Maximising the Value of BiogasJames Newton and Kasia Chapman

Contents

• Background

• Biogas uses

• The value of biogas

• Biogas production – optimisation

• Policy, regulatory and economic drivers

• Recommendations

Background

• Objectives of the UKWIR research project:– “Provide a clear appraisal of the

technologies and the costs involved in maximising the potential of biogas produced from the digestion of sewage sludge

– Identify the potential benefits arising from biogas optimisation and the ‘regulatory blockers’ that stand in the way of achieving full benefit” Report on Study findings

Review policy, legislation and economic ‘blockers’

Technical and financial appraisal of current and potential uses for biogas

Review technical options for maximising biogas production

Current WaSC activities

Potential WaSC activities

Digestate

Recycled

Sewage Sludge

Organic Wastes

Biogas usedAD

Biogas loss

Electricity

Heat

Pre-treatment(if required)

CHP / microturbines

Biogas Boilers

Heating & cooking

AdvancedPre-treatment

Natural Gas National Grid

CCGT / CHP Generation

Generation of DC Power

(Fuel Cells)

Vehicle Fuel

Conversion to AC Power

Vehicles powered by electricity (either from

grid or vehicle fuel cell)

Fuel stationsProduction of

Hydrogen

Production of Biomethane

Biogas Uses

Siloxane &H2S removal (if required)

Biomethane4 – 5 barg

Treatment /upgrading.Removes:

CO2 & water.

Biomethane injection to gas grid (BtG)

Injection intolocal gas grid(1 to 7 barg)

Propane addition (where required)

Odorant addition (where required)

Compressor (need depends on receiving gas main pressure)

Flow & quality measurement

M

M

M

Biogas storage

From AD plant

Biogas

CHP generation

Heat usedon-site

Power usedon-site

CHP plant

Power usedoff-site

MM

Heat usedon-site

Boiler

Heat generation

M

M

Gas compressor (250 bar outlet)

Gas storage (250 bar pressure)

Gas dispenser(for filling vehicles)

CBG for vehicle fuelVehicles

Supplementary supply of NG from

local grid (if required)

Gas liquefaction (-160oC)

Cryogenic storage (-160oC)

LBG dispenser(for filling vehicles)

LBG for vehicle fuel

Vehicles

M

M

M

M

Biogas Uses: on-site infrastructure

• Use in CHP plants (and microturbines)– CHP is a mature technology with proven commercial benefits

– More efficient engines convert up to 40% of biogas energy into electricity

– Efficiency of biogas use can be raised by increasing plant availability

• Conversion to biomethane (removal of CO2, impurities)– Technology required for conversion of biogas to biomethane is well

established and commercially available

– Conversion of biogas to biomethane, for subsequent use in vehicles or injection into the local gas grid, is already well established in mainland Europe.

Biogas Uses - Conclusions

• Conversion to hydrogen– Currently few examples of hydrogen generation (for use in fuel cells)

from biogas at sewage treatment plants

– Considerably more expensive than conventional thermal CHP plants

– The technology is continuing to develop and may be more cost effective in the future

Biogas Uses - Conclusions

The Value of Biogas

Potential values of different uses– for a Water Company

• To compare the values of different biogas uses it is first necessary to define the ‘value’ of biogas

• Definition used in this study:

e.g. reduction in grid power consumed

= Revenue achieved

Additional revenue from incentives for renewable energy

+

+

-

Biogas Value (p/kWh used)

Cost avoided

Cost to achieve use (Capex and Opex)

e.g. Payments received under ROCs, RTFO and Renewable Heat Incentive

e.g. electricity or biomethane sold

e.g. Capex and Opex for CHP engines, biogas treatment, etc.

• Units are p/kWh of biogas energy utilised to achieve the proposed use

The Value of Biogas

• Renewables Obligation– ROCs – Reduced to 0.5 ROCs/MWh for new sewage biogas CHP

– 1 ROC/MWh under ‘grandfathering’, 2 ROCs for non-sewage substrates

• Renewable Transport Fuels Obligation (RTFO)– Obligation on suppliers – payments to renewable fuels producers

– RTFO amendment published in April 2009

Key renewable energy incentives/mechanisms

• Renewable Heat Incentive (RHI) & Feed in Tariffs (FIT)– Introduced by the Energy Act 2008

– Potential values and mechanisms unknown - to be established by secondary legislation following consultation

• Carbon Reduction Commitment– Covers Water Companies’ electricity and fossil fuel consumption –

except for transport emissions

– Assume Water Companies will claim incentives until < cost of carbon allowance (initial CRC cost of £12/tCO2 – but likely to rise in future)

Key renewable energy incentives/mechanisms

• Revenues, costs and financial incentives for different uses of biogas

RTFO, fuel duty incentive

Capex and opex: Biogas treatment/ upgrade + vehicle dispensing + vehicles

Fuel costs - if used for water utility vehicles.

