anaerobic digestion exploring the uk opportunity · • strong contributor to the growing global ad...

A comparison of the markets in Germany and

UK

Anaerobic Digestion

Exploring the UK opportunity

WHAT IS ANAEROBIC

DIGESTION?

BioWatt Group - Overview

BioWatt DEVELOPMENTS

BioWatt DEVELOPMENTS is a developer of Biogas Assets

for investment and has generated a pipeline of 15

biogas plants in the UK – the first 2 have secured funding

offers from our financial partners

BioWatt ENGINEERING

BioWatt ENGINEERING designs and builds industrial

composting facilities (including exclusive rights to patent

pending composting technology) and provides

engineering/ procurement to BioWatt Developments

The BioWatt Group was founded by its Directors in late 2012.

It is headquartered in London and operates in Cleantech and Organic Waste Recycling Sectors.

What is AD?TECHNICAL

Energy from

the sun is

stored in

plants

Food wastes

Manures

Energy Crops

Digestate

THE GERMAN AD MARKET –

A MATURED MARKET?

© Fraunhofer UMSICHT

Fraunhofer-Gesellschaft

Research and development

� International research with focus on direct use for both

private and public sector, and for the benefit of society

� Application-orientated fundamental research

Entrepreneurship

� Institutes organized as profit-centers

� A third of the budget are revenues

from industrial projects

� Spin-offs are promoted

Contracting parties/ clients

� Industrial and service companies

� Public sector

Facts and figures

� > 23 000 staff members

� > 67 research institutes

� 2 bn € annual research budget

Sulzbach-Rosenberg


Our Business

From the

idea3

3 to the

product

3 Process-

implementation

Constructio

n

Development &

Design

Consulting &

Studies

Pilot plant

operation

Feasibility ● Economy ● Ecology ● Safety ● Legal / Political Framework


Fraunhofer UMSICHTSelected AD Projects and Infrastructure

Biosulfex pilot plant

Fermenter test rig

Small scale biogas plant Technical center biol. processes Mobile digestion plant Autoclave

Sludge to Energy

Thermal Pressure Hydrolysis BioLoop


Electricity generation from renewables 2013

• 11th May 2014: 44 GW from renewables

≈ 75 % electricity demand

• Bioenergy share 8.1 %

• AD share 18.3 %

≈ 4 % of total electricity consumption

The German EnergiewendeThe Role of Bioenergy

Source: AGEE-Stat 2014

The German Energiewende

• 1991: Act on Sale of Electricity to the Grid

• 2000: Renewable Energy Sources Act (EEG)

• Aligned with EU 2020 Goals

• Nuclear phase-out by 2022• 27.7 % renewable energy capacity

• Challenge of electricity surplus


• Strong contributor to the growing global AD market

• Market share of German AD plant construction companies >39% global in 2012

The German AD Market in a Global Context

DE74%

IT6%

CZ4%

AT4%

US2%

NL1%

CH1%

UK1%

Other7%

No. of AD plants global 2012 (10.531)

DE37%

IT13%

CZ8%UK

6%

FR5%

Other31%

New AD capacity global 2012-2016 (2.681 MWel)

• Germany: +990 MW

• UK: +170 MW

Source: Biogas to Energy, by ecoprog & Fraunhofer UMSICHT 2012, Manufacturer information and estimates

Germany

Italy

Czech Republic

3

UK

7635

666

402

3

99


Agricultural AD plants Fermentation of biowaste

• More then 7 720 AD plants operate on the

basis of energy crops and manure

• High remuneration rates in FIT 2009

• Restrictions caused by eutrophication in

areas with active soil

• 113 plants in Germany designed for

anaerobic treatment of biowaste

• Only basic tariff until FIT 2012

• 4 Mt of additional biowaste from 2015

due to obligatory biowaste collection

The German AD market – a matured market?Energy crops vs. Biowaste


The German AD Market Regional diversity

Source: FNR 2014, KTBL 2006, ecoprog 2012

Ø 250 kW Ø 500 kW Ø >750 kW< 500 kW18%

> 500 kW82%

� AD development governed by regional factors

� Substrate choice dependent on surroundings & AD plant

size

80.000

25 ha

50.000

52 ha

5.000

250 ha


60%22%

17%

1%Energy crops

Excrements

Biowaste

Residualwaste

0 50 100 150 200 250

Maize silage

Gras silage

Biowaste

Chicken manure

Liq. manure

Biogas (m3/t)

The German AD Market Characteristics and developments of AD

Source: FNR 2014, ecoprog 2012,

KTBL 2006

Substrate input in German AD plants 2013

60%

32%

7%

1%

21%

79%

47%

49%

3% 1%

< 70 kW 70 - 500 kW 500 - 1000 kW > 1000 kW


The German AD MarketMarket growth & the Feed-in tariff system (FIT)

Source: FNR 2013

THE UK MARKET IN

CONTRAST

UK Context for ComparisonWaste Arisings (h/hold) 36 mill tonnes 29 mill tonnes

444 kg per capita 461 kg per capita

Agriculture 16.7 mill ha (47%) 16.8 mill ha (70%)

