Support mechanisms for micro-scale digestion

Micro-scale digestion (MSD) projects take a long time to develop, and therefore need stable support conditions and long term policies. Long-term supporting schemes are absolutely essential for MSD popularization.

In general, the support may focus on two primary aspects: investment and operation. The most important means of support are:

for investment:

  • investment support schemes (economical subsidy systems),
  • simplified legal framework for MSD construction,
  • simplified regulatory framework for grid connection,
  • grid operators assume the cost of grid connection,

for operation:

  • stable financial support during operational phase (secure payment, certificates for energy production, feed-in tariffs, tax-aid systems),
  • development of proper quality standards ensuring safe and efficient plant operations.

Support for a specific renewable energy solution not necessarily results in increased budget expenditures. Also important is the improvement of public awareness about actual benefits from implementation of manure-based biogas production.

Support options at investment stage

Investment in micro-scale digestion (MSD) concerns legal regulations and investment subsidies.

Even the most efficient technology may be difficult to implement if it involves complicated legal procedures. Therefore governments in many countries introduce simplified and investor-friendly legal frameworks for biogas plant construction and connection to the electricity and/or gas grid.

The legal framework should provide favourable conditions for implementation of effective solutions. As MSD technologies are an expensive investment, it is crucial to provide regulations that will guarantee predictable economic efficiency. If not, the associated risk will be too high for the potential investors.

One of the major problems are the legal procedures required for the construction of a biogas plant, as complicated (and often expensive) investment procedures may discourage or even prohibit potential investors from its implementation.

Apart from legal procedures simplification, regulations concerning costs of grid connection are also important . When grid operators have to assume the costs of grid connection, it favours social sharing of attaining the low carbon economy. In the opposite case, when small energy producers have to pay for grid connection, these costs are not shared and may turn out to be too high for individual investors. As a consequence, the adoption of small-scale renewable energy sources’ technologies is impeded.

New technologies often involve some economical risk in implementation. To encourage investors to take the risk, many countries introduce special subsidy systems. The value of the subsidy is usually based on eligible costs.

These mechanisms, together with their limitations, are described in details for chosen EU countries in Annex I. In addition to the solutions used in your country, take a look also at the mechanisms used in other countries! There are also best practices in countries with good framework presented in Annex I. For example, in the Netherlands in mid-2015 no environmental permit (with long procedures and high costs) is needed anymore to build MSD due to the introduction of a quality standard.

Support options at operational stage

Operation of micro-scale digesters depends on the market situation. So, it is important to ensure a stable market situation, as energy price variations may lead to negative financial results.

The return on investment can be accomplished through savings from avoided cost of energy purchase and income from energy sales. Therefore, apart from the investment cost, energy purchase and sell prices have a decisive impact on the economic feasibility of biogas plants. Generally, due to distribution and taxation cost, the energy price for final consumers is much higher than the wholesale energy price

Comparison of households electricity price with wholesale market electricity price.

Figure: Comparison of households electricity price with wholesale market electricity price.

Electricity prices for household consumers, first half 2013 (EUR per kWh). Annual consumption: 2 500 kWh < consumption < 5 000 kWh. Source: Eurostat.

Figure: Electricity prices for household consumers, first half 2013 (EUR per kWh). Annual consumption: 2 500 kWh < consumption < 5 000 kWh. Source: Eurostat.

Most of the difference between the purchase and sell prices of electricity is a result of energy taxes, as shown in Figure on the left. Therefore, the budget expenditures required for co-financing of the renewable electricity sale into the grid will be compensated by the income from resale of the energy by energy companies to final consumers.

Taking into consideration the above-mentioned issues, a better economic efficiency can be achieved, if the whole energy production is used for the investor’s own needs. It may limit the implementation of biogas based on micro combined heat and power installations, as investors may limit the size of considered plants.

As in most cases it is not possible to utilize the whole energy production for one’s own needs, the surplus of produced energy should be sold. It is usually carried out through the local electric, heating or gas grids. However the market price of energy is usually lower than its cost for the end users.

Some of the support mechanisms affect the benefits of reduced energy purchase or the income from produced energy sale. In most cases the energy purchase reduction is more profitable, especially if there is a subsidy available for energy production (in Poland and Belgium). Due to the variable characteristics of the electricity demand it is difficult to predict what proportion of the energy will be used for their own needs. Therefore grid connection is often necessary.

The sale of produced electricity is profitable only if there is a certain level of energy feed-in price guaranteed. In case of biogas plants this level should ensure an assumed payback time. Despite the introduction of various kinds of support mechanisms in most countries the price of sold electricity is lower than the household energy price. It makes electricity sale uneconomical compared to the situation in which the entire energy production is used by the investor. As a result it may limit the feasible biogas plant size. Therefore reducing global benefits.

Comparison of possible revenues from electricity production surplus sale into the grid to purchased electricity price.

Figure: Comparison of possible revenues from electricity production surplus sale into the grid to purchased electricity price.

The household electricity price and the revenues from biogas based electricity sale. In some countries (e.g. France) the revenues from sold electricity may exceed the costs of energy purchase. It allows greater use of agricultural biogas potential. However it requires special regulations to avoid subsidy abuses and unnecessary burden on the budget.

Types of support mechanisms at operational stage

Support mechanisms during operation of micro-scale digesters involve various ways of financial support to compensate the difference between sold and purchased energy prices, as described above.

Therefore, in order to ensure higher profitability of the energy sales, the price of sold electricity/heat/biogas is often guaranteed through special regulations (feed-in tariff). Other support mechanisms for energy trade are also possible such as net metering  and development of smart grids  with internal energy trade mechanisms.

The difference between sold and purchased energy prices may be also compensated by a mechanism introducing additional revenues for sold energy.

Similar to the case of feed-in tariffs, these revenues are intended to improve profitability of the installation.

Improvement of the profitability of clean energy production can be achieved through introduction of a property rights trading system. In this system clean energy producers obtain property rights for their production that can be sold to energy companies.

Each of the EU countries uses some of the above mentioned support mechanisms. It is presented in details in Annex I of the report, where you can find description of solutions used in your and in other countries.

Support mechanisms in chosen EU countries

Individual countries implemented various renewable energy sources’ support systems that in varying degree facilitate construction and operation of biogas plants. Mechanisms currently existing in chosen EU countries are indicated below. These mechanisms, together with their limitations, are described in details for chosen EU countries in Annex I of the report.

Renewable energy production support systems in chosen countries.

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What policymakers should know about micro scale digestion

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