Technical and economic analysis of biomethane: A focus on the role of subsidies

Energy Conversion and Management 119 (2016) 338–351

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Energy Conversion and Management journal homepage: www.elsevier.com/locate/enconman

Technical and economic analysis of biomethane: A focus on the role of subsidies Federica Cucchiella, Idiano D’Adamo ⇑ Department of Industrial and Information Engineering and Economics, University of L’Aquila, Via G. Gronchi 18, 67100 L’Aquila, Italy

a r t i c l e

i n f o

Article history: Received 5 February 2016 Received in revised form 4 April 2016 Accepted 16 April 2016 Available online 26 April 2016 Keywords: Biomethane Economic analysis Sensitivity analysis Subsidies Sustainability

a b s t r a c t Biomethane is a renewable energy useful to encourage the transition to a sustainable energy future. Incentive policies favour its development and consequently this paper evaluates the economic performance for use of biomethane fed into the grid, destined for cogeneration or sold as vehicle fuel. A mathematical model is proposed and the indicators used are Net Present Value and Discounted Payback Time. This paper aims to evaluate the financial feasibility of biomethane plants in function of the plant size (100 m3/h, 250 m3/h, 500 m3/h, 1000 m3/h) and the feedstock used (organic fraction of municipal solid waste and a mixture of 30% maize and 70% manure residues on a weight basis) for each final destination of biomethane. Furthermore, a sensitivity analysis on the critical variables is conducted and 356 case studies are overall assessed. The results of the paper demonstrate that the profitability of biomethane plants is verified in several scenarios and it is strongly linked to the subsidies. Biomethane used as vehicle fuel presents greater financial results favouring the increase of share of renewable energy in transport sector and environmental improvements are obtained. Ó 2016 Elsevier Ltd. All rights reserved.

1. Introduction Policies and management practices of renewable energy systems (RESs) can encourage a green revolution in the energy context of XXI century. RESs provide important benefits compared to fossil fuels, in particular regarding greenhouse gas (GHG) emissions, but also economic opportunities are very interesting [1–3]. Furthermore, European Union (EU) aims to develop the circular economy based on the exploitation of resources recovered by wastes [4,5]. Biogas is produced by anaerobic digestion (AD) beginning from a range of feedstocks, particularly agricultural residues (e.g. manure and crop residues), energy crops, organic-rich waste waters, organic fraction of municipal solid waste (ofmsw) and industrial organic waste [6,7]. Mediterranean products and by-products are widely available and the usable matrices change the economic feasibility due to their yields and costs [8,9]. Biomethane is obtained from properly treated biogas through the process of purification. Its properties are similar to those of natural gas, making it suitable for be used as a vehicle fuel, distributed in the main gas supply or used to generate green power [10,11].

⇑ Corresponding author. E-mail addresses: [email protected] (F. Cucchiella), idiano.dadamo@ univaq.it (I. D’Adamo). http://dx.doi.org/10.1016/j.enconman.2016.04.058 0196-8904/Ó 2016 Elsevier Ltd. All rights reserved.

The use of biomethane is mainly spread in the EU, because it enables European countries to reduce their reliance on natural gas imports [12]. According to the latest data, Europe has 367 biomethane by the end of 2014, 23% increase compare to 2013. Germany leads the ranking in terms of number of plants (equal to 178), followed by Sweden (no. 59), the UK (no. 37), Switzerland (no. 24) and the Netherlands (no. 21). In 2014, about 12% of all biomethane produced in Europe was used in the transport sector and it is expected to grow further in the future [13]. The biogas-biomethane chain is a carbon-negative substitute for consumption of fossil gas and its use achieves a reduction of greenhouse gases amounting to the equivalent of 200 g of CO2/kW h of generation (200 gCO2eq/kW h) [14]. In the transport sector, a mixture of 20% biomethane provides a reduction of 24 gCO2/kW h than methane and using 100% biomethane this reduction is estimated equal to 119 gCO2/kW h. The use of methane as fuel for a given vehicle currently achieves emissions savings of 21–24% compared to diesel and petrol [15]. Consequently, the policy makers can support biofuels, because they are characterized by lower emissions compared to ones produced by diesel and petrol [16]. The upgrading of biogas to biomethane is more environmentally sustainable, in terms of GHG emissions and reduction of NOx and particulate matter (PM) local emission, than combustion of biogas in a combined heat and power unit [17]. Giant reed, that is a good alternative to energy crops, is recently included among crops

F. Cucchiella, I. D’Adamo / Energy Conversion and Management 119 (2016) 338–351

339

Nomenclature 1°s 2°s 3°s bm cchp c cvf c cfitg c;su cfitg c;si 1
s C df 2
s C df;t 1
s C e;t 2
s C e;t
ceu;1 s cel f cth f
C i1 s 2
s C i;t C com inv C dis inv Cl C u;a l C lcs C lis
s C u;1 inv
s C u;2 inv
s C u;2 inv 1
s C mo 2
s C mo C com o C dis o Cs C us Ct C ofmsw t C tax C ts C uts chp dtc dti dto dtsb dtse DPBT ebt ftg iuaifit iucic It inf lbs el lf th lf lus mtz

biogas production upgrading compression and distribution biomethane corrective coefficient (chp) corrective coefficient (vf) corrective coefficient – substrate (fitg) corrective coefficient – size (fitg) depreciation fund (1°s) depreciation fund (2°s) electricity cost (1°s) electricity cost (2°s) unitary electricity consumption (1°s) conversion factor (electric energy) conversion factor (thermal energy) insurance cost (1°s) insurance cost (2°s) investment cost (compression) investment cost (distribution) labour cost unitary labour cost loan capital share cost loan interest share cost unitary investment cost (1°s) unitary investment cost (2°s) unitary investment cost (3°s) mtz & overhead cost (1°s) mtz & overhead cost (2°s) operative cost (compression) operative cost (distribution) substrate cost unitary substrate cost discounted cash flow cost of ofmsw taxes cost transport cost of substrates unitary transport cost of substrate combined heat and power discounted total cost/m3bm discounted total incentive for m3 bm discounted total ofmsw for m3 bm discounted total selling bm for m3 bm discounted total selling energy for m3 bm discounted payback time earnings before taxes feeding into the grid unitary incentive (chp) unitary incentive (vf) discounted cash inflows rate of inflation losses in the biogas system loss factor (electric energy) loss factor (thermal energy) losses in the upgrading system maintenance

eligible for EU contributions, under the voice of environmentally beneficial practices [18]. From technological perspective, new solutions are proposed increasing the production of biomethane: a novel concept that

n ndebt noh nop ns NPV NPV/Size Ot pub pdf pe pesc pi 1
s pmo 2
s pmo p2012 ng pcng psng punit tax pth u pel z pth z Rofmsw t

lifetime of investment period of loan number of operating hours period of subsidies number of operators net present value ratio between NPV and size discounted cash outflows potential of biogas per unit of vs % of depreciation fund unitary price of electricity % of energy self-consumption % of insurance cost % of mtz & overhead cost (1°s) % of mtz & overhead cost (2°s) price of natural gas in 2012 current price of natural gas selling price of natural gas % of taxes cost % of use of thermal energy zonal price of electric energy zonal price of thermal energy revenues by treatment of ofmsw

