Pocket Digestion: An Opportunity for cost-effective green energy production
Flanders traditionally has a considerable excess of manure, being one of the bigger environmental issues in the region. On a small area, millions of animals are breeded threatening the nutrient balance of the soil. The utilization of this waste product for the production of green energy production seems to be a very promising opportunity to help Flanders reach the greenhouse gas reduction targets set by the European Union - 20% reduction by 2020 compared with the 1990 emission.
Pocket digestion seems to be a promising technology to reduce greenhouse gas emission in Flanders
The current policy fails to give incentives for investment in manure digestion explaining the limited deployment so far. This study analyses the investment requirements and greenhouse gas reduction of manure digestion in order to compare the results with the performance of other green technologies. The results show that manure digestion is in fact by far the most cost-effective (ie. getting as much as possible with each €1) green technology. Recommendations are thus formulated for the policy makers in order to enhance the support mechanism to incentivize investments in manure digestion.
Potential of biogas production from manure
Biogas is a promising technology to provide green energy in Belgium. The graph shows that within all potential sources of biogas production Manure clearly makes up for the biggest part with about 59% of the potential energy production, but with only less than 2% that is used.
Source : Biogas-e
In 2013, about 73 installations were rather operational or under construction, corresponding to about 1 MWe of electricity and the utilization of 160000 ton of manure. Taking into account a yearly production of 9 million ton of manure, Flanders has a potential of about 4000 pocket digesters that would give a total of 55 MWe.
Indeed, currently industrial biogas production units are mainly fermenting a mix of energy crops and organic-biologic waste but including only little manure. So a further growth of the biogas production sector is only possible with investments occurring in biogas installations only digesting manure. Manure is an abundant waste product, so the utilization of this technology can give a boost to the production of green energy in Flanders.
Pocket digestion in order to engage the full potential of biogas production
Belgium, Pocket digesters are small-scale biogas plants designed for farming companies to digest self-produced manure on-site. The installations produce biogas on the one hand and enhance the manure for fertilization objectives on the other hand making them the perfect solution to progressively deploy the manure that is currently not used for energy production. The manure being processed on-site minimizes the greenhouse gas emission coming from manure directly dissociated from the open air. The biogas produced is burned in a local generator to produce heat as well as electricity. The heat can be deployed for warming purposes while the electricity can be injected into the electricity distribution network equivalent to the system of solar panels. Investors in those pocket digesters can also benefit from the current green certificate mechanism that supports the development of green technologies.
Investment analysis of pocket digestion
Sia Partners analyzed the biogas production process and the profitability of a typical pocket digester in order to demonstrate also the quantitative benefits of investments in this technology. All cost and revenue parameters are utilized for the assessment of the unprofitable top - the amount of money that needs to be paid to the producers per MWh electricity on top of the money they get from the market in order to make the investment profitable - of these installations in function of the heat price (€/kWhth) for the heat co-produced in the biogas combustion process.
The profitability graph of a pocket digester, as calculated by Sia Partners displays the combinations of prices for electricity and heat for which an investment in pocket digestion installations would generate a gross interest rate of 15%. This gross interest rate should be enough to incentivize investments in pocket digestion by farming company owners. Combinations located below the revenue graph can be considered shortcoming. Combinations above the revenue graph can be considered overdone. This means that when heat is sold at a price of 5 c€/kWh (horizontal axis in the figure), an electricity price below 10 c€/kWh would be insufficient to cover investments (combination below the graph). An electricity price of 30 c€/kWh would be very attractive for investors (combination above the graph). A lower price would already result in investments (combination on the graph). Policy makers should try to establish a support system that results in a combination lying on the graph in order to give sufficient, but not excessive support.
The Specific Cost (SC) is the cost per kWh electricity (€/kWhel) that is required in order to provide sufficient income to the Investors to stimulate their investment.
Sia Partners assessed the SC of pocket digesters for 2 scenarios: no heat recuperation and heat recuperation. For the heat recuperation scenario, the assumption is taken that the heat price (€/kWhth) is equal to the price to produce an equal amount of energy with fossil gas.
The specific cost (€/kWhel) is obviously lower, when heat can be recuperated. Without heat recuperation the SC is approximately €0,255/kWhel while it is about €0.22/kWhel when it can be deployed.
Per definition, in order to assess the unprofitable top of pocket digestion installations, we need to subtract the electricity price from the specific cost. The average electricity price being 0.047€/kWh gives an unprofitable top of 208€/MWhel when no heat can be recuperated. When heat can be effectively recuperated, the unprofitable top is about 173€/MWhel.
