Feed-in tariffs for biogas-produced electricity in Finland compared to other

European Union countries

Leena Mäkinen

Term Paper, spring 2011

Energy Economics and Policy

ETH Zürich

Summary ...............................................................................................................................................................1

Introduction ..........................................................................................................................................................2

Biogas ...................................................................................................................................................................4

Production of biogas .........................................................................................................................................4

Production in European Union .........................................................................................................................5

Energy supply from biogas ...............................................................................................................................6

Feed-in tariffs .......................................................................................................................................................8

Tariff rates ........................................................................................................................................................8

Current situation in Finland ............................................................................................................................... 10

Policy.............................................................................................................................................................. 10

Current Production ........................................................................................................................................ 11

Case study: Germany ......................................................................................................................................... 13

Future in Finland ................................................................................................................................................ 16

Conclusion ......................................................................................................................................................... 17

Bibliography ....................................................................................................................................................... 18

1

Summary

Biogas is a renewable energy resource that can be produced from different waste- or by-product streams.

Biogas can be converted to heat or electricity, for example, in combined heat and power plant. European

Union has set high targets for primary energy consumption from renewable energy resources. To achieve

these targets, member countries need to increase all possible renewable energy production.

In order to extend renewable energy production Finnish government set the law of feed-in tariffs at the

end of 2011. This law concerns the electricity produced from recently built wind power, biogas or wood

chip-powered generating plants. This paper studies only biogas and its feed-in rates. For Finland biogas is

one possible technology to increase renewable energy production. It has a great potential that has not

been taken advantaged yet.

This paper examines this new law, and compares it to the feed-in tariffs in other European Union countries.

In addition it presents how merge of feed-in rates has contributed to biogas production in Germany, where

feed-in tariffs have gained great success. At the end of the paper is estimated, how is the future of biogas

production going to look like and what kind of alterations are most likely be happened.

2

Introduction

European Union has an ambitious target for energy production from renewable energy resources. In 2020

20 percent of energy should be produced from renewable resources. In 2005 the renewable share of gross

final energy consumption in the EU was 8,5 %. The 20 % share is distributed to the member states so that

Finland, for example, needs to raise its share of renewable from 28 % to 38 % whereas Germany’s

renewable share on gross energy consumption was 2005 5,8 % and the target is 18 %. (EU)

In case of Finland the goal might not seem so difficult to reach while addition counts only about 10

percentages. Some other countries need to make even larger additions. However, the truth is that this

target is not that easy to reach. Main reason for that is the segmentation of renewable energy consumption

in Finland, which is shown on the figure 1. In 2009 more than 75 % of renewable consumption in Finland

came from wood fuels and share of renewable energy resources was only 25 % of the total gross energy

consumption. The part of energy production from forest industry, in other words pulp and paper industry,

accounts more than half of the renewable consumption. The absolute amount of renewable energy

consumption on forest industry is not going to increase in next ten years. Vice versa, it might decrease if

more pulp plants are driven down as tendency in past few years in Finland has been.

Figure 1. Division of renewable energy consumption in Finland 2009 (motiva)

33,8 %

26,4 %

18,2 %

13,9 %

2,2 %

1,8 %

0,5 % 0,3 % 0,1 %

2,2 % 0,6 %

Black liqour

Industrial wood fuels

Small scale wood usage

Hydro

Heat pumps

Recycled bio-waste

Biogas

Wind power

PV

Renewables in transport

Other

3

Therefore, if Finland is about to achieve the target that has been set, major investments needs to be done

in other technologies. Hydro power cannot be increased remarkably, so the increase must be done in

technologies that accounted about 2 % of total gross energy consumption in 2009. These technologies are

heat pumps, energy recovery from waste, biogas, wind power and photovoltaic power. They represent

extremely small part of total energy consumption in Finland. However, each of them has remarkable

potential to grow in next ten year.

The main issue with all renewable technologies is how to make them competitive with conventional energy

production. Energy produced by fossil fuels is far cheaper than with renewables. In addition, investments in

renewable technologies are more risky and investors exact higher profit to the investments. To encourage

new investments in these technologies and enhance their competitiveness, Finnish government set a law

for feed-in tariffs for electricity production from renewable energy resources at the end of 2010. This law

came into effect March 25th 2011. It applies new or recently built wind power, biogas or wood chip-

powered generating plants.

4

Biogas

Biogas is a mixture of methane (CH4), carbon dioxide (CO2) and small amounts of some other gases like

oxygen (O2) or nitrogen (N2). About 55-70 percent of the composition is methane and 30-45 percent is

carbon dioxide. In atmospheric conditions methane eagerly reacts with oxygen, what makes biogas highly

reactant gas. Moreover, methane is a greenhouse gas, which effects in the atmosphere are more severe

than, for example, carbon dioxide, which is the best known greenhouse gas. Thus, the storage and

processing of biogas needs to be done in such conditions that it cannot be discharged to the atmosphere.

