Fixed price or day-ahead market? A biogas plant in H2 2020

No — in H2 2020 a biogas plant selling electricity at RDN prices earned several times less than one with a fixed price. The average day-ahead market price in Poland was PLN 236.6/MWh, while the fixed FIT price for a new installation below 500 kW was PLN 617.5/MWh. A double-membrane roof and operation in expensive hours raise RDN revenue to PLN 264.4/MWh (2×) and PLN 272.0/MWh (3×), i.e. to 43% and 44% of FIT. The only configuration that comes close is FIP support combined with flexibility: PLN 558.7/MWh. This is the first analysis in the half-yearly series; each subsequent one answers the same question using data from the next half-year.

Who can use FIT and FIP

A common mistake is to assume that the fixed price is due only to agricultural biogas plants. Article 70a(1) of the Act on Renewable Energy Sources (consolidated text, Journal of Laws (Dz.U.) 2020, item 261), in points 1–6, lists: agricultural biogas, landfill biogas, sewage treatment plant biogas, biogas other than the above, hydropower and biomass. The requirements differ: the installation must have a separate set of equipment for power evacuation, the generator must be an energy undertaking, and the fuel must be exclusively one of those listed. An installation using "other biogas" uses the same system, only with a lower reference price: in 2020 PLN 470/MWh instead of PLN 650/MWh, which gives a FIT of PLN 446.5/MWh.

Up to 500 kW (a small or micro installation) FIT applies: the obligated seller or a selected entity buys unused energy at a fixed price. From 500 kW FIP applies: the generator sells energy to the market and the state — through the renewable energy settlement operator — tops up the difference to the fixed price. The price is 95% (FIT) or 90% (FIP) of the reference price from the regulation on the date of filing the declaration, is indexed by the annual average inflation and is reduced by any investment aid. The right lasts 15 years from the first sale, but no later than 30 June 2039, and a certificate from the President of the Energy Regulatory Office (URE) is required (Article 70b(8)). The "RDN only" scenario is an installation outside the support system: after the right has expired, by the generator's choice or outside the criteria.

How we calculate it

The model concerns a 0.5 MWel installation operating 8000 hours a year, i.e. about 10.96 MWh per day. All scenarios generate the same daily energy, because gas production is constant. The hourly RDN prices come from energy-charts.info (CC BY 4.0 licence), converted at the NBP rate from the delivery day. A 0.5 MW installation lies on the boundary of the classes: we calculate FIT according to the price for the class below 500 kW (a reference point), and FIP according to the price for the 500 kW – 1 MW class, to which an installation with a capacity of exactly 0.5 MW belongs. We compare: FIT, FIP with continuous operation, RDN with continuous operation, RDN with 2× and 3× operation, RDN with an energy store, and FIP with flexibility. Assumptions: knowledge of D-1 prices when choosing hours, no balancing costs, trader margin, distribution charges or engine wear from start-ups. We left out investment aid, so the FIT prices are an upper estimate. The RDN in the model is day-ahead prices for Poland from energy-charts.info (CC BY 4.0, Bundesnetzagentur | SMARD.de) converted at the NBP rate; in FIP settlement the Act refers to volume-weighted average prices from TGE, so the result is an approximation.

Figures for the half-year

The "2019 installation" price is 95% of the 2019 reference price (PLN 617.5/MWh) after cumulative indexation by the annual average CPI for 2019 (Article 70e(3); GUS: 102.3).

The monthly average rises from PLN 218.1/MWh in July to PLN 253.5/MWh in December, but throughout remains below half of the fixed price. There was not a single hour with a price below zero in the half-year.

The daily profile shows what flexibility gives: it is cheapest at 3:00 (PLN 191.0/MWh) and most expensive at 19:00 (PLN 267.0/MWh). The spread is small, so shifting operation adds only PLN 27.8/MWh (2×) or PLN 35.4/MWh (3×).