Fuel sales if sold for public use

Biomethane vehicle fuel

RHI for biomethane to grid

Capex and opex: Biogas treatment/ upgrade + connection to gas grid

None (unless can off-set natural gas consumption elsewhere on-site)

Biomethane sales to grid

Biomethane to grid

ROCs (but will need to buy CRC allowances), LECs for power exports

Capex and opex: CHP engine & biogas treatment

Fuel for heating and grid power,CRC allowances for fossil fuel

None for on-site use. Sales for any surplus power

CHP engine

None (assumed)Capex and opex: boilerFuel for heating,CRC allowances for fossil fuel

None for on-site useBoiler

Renewable energy incentives

Cost to achieve useCost avoidedRevenue achievedBiogas use

The Value of Biogas

• Assumed levels of unit revenues and costs for different uses of biogas

The Value of Biogas

Current amount. Government proposes value will rise to 30p/litre by 2011 but with reductions in fuel duty incentives.

15.0 p/litreRTFO

Per kg of biomethane sold. 13.7 p/kgCBG fuel duty (paid by supplier)

Based on equivalent cost of diesel (excl. VAT)90.0 p/litreBiomethane - as CBG vehicle fuel

Not used. May apply to facilities < 5 MW - though targeted at small embedded generators. Facilities will be covered by RO or FIT - not both.

-p/kWhFeed in tariffs (FIT)(Energy Act 2008)

Assumed zero for this analysis-p/kWhRenewable heat incentive (RHI) - heat only (Energy Act 2008)

Unknown - Speculation suggests levels between 100p and 200p/therm (3.4p to 6.8p/kWh)

3.4 p/kWhRenewable heat incentive (RHI) - BtG(Energy Act 2008)

Assumed to be similar to natural gas supplied to the grid (60p/therm)2.0 p/kWhBiomethane - sold to grid (BtG)

3.5 p/kWhFuel oil - consumed

0.46 p/kWhLECs

5.1 p/kWhROCs

Assumed to be 50% of imported power unit cost on annual average basis.4.5 p/kWhElectricity - exported

9.0 p/kWhElectricity - consumed

Study AssumptionsUnitsParameter

• Values (p/kWh biogas used) for different uses (500 m3/h biogas plant)

The Value of Biogas

4.84.25.62.9Net value - incl. renewables incentives (=a-b-c+d)

3.90.84.62.9Net value - excl. renewables incentives (= a-b-c)

Net Biogas Value - Base Case

0.93.31.00.0dUnit income from renewable energy incentives

0.70.60.40.3cUnit cost - capex to achieve use (annualised)

1.10.60.40.1bUnit cost - opex to achieve use

5.72.05.43.3aUnit value - revenue/cost avoided

VehiclesLocal gridOn-siteOn-siteWhere used

CBGBiomethaneHeat & PowerHeatOutput

VehiclesLocal gridCHPBoilerUse

BiomethaneBiogasProduct

• Excludes cost of vehicles to use CBG

The Value of Biogas

• Values (p/kWh biogas used) for different uses (500 m3/h biogas plant)

CHP BtG

Biogas use

0

1

2

3

4

5

6

Boiler (heat)

Net Value(p/kWh biogas

used)

Vehicle Fuel

Income from renewableenergy incentives

Net value - excludingrenewable energyincentives

@ 150p/therm

• Values for different uses (500 m3/h biogas plant) – sensitivity analysis

The Value of Biogas

5.1p/kWhRTFO - as above but double RTFC for biomethane

4.43.85.53.2p/kWhCRC Carbon Credits @ £12/tCO2 (net impact)

3.2p/kWhRTFO increased to 30p/litre, fuel duty incentive removed

7.5p/kWhRHI (@ 200p/therm, 6.8p/kWh biomethane)

8.5p/kWhROCs (@ 2.0 ROCs/MWh) (i.e. not sewage sludge)

6.5p/kWhROCs (@ 1.0 ROCs/MWh) - pre-April 2009 site

3.8p/kWhPower all exported at 4.5p/kWh

Net Biogas Value - Sensitivity analysis

4.84.25.62.9p/kWhNet value - incl. renewables incentives

3.90.84.62.9p/kWhNet value - excl. renewables incentives

Net Biogas Value - Base Case

CBGBiomethaneHeat & PowerHeatOutput

VehiclesLocal gridCHPBoilerUse

BiomethaneBiogasProduct

• Values for different uses of biogas – by throughput (excludes CRC impact)

