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Thursday July 29 2021

Biogas Grants, Subsidies & Feed-in Tariff Rates Explained

The information contained within this article is for educational purposes only and should not be construed as investment advice. The article is not a recommendation to use any particular investment strategy. Before making any investment, you should carry out your own independent research and seek specialist, professional advice. Accuracy of the information cannot be guaranteed.


Over the past decade, there have been multiple government incentives in the UK to encourage the production of renewable energy from biomass and other organic material. This has fueled a rise in the popularity of anaerobic digester (AD) systems and significantly increased the amount of biogas generated by UK businesses. 

The increase in bio-energy production is one way in which the UK will meet its ambitious sustainability targets. Britain became the first major economy to legislate for net zero emissions by 2050, surpassing targets set out by the EU.

With a global target of 32% of the world’s energy requirements to be created from renewable sources by 2030, AD still has a major role to play in energy production, reflected in the government’s new Green Gas Support Scheme (GGSS).

Biogas to grid – how it works

Biogas is created from organic material and waste such as purpose grown crops, slurry, water waste and commercial and household food waste. This is placed into an enclosed tank (anaerobic digester) where bacteria and archaea break down the organic component of the waste to produce gases. This biogas can be used to produce three different types of low carbon energy source.

These include:

Electricity

To produce electricity, the gas generated in the aerobic digester is used to power a combustion engine which drives a generator, producing electricity which can be used locally, or exported to the National Grid.

The energy generated is easy to measure and readily exportable from site, making it historically one of the most reliable energy production methods to invest in.

Electricity may be the only option for digesters in certain locations due to the ease of attaching the biogas plant to the electricity grid.

Exporting electricity to the grid from a biogas plant is done via a transmission network. However, before a planning application for the plant can be submitted, a feasibility study has to be carried out to determine the amount of electricity that can be received by a network and what improvements are require and identify the point of connection.

The feasibility study will also need to consider the distance between the biogas plant and the transmission network as this could have a significant bearing on the final investment requirements of the plant developer. 

Heat

Heat produced from a biogas plant is used to maintain the temperature of the digester, which is essentially for efficient biogas production. However, it can also be used to generating general heating or to produce hot water for the wider site or neighbouring buildings/businesses via a district heating system.

When deciding which type of energy to produce, it is important to recognise that heat does involve new infrastructure which requires investment, the level of which depends on the size and location of the anaerobic digester.

Combined Heat and Power (CHP)

This is the most common and efficient process used in the UK as it simultaneously produces electricity and recovers the heat which is a by-product of the combustion of the biogas.

The ratio of heat to power varies depending on the size and scale of the generation units and the options to utilise heat. Typically, up to 42% of the energy in the biogas is converted to electricity, with up to 40% of the generated heat being recoverable and available for beneficial use. The remaining ~20% of energy is lost during the process.

Having a combined system in place allows the producer to maximise the returns on a plant by make the most efficient use of the feedstocks utilised.

Biogas

Currently the only area attracting government incentives is generating biogas for the gas grid. This is done by “upgrading” the biogas to create biomethane, which involves removing other gases such as carbon dioxide. Once this process is completed, and where necessary improved with the addition of propane, the biogas can be then injected into the national gas supply grid or used to power road vehicles.

Connecting an anaerobic digester plant to the gas grid requires significant investment but due to the incentives, it can be an attractive option for larger production plants.

The level of investment is generally dependent upon the distance from the biogas plant to the grid, the volume of gas generated and the type of gas network it is exported to – low, medium or high pressure – all of which have a bearing on the infrastructure required and the cost.

It is therefore important to build this into the development costs of an AD plant from the outset.

If a plant is too far from an accessible gas grid for a pipeline connection to be installed, one option is for producers to use “virtual gas lines” where tankers transport the gas for use as road fuel in either a compressed or liquified form, or to a connection point that has sufficient capacity for imported flow.

Although the cost of setting up a biomethane plant is significant it is supported by the Committee on Climate Change (CCC) and is subject to the Green Gas Support Scheme.

What are feed-in tariffs (FIT)?

The Feed-in Tariff was a government scheme to encourage investment in new low carbon renewable energy technology. It also ensured backing from the electricity industry, ensuring producers could sell the energy they generated.

The scheme provided financial aid to people and businesses that invested in renewable technologies in two ways.

Firstly, plant owners received a payment for the amount of energy they initially generated. Then a second payment was made for how much electricity was exported to the National Grid. Payments would generally be made on a quarterly basis.

However, this scheme is now closed to new applicants.

Renewable Heat Incentive (RHI) scheme

This scheme provided a fixed income to generators of heat over a 20-year lifespan for AD plants completed after July 15, 2009. The level of tariff is dependent on the technology used and the date of accreditation.

The scheme closed to new applicants on March 31, 2021, and only those who put in an application before this will benefit. The initiative will be replaced by the Clean Heat Grant from March 2022.

Government Grants available for building and running AD plants

There are several other schemes that have supported the development of AD plants, some of which are still open. The main ones include:

The Green Gas Certification Scheme (GGCS)

This scheme is currently being formulated and is not due to be available until Autumn 2021. This scheme is designed for those with a desire to invest in converting their biogas to biomethane and connecting to the gas grid. The system being composed is to track the gas in the supply chain to prevent any double counting.

The details that have been proposed for the scheme include:

  • Implementation of adjusted tariff length and tiering system
  • New tariff guarantees
  • New eligibility criteria for producers
  • Interaction with other government schemes

This scheme utilises a tariff system due to the significant operational costs of biomethane plants. The payments will be based on the volume of biomethane injected into the grid.

