Fixed price or the day-ahead market? A biogas plant in H1 2023

No, after the crisis the fixed price won against the market again. In H1 2023 the average DAM price fell to PLN 567.2/MWh, i.e. 76% of the FIT for a new installation (PLN 745.8/MWh). A double-membrane roof and operating in the most expensive hours raise revenue to PLN 636.5/MWh (2×, 85% of the FIT) and PLN 661.7/MWh (3×, 89% of the FIT). Closest to the FIT is FIP with flexibility: PLN 713.6/MWh with 2× (96% of the fixed price) and PLN 738.8/MWh with 3× (99%). A generator that bet on the market in the previous two half-years returned to the pre-crisis level — with the difference that it is settled with a positive balance.

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 2022).

Fixed prices in 2023

The reference prices in force come from the regulation of 31 October 2022 (Journal of Laws (Dz.U.) 2022, item 2247): PLN 785/MWh for agricultural biogas up to 500 kW and PLN 715/MWh for the 500 kW–1 MW band. This gives a FIT of PLN 745.8/MWh and a FIP of PLN 643.5/MWh for new declarations (details in the analysis of reference prices for renewables 2022). An installation from 2019 after indexation by the 2022 index (114.4) has a FIT of PLN 785.3/MWh — which is already more than the price for a new declaration. The contribution to the Fund under the act on extraordinary measures still applied, but biogas and units up to 1 MW were exempt from it.

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 2019–2022 (Article 70e(3); GUS: 102.3; 103.4; 105.1; 114.4).

Monthly averages range from PLN 648.7/MWh in February to PLN 479.8/MWh in May and are entirely below the FIT. In May the market is PLN 266.0/MWh below the fixed price. There were 5 hours with a negative price in the half-year; under Article 93(5), energy from hours with a negative price is excluded from FIP settlement only when there are at least six such consecutive hours, so single hours do not take away support. If the generator itself switched off the generating set in hours with a negative price, DAM revenue would rise from PLN 567.2 to PLN 567.9/MWh, i.e. by pennies.

The daily profile has a minimum at 4:00 (PLN 503.1/MWh) and a peak at 19:00 (PLN 686.3/MWh). The gain from flexibility fell to PLN 69.3/MWh (2×) and PLN 94.5/MWh (3×).

FIP balance after 2022

A generator in FIP that recorded only positive balances in 2022 enters 2023 with a positive balance, which will be settled against future top-ups. Article 93(11) of the Renewable Energy Sources Act provides that a positive balance is settled against a future negative balance. In 2023 the market fell below the fixed price, so a negative balance arises, but its coverage may be reduced by earlier surpluses. Only once they are exhausted does the generator begin to actually receive top-ups. The table in this article does not carry balances between half-years, so the FIP result (PLN 644.3/MWh with continuous operation, PLN 713.6/MWh with 2×) is an upper estimate. The FIT has no such effect.

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 2,688 m³ for 2× (95th percentile: 3,629 m³) and 3,597 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 49% of days, and the 3× demand on 3% 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 69.3/MWh for 2× and PLN 94.5/MWh for 3× relative to continuous operation. After annualising (×2, an assumption) this gives an annual surplus of PLN 275 thousand for 2× and PLN 375 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 1,874–2,306 thousand for 2× and PLN 2,555–3,143 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 1,091–1,777 thousand for 2× and PLN 2,244–3,770 thousand for 3×. Accounting conclusion: the 2× variant pays back across the entire assumed cost ranges, while the 3× variant pays back only at the lower part of the cost ranges and a lower cost of capital. The same benefit from the price profile occurs in FIP and in the pure DAM (in FIP it is sometimes slightly larger, because flexible operation avoids hours excluded from settlement), 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 15.0/MWh to continuous operation (revenue PLN 582.2/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 269.7/MWh. The annual surplus is PLN 59 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 326–398 thousand on storage, i.e. PLN 326–398 per kWh of capacity. The assumed system cost range is PLN 1,200–2,000/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 -2 to 348 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

• A return to normal: the DAM at PLN 567.2/MWh is 76% of the FIT, and with 3× operation 89% of the FIT; the difference to the fixed price is PLN 84.1/MWh even in the best market variant.
• FIP with 2× operation (PLN 713.6/MWh) is closest to the FIT, but the positive balance from 2022 may reduce actual top-ups.
• The 2× variant pays back across the entire assumed cost ranges; the 3× variant pays back only at the lower part of the cost ranges and a lower cost of capital.
• The first hours with a negative price (5) do not yet change the calculation, but they signal a new type of risk for continuous operation.