The Value of Biogas

Boiler (max value - no waste)

BtG (100 p/therm)

CHP (0.5 ROC)

CHP (1.0 ROC)

Vehicle fuel (RTFC-15p+FDI)

Boiler (min value - with flaring)

BtG (200 p/therm)

Vehicle fuel (RTFC-30p, no FDI)

0

1

2

3

4

5

6

7

8

0 200 400 600 800 1000

Biogas available (m3/h @NTP)

Net value(p/kWh biogas

input)

• For the base case, using biogas for CHP for on-site use would achieve the highest value for a water company – with use as a vehicle fuel next most attractive

• However, such values are highly sensitive to:

– Values of the various renewable energy incentives (which in some cases are still to be established)

– Site specific factors

– Treatment under the CRC

• A site specific analysis is required

The Value of Biogas - Conclusions

• If biogas is not used for boilers/CHP then fuel and power will have to be purchased

• Thus, only uses which have greater value than that achieved for biogas in CHP plants will bring a net financial benefit to awater company and its customers

• The range of potential biogas values is relatively narrow

• Hence, for many sites, optimising biogas production may achieve greater benefits than changing the biogas use alone

The Value of Biogas - Conclusions

Biogas Production

Addressed in detail in the UKWIR report!

• Digester feedstock optimisation

• Digester plant optimisation

• Enhancing the digestion process

Policy, Regulatory and Economic Drivers

• Water

• Energy

• Waste

• Transport

Policy, Regulatory and Economic Drivers

• Key Conclusions – All Sectors– There are no regulatory ‘blockers’ preventing water companies’

appointed businesses using biogas in either CHP or as a fuel for Water Co vehicles – provided customers benefit from the investments they fund

– Water companies have a strong financial incentive to invest in biogas energy schemes - both capital and operating costs are funded for appointed businesses

– Key renewable energy incentives are uncertain. The RHI and FIT are still to be established (levels and mechanisms) as are future values of RTFC and CRC credits – hence, still significant uncertainty regarding values for alternative biogas uses in the future

Recommendations

• Biogas uses– In many cases, the most valuable use of biogas is likely to be CHP generation

– However, for some sites, other uses may provide additional value

• Biogas production– Water Companies should increase biogas production through optimisation of digester

operation, including where cost effective, implementation of advanced AD

– Optimising biogas production may achieve greater benefits (financial and environmental) than changing the biogas use alone

• Policy, regulatory and economic drivers– No regulatory ‘blockers’ preventing water companies from maximising the value of

sewage AD biogas through biogas CHP or use of biogas as a fuel for WaSC vehicles

– Water companies should contribute to the formal consultation processes for renewable energy incentives (RTFO, RHI, FIT, etc.) to ensure appropriate mechanisms and levels

www.mottmac.comJames Newton (james.newton@mottmac.com)Kasia Chapman (kasia.chapman@mottmac.com)

Discussion of

Maximising the Value of Biogas

James Newton and Kasia Chapman

C This was a UKWIR study completed in April 2009; some of the price information is very time dependent and also dependent on the prevailing legislation.

The requirement in the UK for injecting biomethane into the gas grid is that it must be purified to at least 98% methane and then propane must be added to achieve the target calorific vale and odorant must be added. Other countries do not require the calorific boost so what might be viable there is not necessarily viable in UK.

Today’s gas engines have an electricity generating efficiency of 40%

H2 has been found not to be cost effective and fuel cells are not there yet.

RTFO seldom mentions biomethane but James Newton has been assured it is covered.

It is still much more important to maximise biogas yield and then to maximise the up-time of the CHP equipment than to worry about “unconventional” uses. Many sites are not monitoring biogas production or their biogas measurement is inaccurate or ineffective. Some companies still neglect to repair digester mixers so gas production is sub-optimal and neglect to repair gas engines so that gas has to be flared.

The regulatory blockers to biomethane to grid or biomethane as vehicle fuel are more myth than reality but the regulatory blockers to co-digestion are real.

C Full agreement that biomethane to grid is not commercially viable.

C Sainsbury’s truck fleet is running on liquefied biomethane from Albury Landfill. The installation is a pathfinder project; the site has a large yield of landfill gas and it is remote from an electricity grid connection that would be suitable for exporting.

C It is sad that water companies are worried about losing market share for digestate to land to biogas digestate because a) they are first to market and b) biosolids have more agronomic value. Biosolids have more P and generally more N than food-waste and crop digester digestate. The Sludge Use in Agriculture Regs are quite favourable compared with the Waste Regs but WRAP/EA could tilt the playing field with a Quality Protocol that excludes biosolids.