We talk to quite a lot of Anaerobic Digestion (AD) Plant Operators who, prior to 2014, successfully grabbed the initial opportunity that the tariffs and incentives at the time provided and got their plant up and running. But a few years into it, they now struggle to realise the return on their investment that they expected; often because the plant isn’t running at the theoretical performance levels initially predicted. We’ve heard anecdotally that, on average, plants are generating a return on their investment that is half of what they initially expected.
So why is this? And is it really all about tariffs and legislation? Or are there elements within the control of the plant that can be addressed?
Plant turnover is driven by subsidies
The total industry turnover is growing and the acceleration since 20141 corresponds to the period of time when the industry saw its peak in new plants commissioned (over 200 in 2014 and 20152). However, when you look at the sources of revenue, it’s clear from the Anaerobic Digestion Bioresource Association’s (ADBA) November report that the turnover is dominated by income generated from the RHI and FIT schemes rather than energy sales. It is, therefore, clear why the recent delays in RHI legislation have been so terribly disruptive to the growth in new plants commissioned; business plans are just so dependent on what the tariff will look like. This dependency on tariffs perhaps also drives a sense of urgency to take control of what can be controlled for those existing plants looking to become more self-sufficient.
Factors critical to success
From speaking to a number of experts in the field, a number of factors have emerged as critical to the interdependence of an AD Plant:
Optimising feedstock supply
Feedstock quality in storage
The first is optimising feedstock supply. Speaking in the Energies & Utilities Alliance magazine recently, ADBA’s Chief Executive officer Charlotte Morton, clearly articulated the opportunity for plants to take on more feedstock as, on the whole, the sector is currently running at 80% capacity.3 Uisdean Fraser of Synergie Environ goes one step further and describes the stark difference in revenue from energy sales he sees between plants that have maximised their feedstock supply and those that have not. Uisdean urges his clients to secure long term feedstock contracts (20 years where possible) as an essential part of the plant planning process. Feedstock supply is so important, he says, that plants should be building their business model and even location around the well-established industries and manufacturing sites that can provide a consistent and predictable source of feedstock.
The feedstock supply does, of course, need to be optimised to a level where it will be used by the AD plant in good time because another factor critical to the success of energy sales is feedstock quality. The longer feedstock is stored the more its properties will change and the higher the risk of premature digestion. The amount of energy generated becomes less predictable.
Producing higher quantities of biogas more quickly will of course have a significant impact on revenue generated from energy sales. The industry currently generates 11.4TWh of biogas which represents 2.5% of the UK’s gas production and this has increased by 7% over just the last 4 months. However, ADBA believe this represents 22% of the potential the sector could produce in the UK.4 So where are the opportunities for increasing this? In addition to maximising feedstocks, ADBA cite the use of pre-treatment technology as a major opportunity to increasing biogas production.
Pre-treatments are particularly compelling for higher lignin content feedstocks or those biproducts that are harder to breakdown such as oil and grease because they have the potential to make the bigger difference. Whilst the use of crops as AD fuel is expected to stabilise in the future due to legislation restricting the farming for crops purely for energy purposes, it remains a major feedstock for the sector.5 Commercial and onsite industrial waste are also significant feedstocks6 with legislation increasingly supporting the appropriate use of these byproducts.
In addition, pre-treatments may add value to plants using mixed feedstocks. As we’ve already seen, maximising feedstock supply is essential. However, for some plants, this may take them into the unknown world of mixed feedstocks. Without an evidence base for mixed feedstocks, it can be difficult to predict what energy can be generated; mixing different feeds could have a positive or negative impact on biomethane yield. The use of pre-treatment technologies may provide the opportunity for sample testing as well as optimising the overall biogas supply. This will enable the plant operator to evaluate the value of pre-treatment technology to their specific process.
Some pre-treatment technologies have the potential to reduce the time in which the biogas is actually produced. Not only will this have an impact on the revenue generated but it may also have benefits with respect to storage. For plants where feedstocks are being maximised the pre-treatment technology may enable the plant to better match the feedstock use with the feedstock supply by shortening the retention time of the feed in the digester. This can help to minimise the issues associated with storage such as space and degradation of feedstock.
Striving for Interdependence
As with any healthy relationship, it’s clear that the goal for the AD sector is interdependence; a scenario where the industry receives the government support that truly and accurately reflects the environmental and socio-economic benefits the production of biogas brings to the UK and, at the same time, a situation where AD Plant Operators have processes in place that enable them to increase the revenue generated from energy sales and return on investment. Currently, most economic analyses carried out for business cases do not include the benefits to society and the environment. It is essential to quantify this as the benefits of the AD sector risk being misrepresented in the tariffs. At the same time, there are many existing and emerging feedstock strategies and pre-treatment technologies available to the AD sector that enable operators to control what they can control in achieving biogas sales that equal the tariffs they deserve.
AMT’s Chief Executive Officer Stephen Roe will be speaking at the ADBA conference on December 7th. Based in Scotland, AMT provide microwave pre-treatment technology for Anaerobic Digestion and are members of the Industrial Biotechnology Innovation Centre. Click here to find out more about improved ROI on AD.
Request an ROI Assessment
We’d like to thank the following industry experts for their insights that supported this article: Michelle Morrison, Principal AD Scientist at the Centre for Process Innovation; Uisdean Fraser, Managing Director at Synergie-Environ; Tim Duminel, Energy Business Consultant at Pale Blu Dot.
Section 15.5 ADBA Anaerobic Digestion Market & policy report November 2017
Section 11.1 ADBA Anaerobic Digestion Market & policy report November 2017
Section 13.3 ADBA Anaerobic Digestion Market & policy report November 2017
Section 12.2 ADBA Anaerobic Digestion Market & policy report November 2017