«IEE Project ‘BiogasIN’ Examples for financing of biogas projects in Austria D.3.2., WP3 - Henning Hahn, Dominik Rutz, Erik Ferber, Franz Kirchmayer ...»
IEE Project ‘BiogasIN’
Examples for financing of biogas projects
- Henning Hahn, Dominik Rutz, Erik Ferber,
Franz Kirchmayer November 2010
2. Basics of financing biogas projects
3. Biogas plant financing in Austria
3.1. Support tools in Austria
3.2. Financing tools in Austria
1. Introduction The implementation of biogas projects requires three preconditions: good and stable legislative framework conditions, easy and transparent permitting procedures, as well as access to financing. If one of these three preconditions is weak or not given, the biogas project risks failure. In Europe, these preconditions are very good in countries like Germany and Austria. In other countries there is still considerable effort needed to improve them.
The present report provides an outline for financing conditions and procedures in the
top 5 EU countries with developed biogas market for agricultural biogas plants:
Germany (about 5000 agricultural biogas plants), Austria (320 biogas plants), Denmark (about 22 co-operated and 60 farm scaled biogas plants), the Netherlands (about 90 agricultural biogas plants) and Italy (150 farm based biogas plants). The graph on the next page illustrates the energy production of biogas in Europe.
This report serves as overview of good practices for biogas financing in countries with developed biogas markets. More precisely, this report shall assist policy makers and financing bodies in the BiogasIN countries: Bulgaria, Croatia, Czech Republic, Greece, Latvia, Romania and Slovenia to develop good framework conditions for biogas financing.
The BiogasIN project is supported by the “Intelligent Energy for Europe Programme” by the European Commission and aims to create a sustainable biogas market in Central and Eastern Europe (CEE): Bulgaria, Croatia, Czech Republic, Greece, Latvia,
Romania and Slovenia. Core of BiogasIN is the removal of framework barriers in CEE:
high administrative barriers both in permitting and financing phases.
Figure 1: Primary energy production of biogas in Europe in 2007 [EurObserv‘ER] Legend: Landfill gas Sewage sludge gas Other biogas (decentralised agricultural plant etc.)
2. Basics of financing biogas projects The initial investment for a biogas plant is generally very high and it usually requires the application of sound financing tools. The following list includes the investments
and costs for a typical agriculture biogas plant:
Costs for planning: engineering costs, costs for permits, taxes, certificates, etc.
• Costs for equipment (investment costs): technical equipment, buildings, • storage facilities, infrastructure, grid connection, etc.
Depending on the size of the biogas projects and the feedstock type, typical investors in biogas plants are single farmers, several farmers jointly investing in one biogas plant, and industry. In some cases also other investors are involved, such as e.g.
municipalities or waste companies.
Financing bodies will finance biogas projects depending on the expected financial performance compared to the project risks and depending on the credit worthiness of the investor. In general, profitability of investment in biogas project strongly depends on availability of the national supporting scheme (either as feed-in tariff or green certificates) and assurance that the project in question will be eligible to benefit from the support system at the operational phase.
Due to the high capital costs, usually debt capital is required for the implementation of biogas projects. Furthermore, equity capital of 20-30% of the total capital cost is usually required. In some countries, it is possible to receive a certain amount of project funding from public sources or to obtain low-interest credits. Public sources should be considered and included in the calculation/financial planning process.
Subsidies for biogas plants can be received for various fields of interest: agriculture, regional development, renewable energy projects, environment, structural funds, etc.
Common financing methods are credits from private banks. As indicated in Figure 2 below, there are two main types of typical financing for biogas projects: traditional financing by loans and project financing.
Figure 2: Traditional loan financing and project financing concepts For traditional financing the credit history of the company or investor (e.g. farm) plays an important role. On the one hand, the liability of the company depends on the assets of the biogas plant and, on the other hand, of the company which is in many cases the farm. Decisions of the financing bodies depend upon the annual financial statements of the company. This is the typical financing tool for single farmers investing in biogas projects.
