The Energiewende is getting more integrated: the case of new business models for biogas in Germany

April 20, 2018

 Photo credits: Own source. 

 

Fuelled by the feed in tariff system, Germany has seen between 2000 and 2010 one of the largest installation rates of biogas energy in the world. It made a lot of sense since the tariffs were high enough to support the otherwise expensive economics of producing biogas. Unlike wind and solar PV where production inputs are for free, biogas in most use cases depends on agriculture. A typical biogas plant gets constructed along a farm or some other industrial form of food production where there are a lot of bio residues such as manure. Hence a biogas investor can either be the farm itself, a food production facility or a group of farmers that want to jointly produce biogas through legal forms such as the energy cooperative. Finally an investor could also be a company that sees an opportunity of using someone else’s waste for its own plant. The crucial difference between these various models is in the contractual agreements for supplying feedstock to the plant. The easiest form of this would be a situation where the actual biogas owner has full control of the feedstock, for example a food processing company with enough land and manure to supply its plant. While the worst form would be the case where the investor has to acquire the feedstock from somewhere else, and is thus subject to enter into contracts with other farmers. 

 

Hence when you compare biogas plants with solar PV and wind energy, the most fundamental difference between these is this: you do not need to sign a contract with the wind and with the sun. They just are there for free, while with biogas plants you need to enter into contractual agreements for feedstock provision, unless you fully control the feedstock by owning it. Another fundamental difference is in the fact that biogas production is an energy intensive process. Solar PV plants convert about 20% of the solar insulation that hits the panels into electricity, while with biogas plants the solar energy that hits the ground first gets converted into feedstock, or the plants on the fields, and only then does it get processed and used for biogas production from which electricity and heat and derived. There is lots of machinery needed to do all of this, not to mention the inputs a farmer has to place in growing the crops (whereby water and artificial fertilisers are used) Due to the negative sustainability impacts of energy crops and competition with land for food growth, the European Union has started turning away from bioenergy in general. 

 

So is there any hope for the biogas industry in the future? 

 

The first obvious answeris that it’s needed in places where there is a lot of waste such as restaurant waste, or organic waste from industrial products. This makes sense because otherwise the waste would end up on a landfill, where in most cases it rots away and turns into methane that ends up in the atmosphere. Instead of this biogas plants create biogas, purify this into almost pure methane and use this as a fuel to generate electricity and heat. The second obvious use case would also be for an industrial agricultural complex that has a steady flow or organic waste such as manure. Usually such facilities would have to spread the manure onto their fields, and use it as a fertiliser. However manure is very nitrogen intensive and when there is too much of it on fields, it could end up in ground water and cause other environmental damage. In agricultural regions such as Bavaria this is a usual challenge. In order to control nitrogen levels that can be applied on fields the EU created the Nitrogen directive that regulates this. By producing biogas larger agricultural facilities would use manure for energy conversion, but then in addition use the created slurry (the stuff that is left after biogas production) to spread onto fields. As in biogas production you usually combine manure with energy crops, the nutrient value of the slurry is much more favourable than pure manure and usually solves the nitrogen overload issues. 

 

However last week I have visited a biogas plant east of Berlin where I have witnessed another use that might also increase in use in the future. Within the Berlin Energy Transition Dialogue 2018 and as part of a special tour organised by the German Energy Agency (DENA) I have visited a plant in Neuhardenberg. This is a 1.7 MW plant that is owned by an agricultural company that has very large quantities of duck manure. It combines the duck manure with maize in a 50/50 ratio and produces biogas. However unlike the usual biogas plants that produce electricity and heat through a Combined Heat and Power engine, it feeds the gas directly into the gas grid and sells it to Standtwerke Munchen, for an amount that I will not disclose in this blog post. However it’s more than what they would get if they generated electricity. The company estimates that the payback period of the plant is about 11 years. 

 

 

When asked about the financing structure, out host revealed that the company itself was forced to finance the plant, since in the beginning they could not get a bank loan. This was because they used a membrane based biogas purification technology that has not been applied before in the biogas industry. After the plant started operating and the banks were convinced that the membrane purification technique works, they entered into refinancing. 

 

Hence within this case its very obvious how the changes in government policies, mainly through the reduction of the feed in tariff price for biogas based electricity production has lead to new use cases. It’s also important to note that the government does not support gas sales from biogas plants in the same way as they do electricity production. The Neuhardenberg plant has negotiated their selling price directly with Stadtwerke Munchen. So it’s up to biogas plant owners to find such a customer that needs biogas to sell to environmentally conscious customers. 

 

The main conclusion that I derived from this case study is that biogas is nowadays only profitable if the company that produces it uses the plant a supplement to its regular agricultural activities. Due to the fact that the plant depends on constant supply of feedstock it’s also important to stress that biogas producers should strive to have control over the feedstock. In other words companies that enter into contracts with third party feedstock suppliers run into the risk of their main “fuel source” being suddenly stopped. This is why owners of the biogas plant should ideally also be its main feedstock suppliers. And as the Neuhardenberg plant shows new business models in the Energiewende are emerging. The individual energy sectors are becoming more integrated. Where once biogas was used directly for electricity production, it’s now due to changing policies being purchased by Stadtwerke’s and most likely sold to customers for heating purposes. Hence the biogas industry in Germany has started looking outside of its typical use case of electricity generation and into new areas such as heating and transport. As Germany tends to be the trendsetter in everything connected to clean tech (except for electric vehicles) it's likely that other countries in the world, and perhaps also Southeast European countries, will follow this trend but probably with a 10 year time lag.  

 

* the main purpose of this blog is to offer an informal platform for knowledge exchange. Therefore some facts in the blog might not be correct. If you notice this please contact the author for corrections.

 

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Mak Dukan is the founder of Starfish Energy, a consultancy company for energy and climate policies and low carbon development in South East Europe. He is a Croatian from Zagreb who is living in Berlin, where he is active in the renewable energy and energy policy fields. 

 

 

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