Bio-SNG - CNG Services

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BIO-SNG FEASIBILITY STUDY – ESTABLISHMENT OF A REGIONAL PROJECTDomestic Ground source heat pumps using grid electricity indicate £5500 cost per tonne of carbonabated compared with natural gas using the recent EST report for a mid range installed unit, and over£850 when compared with oil. When using renewable electricity (2 ROC supported offshore wind) thecosts of CO 2 e abatement are ~£460/te and £360/te respectively. Again on this basis, Bio-SNG competesvery effectively. If the adoption of electrical based solutions demands more grid reinforcement than wouldbe required to the gas network by Bio-SNG solutions, then the differential in cost per tonne of carbonabated is likely to be even greater.For transport applications, Bio-SNG is also significantly more cost effective than electrical solutions(either using grid electricity - £1000/ te CO 2 e, or presuming hypothecated offshore wind derivedrenewable electricity - £600/ te CO 2 e). However, this analysis does suggest that whilst Bio-SNG doesoffer significant carbon savings for the transport sector, on a cost per tonne abated of £400/ te CO 2 e, theheating sector is a preferable end market.Compared with decarbonisation in the electricity sector, Medium scale generation supported under theFIT costs between £220 and £570/te depending on technology, offshore wind costs ~£200/te, biomasscosts ~£150/te and onshore wind costs ~£100/te against a baseline of current grid average. Thissuggests that the Bio-SNG case is preferable when compared with decarbonisation via feed in Tariffs,offshore wind and anaerobic digestionWith regards to the cost of carbon abated, the renewables routes are relatively expensive. Whilst thecurrent renewable incentive structures are based on a duration which is commensurate with projectfunding, the risk for this type of project is that in time, it is the price of carbon which becomes thedominant incentive mechanism. This will highlight the relatively expensive cost of carbon abatement viarenewables, and may drive a change in policy. Without the kind of support proposed under the RHI,projects such as Bio-SNG would not be viable.The other key driver for the adoption of renewables is to establish alternative and secure sources ofenergy through diversity, and where possible, indigenous supply. In this regard the use of waste basedfuels to provide a gas substitute offers a very low cost fuel source on a per MWh basis compared withother renewables.Risk assessment and financing considerationsThe envisaged Bio-SNG facilities are in most respects conventional process engineering projects,exhibiting the general risk profile that such developments entail. These can in the main be addressedwith a conventional contracting approach to risk management; however there are technology andfinancing risks that need to be addressed.10
BIO-SNG FEASIBILITY STUDY – ESTABLISHMENT OF A REGIONAL PROJECTAlthough the process elements utilised in the development would be proven in their own right, there aresignificant technical interfaces between them that need to be managed as part of overall systemsintegration. This may require an innovative engineering and contracting approach, but it will be arequirement to assure project funders that there is no significant residual technical risk inherent in such adevelopment.The technical uncertainties implicit in the process integration will inevitably make project finance moredifficult and early development of a project financing strategy will be required in order to assure there willnot be a late in the day terminal event on this front.Government incentive schemes offer the prospect of commercial viability with a plant that would not inother circumstances be commercially viable; to that extent they are beneficial to non-fossil energydevelopments including Bio-SNG. The economic analysis shows that they do not constitute anexceptional upside return on investment. What influences the attitude of investors however is that currentsupport mechanisms offer no protection on the downside of the project risk profile. It follows that afinancing strategy needs to make provision for managing the downside risk that will be perceived byinvestors.An incremental approach to the management of technical risk would be the development of ademonstration facility, although even a reasonable scale demonstration facility might not necessarily openthe door to project finance on the first full scale plant. The demonstration plant would be required tooperate for a long time to assure process integrity, and further scale-up uncertainties associated with thefull sized plant would need to be managed Moreover this analysis suggests that a standalonedemonstration facility might itself cost in the order of £70M, a sum which would in any case represent afinancing challenge. The timeline for a demonstration facility also needs to be taken into accountespecially in consideration of the competitive uses of the biomass resources and the timing of commercialscale market penetration for BIO-SNG. Some of the investment risks could be mitigated by configuring aBio-SNG demonstration project on a syngas platform which is valorised mainly by another output productsuch as electricity, with demonstration of Bio-SNG production via a slipstream. The financing of a Bio-SNG project is a challenging prospect, however, it is important to start work on a financing strategy at theoutset of any prospective development, recognising the hurdles that do exist and devising methods toovercome them.Preliminary scoping of a demonstration platform in the North EastIn light of the financial analysis, a project at 300MWth fuelled by SRF (or even a mixture of SRF andvirgin biomass) is economically viable. However, the quantum of investment for a first of a kind project issubstantial and would not be financeable without an intermediary pathway.11
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Bio-SNG - CNG Services

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