In the framework of the project financing, the biogas project itself is regarded as legal entity (Figure 2). This tool is often used for projects in which several shareholders are involved (e.g. several farmers). Main criteria of this future oriented concept are rates of return and success of the project. Decisions regarding loans are based on the assets and the cash-flow of the biogas project. The predictability of the
cash-flow is thereby the important parameter/criteria, depending on following factors:
Contracts of electricity and heat sale • Availability and price of feedstock material • Legislation and insurance • Qualification and knowledge of the operator • Due to the good and predictable framework conditions, this cash-flow based concept is widely applied, for instance, in Germany.
Another financing tool is investment funds. An investment fund involves money from several small investors. All of them are investing in one biogas project. Costs and benefits are shared between the investors upon the consortium or joint venture agreement. Farmers can form a cooperative where each farmer has a share in biogas revenues proportionally to the provided substrate and its biogas yield and methane content.
Another financing option would be the cooperation with energy contractors. A contractor is usually a company specialised in biogas production. The type of cooperation with these contractors is manifold.
Finally, a biogas plant or dedicated equipment can be leased. The leasing company and the biogas plant operator are concluding a leasing contract. This may include whole biogas plants or the cogeneration unit, only. Leasing of cogeneration units is widely applied.
All above financing options could be combined and form some kind of derivative tailored for targeted niche of investors.
3. Biogas plant financing in Austria Since the turn of the millennium there has been a large growth in the building of new biogas plants in Austria. But from 2005 this development has decreased due to the unfavourable conditions of the EEA (Ökostromgesetz or Eco-electricity Act). The stop-and-go policy of this law led to a decrease in investments and was detrimental to the planning phase for biogas plants. Today about 320 biogas plants with an electrical capacity of 76 MW are installed. Furthermore 8 biogas plants have been built for the production of biomethane, including upgrading systems for feed-in into a natural gas net or for the use of biomethane as petrol.
Besides good financing opportunities, other prerequisites are important for the
development of a sound biogas market:
Development of stable policies for biogas project development • The introduction of feed-in electricity tariff s with a stable long term strategy • Best practice plants and a good backing through the population • Calculability of the financial risk of biogas projects due to stable policies, • legislation, and due to the accumulated biogas knowledge.
Typical investors in biogas plants are single farmers, groups of farmers jointly investing in one biogas plant, municipalities, energy utilities, waste companies and the industry. The average electrical size of biogas plants in Austria is about 250 kWel.
The size of the biogas project and the feedstock type furthermore influence the capital costs which in Austria usually range from 4 500 to 7 000 €/kWel. Capital costs are usually too high to be financed using equity capital only, and thus, financing concepts usually include a large percentage of debt capital. The diagram below shows the specific investment costs of several plant sizes.
Figure 3: Investment costs of biogas plants with agricultural feedstock [€/kWel] (Source: Austrian Compost&Biogas Association)
3.1. Support tools in Austria
At the moment the prerequisites for new biogas plants are not very favourable in Austria due to low feed-in tariffs and volatile feedstock prices for corn silage. Since 2005, investors have reacted conservatively to investing in new biogas plants due to unsafe framework conditions.
The EEA encourages production via feed-in tariffs and via investment subsidies and a new scheme was being prepared in 2009. This includes a feed-in tariff scheme for biogas. The table below shows the current feed-in tariffs for biogas. The tariff is guaranteed for 15 years as from the beginning of the feed-in remuneration. Austria’s feed-in tariff depends on the facility size and ranges in 2010 from 0.13 to 0.185 €/kWh. Furthermore, an additional bonus of 2 €ct/kWh for combined heat and power generation (CHP) is possible.
Table 1: Feed-in tariffs for electricity production from biogas in 2010
Facilities up to 250 kW must use a share of 30% manure • By use of non agricultural feedstock, the feed-in tariff will be reduced by 20 percent • Additionally CHP bonus of 2 Cent / kWh when certain efficiency criteria are fulfilled • Along with the EEA, the main subsidy program on a national level is implemented through the Federal Ministry Agriculture, Forests, Environment and Water Management (BMLFUW) and managed by the “Kommunalkredit Public Consulting GmbH” which provides investment subsidies. The “Umweltförderung im Inland” covers mainly the heating sector with enterprises being the target group. In the field of biogas the following plants or plant sections are promoted in Austria.
