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25/09/2021 Green Gas in the UK  –  Where do we go from here?

There are now an estimated 675 AD plants in the UK generating green gas of which the majority supply biogas to CHP’s that generate electricity for grid export and heat. A smaller number, circa 100, inject the green gas directly into the gas grid after removing CO2. Gas to grid is the most efficient application of biogas technology and the one that has attracted further Government support as it is a direct substitute for natural gas. Decarbonising the UK heat network is a key policy objective and a number of strategies are under consideration including biogas, heat pumps and hydrogen all of which present significant challenges. Whereas biogas (Anaerobic Digestion)  is a well established global technology and a good substitute for natural gas it still requires subsidy support in order to attract long term  investment capital.

The initial growth of the industry was driven through the introduction of long term tariff incentives which degressed  as more plants were built.  A  key assumption of tariff support was that the costs of building plants would fall as the industry grew but this hasn’t really been the case.  This is partly due to the nature of AD plants which typically consist of four separate components: a concrete slab, large digester tanks, a lot of pipework and a grid connection all linked to a control system. Achieving manufacturing synergies has proved challenging added to which a number of plant equipment suppliers have gone into administration.  The growth of the biogas industry in the UK strongly correlates to the level of tariff support and as this has degressed then so has the level of new plant installations. The proposed replacement of the RHI subsidy with the Green Gas Support Scheme is a positive move for the industry although the proposed tariff rates are not significantly different to the outgoing RHI scheme. Therefore it is unlikely that this scheme alone will generate the hoped for increase in new plant capacity.

The AD Conundrum

The main constraint on expanding the biogas industry is the availability and price of organic feedstocks. AD plants typically process organic wastes, energy crops and farm residues. Food waste plants have traditionally charged gate fees to process the waste but these have declined as more plants were commissioned. The use of energy crops which were widely used in Germany as a feedstock have been restricted in the UK under sustainability criteria. This therefore means that new agricultural AD  plants will require a large supply of farm slurries or alternative feedstocks to supplement the energy crops. Sustainability criteria also demands that feedstock is sourced locally so that any new plant needs to be located close to a farm but also close to a large enough gas grid suitable for the injected  gas volume proposed.  These two factors alone have a significant impact on growing the market. In many ways AD technology works most sustainably when processing food waste and there are a number of well established plants processing food waste very efficiently. However future market growth potential is limited by the availability of waste volumes. Therefore most of the new plants being built today are based on the agricultural model of slurries and energy crops.

Value for money is a key issue for any Government tariff support scheme but  decarbonisation of the heat network presents significant challenges. Green gas is a natural replacement for natural gas therefore it would be a reasonable policy adoption that any subsidy for green gas should be paid by natural gas suppliers and users. The core assumption on carbon pricing/tax is that the polluter pays, therefore it would be reasonable to let him pay to support the production of green gas.  The new RHI tariff replacement is designed to kick start a new phase of green gas expansion and we await to see the actual detail behind the scheme. However the concern is that without an uplift to the existing tariff levels and a relaxation on the use of energy crops it is unlikely to provide the stimulus to the sector required.

The conundrum is thus, AD as a technology works well and green biogas is an ideal replacement for natural gas as it can utilise the existing distribution infrastructure, however the industry still requires government tariff support to attract private investment. The key to unlocking the potential for the industry is to find cheaper organic feedstocks with higher biogas yields which comply with a long term sustainable land use strategy.

Written by Nick Ross

25/06/2021 Technology focus – Carbon Capture

There is no doubt that Energy from Waste (EfW) is a much-needed addition to processing municipal solid waste. There is still a vast quantity of refuse material that cannot be recycled due to there being no local separate collection mechanism in place for organic (kitchen) wastes, or because there are limitations in recycling technology both financial and practical, for such things as certain plastics, metals, glass etc.

Recently there has been a significant focus on carbon emissions from industrial facilities, including the EfWs, given the prospect of the introduction of a carbon tax.  

Before talking about carbon capture it is important to distinguish between “biogenic” carbon and “non-biogenic”. The uptake of carbon dioxide (CO2) from the atmosphere during photosynthesis is a natural process and this “capture” of CO2 results in a removal of CO2 and storage in plant biomass (biogenic carbon). For greenhouse gas (GHG) accounting purposes, biogenic carbon capture can be considered as a reduction or a “negative emission”. All residual waste contains biogenic carbon and it will be possible for the EfWs to achieve negative CO2 emissions by incorporating carbon capture technology on site. Thus, neutralising other emissions which are difficult to reduce/remove and providing cities with a necessary mitigation of climate change from waste generation and processing.