Hence, in combustion is the biogas much less pollutant fuel than, for instance, all fossil fuels.

Production of biogas

Biogas is formed in anaerobic conditions when bacteria convert organic matter to methane. In addition to

bacteria and organic matter, process needs heat. The process can happen in two temperature ranges: in

mesophilic area (35-37:C) or thermophilic area (50-55:C). The whole process is called digestion and it

happens in digester tanks. Organic matter that is needed to the process can originate from different

wastes, actually nearly all organic material except wood can be used for biogas production. Mostly either

sewage sludge, cattle dropping or municipal bio waste is used as an organic matter. So, digesters can be

found from municipal wastewater treatment plants (WWTP) or on the farms. Bio waste is commonly

digested in co-digestion plants.

In addition, digestion or the forming of biogas can also happen naturally in land fill sites, where biogas is

formed underground in the waste bed. Formed biogas can be then pumped from the ground and be used in

energy production.

It is also environmental friendly to produce energy from these different waste streams. Sewage sludge, for

example, is a by-product on wastewater treatment plants. It contains lot of organic matter which can be

exploited in digestion. Digestion also stabilizes the sludge and decreases its water content. This improves

the disposing possibilities of sludge, which otherwise is difficult due to the bacteria, pathogens and high

water content, the sludge has. On landfill sites, collection of the biogas decreases the CO2 and CH4

emissions to, when gas is collected and used properly instead of only releasing to the atmosphere.

Thermal heat of the biogas can be converted to heat or electricity in, for example, in combined power and

heat plant (CHP) or in gas boiler. After that heat can be used in heating the digesters or buildings and

electricity can be used self or fed to the grid. A scheme of the agricultural production system is described

on the figure 2. Upgraded biogas can also be used as a fuel in cars or other vehicles.

5

Figure 2. Example of agricultural CHP (1)

Production in European Union

In 2007 primary energy production in EU was about 5,9 Mtoe. How production is divided by different

countries and gas deposit can be seen in figure 3. Germany is the largest individual producer producing

nearly half of the total EU-production. Finland, instead, is one of the smallest producers by yearly

production of about 37 ktoe. Half of the total energy production in EU comes from land fill site gas, one

third comes from other resources, either agriculture or co-digestion, and the rest from sewage sludge from

the WWTPs. There are remarkable differences in resources between countries. In Germany most of the

biogas is produced from other sources whereas in Finland corresponding share comes from landfill gas.

Biogas production and energy conversation from biogas in Finland and Germany is described more detailed

later.

Figure 3. Primary energy production of biogas in EU in 2007 in ktoe (EuroObserver)

6

Energy supply from biogas

In figure 4 is shown the total primary energy production from biogas in European Union in 2008 and 2009.

As can be seen, the total primary energy production has growth on 2009 compared to 2008. Production has

increased in nearly every country. This energy from biogas can be then supplied to secondary energy in

different ways and after that be exploited.

Figure 4. Total primary energy production from biogas in the EU in 2008 and 2009 (EuroObserver)

Energy content of the biogas can be supplied either heat or electricity. Possible combinations are combined

heat and power production, heat production alone or electricity production alone. Most common option is

combined heat and power, because thermal efficiency reached by it is higher than in other options. Applied

techniques in converting are internal combustion engines, boilers or micro turbines, which of them; most

popular are IC-engines. IC-engines can be used only in electricity or heat and electricity production. Alone

electricity production cannot reach as efficiency as production with heat recovery. Electricity produced, can

be purchased to the general grid or used alone, whereas heat produced, is mainly used by self by heating

buildings or digesters.

0 500 1000 1500 2000 2500 3000 3500 4000 4500

GermanyUnited Kingdom

FranceItaly

NetherlandsSpain

AustriaCzech Rebublic

BelgiumSweden

DenmarkPolandGreeceFinlandIreland

HungaryPortugalSloveniaSlovakia

LuxembourgLatvia

LithuaniaEstonia

RomaniaCyprus

[ktoe]

2008

2009

7

In most cases, feed-in tariffs are only paid for electricity production per kWh electricity supplied into the

common grid. Gross electricity production in EU countries in 2008 and 1009 is shown in figure 5. Comparing

figure 4 to figure 5 can be seen that there are differences between countries, how large share of energy is

converted to electricity instead of heat. In addition to influence of feed-in rates, other reason for these

differences can be the location of the countries. It is obvious that in southern countries need for heat is not

as high as in northern countries, like Finland. For instance, in Germany electricity production has growth

heavily even though the total primary energy has decreased in 2009, compared to 2008.