Rofmsw gross;t Rselling t;chp

gross revenues by ofmsw revenues by sell of bm (chp)

Rselling t;fitg Rselling t;vf

revenues by sell of bm (fitg) revenues by sell of bm (vf)

revenues by subsidies (chp) Rsubsidies t;chp revenues by subsidies (fitg) Rsubsidies t;fitg revenues by subsidies (vf) Rsubsidies t;vf Q feedstock quantity of feedstock Q biogas Q nom biogas

quantity of biogas nominal quantity of biogas

Q biomethane quantity of biomethane quantity of bm after conversion Q chp biomethane Q el biomethane quantity of electric energy

quantity of subsized bm (fitg) Q fitg biomethane

Q nom biomethane nominal quantity of biomethane Q th biomethane quantity of thermal energy Q ofmsw r

quantity of ofmsw opportunity cost

rd

interest rate on loan

Sbiogas

plant size (biogas)

Sbiomethane plant size (biomethane) t

time of the cash flow

ts

total solids

vf

vehicle fuel

vs ww

volatile solids wet weight

%CH4

percentage of methane

%ts/(ww + ts) percentage of vs in the ww + ts %vs/ts

percentage of vs in the ts

combines AD and biomass gasification [19] and the use of polyetheretherketone (PEEK) membrane that obtains biomethane usable directly in the secondary grid injection with a pressure lower than 10 bar [20]. Manure separation technologies are

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essential for sustainable livestock operations in areas with high density of these wastes and it is relevant the identification of factors impacting farmer’s decision-making behaviour [21]. Furthermore, an overview of a green gas supply chain is essential [22]. Production costs using a centralized AD are lower than decentralized AD ones (about 5–13 cent€ per m3) and the cooperation of a small-scale digester with nearby other producers permits to achieve significant financial results [23]. A model is been developed by [24] in order to minimize transport costs per volumetric unit of biogas in a region. The economic performance of biogas plants are well analysed in literature [18,25] and the role of subsidies is strategic to develop also biomethane production [26]. Its management requires an analysis concerning the definition of operational modelling [27,28] and the description of business models [29,30]. Literature analysis highlights two gaps: (i) the absence of a mathematical model useful to calculate financial indicators and (ii) the comparison among three destination for final use of biomethane (fed into the grid, destined for cogeneration or sold as vehicle fuel) in function of subsidies. Furthermore, the results of financial analysis are very linked to the substrate used and plant sizes [26,31]. Italy is chosen as case study, in fact this country presents great potentials, but the biomethane sector is not yet developed. Considering the recent Italian incentivization schemes, we conduct a profitability analysis through application of Discounted Cash Flow (DCF) methodology and the indicators used are Net Present Value (NPV) and Discounted Payback Time (DPBT) [32]. This paper aims to evaluate the financial feasibility of biomethane plants in function of the plant dimensions (100 m3/h, 250 m3/h, 500 m3/h, 1000 m3/h) and the feedstocks used (ofmsw, a mixture of 30% maize and 70% manure residues on a weight basis) for each final destination of biomethane. The costs of biomethane production are calculated and it is examined the role of incentives. NPV results of 356 case studies are proposed in this paper: in fact, a sensitivity analysis on the main critical variables (incentive of CICs (Certificates of Emission of Biofuel in Consumption) in 2015, price of natural gas in 2012, incentive of all-inclusive Feed-in Tariff, investment cost of biogas production, transport cost of substrates, percentage of maintenance and overhead cost in biogas production) will be conducted. Additionally, the variation of net revenues for the treatment of ofmsw and a policy proposal for mixed substrates when biomethane is injected into the grid will be analysed. 2. Materials and methods DCF is a well-known economic assessment method estimating the attractiveness of an investment opportunity and several economic indexes can be chosen as NPV, DPBT and Internal Rate of Return (IRR) [25,31,33]:  NPV is defined as the sum of present values of individual cash flows.  DPBT represents the number of years needed to balance cumulative discounted cash flows and initial investment.  IRR identifies the discount rate at which the present value of all future cash flows will balance the initial investment.

2.1. Revenues In a decree dated 5 December 2013, the Italian Ministry of Economic Development established means of incentivization for use of biomethane fed into the grid, destined for cogeneration or sold as vehicle fuel. It has been decided to issue 20-year CIC, with the producer’s emission of 41,840 MJ (equivalent of 10 Gcal) of biofuel energy generally giving rights to one CIC. Given the heat power of biomethane (49,978 GJ/t or 11.945 Gcal/t), it follows that 1 CIC corresponds to 0.837 t of biomethane. The value of the incentives obtained per CIC is uncertain and its estimation is 300–500 € [31]. Considering that 0.837 t of biomethane is equivalent to 1231 m3 of CH4 (1 m3 CH4 = 0.68 kg under normal conditions (i.e. standard temperature and pressure, 273.15 K and 101.325 kPa respectively)), it is possible obtained the following values (CIC = 300 € ! 0.24 €/m3; CIC = 500 € ! 0.41 €/m3). Furthermore, the incentive depends by the type of substrate used and it is increased through corrective coefficients: for example, ‘‘2” if the feedstock is ofmsw and ‘‘1.7” with a mixture of 30% maize and 70% manure residues. There is a notable premium prompting the producer firm to be also the methane distributor. Other revenue is represented by the price of biomethane to a vehicle-fuel distribution plant or alternately the pump price to consumer in according to specific business. For feeding into the grid, the incentive is calculated on the basis of biomethane but excluding the energy consumption of biomethane production process. The incentive scheme is the following: up to 500 m3/h biomethane can be sold directly to Gestore Servizi Energetici (GSE, the institutional actor responsible for the control of renewable energies plants) at an all-inclusive price equal to twice the 2012 market value for natural gas; alternately it may be traded directly on the natural gas market, receiving a subsidy equal to twice the 2012 market value for natural gas, less the monthly cost of the gas itself. Consequently, in this scenario there are two components of revenues: i. biomethane incentive and ii. biomethane sell price. All of the incentives are valid for 20 years; they are increased by 10% for plants with a production capacity 6500 m3/h, while they are decreased by 10% with capacity >1000 m3/h. Furthermore, the combination of incentive and corrective coefficient is increased by 50% if the feedstock is 100% made from residues or waste. For biomethane used for cogeneration the bonus consists of the current electricity rates for biogas, net of the energy consumption for the high-yield cogeneration plant. It should be considered that this enables generation of electricity with a greater net efficiency than that offered by using biogas alone. An all-inclusive Feed-in Tariff for plants gives government support with a nominal power up to 1 MW. It is valid for 20 years and its value is calculated in function of the substrates used and the size power. Furthermore, potential premiums could be recognized. For plants with a nominal power over to 1 MW is associated an incentive that is equal to difference between all-inclusive Feed-in Tariff with relative premiums and the range price of energy. Finally, selling of thermal energy represents additional revenues. 2.2. Costs

However, among these three indexes only NPV and DPBT were selected, because of the poor relevance of criticisms related to them. In fact, NPV does not consider the size of the plant (for this reason, in this paper will be proposed also the ratio between NPV and size of biomethane plant) and DPBT ignores both instant and value of cash flows. However, these indexes provide a single result. Instead, IRR can cause conflicting answers (multiple IRR can occur) when compared to NPV in mutually exclusive investments [34,35]. In this section revenues and costs of biomethane plants are analysed.

