Biogas plants - quo vadis? - [EN ]Hanse Consulting

The EEG amendment passed at the end of 2020 has fundamentally improved the prospects for the continuation of biogas plants again. However, it is doubtful whether this will be enough to prevent further dismantling. We shed light on the challenges facing the industry.

The initial situation for biogas plants and their operators

After heavy investment in biogas plants in Germany at the beginning of this millennium, net construction has been declining since 2011. With the build-up of capacities, an industry has emerged in this country that most recently employed around 46,000 people and generated sales of around 8.8 billion euros. In the process, a medium-sized business landscape of plant manufacturers and planning offices, which is also internationally renowned, has emerged.

With the expiry of the subsidy period for the first plants subsidized under the Renewable Energy Sources Act (EEG), a reduction in capacity can be observed in Germany for the first time in 2020. The development of production costs and framework conditions has made the production of electricity from biogas increasingly expensive. At the same time, the electricity prices that producers can achieve on the market have continuously fallen with the increasing supply from wind and solar energy, so that economic production is hardly possible without follow-up subsidies, even if the possibilities of temporally flexible production are used.

The amendment to the EEG passed on December 17, 2020, has again improved the prospects for the continuation of biogas plants beyond the initial funding period, even though the tendering procedure for the funding of new and existing plants remains in place. The tender volume has been increased to 350 MW per year, the maximum bid value to 19 cents/kWh. However, the industry is critical as to whether the amendment is sufficient to avoid further deconstruction and to achieve the targets formulated by the legislator for electricity production from biomass for 2030 of 8.8 GB per year.

The challenge

The challenge for the operation of biogas plants has successively increased since the early 2000s. After the substrate prices for the raw material supply of many plants have experienced an inflation, while the revenues from the EEG have not developed, most recently the implementation of the EU Nitrate Directive has further increased the operating costs and triggered investment needs. The introduction of the flexibility premium in 2012 has for the most part not achieved the goals set for it. Due to the investment in additional electrical capacity and gas storage capacity required for the subsidy, plant operators were initially reluctant to invest in flexibility. However, since the measure showed a way to improve profitability independently of substrate price developments, and to achieve higher electricity revenues per kilowatt-hour produced by selling electricity during high-price phases, 3,300 plants with an electrical capacity of 2.2 GWel were eventually flexibilized. Consequently most of the plants are not operated in line with market prices, which means that the earnings potential is often not fully exploited.

It is true that, compared to electricity from wind and sun, biogas plants offer the possibility of storing the biogas produced and only converting it into electricity when needed, which the industry rightly points out as a significant advantage over the other major renewable energy sources. For this to happen, however, the already demanding operation of biogas plants must be significantly improved. Fluctuating properties of the substrates, however, necessitate permanent monitoring of the fermentation process, which requires qualified personnel despite the sophisticated plant control systems. Years with even qualitatively poor harvests in some cases, such as most recently in 2018 and 2019, placed demands on operations in this regard, which led to productivity losses in addition to the increase in price and shortage of raw materials.

The conversion to flexible and market price-oriented operation has not been consistently successful under the conditions. The regulations of the current EEG amendment increase the requirements for operators to receive the flexible surcharge and thus the risk that planned revenues will not be realized after all.

In some cases, the biogas plants still have to generate considerable debt service and the repayment of liabilities in the previous subsidy period is already uncertain. In this situation, investment decisions to enable operation in compliance with the increased requirements resulting, among other things, from implementation of the EU Nitrate Directive or flex operation can only be made on the basis of a long-term planning calculation. The local and national opportunities and risks must be adequately taken into account, for example:

How will availability and substrate prices develop in the region?
What does it mean if replacements have to be procured supraregionally for partial quantities?
Is the heat sales secured in the long term or must a loss of the customer (who is usually difficult to replace) be expected?
How will maintenance, servicing costs and replacement investments affect components that are subject to heavy wear and tear?

Or is an orderly sale of the plant more appropriate, because there are too many uncertainties for it to be continued under its own steam?

Our Expertise

During many years of project practice in commercial support of biogas plant operators and consulting of plant constructors, HANSE Consulting has built up considerable industry expertise in analysis, planning, and consulting of biogas plant operators in difficult financial situations.

With our network, all aspects that are required in opinions can be covered and you as a (potential) biogas plant operator will also be supported in the implementation of your planning. This applies regardless of whether you are aiming for a new plan, independent continuation, or a sale.