33% Arable (5.5m ha) 25% arable (4.75m ha)

Ave UAA - 46 ha Ave UAA - 54 ha

# of “large farms” – 2,434 # of “large farms” – 1,335

Total Cereals – 45 mill tonnes Total Cereals – 19.5 mill tonnes

Wheat – 22m

Barley – 10m

Maize – 5.5m

Rye – 3.8m

Wheat – 13m

Barley – 5.5m

Maize – 0.02m

Rye – 0.03m

* All figures taken from eurostat website

AREA: 357,000 km2

POP: 81 mill

GDP

Per Capita: $41,000

AREA: 244,000 km2

POP: 64 mill

GDP

Per Capita: $39,000

UK Market - Historical1895 Biogas recovered from sewage system and used to fuel street lamps in Exeter

1907 Patent issued in Germany for the Imhoff tank (early form of Digester)

1970 China now has 6,000,000 on farm biogas plants

2000 German Renewable Energy Act passed into law setting a feed-in-tariff for electricity

2002 Renewable Obligation introduced in England, Scotland & Wales – requires electricity producers to

increase the proportion of electricity from renewable sources

2008 UK Climate Change Act set 80% cut in greenhouse gas emissions by 2050 – UK is the first to set

a legally binding framework to cut carbon emissions

2009 Committee on Climate Change calls for UK Government to effect a step change in the

pace of reductions in greenhouse gas emissions

2010 Feed in Tariffs for renewable energy introduced into the UK

2011 DEFRA Waste Review recognises AD has the “greatest environmental benefit”

Anaerobic Digestion Strategy & Action Plan launched in UK to support AD development

UK Government announces Weekly Collection Support for weekly food collection

2012 WRAP figures show 78 AD plants operating outside of the Water sector with hundreds in planning

Renewable Heat Incentive (RHI) launched to support injection of

bio-methane into the gas grid and the production of heat from AD

*Kindly provided by and adapted from the ADBA

UK Biogas Market - Historical

Introduction

of the FiT

Introduction

of the RHi

First FiT degression for

<500kw plants and RHi

consultation

*Kindly provided by and adapted from the ADBA

UK Biogas Market – overview

43

36

21 33

17

50

Waste

Industrial

Agricultural

Outer circle represents the % of total number of plants

Inner circle represents the % of total CHP capacity

By the end of 2013 there were 139 operating AD plants

(excluding STWs) accounting for 142MWe of installed

capacity

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011 2012 2013

By the end of 2013

there were 54

waste biogas plants

in the UK,

representing c.

71MWe of

renewable power.

The UK biogas industry

grew by 31 (farm & waste)

plants in 2013.

An estimated 1.6m tonnes

of commercial and

municipal waste was used

to feed those plants in

2013 (excluding organic

fines in MBT plants)Number of AD plants built each year

UK Energy Crop Market

• DEFRA Farming Statistics Report (2013):– UAA – 9 mill ha (an increase of 1% from 2012)

– Croppable area – 4.9 mill ha (54% of total)

– Uncropped Croppable land – 237,000 ha

• Est land use for Energy Crop � 40,000 ha [0.8%]

• Projected land use � (2015) 70,000 ha [1.4%]

80

6

410

70

10

13

7 Energy Maize

Beet

Hybrid Rye

Other

2011(40,000 ha)

2014(70,00 ha)

UK Market – Immediate FuturePlant Size With planning

approved

With planning

submitted

Feasibility

Stage

<250kW 38 4 1

250-500kW 95 17 0

500-1MW 14 15 13

1-3MW 49 15 3

3-5MW 11 0 1

>5MW 4 1 0

• The large number of plants in the 250-500kW range is likely owing to the

closing of the first FiT degression in 2014.

• Historically a significant proportion of AD developments with planning have

not come to fruition – for a variety of reasons

• Current “pipeline” where it relates to RHI is stuck and the outcome will largely

depend on the RHI review and “sustainability criteria”

FUNDING AD PLANTS –

THE GERMAN AND UK

MODELS


Market stimulationFIT – The German Feed-in tariff EEG (from 2000)

� Effective market regulatory mechanism

� Incentive for technology development &

increased efficiency

� High Feed-in tariffs up to 25 ct/kWh

� Guaranteed for 20 years

� Minimal bureaucracy

� Only basic prerequisites to be eligible

� Robust technology

� Low feedstock risk for energy crops

� Resulting low economic risks

� Investment security

� Attractive financing options© http://www.thinkprogress.org


� Capital costs (2500 – 6000 EUR / kW)

� Traditional financing<30 % equity, <15 y financing

� Project financing30 % equity, <12 y financing

� Investment funds

� Contracting model

� Low interest rate debt programs incl.

initial grace periods

� Subsidized with up to 50% and up to

150 000 EUR from federal states

Market GrowthImpact on structure and funding models

� Farmers, Cooperatives

� Municipalities

� Energy utilities

� Waste companies, Industry

� Good policies for biogas project development

(incl. FIT)

� Mature technical concepts

(incl. turn-key plants)

� Calculability of financial risk

(policy stability)


Market GrowthTechnology Developments

� Growth of operations parallel with

technology developments

� FIT amendments supported technology

advances and rewarded efficiency

increases

� Unblemished record supports further invest

� Biomethane gas-to-grid

� Waste heat utilization

� Increase of alternative substrates

� Direct marketing

� Flexibility bonus

� Increased renumeration with

FIT amendment in 2009

� AD boom: 2004-2006, 2009-2011

© MEV

UK Funding Models

• Equity

– VCT, EIS, IHT, PE – all available/ competitive

• Project (non/limited recourse) Finance

– Post construction, >£50m, 70%, refinance?