Figure 5. Gross electricity output from biogas in EU in 2008 and 2009

0 2000 4000 6000 8000 10000 12000 14000

Germany United Kingdom

ItalyNetherlands

France Austria

Spain Belgium

Czech Rebublic Denmark

PolandGreece Ireland

Hungary Portugal Slovenia

Luxembourg Latvia

SwedenFinland

Slovakia Lithuania

Cyprus Estonia

Romania

[GWh]

2008

2009

8

Feed-in tariffs

Feed-in tariffs are way to support market developments of renewable energy technologies, especially

electricity production of them. Tariffs enable producers to receive certain price from purchasing electricity

produced by renewable energy resources. This price is usually higher than the price normally received from

the purchase. Thus, for producers it is more profitable purchase the electricity than in normal conditions

and certain yields are guaranteed in the markets where prices may vary widely between different periods.

The aim is to make it more tempting for producers to produce electricity from renewable and for investors

to invest in technologies which otherwise might carry a high risk. The tariff price is mostly guaranteed to

specific time period, which usually ranges from 10-20 years.

Tariff rates

Own feed-in tariff rates are set for each renewable technology in different countries. In table 1 are shown

biogas feed-in tariffs and length of them in European Union countries in 2008. As can be seen both the

tariff rates and length of the tariff differ substantially in between countries. Some countries have only one

tariff price whereas the others have range of tariff rates. For example, in Austria, France and Germany tariff

rates vary depending on plant size and fuel type. While remuneration in Czech Republic, Ireland,

Netherlands, Slovenia and Spain ranges by the type of biogas used.

Premium tariffs in Czech Republic, Estonia, Slovenia and Spain stand for tariff system where a premium

price is paid on top of the electricity price each day. In this case, paid tariff depends strongly on the market

price of the electricity. These premium tariffs can be regarded as more market-based support instruments

than fixed tariffs.

9

Table 1. Feed in tariffs in European Union countries in 2008 ()

type tariff level

[€ cents/kWh] legth [years]

Austria fixed 11,5 - 17,0 10 -15

Bulgaria fixed 8,3 - 9,4 -

Cyprus fixed 6,3 no limit

Czech Republic fixed 8,9 - 14,9 15

premium 4,0 - 10,0 15

Denmark fixed 8,0 10

Estonia fixed 7,42 12

premium 11,0 12

France fixed 4,5 - 14 15

Germany fixed 7,7 - 29,7 20

Greece fixed 7,3 - 8,5 12

Hungary fixed 10,5 no limit

Ireland fixed 7,0 - 7,2 15

Italy fixed 18,0 - 30,0 10

Latvia fixed 13,0 - 16,7 10

Lithuania fixed 5,8 10

Luxembourg fixed 10,4 - 12,8 15

Portugal fixed 11,5 - 11,7 13

Slovakia fixed 6,5 - 7,9 10

Slovenia fixed 5,0 -12,1 10

premium 6,7 - 14,3 10

Spain fixed 8,0 - 10,8 15

premium 9,4 no limit

Tariff rates in different countries are also shown in figure 6 where tariffs are normalized to a lifetime of 20

years and rates are discounted with rate 6,5 % to the year 2008. This provides better comparability

between rates in different countries. (2)

Figure 6. Bandwithdth of remuneration for biogas in EU discounted to year 2008.

Neither in table 1 nor figure 4 is shown feed-in tariffs in Finland, because the law was passed in 2010. But

roughly compared to the other countries feed-in tariffs in Finland are on bit lower level and the length of

the tariff is somewhat the same than the others. Still, the Finnish system is really new compared to some

other. For instance, in Germany, the first feed-in tariff was legislated in early 1990’s.

10

Current situation in Finland

Policy

The preparation of a legislative proposal of feed-in tariffs took years in Finland before the actual law was

passed at the end of 2010. For long time it had been clear that something needed to be done to encourage

companies to invest in renewable energy technologies. Disagreement occurred in the ways of carrying

through the process and which where the right kind of incentives. Feed-in tariffs had been set in nearly all

of European Union member states. More or less, the achievements in new installations of renewable

energy plants had been taken in different states. Moreover, the questions were, how high should the tariff

rates be settled, what would be decent length of the tariff, when higher tariff rates were paid and which

other restrictions would be set.