The costs of biomethane production can be subdivided in three phases: (i) biogas production; (ii) upgrading and (iii) compression and distribution. The capital investment of a biogas facility is a function of feedstock and plant size. Several authors highlight that biogas facilities treating animal by-products (ABP) generally necessitate greater capital investment than ones of energy crops and, furthermore, additional cost is required for treatment of the ofmsw (e.g. batch

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digesters treating this substrate must be contained in hermetically sealed buildings) [36]. The unitary cost of a biogas facility decreases with increasing plant size and in the last three years costs reduction were relevant: 20% for plants <1 MW and 14% for plants >1 MW [37]. The operational costs associated with biogas production are: (i) substrate; (ii) transport; (iii) maintenance and overheads; (iv) depreciation fund for mechanical and electrical elements; (v) electricity consumption and (vi) insurance. Labour cost were analysed, but are related to whole process. Concerning substrate cost, it is assumed that null costs were considered for animal manure, while for dedicated crops are analysed soil preparation, seeding, fertilizers, irrigation and plant harvesting. Where ofmsw is used as the substrate, the associated processing of urban waste is a paid service and thus in this scenario, it is a source of income for biogas– biomethane production plants. There are counter-balancing costs for pre-treatment to obtain the solid organic fraction, but the net value of income is positive [38,39]. The distance, with its implications for transport costs, can be a relevant variable already when power capacity rises above 850 kW [40]. The cost of upgrading varies depending on the technology used (the most significant are water scrubbing (WATS), pressure swing adsorption (PSA), chemical scrubbing (CHEMS), physical scrubbing (PHYS) and membrane separation (MEMS)) and the quantity of biogas processed (typically from 250 m3/h to 2000 m3/h). These technologies are able to produce biomethane with required purity, there are significant economies of scale and the economic performance of all technologies are quite similar [41]. Data gained from International Energy Agency (IEA) indicate that technologies are typically used in function of specific flow rate of biogas: WATS and PHYS with 500–2000 m3/h, CHEMS with 500–1000 m3/h, PSA with 250–1000 m3/h and MEMS with <300 m3/h. In according to values proposed by [33,42], it is possible to highlight the following economies of scale: a reduction of unitary investment cost equal to 33% considering WATS applications with flow rate of 2000 m3/h compared to one of 1000 m3/h. This percentage becomes lower considering CHEM (1000 vs 500 m3/h) and MEM (500 vs 250 m3/h) technologies and it is equal to 25%; while it is equal to 45% considering PSA application (1000 vs 500 m3/h). Furthermore, the authors define that operational costs are typically low and its items are: (i) electricity consumption, (ii) maintenance and overheads, (iii) depreciation fund for components that will be replaced and (iv) insurance. Finally, the third phase is represented by compression and distribution for some typologies of configuration. In according to analysis proposed by [31,43,44], this cost is lower than other two phases, if the production location is not far from the distribution grid. Furthermore, additional compression is not needed, if the gas distribution grid operates at levels of pressure similar to those in output by upgrading phase [45]. The cost of connection to electricity grid is very site-specific and the same is verified for gas one. It can change vary widely and depends on distance to the network, ground conditions, and the type of pipes. From electricity side, the underground lines cost is about 50,000 €/km and the cost of connection equipment is 100,000 €; from gas side, the cost of installing distribution pipes varies from 150,000 €/km to 400,000 €/km and it is confirmed the cost of connection equipment equal to 100,000 € [28]. Typically a distance installation to grid equal to 500 m is analysed in literature [28,36].

and the destination for final use. Specifically we have analysed the following case studies:  100 m3/h, 250 m3/h, 500 m3/h and 1000 m3/h biomethane capacities.  Ofmsw and mixed (30% maize and 70% manure residues) substrates. Italian legislators have attempted to favour the use of feedstocks different than energy crops, which subtracts agricultural land from the primary sector [31].  Biomethane can be used as a vehicle fuel, can be injected into natural gas or can be used to generate electric and thermal energy. Italian legislators aims to favour the establishment of new biomethane distributors; in fact, the greatest financial profitability is reached, when producer is also distributor [31]. 3.2. Model description The economic model implemented for the evaluation of investments is described below: Indexes

NPV ¼

n n X X C t =ð1 þ rÞt ¼ ðIt  Ot Þ=ð1 þ rÞt t¼0

ð1Þ

t¼0

DPBT X

C t =ð1 þ rÞt ¼ 0

ð2Þ

t¼0

ð3Þ

NPV=Size ¼ NPV=Sbiomethane Revenues–vehicle fuel

It ¼ Rsubsidies þ Rselling þ Rofmsw t;vf t t;vf

ð4Þ

u

Rsubsidies ¼ Q biomethane  icic  cvf t;vf c ¼ Q biomethane  psng Rselling t;vf

8t ¼ 0 . . . n s

ð5Þ

8t ¼ 0 . . . n

ð6Þ

8t ¼ 0 . . . n

ofmsw ¼ Q ofmsw  ðRofmsw Þ Rofmsw t gross;t  C t

ð7Þ

Revenues–feeding into the grid ofmsw It ¼ Rsubsidies þ Rselling t;fitg t;fitg þ Rt

ð8Þ

2012 fitg Rsubsidies ¼ Q fitg  cfitg t;fitg biomethane  ðð2png c;si Þ  c c;su Þ

8t ¼ 0 . . . ns ð9Þ

Rselling t;fitg ¼ 0

ð10Þ

with Sbiomethane 6 500 m3/h or 2012 fitg Rsubsidies ¼ Q fitg  pcng Þ  cfitg t;fitg c;si Þ  cc;su Þ biomethane  ððð2png

8t ¼ 0 . . . ns ð11Þ

8t ¼ 0 . . . n

fitg c Rselling t;fitg ¼ Q biomethane  png

ð12Þ

Revenues–combined heat and power ofmsw It ¼ Rsubsidies þ Rselling t;chp t;chp þ Rt

