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Biomethane injection – Briefing Sheet
What is biogas?
A combustible gas created by anaerobic digestion of organic material and composed of approximately 60% methane, 40% carbon dioxide and some trace elements. The CO2 is not new, as it has been previously sequestrated by plants. Biogas is principally produced by anaerobic digestion (AD) which is a natural biological process carried out by bacteria in the absence of air, by which organic material is broken down into stable fertiliser and useful biogas. Biogas is also produced at landfill sites (“landfill gas”) and sewage treatment works (“sewage gas”). Together these sources are at present equivalent to 1% of UK’s total gas demand.
What is biomethane?
Biomethane means pipeline-quality gas derived from organic material. It is identical in properties to natural gas, but it is not derived from fossil fuels. Biomethane can be produced from biogas which has been cleaned or “upgraded” to meet UK gas pipeline specifications, by the removal of gases such as CO2 and hydrogen sulphide to leave an almost pure (~98%) methane gas.
Although less commercially viable, biomethane can also be produced by a thermal gasification rather than biological process. Gasification is a process in which dry biomass (e.g. wood) is thermally decomposed at temperatures of around 850 degrees centigrade to produce what is known as synthesis gas (often referred to as “syngas”). This can also be upgraded to pipeline quality biomethane. This pathway allows the recovery of gas from organic materials that cannot readily be processed by anaerobic digestion.
What can be done with biomethane?
Biomethane can be injected into the gas network or compressed for use in natural gas vehicles. Once in the gas network it can be used in exactly the same way as natural gas (which is a fossil fuel). It can provide domestic or commercial cooking and heating, or be used as vehicle fuel in locations remote from the source of the gas.
Is biomethane injection the best thing to do with biogas?
Biomethane injection offers increased scope to maximise the energy contained in biogas by moving it to where it is needed. Typically this means using it in a location where there is a demand for heat. If there is a local demand for heat, the biogas can be used most efficiently in CHP mode. However if there is no local heat demand (other than for the AD process itself) then biomethane is an environmentally superior option, as more energy overall can be extracted from the gas.
What is the potential for biomethane injection in the UK?
Given appropriate incentives, biomethane could make a significant contribution to UK gas supplies in the future – one study has suggested up to half of residential gas demand if all waste were to be directed towards biomethane production. In addition, the UK has the opportunity to be a European leader in the manufacture of biomethane from waste and its injection into the gas network. Other European countries have developed AD in relation to landfill gas, sewage gas and biogas from energy crops, but there has been comparatively little upgrading and injection of biomethane.
Is biomethane being injected anywhere at the moment?
Some biomethane injection to gas grid is taking place in Austria, Canada, Germany, Netherlands,
Sweden, Switzerland and in the USA.
Why no biomethane injection in the UK?
To date, a premium has been paid for electricity generated from the biogas fuelled engines but there has been no premium for biomethane injected into the gas grid. Hence it has not made commercial sense to invest in the relatively high c
osts of biogas clean-up when there would be significantly less income.
Given that a vibrant AD industry is establishing itself, clean up technology has been proven to work (more than 80 operational plants in the EU), and good financial incentives are in prospect, there is every reason to be optimistic about the expansion of biomethane injection in the UK.
Will there be any financial incentive to do biomethane injection?
Yes. As a consequence of the 2008 Energy Act Government now has powers to reward biomethane producers for injecting this “green gas” into the network. A “tariff” i.e. an amount of money per unit of gas injected, will be made available to encourage this environmentally beneficial activity.
When will the biomethane injection tariff start?
The tariff will be part of the Renewable Heat Incentive (RHI). The Department of Energy and Climate Change (DECC) intends that the RHI will start in April 2011. The Renewable Energy Association along with many other organisations would prefer to see it start as soon as possible concurrent with the start of “feed in tariffs for small scale renewable electricity generation”, which are due to come into effect in April 2010. These tariffs were also enabled by the Energy Act 2008.
What price will be paid for biomethane injection?
We don’t yet know. There will be a brief mention of the RHI – trailing its general form - in the Renewable Energy Strategy document, due out in the summer. There will then be a further consultation on the RHI before end 2009, which is expected to propose the likely tariff level. The absence of any knowledge on tariff until the end of 2009 is unhelpful. The earlier potential investors get firm signals of the policy direction and intent, the more likely they are to select the correct option which, in many cases, should include biomethane injection.
What basis should be used to set the tariff price?
Prior to details of the tariff price for biomethane becoming available, biogas producers and prospective AD project developers will want to know whether to set out to develop a biomethane injection facility or to use the gas locally. We would like to see the principle established that the tariff will be at least as attractive as the remuneration available for generating electricity or heat. i.e. it should be set at such a level as to provide a reasonable rate of return for biomethane producers, taking into account the capital and operating costs of the biogas production plant, the upgrading plant, the necessary metering / monitoring and the grid connection, if these are not funded by the gas networks themselves.
