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The case for a time-of-day tariff for biogas

5th September 2014

  

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By: Willem du Preez

Proponents of concentrated solar power (CSP) claim that CSP is the only renewable technology that is able to store energy. It has been claimed that CSP, combined with thermal energy storage (TES), enables CSP power stations to supply electricity even when the sun is not shining. But CSP’s ability to supply electricity during the evening peak time is limited by technological and cost reasons. It is apparently not economically feasible for CSP power stations to supply electricity during the morning peak period. Therefore, it cannot be claimed that CSP technology has the potential to provide a truly dispatchable renewable- energy supply that is economically viable.

In contrast to this, electricity generated from biogas is a truly dispatchable renewable-energy supply, since it can be available on demand at any time of the night or day. The chemical energy in the biogas that is produced by anaerobic digesters is stored in gas holders, from where it can be fed to the engine-alternators according to load electricity demand.

In March 2012, the Minister of Public Enterprises presented information on the nominal total capacity of Eskom’s Ankerlig and Gourikwa open-cycle gas turbine (OCGT) power stations. He also provided operational data, namely the quantity of diesel consumed and the quantity of energy produced since August 1, 2011. The average cost of the diesel used to generate electricity over that period was R2.47/kWh. This is only the cost of the diesel, and production cost elements like operating costs, maintenance, capital redemption and corporate overheads are not included. Diesel price increases in South Africa over the last two years have been substantial (22.6%). The contribution of the cost of diesel fuel to generation costs for the OCGT power stations will by now have increased to over R3.00/kWh. During a briefing on March 6, then Eskom CEO Brian Dames stated that the diesel-fuelled power plants cost Eskom more than R10-billion to operate last year and were run at costs that were 16 to 18 times more expensive than those for the utility’s coal plants.

To encourage CSP with storage to generate energy during peak time, the Department of Energy (DoE) recently introduced an incentive in the form of a time-of-day (TOD) tariff. A base tariff applies during the day and a higher tariff will be applied for supplying energy during peak time. A generator supplying energy during the peak period – between 16:30 and 21:30 – will receive 270% of the base tariff, while there is no payment for supplying energy at night.

The price for the CSP projects awarded during the latest bidding round was R1.46/kWh (fully indexed, April 2011 base year). Fully indexed to April 2014, the price is about R1.74/kWh. The price for power delivered during peak-demand hours will be R4.70/kWh. A considerable amount of project financial modelling and analysis has been done on electricity generation from biogas during peak hours only. The results show conclusively that, with biogas, one can produce peak-period electricity at a cost well below R4.70/kWh. In addition to the lower cost of electricity, biogas technology has the major advantage over CSP of being able to also deliver electricity during the morning peak hours.

To be useful to Eskom, the scale of the power delivered during the peak times must be large enough (utility scale). In the CSP fraternity, mention is often made of the so-called ‘utility- scale energy storage’ in an effort to differentiate CSP from other renewable-energy sources. It should be added that it is not only utility-scale energy storage that is required but also utility- scale generation during both morning and evening peak hours. Whether the energy is stored in large chunks in a few remote locations (using complex and expensive technology) or in a relatively large number of smaller units dis- tributed over the Eskom network using simple, inexpensive and proven technology is not the issue. It is the dispatchability, cost and scale of the generation that determine the inherent value of the generation for Eskom.

So, let us consider the potential for biogas electricity generation in South Africa. According to a recent study by the Energy Research Group at the University of Cape Town, the total biogas- generated electricity potential for the country is about 2 300 MWe of continuous generation. The combined total nominal capacity of Eskom’s Ankerlig and Gourikwa OCGT power plants is 2 067 MWe. Eskom’s morning peak – 07:00 to 10:00 – is three hours long and the evening peak – 18:00 to 20:00 – is two hours long. During these 25 hours a week, biogas-generated electricity could provide the 2 067 MW from a 300 MW plant, which is less than 13% of the estimated available capacity.

At a price of, say, R4.00/kWh during these 25 peak hours a week, the yearly revenue of the 300 MW biogas plant would be about R10-billion (assuming an average load factor of 90%). This would be an attractive project for investors, and both Eskom and South Africa would gain by it.

Large-scale biogas power generation is a good example of distributed generation. It has the advantage of lower transmission costs, compared with CSP genera- tion, in a few remote locations. The distributed generation factor, coupled with the truly dispatchable nature of biogas electricity, will also help to improve network stability.

With fluctuating capacity, inherent in most renewable energy technologies, addressing grid stability will become a high-priority concern. The TOD tariff introduced by the DoE for CSP recognises the intrinsic value of storage for shifting generation to meet demand. As already mentioned, in the case of CSP, the extent of economically feasible generation shifting is limited to a few hours during the evening peak-demand period. With generation from biogas, the early morning peak can also be covered. It would seem reasonable to state that the intrinsic value of generation that can economically be shifted to both morning and evening peak hours is higher than the intrinsic value of generation that can only be shifted economically to evening peak hours.

In the case of wind power generation, it is necessary to build not only the intermittent renewable supply, but also a backup fossil fuel or other dispatchable supply. The total capital cost of a biogas generation plant that can deliver power during peak times, or when total wind generation drops suddenly, is estimated to be in the region of R12 000/kWE to R15 000/kWe of peak time generation capacity. This can be compared with the total capital cost of Eskom’s Medupi power station of about R30 000/kWe.

There is, therefore, a very strong case for a TOD tariff for electricity generated from biogas. In the light of the TOD tariff that has been introduced for CSP and which has already created a precedent, it is now the appropriate time for the industry to approach the DoE and propose that a similar TOD tariff be introduced for biogas generation. This should be included in the Renewable Energy Independent Power Producer Procurement Programme.

 

After obtaining degrees in electrical, nuclear and mechanical engineering, Du Preez worked in the nuclear industry for more than 20 years – for the South African Atomic Energy Board, the Uranium Enrichment Corporation and the Pebble Bed Modular Reactor Company (PBMR). When the PBMR project was terminated, he joined BBEnergy, a company specialising in mining and industrial energy efficiency and renewable power generation.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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