3. Model assumptions

u

chp ¼ Q el Rsubsidies biomethane  ðiaifit þ c c Þ t;chp

ð13Þ

8t ¼ 0 . . . n s

ð14Þ

3.1. Case studies This paper examines the financial feasibility of biomethane plants in function of the plant dimensions, the feedstocks used

th th th Rselling t;chp ¼ Q biomethane  pz  pu

with Sbiogas 6 1 MW or

8t ¼ 0 . . . n

ð15Þ

342

F. Cucchiella, I. D’Adamo / Energy Conversion and Management 119 (2016) 338–351 u

8t ¼ 0 . . . ns

chp Rsubsidies ¼ Q el  pel z Þ t;chp biomethane  ðiaifit þ c c

el th el th th Rselling t;chp ¼ Q biomethane  pz þ Q biomethane  pz  pu

ð16Þ

8t ¼ 0 . . . n ð17Þ

Costs














com C com o;1 ¼ C o dis C dis o;1 ¼ C o

þ C ts;t þ
C 2i;t s

þ 1
s

þ

u;1
s

C inv ¼ C inv 1
s C lcs;t

C com o;t

þ

þ

C dis o;t




þ




¼


s C u;2 inv

2
s

¼

þ


C 2df;ts

þ

2
s C e;t






8t ¼ 0 . . . ndebt  1

8t ¼ 0 . . . ndebt  1 8t ¼ 0 . . . ndebt  1

dis C inv ¼ C com inv þ C inv

3
s C lis;t

¼

3
s C inv =ndebt

¼


ðC 3invs



ð21Þ

ð23Þ

3
s

3
s C lcs;t

8t ¼ 0 . . . ndebt  1

C l;t ¼ C u;a  nop l

ð27Þ

with C l;tþ1 ¼ C l;t  ð1 þ infÞ 8t ¼ 0 . . . n

ð28Þ

C ts;t ¼ C uts  Q feedstock

1
s

1
s

C mo;t ¼ pmo  C inv

n X

dti ¼

1
s

1
s

with C mo;tþ1 ¼ C mo;t  ð1 þ infÞ 8 t ¼ 0 . . . n

1
s

1
s

n X

dti ¼

ð32Þ



s

1 s ¼ cu;1 C e;t e




1
s

C i;t ¼ pi  C inv 2
s C mo;t

¼

2
s pmo



1
s

1
s

with C i;tþ1 ¼ C i;t  ð1 þ infÞ 8t ¼ 0 . . . n


C 2invs







2 s 2 s ¼ pdf  C lcs;t C df;t

with


s C 2mo;tþ1

¼


s C 2mo;t

ð34Þ

 ð1 þ infÞ 8t ¼ 0 . . . n







2 s with C df;tþ1 ¼ C 2df;ts  ð1 þ infÞ 8t ¼ 0 . . . n

ð36Þ u;2
s

C e;t ¼ ce

2
s

 Q biogas  pe with C e;tþ1 ¼ C e;t  ð1 þ infÞ 8t ¼ 0 . . . n




2 s ¼ pi  C 2invs C i;t







n X Q fitg biomethane

for fitg destination

t¼1

, ðRsubsidies =ð1 þ rÞt Þ t;

n X Q chp biomethane

for chp destination

t¼1

ð45Þ , n n X X t ðRselling =ð1 þ rÞ Þ Q biomethane;t dtsb ¼ t t¼1

for vf destination

t¼1

ð46Þ , n n X X t selling ðRt =ð1 þ rÞ Þ Q fitg dtsb ¼ biomethane t¼1

for fitg destination

t¼1

ð47Þ dtse ¼

n X

, ðRselling =ð1 þ rÞt Þ t

t¼1

n X Q chp biomethane

for chp destination

t¼1

ð48Þ n X ðRofmsw =ð1 þ rÞt Þ dto ¼ t

, n X

t¼1

Q biomethane;t

for vf destination

t¼1

ð49Þ dto ¼

n X ðRofmsw =ð1 þ rÞt Þ t

, n X

t¼1

Q fitg biomethane

for fitg destination

t¼1

ð50Þ dto ¼

n X ðRofmsw =ð1 þ rÞt Þ t

, n X

t¼1

Q chp biomethane

for chp destination

t¼1

ð51Þ Flow rate

Q nom biogas ¼ Sbiogas  noh  %CH4

ð52Þ

u Q feedstock ¼ Q nom biogas =ðpb  ð%vs=tsÞ  ð%ts=ðww þ tsÞÞÞ

ð53Þ

Q biogas ¼ Q nom biogas  ð1  lbs Þ

ð54Þ

Q nom biomethane ¼ Sbiomethane  noh

ð55Þ

2
s

ð37Þ


ðRsubsidies =ð1 þ rÞt Þ t;




ð35Þ

2
s

,

1 s 1 s  Q biogas  pe with C e;tþ1 ¼ C e;t  ð1 þ infÞ 8t ¼ 0 . . . n

ð33Þ 1
s

for vf destination

t¼1

t¼1

1
s

with C df;tþ1 ¼ C df;t  ð1 þ infÞ 8 t ¼ 0 . . . n

C df;t ¼ pdf  C lcs;t

n X Q biomethane;t

ð44Þ

ð31Þ 1
s

ðRsubsidies =ð1 þ rÞt Þ t;

t¼1

with C ts;tþ1 ¼ C ts;t  ð1 þ infÞ 8 t ¼ 0 . . . n ð30Þ

,

ð43Þ

with C s;tþ1 ¼ C s;t  ð1 þ infÞ 8t ¼ 0 . . . n ð29Þ

t¼1

t¼1

ð26Þ

8t ¼ 0 . . . ndebt  1

 rd

C s;t ¼ C us  Q feedstock

1
s

n X

dti ¼

ð24Þ ð25Þ

3
s C lcs;t Þ

ð41Þ

ð42Þ

ð22Þ

 rd

ð40Þ

, n n X X ðOt =ð1 þ rÞt Þ Q biomethane;t for vf; fitg; chp destination t¼0

ð20Þ

 Sbiomethane

2
s C lcs;t Þ

dtc ¼ ð18Þ

8t ¼ 0 . . . ndebt  1

2
s


ðC 2invs

þ


s C 2m&o;t

ð19Þ

C lcs;t ¼ C inv =ndebt 2
s C lis;t

þ


C 1i;t s

þ C tax;t

1 s 1 s ¼ ðC 1invs  C lcs;t Þ  rd C lis;t 2
s C inv

1
s C e;t

ð39Þ

Comparison revenues and costs




 Sbiogas

1
s C inv =ndebt

¼

1
s C df;t

com with C dis  ð1 þ infÞ 8t ¼ 0 . . . n o;tþ1 ¼ C o;t

with ebt > 0 8t ¼ 0 . . . n C tax;t ¼ punit tax  ebt

s 2 s 2 s s 3 s 0t ¼ C 1lcs;t þ C 1lis;ts þ C lcs;t þ C lis;t þ C 3lcs;t þ C lis;t þ C l;t þ Cs;t
s C 1m&o;t

com with C com  ð1 þ infÞ 8t ¼ 0 . . . n o;tþ1 ¼ C o;t

s 2 s with C 2i;tþ1 ¼ C i;t  ð1 þ infÞ 8t ¼ 0 . . . n

ð38Þ

Q biomethane ¼ Q biogas  ð%CH4 Þ  ð1  lus Þ with Q biomethane 6 Q nom biomethane ð56Þ

343

F. Cucchiella, I. D’Adamo / Energy Conversion and Management 119 (2016) 338–351 Table 1 Input definition. Variable

Value

Reference

cchap c cvf c cfitg c;su cfitg c;si
s cu;1 e u;2
s ce cel f cth f C com inv C dis inv
s C u;1 inv

10 €/MW h

[31]

1.7a; 2b

[31]

1a; 1.5b,d

[31]

1.1xi,xii,xiii

[31]

0.13 kW h/m3

[33]

0.29 kW h/m3

[36]

3.8 kW h(el)/m3

[31]

4.3 kW h(th)/m3

[31]