Eventually, the law on feed-in tariffs for biogas –produced electricity included the following points:

Law covers only new plants, in construction on which, only new, unused components had been

used

The plant has not become any state-subsidy for construction etc. before the tariff

The nominal output of the generators altogether has to be 100 kVA at the minimum

The market price average is calculated in three months period

The tariff rate for electricity production is 83,50 €/MWh. The tariff paid to producers is the

difference between the tariff rate and the average market price.

Market price minimum is set in 30 €/MWh. So the maximum tariff paid is 53,50 €/MWh

The producer has to be connected to the local electricity grid. The amount of electricity is

determined by the electricity meter

A premium of heat production can be paid to the producer when in context with electricity

production will be produced heat, which will be utilized as well. This heat premium is 50 €/MWh.

And efficiency of the CHP-production has to be at least 75 %.

How the tariff will be paid in Finland for electricity production is described in figure xx. As can be seen the

tariff paid is difference between 83,50 €/MWh and the average electricity market price in three months

perioids. In addition to this tariff, extra 50 €/MWh heat premium can be paid. So the price that producers

receive is 133,50 €/MWh. Heat premium will play an essential role in feed-in tariffs in Finland, because of

traditionally high heat production of the Finnish biogas.

11

Figure 7. Determination of the paid tariff in three months periods (Kiviluoma)

Current Production

In 2009 there were digesters on 16 municipal and 3 industrial wastewater treatment plants and on 10

farms. In addition there were 4 go-digestion plants and 35 landfill sites, where biogas was collected.

Altogether, in 2009 biogas production in Finland was 140 million m3. But only about 100 million m3 of this

was used in electricity or heat production and the rest of it was wasted by burning it in excess gas burners.

Excess gas need to be burned because it cannot be released into the atmosphere due to its greenhouse gas

character. This amount of biogas equals to about 200 GWh energy per year. Total primary energy from

these 140 million m3 was 416 GWh in 2009. So, nearly one third of the energy from biogas was wasted in

2009.

In figure 8 is shown, how energy production has developed in Finland in 1994-2009. The growth of

electricity production has been quite steady since 1994, while growth in heat production has changed

more. However, the increase is clear, and in future it is expected to be even more remarkable due to the

new feed-in rate legislation.

12

Figure 8. Development in energy production from biogas in Finland 1994-2009. (Kuittinen et. Al 2010)

What can be seen both in figure 8 and 9, is that share of heat production from biogas is significantly high in

Finland. Usually biogas is converted to heat in gas boilers. Nevertheless, also IC-engines are used in CHP-

plants, especially on municipal wastewater treatment plants. In 2009 heat production comprised about 86

% of the production, whereas electricity production was only 14 %. In figure 9 is also shown, how the

production is distributed by deposit in Finland in 2009. About 65 percentage of the total energy supply

comes from landfill gas. But 94 % of landfill gas is converted to heat and only 6 % to electricity. On

municipal wastewater treatment plants is produced about 27 % of the total energy supply of which 70 % is

converted to heat and the rest to electricity. Co-digestion plant account about 6 % of the total energy

supply while share of industrial wastewater treatment plants is about 2 % and agriculture only 1 %.

Figure 9. Segmentation of biogas-produced energy by deposit in Finland in 2009. (Kuittinen et Al. 2010)

0,0

50,0

100,0

150,0

200,0

250,0

300,0

[GWh]

Heat [GWh]

Electricity [GWh]

14 %

86 %

Electricity

Heat

13

Case study: Germany

Germany is the number one success story in the history of feed-in tariffs. It is a great example of effective

feed in legislation. First feed-in law was released in Germany in 1990. It related to small hydro and wind

power installations. In 2009 energy policy in Germany passed major changes and also feed-in tariff system

was extended. Since then, it has contained differentiation in tariff rates depending on the renewable

energy type, site and size. Hence, has the share of renewable energy resources increased notably in

Germany, as can be seen in figure 10. In figure is also shown, the target of share of renewable energy

resources of final energy consumption in Germany in 2020. It is ambitious, but reachable, considering the

development since 1998.

Figure 10. Development in the share of primary and final energy consumption in Germany since 1998.

(BMU)

Renewable energy supply portfolio of Germany is described in figure 11. Nearly half of the renewable

energy supply comes from wind power. Energy production from wind energy has growth remarkably in past

few years. On one hand due to technological developments, on the other hand due to extensive feed-in

tariff system. Share of biogas from the renewable energy supply is nearly 9 %, while in Finland the same

number was only 0,5 %. In Germany majority of biogas is produced in co-digestion plants or in agriculture,

as was shown in the figure 3.