Biogas plants for the production of biomethane including upgrading systems for • biogas for grid injection or using as petrol Biogas plants which use biogenic feedstock and residues (min. 50% heat use) • o the subsidy can only be used when the biogas plant is not listed as eco electricity facility and the feed-in tariff is used o Otherwise only the heat distribution grid for the used waste heat can be promoted o The share of biogenic feedstock and residues must have a minimum of 95% of the fuel heat input The complete environmental relevant investment costs have to be at least of EUR
10 000. The feedstock has to be captured regional. The transport distance of the feedstock is limited by 100 km.
The standard is 25% of the environmental relevant costs. An additional sustainability charge of 5% is possible. The subsidy is only granted when the biogas plant is not listed as an eco electricity facility and the feed-in tariff is used, otherwise only the heat distribution grid for the used waste heat can be promoted.
The environmental relevant costs are additional costs to reach higher standards of environmental protection which are required due to EU community law and EU environmental policy.
For reference, the investment costs of a technically comparable investment have to be considered. As far as the promoted technology using or is producing energy from renewable the reference costs based on fossil fuels or conventional feedstock. The “Kommunalkredit Public Consulting GmbH” has a list of those technologies that have to be used as reference for the major investment eligible technologies.
The opportunity to gain revenues from the sale of upgraded biogas to natural gas quality (biomethane) through the national natural gas distribution network is currently under discussion and will be promoted in the near future.
Whether from federal state or local level, support depends on the current political framework and is subject of continuous changes. At a local level, municipalities or cities also have some possibilities for implementing energy measures. The federal states have a further promotion opportunity through technology subsidies within the eco electricity act.
Biogas plants with a maximum capacity of 100 kWel have an average promotion quota of approx. 25 to 40% of the environmentally relevant total investment costs. Biogas plants with a maximum capacity of 250 kWel have an average promotion quota of approx. 20 to 30% of the environmentally relevant total investment costs. Biogas plants with a maximum capacity of 500 kWel have an average promotion quota of approx. 5% to 10% of the environmentally relevant total investments. Each time only the relevant investments for heat production were promoted.
3.2. Financing tools in Austria There are several opportunities for financing biogas projects in Austria.
private consulting and technology companies specialised in financing and • leasing of renewable energy projects financing and leasing by specialised staff of banks and credit institutes.
• An equity capital of 20-30% of the capital costs should be possible for a good financing performance. Generally, many banks in Austria are well prepared to finance biogas projects and usually have dedicated experts. Most house banks of farmers are familiar with this topic and will provide assistance for biogas projects. Energy contracting in the field of biogas production is currently rarely applied.
For credit approvals, all permissions and a valid supply contract with the Austrian settlement centre for green electricity (OeMAG) have to be submitted. After that the profitability will be calculated.
The financing costs are calculated using the WACC-approach (Weighted Average Cost of Capital). It will be assumed that investment subsidies reduce the equity. Therefore, the type of financing will be influenced by the amount of the investment subsidies.
4. References Federal Ministry for the Environment, Nature Legal sources on renewable energy, http://www.res-legal.eu, standing 14.07.2010 Conservation and Nuclear Safety 5. Contacts Fraunhofer-Institute for Wind Energy and Energy System Technology Division Bioenergy System Technology M.Sc. Henning Hahn Königstor 59 34119 Kassel Germany Phone: +49/(0)561/7294-261 Fax: +49/(0)561/7294-260 email@example.com www.iwes.fraunhofer.de WIP - Renewable Energies Dipl. Ing. Dominik Rutz M.Sc.
Sylvensteinstr. 2 81369 München Germany Phone: +49/(0)89/72012739 Fax: +49/(0)89/72012791 Dominik.firstname.lastname@example.org www.wip-munich.de European Biogas Association Ing. Franz Kirchmayr Vice President Avenue de la Fauconnerie 73 B – 1170 Brussels Belgium Mobile +43/6643040761 email@example.com