53 k€ (vf) 125,000 € (chp); 237,500 € (vf, fitg)

[47] [28]

5000 €/kWi-a; 4000 €/kWii-a; 3800 €/kWiii-a; 3500 €/kWiv-a;

[40,46]

5200 €/kWi-b; 4200 €/kWii-b; 4000 €/kWiii-b; 3700 €/kWiv-b 6000 €/(m3/h)xi; 4500 €/(m3/h)xii; 2250 €/(m3/h)xiii; 1500 €/(m3/h)xiv

[33,42]

25,000 €/y

[48]

47,000 €/y (vf) 20,000 €/y (vf, fitg, chp)

[47] [28]

10 €/tc; 0 €b,d 49 €/t

[31,33] [31]

2 €/ti; 3 €/tii,iii; 4 €/tiv 227 €/MW hi-b; 198 €/MW hi-a; 171 €/MW hii;

[33,40] [31]

120 €/MW hiii,iv-b; 100 €/MW hiii,iv-a 0.32 €/m3 (CIC = 400€)

[31]

el

2% 6% 11%

[48] [28] [37]

lf lus n ndebt noh nop ns pub pdf pe pesc pi
p1mos

th

11%

[37]

1.5% 20 y 15 y 8000 h 4i; 6ii,iii; 8iv 20 y 350 m3biogas/t(vs)d; 500 m3biogas/t(vs)b; 650 m3biogas/t(vs)c 20% 0.13 €/kW h 15% 1% 10%a; 20%b

[28] [31] [31] [31] [31] [31] [49] [46] [48] [50] [48] [36]

p2mos




C u;2 inv

s

C u;a l C com o C dis o C us C ofmsw t C uts u iaifit iucic inf lbs lf




10%

[31]

p2012 ng

28.52 €/MW h ! 0.299 €/m3 (1 m3 = 0.0105 MW h)

[31]

pcng

27.75 €/MW h ! 0.291 €/m3 (1 m3 = 0.0105 MW h)

[33]

psng punit tax

0.27 €/m3 27.5%

[31] [31]

pth u

75%

[37]

pel z pth z r rd Rofmsw gross;t Sbiogas Sbiomethane %CH4 %ts/(ww + ts) %vs/ts

75 €/MW h

[31]

50 €/MW h

[37]

5% 3% 70 €/t

[31] [31] [31]

300 kWi-b; 750 kWii-b; 1.5 MWiii-b; 3 MWiv-b; 315 kWi-a; 785 kWii-a; 1.575 MWiii-a; 3.155 MWiv-a 100 m3/h; 250 m3/h; 500 m3/h; 1000 m3/h 57%a; 60%b 9.5%d; 27%b; 30.8%c 80%d; 89.6%b; 95.9%c

[31] [31] [31] [51] [51]

substrates a = mixed; b = ofmsw; c = maize; d = manure residues with a = 30% ⁄ c + 70% ⁄ d. These are percentages of total mass. size biogas i = 300 kW; ii = 750 kW; iii = 1.5 MW; iv = 3 MW (ofmsw). i = 315 kW; ii = 785 kW; iii = 1.575 MW; iv = 3.155 MW (mixed). size upgrading xi = 100 m3/h; xii = 250 m3/h; xiii = 500 m3/h; xiv = 1000 m3/h.

Q fitg biomethane ¼ Q biomethane  ð1  pesc Þ

ð57Þ

3.3. Input assumption

el

ð58Þ

th

ð59Þ

In this paper the useful lifetime of the facility is equal to 20 years, meaning equivalent to the lifetime of the incentives. The investment cost is covered by third party funds and the cost opportunity of capital is fixed equal to 5% [31]. Economic and technical inputs are proposed in Table 1. It is hypothesized that the end

el Q el biomethane ¼ Q biomethane  c f  ð1  lf Þ th Q th biomethane ¼ Q biomethane  c f  ð1  lf Þ el

Q chp biomethane ¼ Q biomethane  ð1  lf Þ

ð60Þ

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F. Cucchiella, I. D’Adamo / Energy Conversion and Management 119 (2016) 338–351

Table 2 Optimal size of biogas plant. Sbiomethane (m3/h) Substrate

100 ofmsw

Optimal size Sbiogas (kW) 3 Q nom biogas (1000 ⁄ m )

Q biogas (1000 ⁄ m3) 3 Q nom biomethane (1000 ⁄ m ) Q biomethane (1000 ⁄ m3)

100 mixed

295 1416

Ó 300 1440

305 1464

310 1488

Ó 315 1512

320 1536

1331 800 787

1354 800 799.978

1376 800 813

1399 800 785

1421 800 797.978

1444 800 811

Table 3 Profitability of biomethane plants – Baseline scenario.

ofmsw

500 m3/h

250 m3/h

100 m3/h mixed

ofmsw

mixed

1000 m3/h

ofmsw 42

mixed

ofmsw

mixed

49 37

28 24

27 16

17

11

8

3

2

-4 -3 -14

-14 -22-26

-23 -34

-35 -53 Vehicle Fuel

Injection into the grid

-24-26

Combined heat and power

Fig. 1. NPV/Size in baseline scenario – data in k€/(m3/h).

specifications of the gas (like composition and pressure) are adjusted to their final use. For the current study, we consider the use of MEMS technology for 100 m3/h and 250 m3/h and the use of WATS technology for 500 m3/h and 1000 m3/h minimizing the investment cost of upgrading phase [33,42]. The sizes of biogas and biomethane plants are typically presented in kW and m3/h respectively [33,40,46]. We use the following conversion factor: 1 kW  0.6 m3/h for ofmsw substrate and 1 kW  0.57 m3/h for mixed substrate [31]. The definition of optimal size of biogas plant is chosen in order to maximize the grade of saturation of upgrading phase ðQ biomethane  Q nom biomethane Þ – Table 2. The typology of configuration in this paper requires compression and distribution when biomethane is used as vehicle fuel, only distribution when the biomethane is injected into the grid [30]. In fact, vehicle fuel requires a higher pressure than the other two final destinations. A distance installation to grid equal to 500 m is chosen in according to Section 2.2 (the cost of installing distribution pipes equal to

275,000 €/km). Finally, when biomethane is destined for cogeneration, we analysed that the electricity grid is near the production site and it is chosen a distance installation equal to 500 m, while it is directly connected to the district heating [28]. With the inputs thus defined, in the next section we calculate the financial performance results from the various investments and evaluate the criticalities of several variables. 4. Results Table 3 presents the results from 24 investment scenarios obtained considering the four biomethane plant sizes (100 m3/h, 250 m3/h, 500 m3/h, 1000 m3/h), two feedstocks (ofmsw, mixed), and the three final destination of biomethane (vehicle fuel (vf), feeding into the grid (fitg), combined heat and power (chp)). Furthermore, the ratio between NPV and biomethane size is able to compare all plants and it is proposed in Fig. 1.