Proactive innovation is required in the near future if we are to achieve net-zero carbon emissions in the UK and this is why the development of carbon capture solutions has drawn considerable attention in the past two years. One of the most popular methods of carbon capture are catalytic systems, as they produce products which can be utilised in transport fuels or the chemical industry, whilst reducing GHG emissions. Typically, in such systems, a stream of gas containing CO2 passes through water (or another liquid medium, such as amines) to deliver CO2 for the electrochemical reaction. The challenges of such systems are energy consumption and catalysts usage, which all result in substantial costs. However, these can be offset by converting CO2 into carbon-based products which have industrial applications (such as ethylene, for example). One of the advantages of such post-combustion process capture CO2 systems is that they can be fitted retrospectively at the operational facilities. Such systems are now being explored by leading waste management companies like Veolia and Suez.

There are two very important elements of the carbon capture technologies which need to be considered along the capital costs:

  • Need to ensure that all of the solvent is recovered and not emitted with the flue gasses to minimise operation costs and reducing environmental impact
  • Energy efficiency, as carbon capture can be an energy-intensive process, thus increasing parasitic load of the EfW
  • Absorption area which will lead to a more effective utilisation of the system
  • Technology based on resistant materials, as amine-based solvents, CO2 can corrode the system

There are a number of captured CO2 uses which have been already used in the industry, such as injecting CO2 into depleted oil fields to enhance oil recovery and greenhouses to boost plant growth. But other uses are also being developed: building materials (converting CO2 gas into a solid aggregate for concrete and thus sequestering it for hundreds of years); organic chemicals (soaps, detergent, fertilizer, bioplastic, synthetic fuels, textile dying industry).

Carbon Capture Technologies

It is worth having a look at some of the emerging Carbon Capture technologies such as:

Compact Carbon Capture technology (http://compactcarbon.no/) offers a modular, compact solution capable of capturing CO2 in the range of 10k to 1m tonnes per year. This technology uses rotating beds instead of the usual gravity-based columns to bring the flue gases in contact with the solvent, thus reducing the footprint and capital costs. The company can reduce the carbon capture costs below $120 per tonne now and work on improvements that will halve the cost.

Carbon Clean (https://www.carbonclean.com/ ) also offers a modular solution, suitable for retrofitting as its installation allows minimal site disruption time. It also offers semi-modular systems, which can be incorporated during the design of the facility and is fully scalable. The technology utilises a patented process, involving a proprietary solvent (absorber) that extracts CO2 gas. Carbon Clean is targeting to reduce the cost to $30 pet tonne making decarbonisation more affordable.

Aker Carbon Capture (https://www.akercarboncapture.com/ ) is a provider of another cost-effective technology, which uses a mixture of water and organic amine solvents to absorb CO2. Aker has already signed an agreement to deliver their system with one of the EfWs to capture 100,000 tonnes of CO2 per annum.

O.C.O. Technology (https://oco.co.uk/waste-treatment/ ) provides a great solution for capturing significant volumes of CO2 from the residues (ash) produced by the EfWs by producing a carbon-negative artificial aggregate, known as Manufacture Lime Stone. It has three UK operations in Leeds, Avonmouth and Suffolk, where c.310,000 tonnes of carbon-negative aggregate was produced in 2020.

Written by Julia Safiullina

Energy Storage

25/01/2021 The Challenges and Opportunities of battery storage systems (BESS) for the Infrastructure Investor: Effect of macro trends

For the last three years, there has been growing interest within the infrastructure investment sector in energy storage systems, specifically electricity storage using batteries, so-called battery energy storage systems or BESS.  This has been driven by a number of really interesting macro-level factors which have the potential to drive economic and social change on a scale not seen since the industrial revolution in the mid and late 19th century. 

When considering the challenges posed by battery storage to the infrastructure investor, it is well worth bearing in mind the impact and the speed of these global changes, and how these changes will interact with the risk appetite and mindset of the infrastructure investment community.  Perhaps more importantly, the attitudes and preconceptions to infrastructure investment held by the wider investment and portfolio management industry must also be considered in this context.  

Global Trends 101

We have to start with some sort of agreed position from where to make deductions about global trends over the lifetime of infrastructure projects in order to understand the challenges to be faced and opportunities offered.  As a starting premise, I would like to contend the following:

A significant rate of global warming is occurring right now as a result of the release of CO2 into the atmosphere from the combustion of fossil fuels by humans all around the world.  This release of CO2 has historically been disproportionately caused by countries in Europe and North America but is now happening pretty uniformly across the globe.  The effect of the warming of the global climate will have generally negative impacts on most people on the planet as sea levels rise, the availability of fresh water becomes restricted, and the weather becomes more volatile”.  

