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Markets Focus: Organics

This year looks set to be the biggest year yet for new anaerobic digestion (AD) plants in the UK. The capacity of plants outside the water sector could grow by 45-65 MWe equivalent this year alone, across electricity and gas, to over 200 MWe equivalent. This is enough to provide power to nearly 300,000 homes. AD provides power and heat as a baseload technology, with the ability to also store energy for when it is required.

The previous four years have seen steady growth of 26-32 MWe per year. The acceleration is being fuelled by both the high number of biomethane-to-grid plants currently under construction, and electricity plants, many of which are looking to commission before any tariff cuts come into being.

Next year and 2016 are more uncertain for the industry in terms of completing new plants.

The sub-500 kWe sector of the market faces a particular challenge, with degressions (cuts to tariffs which occur automatically under legislation if certain uptake rates are reached) cutting the Feed-in Tariff available at this scale by 36% compared to 2013 levels. While this sector is seeing significant innovation, and more specialised products are being developed, these have been outpaced by tariff reductions, making it hard to deliver plants at this scale.

There is also current uncertainty for gas-to-grid projects due to the biomethane tariff review being undertaken by DECC. This review is necessary to put in biomethane support on a sustainable basis over the medium term, but developers clearly need to know that the RHI tariff will be viable to support new plant development, taking into account the prospect of future ‘degressions’ in the RHI. The next government will also need to make a decision on the overall RHI budget for 2016-2020, and the later this is taken the higher the risk of project delays.

However, 2015 should see continued growth in the 500kWe – 5 MWe electricity sector. Although there is a risk of degression for plants at this scale, it is unlikely to be to the same degree as for sub-500kWe plants.

Beyond 2016 we will see the impact of decisions taken by the new government. Our projections indicate that supportive policies towards food waste, farming and renewable energy in particular could help the industry approach a capacity of 500MWe equivalent by the end of the next Parliament. The scheduled 2015 review of the Feed-in Tariff and the outcome of the spending review for 2016-2020 on RHI budgets will clearly determine performance post 2017. This is summarised in the graph (see xx).

A key consideration in the AD market is the separate collection of food waste from general refuse. Although we see more local councils offering this service to households, and an increasing number of businesses now segregating food waste, the rate at which unavoidable food waste is being extracted from the waste stream is still slow. There is a risk that this will not match the growth in capacity, preventing food waste moving up the waste hierarchy, even where the infrastructure would allow it. Decisions the next government takes on waste policy are, therefore, critical.

Although new capacity has grown most strongly in the municipal, industrial and commercial waste sectors, there has also been a significant increase in the number of agricultural-based plants. However, given the reductions to the small scale Feed-in Tariff for sub-500 kWe plants (which are more likely to be farm-based) in April and October 2014, this area of the market needs additional policy support in order to thrive.

We are also seeing funders in the food waste sector looking for farm wastes and crops to provide feedstock certainty given the uncertainties highlighted above over food waste collections and the availability of food waste. This could result, depending on location, in farmers providing their wastes and crops to the larger waste-scale sector in mixed waste-agricultural type plants.

Over the last few years, the AD sector has shown remarkable resilience in delivering growth against a backdrop of policy uncertainty and difficulties in financing following the recession. AD is already making a significant contribution to the UK’s climate change and renewable energy targets, but far greater potential growth could be still to come: with supportive policies, by 2025 AD could be delivering 1.6 GW of electrical equivalent capacity, recycling nine million tonnes of food waste and up to 76 million tonnes of farm wastes in the process. This would help reduce the UK’s total greenhouse gas emissions by over 2% across the energy and farming sectors. The industry is now poised to deliver this next stage of enhanced growth.

Ollie More, Market Analyst, Anaerobic Digestion and Biogas Association.

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