (Unione Petrolifera, 2016)

Ø  2018target:1,2%ofenergyvalue:0,6%(DoubleCoun?ng)

Ø  Energyvalueoftotalfuelsconsump?onby2018:1,33*1012MJ

Ø  Equvalentenergyfromadvancedbiofuels:8,0*109MJ

Ø  If100%Biomethane(50MJ/kg): ~225MSm3(160*106kg)

Ø  If100%2°gen-Bioethanol(26,4MJ/kg): 300.000tons

Ø  If100%HVO-Biodiesel(37,4MJ/kg): 213.000tons

Ø  Limitedornonavailabilityof2°genera?onBiodieselandBioethanol

Ø  ThecurrentCNG(950.000veicoli),isreadyforusingBiomethaneat100%orinany

blendwithNG

Ø  CurrentCNGvehiclesconsump?on:1BillionSm3

Covering the advanced biofuels target (Unione Petrolifera, 2016)

Key issues

While the demand for Biomethane by 2020 could be close to: 1 Billion Sm3 (=100% of current CNG consumption), there are currently 2 main stumbling blocks: •  Eurostat’s accounting for Biomethane injected into

grid and used in transport

•  Current incentives schemes

Issues: Eurostat’s accounting

Over 90% of CNG filling stations are fed by the grid, but: •  When Biomethane is injected into the grid for

transport, Eurostat does not allot the full quantity, but only the share corresponding to the average NG share used in transport

•  E.g.: if 100% of grid injected Biomethane were destined to transport, only 2% would be accounted by Eurostat

Issues: Incentives Schemes

The Biomethane producer must choose between:

•  A flat payment, based on energy content injected into the grid, when Biomethane is not destined for transport

or •  Green Tickets, when Biomethane is sold to

transport

Green Tickets

•  Green Tickets issued based on the Biomethane quantity actually sold the previous year

•  Tickets are issued to the producer, only when Biomethane sold directly. In all other situations, the producer would not be directly receiving any incentive

•  Due to demand fluctuations, the producer has no certainty of selling the entire production

•  The gas grid cannot be used to stock excess production

•  Limited trading possibilities for small tickets lots

•  Volatile ticket prices, limiting financing possibilities

Presumed value of Green Tickets

•  ≅ 300€ per 10 GCal •  Reflecting Biodiesel vs Gasoil spread + specific

marketing opportunities

A perspective: how does this compare with other European countries?

Italy

Italy (CIC at 200€)

United Kingdom

Netherlands

Germany

Italy (CIC at 400€)

France United Kingdom

Italy (CIC at 300€)

Netherlands

0,000 €/kW

0,020 €/kW

0,040 €/kW

0,060 €/kW

0,080 €/kW

0,100 €/kW

0,120 €/kW

Grid Injection Automotive Fuel

European biomethane incentives compared

(CIC = Green Tickets)

Municipal waste (including tipping fees) Farm waste and crop residues Total production cost

Economic sustainability

•  Current incentives have been proven unable to stimulate investments, in particular for agricultural plants

•  Even in the, theoretically, best cases, complex Tickets trading mechanisms make business plans uncertain

•  Any strong development strategy for Biomethane should involve existing plants, currently economically discouraged

•  A new Eurostat accounting system would greatly simplify the incentive mechanisms, allowing for direct payments based on grid injection for transport

In perspective

•  The Italian government has acknowledged the need for reviewing

and simplifiying the current incentives system

•  The Tickets system, designed for controlling biofuels blending obligation, is proving awckward and unsuitable for supporting investments in Biomethane.

•  Part of the complexity in the incentives is due to the Eurostat’s accounting system, which must be revised in order to allow for mass balancing the actual quantities of Biomethane injected into the grid for transport

Thanks for your attention!

Technical marketing Contact: Piero Mattirolo Agroenergia p.mattirolo@admil.com Tel. 01311920987 / 3482210678

Member of Technical Board

President