Fixed price or day-ahead market? A biogas plant in H2 2021

Partly yes — in H2 2021, for the first time in this series, a biogas plant with a double-membrane roof selling electricity on the RDN matched the fixed price. With continuous operation the RDN brought PLN 511.8/MWh (83% of FIT of PLN 617.5/MWh), but operating in the 8 most expensive hours of the day (3×) gave PLN 627.0/MWh, i.e. 102% of FIT, and in the 2× variant PLN 598.3/MWh (97% of FIT). FIP with 2× operation reached PLN 670.4/MWh (with 3× operation — PLN 699.1/MWh). Among the causes of the rise in wholesale prices were, among others, more expensive gas and CO₂ emission allowances, and the December monthly average reached PLN 828.7/MWh.

A reminder of the mechanism

The support rules (Articles 70a–70f of the Act on Renewable Energy Sources (ustawa o OZE)), the scenarios and the model assumptions are described in the first analysis of the series. You will find the results for the previous half-year in the previous analysis of the series (H1 2021).

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 2019–2020 (Article 70e(3); GUS: 102.3; 103.4).

The market rose at a pace not seen in any of the previous half-years: from PLN 375.9/MWh in July to PLN 828.7/MWh in December, i.e. more than double. In December the average exceeded not only FIT, but also the fixed price for 2019 installations (PLN 653.2/MWh). There are still no hours with a negative price in the data of this series.

The daily profile is now much more spread out: from PLN 384.4/MWh at 3:00 to PLN 643.2/MWh at 19:00. The value of flexibility rises with the price level: the premium for 2× operation is PLN 86.5/MWh, and for 3× operation PLN 115.2/MWh — more than three times as much as a year earlier (PLN 27.8 and 35.4/MWh in H2 2020).

FIP, FIT and the positive balance

The difference between FIT and FIP begins to matter in practice here. FIT pays a fixed amount regardless of the market, so a rise in prices benefits the obligated seller, not the generator. Under FIP the generator sells energy to the market and receives a top-up only when the average daily RDN price is lower than the fixed price. When it is higher, there is no top-up, and a positive balance arises. Article 93(11) of the Act on Renewable Energy Sources requires it to be offset against a future negative balance, and Article 93(12) — to return to the renewable energy settlement operator whatever has not been settled by the end of the support period. The practical effect: the high prices of December 2021 (an average of PLN 828.7/MWh against the FIP price of PLN 531.0/MWh) create a positive balance that will reduce later top-ups. The FIP fixed price is PLN 531.0/MWh, and FIP with continuous operation in the table (PLN 583.9/MWh) is higher, because in the months in which the market exceeded the fixed price the generator keeps the market price. The model calculates the balance monthly and does not carry it over to subsequent periods, so the FIP in the table is an upper estimate for a generator that would use top-ups in subsequent months.

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 2,871 m³ of capacity for 2× (95th percentile: 3,629 m³) and 3,829 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 31% of days, and the 3× demand on 2% 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 86.5/MWh for 2× and PLN 115.2/MWh for 3× compared with continuous operation. After annualisation (×2, an assumption) this gives an annual surplus of PLN 349 thousand for 2× and PLN 465 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 2,377–2,925 thousand for 2× and PLN 3,166–3,895 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 1,107–1,832 thousand for 2× and PLN 2,264–3,840 thousand for 3×. The arithmetic conclusion: the 2× variant pays back across the whole assumed cost range, while the 3× variant pays back only at the lower part of the cost range and a lower cost of capital. 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 20.2/MWh to continuous operation (revenue PLN 532.0/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 325.5/MWh. The annual surplus is PLN 82 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 448–548 thousand on the store, i.e. PLN 448–548 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 148 to 498/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

• With continuous operation the RDN (PLN 511.8/MWh) still lags behind FIT by PLN 105.7/MWh; only 3× operation (PLN 627.0/MWh) exceeds PLN 617.5/MWh.
• The gain from flexibility rose to PLN 86.5–115.2/MWh, so the budget for the generating set and gas store is PLN 2,377–2,925 thousand for 2× against costs of PLN 1,107–1,832 thousand: the 2× variant pays back across the whole assumed cost range.
• FIP keeps its advantage over the pure RDN, but the positive balance from the expensive months will reduce future top-ups.
• An energy store (PLN 532.0/MWh) begins to look more sensible at a price spread of PLN 325.5/MWh, but still would not pay back under the assumed cost assumptions.