Tariffs for biomethane injection from GGSS launch are defined in regulations as:

Tier 1: Up to 60,000 MWh – 5.51 p/ kWh.

Tier 2: the next 40,000 MWh – 3.53 p/ kWh.

Tier 3: Above 100,000 MWh – 1.56 p/ kWh

The previous support scheme for AD systems was Non-Domestic RHI scheme, which supported biomethane plants for 20 years. This was acceptable at the time as the technology was relatively new and therefore high risk, and the upfront costs of building AD systems was high. With costs and technology now being more predictable, the tariff length advised for this scheme is 15 years.

The GGCS will form part of the 2023 Environmental Bill which will require all household food waste to be collected separately and recycled in AD systems.

It has been suggested that the new scheme includes tariff reviews throughout the span of the payments, in order to handle unexpected costs or any changes within the market/industry.

This scheme is being introduced to further encourage the implementation of AD systems with biomethane plants, ensure the producers get value for money, and to limit a decrease in investments in AD systems. 

Expert advice is also available through NNFCC (National Non-Food Crops Centre) to support businesses looking to invest in the production of bioenergy by helping with analysing which funding would be most effective for individual sites. They will also assist on the planning and development of the venture where required.

Non-Domestic Renewable Heat Incentive (NDRHI) scheme

NDRHI provided subsidies to investors in renewable heating or CHP systems.

The NDRHI scheme no longer takes new applicants, however, it greatly influenced the investment and construction of many renewable energy sources and was a success. This scheme has been closed due to the creation of two new schemes, the Clean Heat Grant and the Green Gas Support Scheme to further improve the progress made by this scheme.

For those who are still part of this scheme, payments are made based on heat output. They will last up to at least 20 years as long as standards are being met and the equipment is working efficiently.

Rural Community Energy Fund (RCEF)
This fund is solely for the development of renewable energy projects in England. The most that is obtainable from this fund is around £140,000 to be used for the initial development for potential investments of AD systems. This fund is unique as it will grant up to £40,000 for an initial feasibility report on the renewable energy project. If this is successful, a following unsecured loan is also available of up to £100,000 to help with planning applications and developing a business plan.

Anaerobic Digestion Loan Fund (ADLF)

This fund is available in England and is a £10m pot which was created to reduce the amount of food waste going to landfills, partly through AD. This fund offers between £50,000 and £1m to be used for asset backed loans for the construction and equipment necessary to erect the AD systems. This is limited, with the maximum term being five years.

On Farm Anaerobic Digestion Loan Fund

This is a similar fund with a £3m initiative to encourage English farmers to make use of their land with the AD investment opportunity. To be considered, the AD system can only be to a capacity of up to 250 KWe. Farmers are given an initial grant of £10,000 to investigate the feasibility of an AD system. The second available fund was up to £400,000, or an impressive 50% of the project cost, which is a great opportunity for investment for farmers. 

Green Investment Group (GIG)

The Green Investment Group is an organisation that specialises in the investment in renewable energy projects, including, anaerobic digestion systems, which is a specific priority area for the bank.

Community and Renewable Energy Scheme (CARES)

This scheme is specific to Scotland and offers multiple services free of charge in assisting the viability of a possible investment in AD systems. It is designed to give loans to high risk, pre-planning stages of renewable energy projects. Currently, this scheme is closed to new applicants.

Enhanced Capital Allowance (ECA) scheme

This scheme allows for extended tax relief for investments towards AD systems, not only for machinery or equipment. The scheme can be utilised to assist any renovations necessary on site, any research and development costs and relief on any buildings that are necessary to the project. Some projects may need a quality assurance check for this scheme to be available.

Scottish Recycling Fund (SRF)

Specifically for AD systems utilising food waste, this fund was available to those developing the capacity or improving the infrastructure of an existing AD system.

There is a new Scottish government fund that is obtainable for those looking to invest in AD systems or improving those already in place. This secured fund has the ability to invest heavily, with £70 million assigned to innovations and improvements that can be made to potential and current treatment centres. This fund is aimed at improving the infrastructure of recycling in Scotland.

Smart Export Guarantee (SEG)

This scheme was brought out in 2020 as a replacement for FIT – a scheme that enforces electricity suppliers to pay a tariff to the producer of bioenergy that supplies the grid.

This is a safety net for the producers of low carbon energy, and it is critical to sign up for it through the electrical company to receive an export tariff.

Each electrical company is however, managing the amount of the tariff and how it operates. To be eligible, the producer needs to prove that the energy has come from sustainable biogas generation and that all the plant and equipment meets the standards set out in a detailed sustainability audit.

Other limitations to this guarantee are that the generators must have an installed capacity up to 5MW, and CHP system with a maximum electrical capacity of 50kW.

Conclusion

Biogas opportunities are available with incentives still in place, and this is expected to continue to help meet the UK’s ambitious eco-friendly energy targets.

The first step to any investment in AD systems is researching the potential site and its links to the multiple grid options. Then an analysis can take place into which system would be preferred and suitable for the location/organisation, including the feedstock that will be used to fuel this project.

When all factors are considered, source of biomaterial, construction necessities, technology costs and logistics of connecting to the grid, an AD system can still provide be an innovative investment opportunity and that generates a fair return for the developer.

For more information on subsidy and tariff schemes, contact us now.