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F. Cucchiella, I. D’Adamo / Energy Conversion and Management 119 (2016) 338–351

Biomethane plants obtained by ofmsw substrate are profitable for all four sizes analysed in this paper to the contrary of mixed substrate (verified only above to 500 m3/h plant). The profitability is verified in 10 of 12 scenarios concerning plants that treat ofmsw (100 m3/h in both vehicle fuel and feeding into the grid destination present a negative NPV) and only in 2 scenarios (500 m3/h and 1000 m3/h in vehicle fuel destination) concerning facilities that treat mixed substrates. From one side, the NPV has a positive range from 837 k€ (100 m3/h plant in combined heat and power destination) to 49,059 k€ (1000 m3/h plant in vehicle fuel destination) if the feedstock is ofmsw, while it varies from 807 k€ to 2734 k€ (500 m3/h and 1000 m3/h plants in vehicle fuel destination respectively) with a mixture of 30% maize and 70% manure residues on a weight basis. From the other side, the NPV is negative in ofmsw 100 m3/h plants in feeding into the grid and vehicle fuel destinations (324 k€ and 364 k€ respectively), while it varies from 2302 k€ to 26,142 k€ in combined heat and power destination with 100 m3/h and 1000 m3/h plants respectively. Consequently, it is demonstrated that great profits can be obtained, but also great losses are possible in several scenarios. These results are strongly dependent by two aspects: (i) net revenues associated to the treatment of ofmsw are equal to 0.29 €/m3 biomethane and (ii) the incentive scheme favours some substrates through the application of corrective coefficients. For example, energy crops are penalized in order to not subtract agricultural land from the primary sector. In feeding into the grid destination, mixed plants have a worse economic performance due to corrective coefficient that does not provide the relative increase of 50% (see Table 1 – cfitg c;su is equal to 1.5 and 1, respectively). Instead, there is not difference between incentives recognized to both mixed and ofmsw substrates in combined heat and power destination, but only if products by biological origin do not exceed 30%. This characteristic is true also in vehicle fuel destination, but however the value of corrective coefficient for mixed substrate is lower than ofmsw one. Furthermore, the decree of incentivization of biomethane presents three different incentive schemes for each final destination of this renewable energy carrier Consequently, the role of legislators is strategic since they determine the best choice. It is associated to the combined heat and power destination analysing 100 m3/h plants and to the vehicle fuel destination considering 250 m3/h, 500 m3/h and 1000 m3/h plants for both substrates. From one side, biomethane plants have better financial results in u biogas plants up to 600 kW due to the value of iaifit equal to 198 €/MW h for 300 kW < Sbiogas 6 600 kW, decreasing to 171 €/MW h for 600 kW < Sbiogas 6 1100 kW (see Table 1). From the other side, the value of incentive for vehicle fuel is characterized by a degree of uncertain (not present in other two final destinations), because it is calculated in function of CICs, that have not a

defined value (see Section 2.1). Following, a sensitivity analysis will permit to overcome this limit set by the inter-ministerial decree. Feeding into the grid configuration is penalized by decree that sets the amount of produced biomethane several by one injected into the grid ðQ fitg biomethane – Q biomethane , see Section 2). Economies of scale give the opportunity to investors to have significant increases in profits and it is possible to quantify these values using the indicator NPV/size. However, the results indicate lower relevance of economies of scale in presence of constraints linked to corrective coefficients of incentive scheme. In fact, the increase is always present from 100 m3/h to 1000 m3/h plants in vehicle fuel destination, while it is not verified in other two destinations (up to 500 m3/h in feeding into the grid and up to 250 m3/h in combined heat and power). From one side, NPV/size reaches its maximum value in 1000 m3/h plant and it is equal to 49 k€/(m3/h) and 3 k€/(m3/h) in vehicle fuel destination with ofmsw and mixed substrate respectively. From the other side, NPV reaches its minimum value in 100 m3/h plant and it is equal to 4 k€/(m3/h) in vehicle fuel destination with ofmsw substrate and to 53 k€/(m3/h) in feeding into the grid with mixed substrate. The NPV and DPBT analyses thus provide results that are consistent between each other. Where DPBT is indicated as >20 this means that even fixing the cut-off period equal to the 20-year lifetime of the facility (pessimistic hypothesis), the investment cannot be recovered within this date. The DPBT results in eight scenarios as equal to one year, in three scenarios as two years and in one scenario as three years. These are certainly low values deriving by: (i) the limited investment costs than operational ones and (ii) the hypothetical consideration of third party financing (the payment is spread over multiple years rather than be concentrated in early years). 5. A focus on the role of subsidies The analysis of the results indicates that the presence of incentives is a condition necessary for the profitability of the biomethane plants. A useful tool is represented by the definition of composition of both discounted cash inflows (dti, dtsb, dto,dtse) and outflows (dtc) per unit of cubic meter of biomethane for 100 m3/h plant (Fig. 2), 250 m3/h plant (Fig. 3), 500 m3/h plant (Fig. 4) and 1000 m3/h plant (Fig. 5). Subsidies are the main source of discounted total revenues and there are four exceptions, represented by 500 m3/h and 1000 m3/h plants in both substrates, when biomethane is destined for cogeneration. This allows significantly the reduction of risks associated to realization of the investment since they are contributions to the lost fund. Only in one scenario, the discounted total subsidies are greater than costs ones. It is verified in ofmsw 500 m3/h plant when

100 m3/h ofmsw 0.78

mixed

0.87 0.61

0.82

0.40 0.23 0 vf dti (subsidies)

0 fitg

0.22 0.10 0

0.17

0

0.10 0 0

chp

dtsb (selling biomethane)

0.76 0.49

0.41

0.34

0.19 0.17

0.80

0.73

0.56

vf dto (treatment ofmsw) 3

0 0 0

0 0

fitg

chp

dtse (selling energy) 3

Fig. 2. Discounted cash flow per unit of m biomethane – 100 m /h plant.

dtc (cost)

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250 m3/h ofmsw 0.61

mixed 0.66

0.67

0.19 0.17

0.43

0.41

0.43

0.40

0.63

0.58

0.64

0.59

0.34

0.23

0.22

0.17 0.10

0.10 0

0

0

vf

0

fitg

dti (subsidies)

0 0

chp

vf

dtsb (selling biomethane)

dto (treatment ofmsw)

0 0 0

0 0

fitg

chp

dtse (selling energy)

3

dtc (cost)

3

Fig. 3. Discounted cash flow per unit of m biomethane – 250 m /h plant.

500 m3/h ofmsw

mixed 0.57

0.61

0.57 0.50

0.40

0.50

0.55 0.34

0.28

0.28 0.22

0.23

0.19 0.17

0.17

0.13 0

0

vf

0

0.08 0 0

0

fitg

dti (subsidies)

0.55

0.41

chp

dtsb (selling biomethane)

vf

dto (treatment ofmsw)

0 0 0

0 0

fitg

chp

dtse (selling energy)

dtc (cost)

Fig. 4. Discounted cash flow per unit of m3 biomethane – 500 m3/h plant.

1000 m3/h ofmsw

mixed 0.57

0.53 0.40

0.51

0.46

0.34

0.32

0.28 0.22

0.23 0.18

0.19 0.17 0 vf

0.13 0

fitg

dti (subsidies)

0.54

0.49

0.28 0.21 0.18

0.17

0.08 0 0

0 chp

vf

dtsb (selling biomethane)

dto (treatment ofmsw)

0 0 fitg dtse (selling energy)

0 0 chp dtc (cost)

Fig. 5. Discounted cash flow per unit of m3 biomethane – 1000 m3/h plant.

