New support scheme for biomethane production by biomethane plants above 1 MW – relevance in practice

November 20, 2024

At the end of September this year, the renewable energy industry was put on its feet by the release of the long-awaited draft amendment to the Act of May 20, 2016 on investments in wind farms and certain other acts (UD-89). As part of the public consultation, interested parties were able to submit comments on the draft until 25 October. The submitted comments were published on 12 November and are being considered. The draft is expected to be adopted by the Council of Ministers and referred to the lower chamber of the Parliament (Sejm) for further legislative work.

The draft amendment in particular proposes a new support system for production of biomethane in installations with capacity over 1 MW in form of auctions.

Currently, the dedicated support system only covers generation of biomethane in the feed-in premium ('FIP') formula in plants with an installed capacity of up to 1MW. Alternatively, the plants can benefit from support system covering generation of electric energy in feed-in tariff ('FIT) formula dedicated only for the smallest plants with an installed capacity of up to 500 kW, in FIP formula for electricity generation in RES installations with a total installed capacity of not less than 500 kW and not more than 1 MW using exclusively biogas under the requirements of the RES Act, or from the RES auction system for electricity generation. The latter has not been popular in biogas and biomethane sector due to, inter alia, a high risk of being fined by the President of the Energy Regulatory Office for failing to deliver a minimum of 85 percent of the energy specified in the offer, difficult to manage given the variable and unpredictable prices of biomass raw materials used in biogas installations. In order to make the RES auctions for energy generation more attractive to those generators, it is proposed that these producers will be required to supply no less than 65 percent of the energy declared in the auction (as opposed to 85 percent as in the case of other RES installations), which reduces the risk of having to pay high penalties if the operator fails to do so. This provision responds to an earlier criticism that the RES auction system is too inflexible in terms of the level of energy delivered by generators in biogas facilities who have not been able to accept the risk associated with the cost of producing a given volume of electricity.

Separate auctions for generation of biomethane

Separate auctions are planned to be held for biomethane produced from biogas and from agricultural biogas, depending on their capacity, i.e., (i) below 2 MW, (ii) 2 MW - below 6 MW and (iii) 6 MW and above, calculated from the conversion of the installed capacity of the biomethane installation into the installed electrical capacity of the RES installation, assuming an electrical efficiency of the cogeneration unit of 41 percent. For each of these auctions, a separate reference price is to apply, determined by a Council of Ministers regulation.

As such, the new support scheme has been well received, although, as stakeholders point out, the most important thing is still to overcome the technical, administrative and social barriers so that Poland can truly benefit from the potential of biomethane production.

Support for grid-injected biomethane only

It is important to note that the draft envisions that only biomethane injected into the gas grid will be covered by the auction system and does not include the compression or liquefaction of biomethane. This is of practical importance, given that problems with absorption capacity and availability of the gas grid in locations selected for biomethane feedstock availability remain a technical barrier. It seems reasonable to expect that gas network operators will take possibly quick actions to adapt existing networks in selected and economically viable locations or to build new routes in places where there is currently no access to the gas network.

Biomethan in transportation

Due to the high demand for natural gas in the transport sector, associated with the implementation of the National Indicative Target ('NIT') set out in Article 23(1) of the Act on bio-components and liquid biofuels, the use of biomethane in this sector is envisaged primarily. In this connection, the proposed amendment provides that generators covered by the auction support system, who apply for settlement of the negative balance in subsequent years by selling biomethane for the implementation of the NIT will be exempted from the obligation to settle in the auction system the relevant amount of biomethane declared in the auction procedure. This change is contained in Article 83zh section 3 point 5 of the draft amendment. According to the proposed amendment of Article 83s of the RES Act the possibility of counting auction-supported biomethane towards the National Indicative Target is excluded. . This will result in some or all of the biomethane formally covered by the support scheme to be redirected to the transport sector. A benefit associated with the use of biomethane in the transport sector is the reduction in logistics costs - the use of biomethane does not result in the need to build dedicated logistics lines in the fuel system necessary for biomethane distribution.

Legislator's assumptions about the scope of support for biomethane

The regulation impact assessment assumes that the proposed mechanism will support the production of approximately 300 million cubic meters (approx. 3,100 GWh) of biomethane per year, which will require the construction of approximately 50 installations - for a plant of average capacity of 2.8 MW.

The dispersion of agricultural production in Poland (which makes Poland different from countries such as France or Spain) causes a big difference between the technical potential for biomethane production and the implementation or further investment potential. The number of locations offering sufficient substrate sources at a single site is limited for the construction of large biomethane plants to make economic and sustainable sense. The high investment costs, especially for the biogas-to-biomethane conditioning system, mean that economies of scale are very important for the reduction of unit costs for biomethane production and will have a significant impact on final investment decisions. It is anticipated that only a few larger biomethane plants will be installed in Poland, while the largest potential will be for biomethane plants of up to 2 MW.

As per information shared by the Polish Biomethane Organization (associating 14 large companies representing leading fuel, energy and heating groups operating on the Polish market) approximately 30 biomethane projects in Poland are currently at a more advanced stage (after environmental decisions have been issued, with most of them obtained within the last year). For these, there is the biggest chance that the building permits will be obtained, and they will be ready to pre-qualify and participate in the first auction, expectedly in 2026. It is hoped that they will be joined by others, especially those for which connection conditions to the gas grid have already been issued by Gaz System or by Polska Spółka Gazownictwa (Poland's largest gas Distribution System Operator) and administrative procedures are being initiated or pending.

Support period / age of equipment

Support will be given over a maximum period of 20 years. Producers under support will be required to start producing biomethane within four years of the auction award. Biomethane under the auction support scheme may only be produced in equipment not older than 48 months directly preceding the date on which the biomethane was first produced in that renewable energy source installation. In addition, the equipment must not have been subject to prior amortisation by any entity within the meaning of the accounting regulations.

Support for installations located outside Poland

Installations located outside Poland will be allowed to participate in auctions in Poland, subject, however, to restrictions, such as, inter alia, the principle of reciprocity in the use of the support system, the conclusion of an intergovernmental agreement between Poland and the country in which the installation is located, guaranteeing the production of biomethane from RES and the possibility of physically transferring biomethane to the gas grid in Poland, a limit of 5 percent of the volume and value of biomethane designated for sale in biomethane auctions in the previous year.

The introduction of a new support system for biomethane installations is undoubtedly needed. In order for this to be effective, further intensive efforts are required to speed up administrative procedures, remove technical barriers to accessing the gas network and raise awareness so that biomethane facilities, which provide a range of environmental and social benefits, can get off the ground.