These amounts are higher that the support currently given by the Flemish government - namely up until 100€/MWhel. This explains the fact that so far few investments have taken place in pocket digestion. Pragmatically, most investments occurred in technologies such as biomass installations or solar energy, because there unprofitable top was lower than this support from the Flemish government.
Greenhouse gas reduction of manure digestion
So even if manure digestion is one of the most expensive sources of green electricity, it is a very effective way to reduce GHG emissions more than compensating the higher
investment cost. Like all green technologies the electricity produced by the combustion of biogas does not have to be produced by fossil sources, thus avoiding emission. An additional reduction is only inherent to manure digestion: the emission caused by the combustion of the biogas is lower than the emission that occurs when manure decays in open air. This reduction is considerable because the greenhouse effect of nitrous oxide N20 and methane CH4 is a lot higher than the effect of carbon dioxide CO2.
Source : Sia Partners
In the analysis of the GHG reduction of manure two scenarios need to be compared: a MWh produced with manure digestion and a MWh produced with fossil fuel - natural gas is taken for the emission reference as it is the closest fossil fuel.
When manure is digested, the produced biogas generally consists of 65% methane and 35% carbon dioxide. The methane produced is combusted with O2 to form CO2 and H20 molecules. The output of the combustion process is thus CO2, H2O and energy - the proportions of the analysis will be adapted to the amount of energy 1 MWh. For biogas leaking from the installation into the open air, without being combusted, a loss factor of 5% is assumed for the pocket digesters. This results in a limited amount of emission. Finally, also the digestate still emits small quantities of greenhouse gasses.
In case no pocket digestion takes place fossil fuel needs to be used to produce the same amount of energy - 1 MWh resulting in emission. Furthermore manure will just be stored without being digested. In this case greenhouse gasses escape directly into the atmosphere.
The analysis of Sia partners calculates all different emission quantities and assesses the reduction being the difference in CO2 equivalent emissions between both scenarios. Sia Partners includes the greenhouse gasses methane CH4, nitrous oxide N2O and carbon dioxide CO2 in the analysis.
Calculating the total emission for both cases - 1 MWh produced with pocket digestion and 1 MWh produced with fossil fuel - results in a total emission of 3,14 ton CO2 equivalent for pocket digestion and a total emission of 20,44 ton CO2 equivalent for the fossil fuel case. This means that the emission of 17, 3 ton CO2 equivalent can be avoided for every MWh of electricity produced by pocket digestion.
Policy effectiveness analysis
The analysis of manure digestion indicates a high cost to support investments, but a considerable greenhouse gas reduction. Sia Partners compares the values of the analysis with values of alternative green technologies in order to formulate conclusions and recommendations for the Flemish policy makers.
The figure above displays four parameters for various green technologies: global production, required support, GHG emission reduction and the effectiveness ratio.
The required support (€/MWh) corresponds to the minimum price investors should get for their green certificates in order to have the incentive for investment. Manure digestion is clearly more expensive to support. Currently investors only receive a minimum price of €80 and that is why investments are still limited what is clearly displayed in the figures. For the other technologies the minimum price is used assuming that the government assessed accurately the certificate price in accordance with the unprofitable top UT.
Taking a look at the GHG emission reduction, it can be concluded that manure digestion is nevertheless an extremely effective way to reduce the greenhouse gas emission. Every MWh that is produced by manure digestion results in about 33 times as much greenhouse gas reduction then the reduction of others green technologies.
Based on both required support and GHG emission reduction, Sia Partners created the effectiveness ratio to assess the effectiveness of every € spend on support for green electricity production. Manure digestion has by far the highest score for this ratio: 3 to 16 times higher than other technologies. This means that there is not enough support provided to give the right incentives to reduce the greenhouse gas emission and is rather designed to produce as much green energy as possible regardless of the actual CO2 emission reduction. In order to reduce as much emission as possible, other parameters such as the amount of reduction per MWh produced need to be taken into account.
This analysis gives two main insights in the green technology issue. First of all, pocket digestion is a promising technology that needs to be supported by the government because every Euro spent on support for manure digestion is utilized more cost-effectively than for every other green technology in the list. Sia Partners advises to review the support of this technology in other to make investments attractive. Secondly, policy makers need to take the cost-effectiveness ratio into account for the steering of their support: this way, the budget for the support of green technologies can be more effectively used.
Pieterjan Verhaeghen - Sia Partners
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