Table 4 Distribution of costs (in percentage). Substrate

ofmsw

Plant (m3/h) Maintenance-overhead Investment Electricity Labour Transport Substrate

100 46 17 10 13 3 0

mixed 250 48 17 13 7 6 0

500 50 17 15 4 7 0

biomethane is injected into the grid. The subsidies are equal to 0.61 €/m3 and 0.41 €/m3 for ofmsw and mixed substrates respectively, up to plants with capacities of 500 m3/h. Concerning the use of biomethane as vehicle fuel, there is a same value regardless by the size plant and it is equal to 0.40 €/m3 and 0.34 €/m3 for

1000 49 16 16 2 10 0

100 29 20 11 14 12 3

250 29 17 14 7 21 4

500 27 17 16 4 24 5

1000 24 15 16 2 33 5

ofmsw and mixed substrates respectively. Finally, the range of subsidies is 0.13–0.56 €/m3 for ofmsw substrates and it is 0.08– 0.49 €/m3 for mixed ones when the biomethane is destined for cogeneration. The value of discounted total net revenues for ofmsw management is not equal for all destinations due to the different

F. Cucchiella, I. D’Adamo / Energy Conversion and Management 119 (2016) 338–351 Table 5 NPV (k€) – variations of revenue items for ofmsw substrate.

347

Table 7 NPV (k€) – variations of cost items for ofmsw substrate.

Table 6 NPV (k€) – variations of revenue items for mixed substrate.

item is represented by maintenance and overhead (45–48% and 23–28% for ofmsw and mixed substrates respectively). The only exception concerns mixed 1000 m3/h plant, where the cost of transport is equal to 33%. This paper estimates an increase of unitary transport cost of substrate in larger plants due to two following aspects: (i) the firm is not self-sufficient and (ii) the availability of feedstock is not concentrated near the biomethane plant. Following, a sensitivity analysis will permit to analyse other scenarios. However, this item is very high with mixed substrate due to great quantities of manure residues that are required to reach the saturation of plant. For example, when it is considered an ofmsw 100 m3/h plant are required 11,905 t of this feedstock, while in mixed plant are required 2363 t of maize and 39,789 t of manure residues. Instead, if a 1000 m3/h plant is considered these quantities in input become equal to 119,048 t of ofmsw in the first case and to 23,664 t of maize and 398,526 t of manure residues in the second case. Finally, investment costs are equal to 16–17% for ofmsw substrates and 15–20% for mixed ones (principally by biogas production phase). 6. Sensitivity analysis values of denominators (for example Q fitg biomethane < Q biomethane ! dtofitg > dtovf ). Discounted total costs per unit of biomethane are lower than ones proposed by [31] due to (i) lower investment cost of biogas production, (ii) lower investment cost of upgrading, (iii) greater degree of saturation of facilities and (iv) greater efficiency in the process. The range of total costs for production of biomethane is 0.46–0.87 €/m3 for ofmsw substrates and it is 0.49–0.80 for mixed ones. The distribution cost is not the same for three final destinations and so an average value is proposed in Table 4. The most relevant

NPV results are based on assumptions of a set of input variables. However, compared to the baseline scenario, the critical variables can record changes with respect to initial estimations. Basing on what obtained in Sections 3 and 4, critical variables are the ones that, more than others, have an influence on revenues and costs. From the revenues point of view are analysed two optimistic and two pessimistic scenarios for subsidies that characterize the final use of biomethane (Tables 5,6):  The range of CICs is equal to 200–600 € (this range is very wide due to variability that characterizes this incentive).

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F. Cucchiella, I. D’Adamo / Energy Conversion and Management 119 (2016) 338–351

 The range of p2012 is equal to 24.50–32.50 €/MW h (0.257– ng 0.341 €/m3). u  iaifit is increased/decreased of 5 €/MW h and 10 €/MW h. From the costs point of view is analysed one optimistic and one pessimistic scenario for main items highlighted by Section 5 (Tables 7,8):


s is increased/decreased of 200 €/kW.  C u;1 inv u  C ts is increased/decreased of 2 €/t. 1
s  pmo is increased/decreased of 5%.

This section evaluates 240 alternative scenarios. The investments profitability is verified in 45% of scenarios taken into consideration. The positive distribution is the following:

Table 8 NPV (k€) – variations of cost items for mixed substrate.

 In 34 of 60 cases for 1000 m3/h plants. In 33, 29 and 11 cases for 500 m3/h, 250 m3/h and 100 m3/h ones respectively.  In 43 of 80 cases for final destination of biomethane as vehicle fuel. In 35 and 29 cases for combined heat and power and feeding into the grid ones respectively.  In 103 of 120 cases for ofmsw substrate and 4 cases for mixed one. Furthermore, the financial analysis defines that ofmsw 100 m3/h plant can be profitable also in other two final destinations. It is verified for biomethane used in vehicle fuel when: (i) u the value of CIC is equal to 500 € (icic = 0.41 €/m3) and (ii) the percentage of maintenance and overhead cost in biogas production
ðp1mos Þ is equal to 15%. For feeding into the grid destination when: (i) the price of natural gas in 2012 ðp2012 ng Þ is equal to 30.50 €/MW h, (ii) the unitary transport cost of substrate ðC uts Þ is 1
s is equal to 15%. Finally, the financial analysis of null and (iii) pmo all scenarios highlights that a mixture of 30% maize and 70% manure residues on a weight basis is unprofitable in the following scenarios:

Table 10 NPV (k€) – variation of net revenues for the treatment of ofmsw.

Table 9 The best choice of final destination in all scenarios. Ofmsw Baseline

Mixed Alternative

Baseline

Alternative

chp

vf

iucic ¼ 0:41 €/m3 C uts ¼ 0 (€/t)

vf

chp

iuaifit ¼ 181 (€/MW h)

3

100 m /h chp

vf

iucic ¼ 0:41 (€/m3)


p1mos ¼ 15% fitg

¼ 32:50 (€/MW h) p2012 ng

fitg

p2012 ¼ 30:50 (€/MW h) ng

3

250 m /h vf




C uts ¼ 1 (€/t) 500 m3/h vf

fitg

p2012 ¼ 30:50 (€/MW h) ng

1 s ¼ 15% pmo

vf

No change

vf

No change




p1mos ¼ 15% 1000 m3/h vf

No change

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F. Cucchiella, I. D’Adamo / Energy Conversion and Management 119 (2016) 338–351 Table 11 NPV (k€) – a proposal for new incentive scheme.

