Fixed price or day-ahead market? A biogas plant in the second half of 2022

Yes, in the second half of 2022 the market was better than the fixed price, and by a clear margin. The average RDN price was PLN 903.4/MWh and the FIT for a new declaration was PLN 745.8/MWh, so the market exceeded it by PLN 157.6/MWh with continuous operation. 2× operation gives PLN 1088.2/MWh (146% of FIT), and 3× operation PLN 1177.9/MWh (158% of FIT). In August the monthly average reached PLN 1269.8/MWh. As in the previous half-year, a double-membrane roof is not needed to beat the FIT, but here the advantage is the largest in the series so far.

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 in the series. You will find the results for the previous half-year in the previous analysis in the series (H1 2022).

Reference prices and extraordinary measures

The regulation of 31 October 2022 (Dz.U. 2022, item 2247, in force from 5 November 2022) raised the reference price for agricultural biogas up to 500 kW to PLN 785/MWh, and for the 500 kW–1 MW band to PLN 715/MWh; we discussed it in the analysis RES reference prices 2022. For a new declaration this gives a FIT of PLN 745.8/MWh and a FIP of PLN 643.5/MWh; for "other" biogas the FIT is PLN 541.5/MWh. An installation from 2019 has a FIT of PLN 686.5/MWh after indexation. The regulation came into force only on 5 November, but for the whole half-year the model applies these prices as a simplification: from July to the beginning of November 2022 there was no new regulation, and in H1 the model used the 2021 values (FIT PLN 617.5/MWh). The June consolidated text of the Act states that the support period ends no later than 30 June 2047.

At the same time, the Act on extraordinary measures of 27 October 2022 (Dz.U. 2022, item 2243) introduced a levy to the Fund on generators' excess revenues, applied for the period from 1 December 2022 to 31 December 2023. What matters for biogas plants is that Article 21(1)(10) exempts biogas and agricultural biogas from the levy, and Article 22(1) exempts units with a capacity of up to 1 MW. A 0.5 MW installation was therefore not subject to the levy to the Fund.

Figures for the half-year

The price of an "installation from 2019" is 95% of the 2019 reference price (PLN 617.5/MWh) after cumulative indexation by the annual average CPI for 2019–2021 (Article 70e(3); GUS: 102.3; 103.4; 105.1).

The monthly average falls from PLN 1269.8/MWh in August to PLN 645.6/MWh in October. Even the lowest month of the half-year exceeds the FIP price of PLN 643.5/MWh.

The hourly average ranges from PLN 724.5/MWh at 3:00 to PLN 1318.3/MWh at 20:00. The evening peak means that 2× and 3× operation add PLN 184.8 and PLN 274.5/MWh respectively relative to continuous operation; this is the largest premium in the series so far.

FIP, the positive balance and the simplification trap

Under FIP the result of PLN 903.4/MWh with continuous operation equals the average RDN price, because the premium is zero: the monthly average RDN exceeded PLN 643.5/MWh in every month. This does not mean that the generator "profited from the crisis without consequences". A positive balance does not lapse: under Article 93(11) it is offset against a future negative balance, and under paragraph 12 whatever is not settled by the end of the support period returns to the renewable energy settlement operator. If prices fall below the fixed price, the premiums will be reduced by the 2022 balance. For a generator under FIT this problem does not exist, but it also receives no share of the market upswing.

Is a double-membrane roof enough

In the model, "2×" operation means that a genset with its capacity increased to about 1.0 MW runs only in the 12 most expensive hours of the day, and "3×" that a genset 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 around the clock (in the model about 216 Nm³/h, resulting from the 0.5 MWel capacity, 40% electrical efficiency and 53% methane content), so the rest of the day is storage in the double-membrane roof. The gas balance for this half-year gives an average of 2,769 m³ of capacity for 2× (95th percentile: 3,629 m³) and 3,829 m³ for 3× (4,839 m³). A single double-membrane roof with a diameter of 26 m has, according to DLG, 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 45% of days, and the 3× demand on 2% of days. Two roofs, that is 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 expensive hours is, in this half-year, PLN 184.8/MWh for 2× and PLN 274.5/MWh for 3× relative to continuous operation. After annualisation (×2, an assumption) this gives an annual surplus of PLN 746 thousand for 2× and PLN 1,107 thousand for 3×; divided by the instalment factor (12-year depreciation, cost of capital of 10% or 6%), this gives a budget for an additional genset and gas storage of PLN 5,080–6,251 thousand for 2× and PLN 7,544–9,282 thousand for 3× (the lower value at a 10% cost of capital, the higher at 6%). The cost ranges are assumptions, not quotations: €500–800/kW of additional capacity plus €20–70/m³ of missing storage, at an exchange rate of PLN 4.3/€, which gives PLN 1,098–1,801 thousand for 2× and PLN 2,264–3,840 thousand for 3×. Conclusion from the calculation: both variants (2× and 3×) pay back across the whole assumed cost range. The same benefit from the price profile occurs under FIP and in pure RDN, because it comes from the market and not from support; FIT does not provide it, because it pays the same for every hour.

A third option: an energy store

A 0.5 MW / 1 MWh store, one cycle per day, 85% efficiency, adds PLN 50.4/MWh to continuous operation (revenue of PLN 953.8/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 759.7/MWh. The annual surplus is PLN 204 thousand; with 15-year depreciation, servicing at 2.5% of capital expenditure per year and average capacity degradation of 2% per year (assumptions), this allows spending PLN 1,119–1,368 thousand on the store, that is PLN 1,119–1,368 per kWh of capacity. The assumed system cost range is PLN 1,500–2,500/kWh, and an additional grid connection PLN 50–400 thousand; these are assumptions, because there are no firm Polish prices for a project of this scale. After deducting the connection (PLN 50–400 thousand) from the budget at a 6% cost of capital, the permissible system cost is PLN 968 to 1,318/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

• RDN (PLN 903.4/MWh) exceeded FIT (PLN 745.8/MWh), and 3× operation (PLN 1177.9/MWh) gave 158% of FIT.
• The flexibility premium (PLN 184.8–274.5/MWh) covers the costs of additional capacity and gas storage within a year with a wide margin: the 2× variant pays back across the whole assumed cost range.
• The positive FIP balance from 2022 will reduce later premiums, so the extraordinary result is partly a "loan" from future years.
• The energy store adds PLN 50.4/MWh, the most in the series so far, and yet it would not pay back under the assumed cost assumptions.