The tariff should seek to incentivise biomethane injection into the gas grid preferentially if it gives a better renewable energy outcome compared to local use where not all waste heat is used.
Can biomethane injection start happening sooner than April 2011?
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Biomethane injection could start happening prior to April 2011, given suitable incentives, and subject to resolution with Ofgem and the HSE of two relatively minor regulatory issues:
Oxygen specification – biomethane can contain some oxygen. The UK limits oxygen content to 0.2%, whereas a 1% limit applies in Europe to facilitate biomethane injection. There is no safety issues associated with the increase in specification to 1%. Calorific value measurement – at present there is only one device approved by Ofgem to measure calorific value and this cost over £100,000. There is much lower cost options used in the EU which are fit for purpose for small biomethane flows – these need to be approved for use in UK.
However, at the moment the Government has not clarified whether plant built from now onwards will qualify for tariffs under the Renewable Heat Incentive when it eventually comes into place. This applies to ordinary renewable heat projects and biomethane injection. Project developers have no option but to delay initiating heat or biomethane projects until they know it will be eligible.
This is unhelpful. The Government needs to encourage renewable deployment to meet ambitious legally-binding targets. Its current delay is making targets yet harder to meet, and is damaging the industry.
What can be done to encourage development now?
£10 million was announced in the 2009 budget for AD and composting grants. This money should be spent on AD rather than composting, because of its superior environmental performance, and it should be spent on biomethane injection schemes to tide them over the funding gap and demonstrate here in the UK, what is already taking place overseas.
Development of biomethane injection schemes could be encouraged by an early announcement of the level of the RHI, or failing this an urgent undertaking from the Government that the RHI will apply to biomethane production/injection plant that is commissioned prior to April 2011, and that it will be at a level at least equivalent to the level of incentive available under the Renewables Obligation.
Government could give a stronger lead by identifying biomethane injection as a key enabling technology in the move to a low-carbon future, and announcing a target for biomethane injection as a proportion of gas supplies by a certain date (e.g. to make up 10% of gas supplies by 2020). Government could encourage Local Authorities to perform better on this issue through the National Indicators scheme. At present these indicators do not recognise that biogas production is a superior environmental option to composting.
What do we need from Government?
1) A statement ASAP that biomethane injection plant that is built from now on will qualify for the tariff, once the RHI starts.
2) Clarification ASAP on a floor price for the tariff payment, or failing that confirmation that the tariff will at least match that for generating electricity from biogas and that there may be a process for additionally reflecting the relative carbon benefits.
3) The £10m for AD (and composting) announced in the Budget to be spent on capital grants (or possibly interim tariff payments) for AD projects that include a biomethane injection plant.
4) R&D support for gasification technology to support large-scale biomethane production from wood and other cellulose-based organic material.
How will it all work?
The simplest approach is that a biomethane producer should be able to approach any gas supply company and demand that it purchases its biomethane at the full tariff rate, irrespective of the volume of gas being offered. Gas supply companies will need to have a duty on their licence to ensure that they engage with biomethane producers in this way. This is something that gas supply licence holders will be unlikely to welcome; nevertheless it is the most straightforward mechanism and is one that should be an option for the biomethane producer. A gas supply company that takes a biomethane supply from a producer claims the difference between the tariff payment, and the market value of the gas from the levy fund, i.e. the brown area on the schematic chart below.
The market value of gas could be given by the Heren European Spot Gas Markets report, which is used in the calculation of NG’s Gas Distribution shrinkage costs, as set out in the GD licence. The reference price could have a discount, to reflect the fact that the gas would be being sold in lower volumes. Alternatively the tariff level could be a little higher to compensate if the reference price was a price that was more appropriate for large volumes. Either way it should not affect the biomethane producer.
The advantage of an absolute tariff level is that biomethane producers have the comfort of knowing their income would not fluctuate according to market fluctuations in the natural gas price, whilst gas suppliers effectively continue to pay a (fossil gas equivalent) market price for the biomethane, plus the levy that will be spread across suppliers of fossil fuel for heat.
The advantage of reimbursing suppliers the green premium (i.e. the difference between market price and the absolute tariff) is that if natural gas prices go up, the subsidy required from consumers reduces.
Money flows are illustrated below:
An alternative approach
However, an alternative approach has been proposed, which should not be ruled out by the existence of a licence obligation. We would not want to stifle innovation as a consequence of there being a licence obligation on gas suppliers to purchase the output of biomethane producers at a set tariff. Therefore if a supply company were to offer to purchase the biomethane through an alternative arrangement and this suited the producer better, the two parties could enter a bilateral contract under their own terms.
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It may be that in the future alternative arrangements prove more attractive than selling under the tariff. Gas supply companies may, for example, wish to pursue opportunities for differentiating themselves within the gas market.
Therefore the licence condition should not impose the tariff as the only means allowed of purchasing biomethane. However it needs to be obligatory that suppliers offer to purchase the biomethane at the tariff rate.
Renewable Energy Association
June 2009
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