FIP and the positive balance

Under FIP the generator files a monthly report and an application for coverage of the negative balance: the difference between the fixed price and the average daily RDN price (the arithmetic mean of 24 hourly prices, Article 93(2)). Importantly, the reference is the average for the day, not the price in the hour of operation, so a generator operating in expensive hours keeps the whole premium from the profile. When the balance is positive, i.e. the market exceeds the fixed price, there is no support, but the positive balance does not lapse: Article 93(11) requires it to be offset against a future negative balance, and whatever is not settled by the end of the support period the generator returns to the settlement operator (paragraph 12). In 2020 this is theory — the market was far below the fixed price — but when market prices exceed the fixed price, this provision becomes significant.

Is a double-membrane roof enough

In the model, "2×" operation means that a generating set with capacity increased to about 1.0 MW runs only in the 12 most expensive hours of the day, and "3×" that a set of about 1.5 MW runs in the 8 most expensive hours; the same daily energy (about 10.96 MWh) is therefore produced in a shorter time, at higher power. Biogas from fermentation flows throughout the day (in the model about 216 Nm³/h, resulting from a capacity of 0.5 MWel, an electrical efficiency of 40% and a methane content of 53%), so the rest of the day is storage in the double-membrane roof. The gas balance for this half-year gives on average 3,045 m³ of capacity for 2× (95th percentile: 3,629 m³) and 3,852 m³ for 3× (4,839 m³). According to DLG, a single double-membrane roof with a diameter of 26 m has a gas capacity of about 2500 m³ (we adopt this as an assumption for Polish installations too): in this half-year it accommodates the 2× demand on 17% of days, and the 3× demand on 4% of days. Two roofs, i.e. 5000 m³, cover all days of the half-year in the model in both variants (the maximum demand did not exceed 5000 m³).

How much can be spent on flexibility

The premium for operating in the expensive hours is in this half-year PLN 27.8/MWh for 2× and PLN 35.4/MWh for 3× compared with continuous operation. After annualisation (×2, an assumption) this gives an annual surplus of PLN 112 thousand for 2× and PLN 143 thousand for 3×; divided by the annuity factor (12-year depreciation, cost of capital 10% or 6%), this gives a budget for an additional generating set and gas store of PLN 762–938 thousand for 2× and PLN 972–1,196 thousand for 3× (the lower value at a cost of capital of 10%, the higher at 6%). The cost ranges are assumptions, not offers: €500–800/kW of additional capacity plus €20–70/m³ of missing storage, at an exchange rate of PLN 4.3/€, which gives PLN 1,122–1,884 thousand for 2× and PLN 2,266–3,847 thousand for 3×. The arithmetic conclusion: both variants (2× and 3×) do not pay back even at the lower end of the cost range. The same benefit from the price profile occurs under FIP and in a pure RDN, because it stems from the market, not from support; FIT does not provide it, because it pays the same for every hour.

The third option: an energy store

A 0.5 MW / 1 MWh store, one cycle per day, 85% efficiency, adds PLN 5.4/MWh to continuous operation (revenue PLN 242.0/MWh). The average of the daily differences between the average price of the two most expensive and the two cheapest hours of the day is PLN 102.2/MWh. The annual surplus is PLN 22 thousand; with 15-year depreciation, servicing at 2.5% of capital expenditure per year and an average capacity degradation of 2% per year (assumptions), this allows spending PLN 119–146 thousand on the store, i.e. PLN 119–146 per kWh of capacity. The assumed range for the system cost is PLN 1,500–2,500/kWh, and for the additional grid connection PLN 50–400 thousand — these are assumptions, because there are no hard Polish prices for a scale like this. After deducting the connection (PLN 50–400 thousand) from the budget at a cost of capital of 6%, the permissible system cost is PLN -254 to 96/kWh; the store would not pay back under the assumed cost assumptions. The model ignores distribution charges for off-take, the capacity charge and the balancing market, so the result is rather optimistic.

Conclusions for this half-year

• The fixed price was 2.6 times higher than the average RDN price; a double-membrane roof shortens this difference by only PLN 27.8–35.4/MWh.
• FIP with flexibility (PLN 558.7/MWh) is the closest alternative to FIT, because it still benefits from support.
• An installation without support will not cover the costs of an additional generating set: the budget is PLN 762–938 thousand against costs of PLN 1,122–1,884 thousand.
• An energy store at such a price spread (PLN 102.2/MWh) is an add-on of negligible significance.