Feed-in Tariffs

Can the anaerobic digestion industry survive with the reduced feed-in tariff?

Anaerobic digestion (AD) can play a role in meeting some of the UK’s environmental policy objectives. AD produces biogas, a renewable, low-carbon energy source, which displaces fossil fuels. It also has some important co-benefits. Harmful methane emissions are reduced by diverting waste from landfill. Moreover, the digestate that remains after biogas has been produced can be applied to agricultural land in place of an artificial fertiliser.

The Committee on Climate Change has identified anaerobic digestion as a technology that can reduce emissions in the agricultural and waste sectors. However, in cases where biogas is made using purpose-grown crops, carbon emissions can actually increase through changes to land use. For this reason, it is important that there are appropriate safeguards on the sustainability of the feedstock, if genuine carbon savings are to be achieved. This is a concern that the Government has recognised, by making public support for AD contingent upon developers meeting sustainability criteria.

The last few years have seen a significant increase in anaerobic digestion capacity in the UK. The most recent figures from the Anaerobic Digestion and Bioresources Association (ADBA) show that in August 2015 there were 411 anaerobic digestion plants operating in the UK, generating over 500MW of power, with 89 new plants built in 2014 alone. The UK now has the second largest biogas industry in the EU, second only to Germany, which has over 8,000 AD plants.

The Government recently capped the amount of subsidy available through the feed-in tariff scheme and introduced a degression rate to encourage the industry to keep cutting its costs. For now, however, demand for new AD projects is strong. Within 15 minutes of this quarter’s scheme being opened, the cap for new AD generating capacity had been exceeded. DECC is forecasting an additional 17 new plants this year under the reduced subsidy regime. As the degression rate cuts the level of subsidy, projects supported through the feed-in tariff will likely become less economical and  harder to finance.

The Renewable Heat Incentive (RHI) also provides a subsidised revenue stream both for biogas and biomethane, an enhanced biogas that is injected into the gas grid. Following confirmation of funding for the RHI in last year’s Spending Review, DECC is now consulting on reforms to the structure of the scheme. Their consultation document sets out an ambition for an annual deployment of 20 biomethane plants by 2021 through the RHI. The Renewable Energy Association (REA) has found that, by the end of 2016, there will be enough UK biomethane capacity to replace four 60,000-tonne LNG tankers, with potential for this to rise to 45 tankers’ worth by 2035. This would reduce our LNG imports by a quarter and offer significant carbon savings.

One of the keys to the industry’s long-term future will be further cost reductions. In our Green and responsible conservatism report last year, we called on the Government to set out clear trajectories for phasing out subsidies for renewable energy technologies. The Government does not want to subsidise green industries in perpetuity through consumers’ energy bills. Subsidies are to be a temporary measure while supply chains and technologies develop, and costs fall.

There are signs that the industry is willing and able to meet this challenge. ADBA has recently launched a cost-competitive taskforce, which aims to bring down the levelised cost of energy to the same level as Hinkley Point C by 2020. The REA believes that the industry could also be helped by greater levels of food waste collection from households. Policy Exchange also called for mandatory food waste collection in their 2009 report on this subject. A report from the Green Investment Bank last year argued that greater consolidation of the number of operators in the AD market could also improve the economic feasibility of new projects.

Anaerobic digestion is still a developing industry, with some important challenges to be resolved. However, the changes to the Government’s subsidy regime will allow a small but successful UK industry to grow.

Sam Hall is a Researcher at Bright Blue

This article originally appeared in the May/June edition of Bioenergy Insight and can be viewed by subscribers here.