There’s a new beast grazing the fields of Britain. Like a conventional cow, it consumes grass, but also other plant matter and even waste food.
Like any other cow, it churns the plant matter over in its belly – but instead of releasing methane, it captures it for energy production. Meet the anaerobic digester.
In January, the government confirmed it would double incentives for biogas production in England and Wales in 2009, making investment in biogas plants much more attractive.
So for a farmer looking to invest in renewable energy production on-farm, this would mean £100 instead of £50 for each unit of power supplied.
David Collins, biogas spokesman for the UK’s Renewable Energy Association, reckons a “huge expansion” is about to take place, following the introduction of double Renewable ObligationCertificates.
Under the ROC system, electricity suppliers like E.On and Powergen use these certificates to show they meet an obligation to supply a certain amount of energy from renewable sources each year.
If they have not produced all of this renewable energy themselves, they pay a penalty and must buy the certificates from brokers or other renewable suppliers in the market, such as biogas companies. They can now sell two ROCs into the market instead of one per megawatt hour (MWh) of electricity produced.
A series of increases in the annual targets suppliers must meet for renewable energy has contributed to the value of ROCs.
Owen Yeatman, director of anaerobic digestion company Biogas Nord, says: “The double ROCs system gives us the price we need and will enable anaerobic digester projects to move ahead.”
Mr Yeatman is a Dorset farmer about to commission a new anaerobic digester plant which will be fuelled by farm waste and energy crops. He reckons farmers now have as good a deal as their colleagues in Germany, whose biogas industry, kick-started in the 1990s, is flourishing largely due to an attractive fixed power price that guarantees a certain level of income for AD developers.
There were more than 3500 plants in Germany by the end of 2006 with a total capacity of 1100MW – enough to power more than 500,000 households – generating 5.4bn kWh and employing 7000 people. Could this be the future for Britain, which now only supports a handful of farm-based biogas plants?
Mr Yeatman certainly believes that investors are more likely to back farmers’ projects because of the government’s change of tack on biogas. “Here, banks wanted you to have another security, because before the double ROCs came in, the income stream from biogas was not enough,” he says. No such collateral was expected during the development of the Germanindustry.
As corporate social responsibility manager at Marks & Spencer (M&S), Mike Barry, represents a company investing indirectly in biogas. M&S has agreed groundbreaking green energy supply contracts with two AD companies, including Biogas Nord. This is part of helping the retailer meet its plans to operate on 100% renewable energy by 2012.
Mr Barry reckons recent developments in the sector could make a significant difference to farmers: “The contracts could be a key development in helping farmers secure finance. Many we have spoken to have been very keen to develop AD facilities but cannot raise capital without assurance on future earnings,” he says.
He believes M&S, and perhaps other retailers in future, could play a major role in driving demand for biogas. Plants could also be built to manage sewage, landfill gas and household waste: “There are easier wins [than household waste], like collecting farming and food manufacturing waste,” says Mr Barry. “A good place to start is with your farm suppliers, which then allows you to develop a critical mass around the UK.” This is because the logistics of household food waste collection are more complicated.
Retailers as well as farmers can make a solid commercial gain from choosing biogas. Apart from receiving this new source of income, farmers may also be able to improve their circumstances even further by securing better contract lengths with individual companies like M&S than they would with major energy suppliers.
“Longer-term power contracts are very attractive to both supplier and food producers, so there’s a double win,” says M&S energy project manager Nigel Hursthouse.
There are also real benefits to the retailer by diversifying its energy sources. “Generally people are aware that there’s been a bit of a stranglehold by a few national energy companies making huge profits.
“If we buy all our energy from one supply base, we are tied into one contract, whereas now we have the opportunity to buy from many different sources and that’s a strong incentive for us. We would like to work with hundreds of farmers.”
Many of these could be among the retailer’s existing pool of food suppliers, he says.
New biogas developers are surfacing in the UK. Lincolnshire-based biogas company Renewable Zukunft (German for “future”) is run by farmer Tim Evans, who is also working with M&S.
He says he is already onto the next generation of biogas plants, which he plans to start rolling out across the country this year in his own business and also sell into the market. Mr Evans, who has 15 years of experience in Germany, wants to bring in Austrian expertise through new technology he claims is more efficient than its predecessors.
“Feedstock costs are minimised and profitability increased by producing the same gas yield from fewer tonnes of feedstock. The process consistently achieves 85% degradation of feedstock, whereas other systems typically achieve around 70%. This reduces the tonnages required and therefore the area of land required to feed the process,” he says.
Investors too are starting to view anaerobic digestion plants as a going concern.
Nigel Taunt, director of investments at Impax Capital, a venture capital company specialising in fledgling environmentalbusinesses, sees a positive future.
“It’s very straightforward chemistry that looks safe and works,” he says. “We would invest in the UK in a company of sufficient scale which had the right management team and the right economics.”
Attracting venture capital investment would mean demonstrating return on capital, the cost of the land the business is on, the origin of the feedstock, the gate fees and the relationship between the business and the host farm (where these are separate).
Two questions remain, however. The National Grid here is less accessible than in Germany, where utilities provide farmers with the extent of grid connection they need.
According to Owen Yeatman, a UK plant would need to deal with the fact that it may not be able to feed everything it wants to into the grid, while at the same time paying fixed grid connection costs.
“Here, we’re constrained by what the grid can take,” he says. To deal with this problem, he reckons farm plants need a capacity of at least 250kW.
The second question is attaining planning permission. Nigel Taunt says: “Planning is probably the single biggest hurdle renewable energy businesses have to face. But biogas has one or two advantages.
“You would only build it on a farm next to big green agricultural sheds already standing. A big green drum doesn’t look out of place in that landscape. Public opposition will be pretty limited compared to wind farms or waste incinerators and on top of that you’re trying to take waste and make it less unpleasant than if it were lying on the ground.”
Find out more
Methane to Markets www.methanetomarkets.org
Renewable Energy Association www.r-e-a.net
German renewable energy
German Biogas Association www.biogas.org
Biogas Nord (biogas plant manufacturer) www.biogas-nord.com