Fixed price or the day-ahead market? A biogas plant in H1 2021

No — in H1 2021 the fixed price was still more than twice as high as what a biogas plant could obtain on the day-ahead market. The average day-ahead market price was PLN 283.2/MWh, and the FIT for a new installation below 500 kW was PLN 617.5/MWh. Operating in the most expensive hours with a double-membrane roof gives PLN 311.8/MWh (2×) and PLN 321.1/MWh (3×), i.e. 50% and 52% of the fixed price. The best result without a fixed price is FIP with flexibility: PLN 559.6/MWh. The market is clearly rising compared with the previous half-year, but the gap remains large.

Reminder of the mechanism

The support rules (Articles 70a–70f of the Renewable Energy Sources Act, ustawa o OZE), the scenarios and the model assumptions are described in the first analysis in the series. You will find the results of the previous half-year in the previous analysis in the series (H2 2020).

Reference prices and indexation in 2021

The 2021 regulation (Journal of Laws (Dz.U.) 2021, item 722, of 16 April 2021) maintained the reference prices for electricity: PLN 650/MWh for agricultural biogas up to 500 kW, PLN 590/MWh for the 500 kW–1 MW band and PLN 470/MWh for "other biogas". Hence the FIT of PLN 617.5/MWh (95% of PLN 650, the class below 500 kW) and the FIP of PLN 531.0/MWh (90% of PLN 590, the 500 kW – 1 MW class). The regulation was published on 19 April 2021, i.e. during the half-year, but the values for biogas are the same as in the 2020 regulation (Dz.U. 2020, item 798), so the result does not depend on this date. For installations with high-efficiency cogeneration the regulation gives a higher reference price of PLN 760/MWh, which translates into a FIT of PLN 722.0/MWh. This is significant: a cogeneration biogas plant can obtain a fixed price about PLN 100/MWh higher, and that amount is independent of the market.

An installation that submitted its declaration in 2019 has the 2019 price indexed for inflation. After taking into account the annual average consumer price indices for 2019 (102.3) and 2020 (103.4), its FIT is PLN 653.2/MWh (617.5 × 1.023 × 1.034), and its FIP PLN 561.7/MWh. The older installation is thus about PLN 36/MWh better off than a new one — indexation works in an upward direction as long as inflation is positive.

Half-year figures

The price of the "2019 installation" 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 monthly average rises from PLN 248.8/MWh in January to PLN 343.1/MWh in June. That is an increase of more than a third in half a year, but even the June average is only slightly more than half of the FIT price. There were no hours with a negative price.

The daily profile has a clear minimum at night (3:00: PLN 238.2/MWh) and an evening peak (19:00: PLN 327.4/MWh). 2× operation places production in the most expensive hours of this curve, but in absolute terms it is only PLN 28.6/MWh more than continuous operation.

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 during the 12 most expensive hours of the day, and "3×" that a set of about 1.5 MW runs during the 8 most expensive hours; the same daily energy (about 10.96 MWh) is thus produced in a shorter time, at higher power. Biogas from fermentation flows around the clock (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 implies an average capacity of 2,771 m³ for 2× (95th percentile: 3,629 m³) and 3,518 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 43% of days, and the 3× demand on 5% of days. Two roofs, i.e. 5000 m³, cover all days of the half-year in the model in both variants (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 28.6/MWh for 2× and PLN 37.9/MWh for 3× relative to continuous operation. After annualising (×2, an assumption) this gives an annual surplus of PLN 114 thousand for 2× and PLN 150 thousand for 3×; divided by the instalment factor (depreciation of 12 years, cost of capital 10% or 6%), this gives a budget for an additional generating set and gas storage of PLN 774–952 thousand for 2× and PLN 1,023–1,259 thousand for 3× (the lower value at a cost of capital of 10%, the higher at 6%). The cost ranges are assumptions, not offers: EUR 500–800/kW of additional capacity plus EUR 20–70/m³ of missing storage, at an exchange rate of PLN 4.3/EUR, which gives PLN 1,098–1,802 thousand for 2× and PLN 2,238–3,747 thousand for 3×. Accounting conclusion: both variants (2× and 3×) do not pay back even at the lower end of the cost ranges. The same benefit from the price profile occurs in FIP and in the pure DAM, because it comes from the market, not from support; the FIT does not give it, because it pays the same for every hour.

A third option: energy storage

A 0.5 MW / 1 MWh storage unit, one cycle a day, 85% efficiency, adds PLN 5.4/MWh to continuous operation (revenue PLN 288.6/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 109.7/MWh. The annual surplus is PLN 21 thousand; with a depreciation of 15 years, servicing at 2.5% of outlays a year and average capacity degradation of 2% a year (assumptions), this allows spending PLN 117–143 thousand on storage, i.e. PLN 117–143 per kWh of capacity. The assumed system cost range is PLN 1,500–2,500/kWh, and the additional connection PLN 50–400 thousand — these are assumptions, because there are no hard Polish prices for this scale. After deducting the connection (PLN 50–400 thousand) from the budget at a cost of capital of 6%, the permissible system cost is -257 to 93 PLN/kWh; the storage would not pay back under the assumed cost assumptions. The model omits distribution charges for offtake, the capacity charge and the balancing market, so the result is rather optimistic.

Conclusions for this half-year

• The DAM at 2× operation (PLN 311.8/MWh) is 50% of the FIT; the difference is PLN 305.7/MWh to the market's disadvantage.
• For a generator with cogeneration the FIT is higher still (PLN 722.0/MWh), so the distance to the DAM grows.
• FIP + 2× (PLN 559.6/MWh) is 91% of the FIT: support plus flexibility remains the only option approaching the fixed price.
• An additional generating set and gas storage do not pay back even at the lower end of the cost ranges; energy storage does not change the picture (PLN 5.4/MWh extra).