Table 12 Share of renewable energy in EU 28 in 2014. Source [53]. Gross final energy consumption Sweden 52.6% Italy 17.1% Transport Finland 21.6% EU 28 5.9% Electricity Austria 70.0% Italy 33.4% Heating and cooling Sweden 68.1% Italy 18.9%

EU 28

16.0%

Luxembourg

4.5%

Italy

4.5%

Estonia

0.2%

EU 28

27.5%

Malta

3.3%

EU 28

17.7%

United Kingdom

4.5%

 biomethane is injected into the grid or it is destined for cogeneration for all analysed sizes.  100 m3/h plant independently by final use of biomethane. In fact, NPV is positive in 250 mixed m3/h plant with (i) u icic = 0.41 €/m3 and (ii) C uts = 1 €/t when biomethane is used as vehicle fuel. The sensitivity analysis proposes another relevant consideration concerning the best choice among three final uses of biomethane (Table 9). For example in baseline scenario, analysing ofmsw 100 m3/h plant NPV is greater when biomethane is destined for cogeneration. When, instead, in alternative scenario u 1
s is evaluated that icic = 0.41 €/m3 or pmo ¼ 15%, the maximum financial result is reached with the biomethane is used as vehicle fuel. Overall, it is opportune to highlight that from one side, the injection into the grid can have the better financial performance, when the substrate if ofmsw. While from the other side, biomethane used as vehicle fuel can have the greater NPV also in 100 m3/h plant for both substrates and it is the best choice in all scenarios concerning 1000 m3/h plants. In this last part of section a special attention is dedicated to ofmsw substrate. In fact, its financial feasibility depends also by net revenues associated to their treatment. This value is equal to 21 €/t in baseline scenario and in sensitivity analysis. In this section are proposed two optimistic and two pessimistic scenarios, in which it is increased/decreased of 5 €/t and 10 €/t (Table 10). The profitability is verified in 40 of 48 scenarios considered in Table 10 and 100 m3/h.plants present the highest number of unprofitable results. Furthermore, this size presents a positive NPV with Rofmsw equal to 25 €/t, also in vehicle fuel and injection t into the grid destinations in comparison to the baseline scenario. The probability that this variable can be lower of 21 €/t is not high in according to a comparison with actors of the sector, but however this analysis defines this risk. Consequently, costs for treatment of ofmsw must be monitored. 7. Discussion Given the non-profitability of biomethane plants using mixed substrates, this paper aims in this phase to introduce a change in

incentive scheme. In the current version the legislators provide a premium also for mixed substrates, only if products by biological origin do not exceed 30%, for use of biomethane destined for cogeneration or sold as vehicle fuel, while it is not present when the biomethane is fed into the grid. Consequently, a new value is proposed for the corrective coefficient concerning to the substrate ðcfitg c;su Þ and it is calculated in according to method proposed for biomethane used as vehicle fuel: 1 + (70 ⁄ 50%) = 1.35 (in the current version it is equal to 1.5 if the feedstock is 100% made from residues or waste, otherwise it is equal to 1). It is applied to several alternative scenarios defined in sensitivity analysis (Table 11). The profitability is verified only in 4 of 44 scenarios considered in Table 11. This little change in incentive scheme permits to have positive financial results with 500 m3/h plant. Furthermore, the same result can be reach through the combination of these variables: NPV is equal to 780 k€ in 250 m3/h plant with the price of natural gas in 2012 ðp2012 ng Þ equal to 30.50 €/MW h and the unitary transport cost of substrate ðC uts Þ equal to 1 €/t; it is equal to 3554 k€ in 1000 m3/h plant with p2012 equal to 30.50 €/MW h and C uts equal ng to 2 €/t, while in order to achieve a positive NPV (174 K€) in 100 m3/h plant is required the change of three variables (p2012 ng


equal to 32.50 €/MW h, C uts equal to 0 €/t and p1mos equal to 5%). The development of biomethane requires that all substrates can be used and this proposal permits to use manure residues in mixed substrates not only for biomethane used as vehicle fuel, but also for feeding into the grid. Several stakeholders highlight this issue: the impossibility to inject the biomethane into the grid when it is obtained by landfill biogas production, but also by ofmsw. Furthermore, it is required that biomethane is totally pure and this represents a enormous technical limit [52]. Finally, an overview of renewable energy situation is crucial to address the decision analysis of national governments. In 2014, the share of energy from RESs in gross final consumption of energy terms reached a 16.0% in the EU 28 and Italy achieved its national 2020 target. However, only in two of three sectors Italy has a value greater than average EU 28. From one side +5.9% in electricity and +1.2% in heating and cooling, from the other side 1.4% in transport. In Table 12 are proposed also the maximum and minimum value in all sectors. These last data requires urgent actions in favour of renewables use in transport sector. The strategic role of biomethane in the Italian transport sector is proposed in previous research project [31]. From one side, Italy is among European leaders in the production of biogas-production systems and natural gas treatmenttransport systems and it has a well developed automotive industry including natural gas vehicles (NGVs). From the other side, Italy has the highest number of NGVs in Europe (equal to 917,792 units

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in 2014, +7.7% than 2013), but the use of biomethane is very limited. This represents a strong contradiction. Hypothesising that the annual NGV’s consumption is equal to 1100 m3 of methane and all current NGVs use a mixture of 20% biomethane, we can define the resource need as 0.20 billion m3 per year. The environmental benefits associated to this choice would leave to savings equal to 330 ktCO2eq per year. This value is obtained by the two following considerations: (i) a NGV travels 15,000 km per year and (ii) a NGV powered by 20% biomethane saves 24 gCO2 eq/km compared to the one powered by fossil fuel. Future research objectives are the evaluation of profitability of biomethane plants using several substrates, the survey among several stakeholders in order to define the technical and economical limits that hinder the diffusion of this renewable source and the analysis of impacts of policies support on real market.

8. Conclusions The biomethane is of great interest and relevance in the light of developments in the global energy system is going through, with specific reference to the volatility of fossil fuel prices. This paper demonstrates clearly the link between incentives and profitability of biomethane. Environmental improvements, technological developments, exploitation of resources recovered by wastes, reduction of production costs of biomethane, substitution of fossil fuels, greater energy independence are all relevant factors, but the development of biomethane requires the feasibility of investments. The analysis of the results indicates that great profits can be obtained, but also great losses are possible in several scenarios. Biomethane produced by ofmsw substrate is basically positive for all sizes considered in this paper also due to incomes deriving by their treatment, while this is not true for a mixture of 30% maize and 70% manure residues. Medium-large plants (250–1000 m3/h) achieve greater financial results and this can be environmental friendly, if the feedstocks are available near the biomethane plant. Small plants (100 m3/h) have a high probability to have a negative NPV. Biomethane used as vehicle fuel is often the best choice among the three final destinations and this is determined by incentive scheme favouring the development of biomethane in transport sector. In according to values proposed in this paper there is a lack in Italy and urgent actions are required in order to increase the share of renewable energy in transport. The variability of CICs restrains the investors. Furthermore, the uniformity of corrective coefficient is opportune developing economic opportunities also when biomethane is injected into the grid. In fact, Italy presents a strong dependence of gas by foreign supplies. In current situation the profitability of a mixture of 30% maize and 70% manure residues is verified only with biomethane used as a vehicle fuel. The use of biomethane in natural gas vehicles reaches significant reduction of emissions and it is a renewable energy carrier favouring the development of circular economy. From one side firms active in environmental services can use ofmsw to feed the relative vehicle fleets, but also food retails can increase the green image of their brand and by the other side agricultural operators can obtain profits through the recovery of wastes.

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