• Other Debt

– EPC, credit/ loan note >10-12%

• Trends

– 2012 (15-20% IRR) � 2014 (12-14% IRR)

– Educated equity – risk profiles

– Impact of “life after solar”

UK FundingRisk Issues

• Feedstock– Waste – only LA’s offering long term contracts (fewer)

– Agri – limitation of FBT’s to 5 years contracts

– TREND: reduction in expectation on % and length

• Construction & Technology– Generally, only equity taking pre-construction risk

– Small Capex issues � transaction costs

– TREND: growing comfort with technology/ construction risk

• Policy– Uncertainty – general and specific

– Modelling impact of degression (RHi/ FiT)

THE IMPACT OF

GOVERNMENT POLICY

Folie 29


The impact of government policyPolicy Changes in EEG 2012

� Lower feed-in tariff for AD plants < 750 kW

� Higher feed-in tariff for biowaste fermentation

and biomethan upgrading (gas processing)

� Degression rate of the feed-in tariff increased from 1% to 2%

� Stronger permit procedures

� Premiums for direct marketing

� More technical requirements

� New digestate storage facility is gas-proof, and the average hydraulic

retention time in digesters and digestate storage facility is at least 150

days

� the share of maize (whole crop) including corn-cob mixes in each

calendar year no more than 60 per cent by mass

� Combined heat and power generation with the heat being used as

specified by the Positive List is at least 60 per cent


The impact of government policyEEG 2009 vs. EEG 2012


Current state of the German AD marketAmendment of FIT 2014 - the fourth to date

� Energy crops bonus

� Gas processing bonus

� More Disadvantages 100 MW


The Rise and FallFIT system – Shepherding in the right direction?

www.thebarnyouthcenter.com, http://adamsmith.files.wordpress.com

� Drive bioenergy forward

� Stability & safeguarding existing plants

� Optimisation and incentivising new

technolgy with every amendment

� Planning, permit and build-time

~ 2 years

� No stimulation for exisiting plants

� Cost to tax payer: est. ~17 bil. EUR

The Impact of Policy (UK)OVERVIEW

• Major Policy change is very unlikely before the

next Govt is elected, the questions are:

– What commitment will it give to renewables (and what share

will Biogas receive)?

– Will it take a strategic approach – will biogas be a focus and

see a joined up overhaul?

– Recognition of non-energy benefits – such as avoidance of

fossil fuels, carbon sequestration and soil benefits?

The Impact of PolicySPECIFICS

• The key policy constraint is one of consistency

and stability of support for biogas:

– Food Waste Policy – Scotland’s landfill ban – England has had

the power since 1999 to ban “former foodstuffs”

– RHi – consultation response – EXPECTED OCTOBER ‘14

– DECC view on Renewable Crops – self regulation?

– Degression: Too soon? Too frequent? Inclusion of planned

capacity?

– Sustainability Criteria: CHP Vs Gas to Grid

Industry Issues

Feedstock - availability

The Solar Effect – beating the IRR

Offtake Markets – debt risk profiles

Operational Challenges – PR and Image

WHERE TO NOW FOR THE

GERMAN AND UK MARKETS?


The German AD marketOutlook

References: Biogas to Energy 2012/2013 – The World Market for Biogas Plants - ecoprog / Fraunhofer UMSICHT

2012

300

2010

1300 2016

13500

2012

9700

2014

EEG

Technology Transfer

and Export


Current & Future MarketsExtended AD concepts

Digestate

management

Flexible energy

production

Value-added

chains

Nutrient

recycling

© MEV

EFFICIENCY IMPROVEMENT

Where to Now?My thoughts on…

• CHP vs GAS TO GRID

– Will DECC get the Sustainability Criteria right?

– Does Vehicle Fuel offer a viable 3rd option?

• FOOD vs FUEL

– Will DECC succumb to the pervasive Biomass based

argument or realise the benefits to sustainable agriculture of

Biogas?

• DIGESTATE

– Fertiliser or Fuel?

• SCALE OF THE MARKET

– ….

Where to Now?Dates for the diary…

EA Ruling on Crop Residues in ADSept

2014

RHi Tariff ConsultationOct

2014

FIT Comprehensive ReviewSummer

2015

RHi Budget DecisionAutumn

2015

anaerobic digestion exploring the uk opportunity · • strong contributor to the growing global ad...

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