Ewan Gorford – Asset Manager (and amateur futurologist) – Iona Capital – March 2021

Whilst there are elements of this statement that could be considered contentious to some, it seems like a reasonable place to start. 

Deduction 1 – We have to stop burning: 

If we are serious about the target set in the Paris Climate Accords of limiting global temperature rise to 1.5oC, the entire human economic and social system has to change how it is powered.  The release of long-chain carbon locked up in the earth’s crust must stop as soon as is practicable. 

Deduction 2 – variable generation is great, but it is variable: 

Whilst nuclear fusion and hydrogen technologies may be just over the horizon, the guaranteed way to generate low carbon energy available today is from variable renewables, specifically photo-voltaic arrays and wind turbines.  With economies of scale these have the potential to generate all of our energy requirements, but not all of the time.

Deduction 3 – variable renewables will kill unsubsidised fuelled generation: 

Wind and solar PV have low fixed costs and minimal variable costs.  Solar arrays need to be cleaned, and wind turbines need lubricating and the occasional gearbox service [1].  This is in stark contrast to fossil fuel and nuclear generation.  Consequently, the more MW of variable renewable generation is added to a given electricity grid, the lower the average £/MWh cost of power will fall. 

Conversely, the volatility of the power price will increase with massive power price spikes when significant volumes of variable generation fall away.  This effect is visible on the UK network which has is increasingly dependant on offshore wind generation, and is becoming very obvious in areas such as California and South Australia where there are very high rates of adoption and utilisation rates of solar PV.  It is unsurprising that these two jurisdictions are the global leaders in the roll-out of 100MW plus battery systems. 

Deduction 4 – the grid still needs to be balanced: 

As a result, it becomes harder to keep the electricity grid in balance, and there is an ever-increasing need for zero CO2 emissions infrastructure which enables the grid frequency to be maintained.  The grid operator and the customer will have to pay to balance the grid.  This will either be in the form of electricity storage or maintaining large polluting legacy gas power stations which are rarely used and are very expensive to operate and maintain.  If this is not done, eventually the electricity grid will not be able to cope and blackouts will ensue, often caused by periods of increasingly unpredictable cold weather. 

The lessons from the latest cold spell in the United States need to be borne in mind.  If large areas are without power for three or four days in winter, it is not just the inability to charge smartphones or the internet no longer working, it is not long before people are having to burn their furniture for heat. 

Deduction 5 – where is the money now, and where does it need to be: 

The returns available to many pension funds around the world are dependant on dividends from oil and gas supermajors.  However, the current market valuation of these companies is dependant in part on the oil reserves to which they have access.  Unfortunately, realising the value of these oil reserves by extraction, refining and consumption, is not compatible with the Paris Accords target of no more than 1.5oC of climate change by 2050.  Consequently, there is likely to be a significant reduction of the value of equity investments in companies across a number of currently profitable sectors, if these companies do not evolve and transition their underlying business models away from dependence on the continued use of fossil fuel sources. 

Whilst this logic is widely accepted, it is extremely difficult to produce meaningful data which supports it, and which the majority of institutional investors are reliant on for decision making [2].  However, in a future world powered by variable renewable electricity rather than fossil fuels, the high margin activities will be those which are indispensable to the successful continuous operation of the power system.  The ability to provide responsive zero-emissions electricity will become the price setter in the power market – a niche currently occupied by natural gas power stations in the UK – and investments that can achieve this have the potential to replace fossil fuel reliant investments in providing long term returns. 

Summary

There is a clear global trend that is inexorably driving widespread change in the whole economic system.  This friction between the requirement for energy and the requirement to stop releasing previously-stored CO2 into the atmosphere create a number of market realities and associated logical deductions which will create significant opportunities for infrastructure fund managers to make investments in energy storage projects on behalf of institutional investors.  These investments have the potential over the medium term to reduce reliance on fossil fuel dependant portfolios of investments that cannot exist in their current form in 30 years’ time and will be severely disrupted as they try to adapt to the new low carbon reality. 

Footnotes

[1] This is easy and cheap to do on land but becomes trickier on a floating platform 120 miles out in the Western Approaches.  The West of Shetland pipeline network runs for 120 miles to bring gas from the Schiehallion field ashore.  Given that gas is a very cheap commodity and electricity is not, it is not improbable to assume that very large floating wind arrays far out at sea may form part of the energy mix in future. 

[2] https://www.ft.com/content/f74502ad-8ae9-4715-a297-364ab8418c11

By Ewan Gorford

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