14

Figure 11. Structure of energy supply from renewable energy resources in Germany in 2008 (BMU)

Installations in biogas have also grown in German in past years. Number of biogas plants in Germany and

installed capacity and their development is described in figure 12. In 2009 there were about 5000 biogas

plants in Germany, while in Finland the number was 68. Proportioned to the population of these two

countries, number of biogas plants was five times higher in Germany than in Finland. Installed capacity in

Germany has grown at the same phase as number of plants and was in 2009 nearly 2 GW.

Figure 12. Number of biogas plants and installed electrical capacity in Germany in 1992-2011 (BMU)

15

In table 2 is calculated how much installed electrical has increased every year since 1999, on year after the

feed-in tariff for biogas production was legislated in Germany. Average growth has been about 50 % per

year. In 2001, three years after the feed-in tariffs were set, the amount of installed electrical capacity

nearly tripled. After that the growth has been steadier.

Table 2. Growth of installed electrical capacity in Germany in 1999-2009. Numbers from the figure 12.

Year Capacity [MW] Growth [%]

1999 50 -

2000 65 30,00 %

2001 182 180,00 %

2002 256 40,66 %

2003 333 30,08 %

2004 390 17,12 %

2005 650 66,67 %

2006 1100 69,23 %

2007 1271 15,55 %

2008 1377 8,34 %

2009 1893 37,47 %

Average

49,51 %

16

Future in Finland

Germany is a great example how biogas production in Finland is likely to be grown in next ten years. New

feed-in tariff legislation is going to chance the energy production from renewable resources. Affections of

the law will be doubtless seen in the biogas production as well.

Preparing of the feed in law lasted about 5 years in Finland. Companies did not hesitate to start new

investments in biogas plants during this period. Everyone waited for the upcoming law that would support

their energy production. Only new plants will benefit from the new legislation. By the time, when the law

was set, there were in total 28 new plants planned to be build in next five years. Some of these plants are in

Finnish scale notably large. Thus, it is expected that Finnish biogas capacity is nearly going to double in next

five years. 10 of these new forthcoming installations are agricultural digesters and 18 co-digestion plants.

Especially these co-digestion plants will have large capacity and many of them are centralized plants that

receive input from extensive areas.

The largest municipal wastewater treatment plant comprises nearly half of the biogas production on the

municipal wastewater treatment plants. In five years there will be build totally new municipal wastewater

treatment plant that will have nearly the same capacity than the currently largest one. So, there is also

great capacity in the smaller ones to decrease the biogas production.

In figure 13 is drawn, how energy production from biogas might develop in next ten years. There are two

different scenarios: yearly growth of 20 % and 50 %. But how likely it is that biogas production really would

grow like this next ten years, is difficult to estimate.

Figure 13. Two different scenarios of growth of energy production from biogas.

0

5000

10000

15000

20000

25000

30000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

[GWh]

Growth of 20 %

Growth of 50 %

17

Conclusion

The new Finnish legislation on feed-in tariffs is most likely to reach its target and accelerate energy

production from renewable energy resources. Notable upturn will also be seen in energy and especially

electricity production from biogas, which is one of the supported technologies and in which this paper

concentrates on. It is hard to say, if the increase is going to be as high and steady as in Germany, presented

earlier. However, some remarkable changes are about to come.

Generally, feed-in tariffs are workable support instrument. There are many examples that promote this. On

top of them is the success story of feed-in tariffs in Germany, where only biogas production has multiplied

many times in last ten years. Feed-in tariffs are used in 21 EU countries. Some of those countries that have

not introduced feed-in tariffs yet, are considering it, due to the indisputable effects on the growth of

energy production from renewable energy technologies.

18

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NOT READY YET, AS WELL AS ALL THE REFERENCES IN THE TEXT!

http://ec.europa.eu/energy/renewables/targets_en.htm

http://www.eurobserv-er.org/pdf/baro186_a.pdf

http://www.motiva.fi/toimialueet/uusiutuva_energia/uusiutuvan_energian_kaytto_suomessa

http://www.futurepolicy.org/fileadmin/user_upload/PACT/Learn_more/Klein_et_al.__2006_.pdf

http://www.aebiom.org/IMG/pdf/Brochure_BiogasRoadmap_WEB.pdf

http://www.e-parl.net/eparlimages/general/pdf/080603%20FIT%20toolkit.pdf

http://www.ymparisto.fi/download.asp?contentid=106756&lan=fi

http://epublications.uef.fi/pub/urn_isbn_978-952-61-0160-6/urn_isbn_978-952-61-0160-6.pdf

http://earthaction.typepad.com/files/kiviluoma_feedintariff_finland.pdf

http://www.bmu.de/files/english/renewable_energy/downloads/application/pdf/broschuere_ee_zahlen_e

n.pdf