Phil Gerrard, CEO, Privilege Finance
Back in November I was asked to speak at ADBA’s Finance Forum about what the anaerobic digestion industry would look like post-tariffs. With the Feed-in Tariff (FiTs) due to run out in 2019 and an end-point for the Renewable Heat Incentive (RHI) currently unknown, it was an opportune time to consider changes the AD industry should anticipate and potential opportunities a post-subsidy climate may deliver.
Realistically, the Government won’t replace FiTs with another tariff scheme; the solar industry has successfully managed to replace FiTs with Power Purchase Agreements but this is more complex and therefore unlikely to work for AD. The Government is currently hitting their renewable power targets and therefore the incentive simply isn’t there. Similarly, I don’t think AD lends itself to a Contracts for Difference scenario, where a bidding process takes place for a power contract. From a funder’s perspective this is difficult to imagine simply because AD is relatively capital intensive and relies on more stable revenues from an investment point of view. The Government has been pushing this model and, although it works for other renewables such as wind and solar, it falls short when confronted with something more complex like AD.
A future without tariffs is achievable, but only if a number of factors are addressed. A sensible ‘cost’ for oil and gas extraction needs to be factored in though carbon pricing, for instance where a premium is applied for the economic and environmental costs associated with climate change mitigation when you buy a unit of fossil fuel or power. The correct value would need to be applied to digestate, and the Environment Agency would have to act reasonably when permitting pragmatic storage solutions whilst reducing the spreading windows. The industry could explore benefits of scale in feed, operations and maintenance in the event that plant density goes up and certain prices would need to become more realistic, such as land rents for AD and the amount paid for food waste treatment and disposal, especially where subsidies may have been used to artificially manipulate these historically. The cost of technology and finance for construction would ideally need to continue falling and, finally, we could perhaps sell to countries that support the purchase of gas and not just its production.
However, in addition to these external factors there are a number of measures the AD industry can take, and likely scenarios it should consider, in order to protect itself. The RHI will continue until at least 2020, but it will most likely drive larger £10 to 15 million gas to grid plants fuelled by food waste, as the direction of travel in the marketplace has shifted towards waste management. However, I believe there will also be opportunities at the other end of the scale; micro-AD plants look likely to become extremely popular with those farmers keen to become self-sufficient and produce power solely for their own use, once the technology has been perfected.
Finally, both new projects and the 500+ AD plants already operating will need to consider efficiencies and explore technologies that can optimise performance. CO2 and other by-product capture, retrofitting and generating the maximum amount of biogas possible from feedstocks will boost efficiency and equip the industry with the skills and tools necessary for a post-tariff world.