Economic prerequisites for the production and use of biomethane in electricity/heat production in Ukraine

Biomethane, as well as “crude” biogas, is a gaseous biomass fuel, so it is subject of the Law of Ukraine 555-IV “On Alternative Energy Sources”, in particular in terms of setting a “green” tariff for electricity produced from biogas.
Thus, electricity produced from biomethane could already be supplied to the grid at a “green” tariff of 0.1239 €/kWh (excluding VAT). However, the idea of ​​enriching biogas, which requires additional costs, is precisely the possibility of pumping it into the natural gas (NG) network. This, as a result, improves the efficiency of biogas energy utilization through the connection of a regular heat consumer, which is usually absent from biogas production.

Uploading biomethane to the GHG network has other advantages, such as being able to accumulate and use it at a place and time where and when it is needed. Thus, biomethane can play an important role in the market for shunting/balancing electric power in Ukraine’s integrated grid.

To create conditions for the use of biomethane from the GHG network in cogeneration, it is necessary to create a national register of biomethane with the possibility of issuing certificates of origin, such as European certificates GoO (Guarantee of Origin). In the long term, with such a certificate, virtual trading of biomethane with EU countries is possible.

After the introduction of the biomethane certification system, a gas power plant with the intention of using biomethane can be connected to any location where there is a GHG network and a heat consumer (eg boiler, CHP). Will a current “green” tariff for electricity from biogas for such installations be sufficient?

Consider two possible project scenarios, namely:
1. Use of a new cogeneration unit on biomethane from the GHG network.
2. Use of an existing qualified natural gas cogeneration unit.

Considering that the cost of the new biogas cogeneration unit is commensurate with the cost of the biogas plant for biomethane enrichment, the total cost of the biomethane cogeneration project will be 20-30% higher than the cogeneration project for biogas. The operational costs of the project will also be higher by 20-40%, depending on the cost of raw materials. Obviously, to achieve a 20% IRR project profitability, the biomethane electricity tariff must be higher than the current green biofuel tariff even if additional heat is used.

Calculations show that for a relatively large project of 9.5 MW GHG biomethane cogeneration with the utilization of 60% of thermal energy at a tariff of UAH 1260/Gcal (excluding VAT), the required value of the green tariff is 0.131…0.174 €/kW∙h (excluding VAT), depending on the cost of raw materials.

Biomethane cogeneration can be used in a balancing market, but for the energy utilization of the entire volume of biomethane supplied to the GHG network by a cogeneration unit, its installed capacity must be greater than during uniform operation during the day. For example, when operating such a KSU in the mode of 6 hours out of 24 for one day (3 hours in hours of the highest load of the network in the morning and 3 hours – in the evening), its capacity should be 4 times higher than the base one. Accordingly, the cost of the new KSU will be almost proportionally higher.

In order to ensure the profitability of the 9.5 MW GHG biomethane cogeneration project, which will operate in 6/24 hours, with the utilization of 60% of heat at the tariff of UAH 1260 / Gcal (excluding VAT), the required amount of the green tariff is 0.196… 0.239 € / kW ∙ h (excl. VAT), depending on raw material cost.

Thus, the current “green” tariff for electricity from biogas is not enough in the project scenario using a new CHP biogas plant from the GHG network in the day-to-day operation. Concerning the feasibility of the project scenario with the generation of electricity in the balancing market, it is not possible to draw unambiguous conclusions as the balancing market and the market of ancillary services of NEK Ukrenergo have not yet been fully operational.


Fig. 1 – Required tariffs for electricity produced from biomethane

Another project scenario assumes that biomethane from the GHG network can be burned at a qualified CHP / KSU using natural gas. These are existing and existing steam turbines with natural gas (CHP) or gas piston (KSU) units. In Ukraine in 2018 there were 28 CHP plants, of which 25 were licensed, as well as 46 KSU, of which 25 were licensed. The total installed electric power of the CHPP and KSU is 3546 MW, thermal power – 18547 Gcal / h (20570 MW). All GHG generating facilities have been operating for an average of 1855 hours in 2018, with 21.5% of HPPs, which indicates their under-utilization and periodicity.

From the point of view of the project’s profitability, the work of KSU on biomethane may be more promising, since they have higher electric efficiency and are more maneuverable if they are connected to the balancing electricity market. However, this does not exclude the possibility of using steam turbine plants for work on biomethane.

Organizationally, the inclusion of existing qualified KSUs in the biogas plant project from the GHG network can occur under the terms of their lease and cover all operating costs for maintenance. In this case, when the annual rent rate is 5% of the cost of the new KSU, the required “green” tariff for the 9.5 MW project in 24/24 hours with 60% heat utilization is 0.111…0.154 €/kW∙h (without VAT), and when operating in 6/24 hours – 0,123… 0,166 €/kW∙h (without VAT). The lower values ​​of the ranges correspond to the zero values ​​of the raw material component of biomethane.

Thus, it can be concluded that the economic prerequisites for the use of biomethane in the production of electricity/heat will be the following:
1. Establishment of a national register of biomethane and certification system such as European GoO certificates.
2. Obligation of the producers of biomethane electricity from the GHG network to utilize at least 60% of the thermal energy from the TPP or KSU during the year.
3. Establishment of a special coefficient of “green” tariff for electricity produced from biomethane of CHP or KSU, operating in 24/24 hours. The amount of such tariff should be greater than the value of the current “green” tariff for electricity from biogas.
4. Ensure harmonization of the national biomethane registry with the EU registry system, which would enable virtual cross-border trade in biomethane.

Author: Petro Kucheruk

Read also:
Economic prerequisites for the production and use of biomethane as a motor fuel in Ukraine
Cost of enrichment of biogas to biomethane
The potential of biomethane production in Ukraine
Potential markets for biomethane consumption in Ukraine
Projection of biomethane production in Europe
Production of biomethane in Europe in 2011-2017