According to the targets set by the German Government alone, over 10 per cent of the current demand for natural gas has to come from biogas by 2030. And the share of total electricity generated through combined heat and power (CHP) is slated to more than double by 2020.
At the same time, consumer demand for renewable energy is rising. Germany's Renewable Energies Heat Act (EEWärmeG) further increases demand, because biogas is eligible for incentives as an alternative measure under this law.
Reliable information on the technical specifications of a biogas plant is essential, if full use is to be made of the opportunities presented by this economic potential and legal framework. This not only applies to planning by the operator. Frequently, the quality of a systematic SWOT (strengths, weaknesses, opportunities, threats) analysis is also critical for obtaining loans. After all, the investors' need for security must be satisfied when it comes to financing.
This presents an area of conflict, between regulatory and technical requirements on the one hand and business interests on the other. So in order to achieve bankability, the best possible system solutions need to be implemented.
Due diligence reviews ensure early recognition of the risks and opportunities, providing operators right from the planning phase with reliable expert reports. These can prove the safety of future use, and the security of investments to third parties.
Due diligence assesses the following aspects:
- Technical process of biogas generation;
- Technical design of the plant, and the state of repair of its existing parts; and
- Business plan, including profit and loss forecasts, the financial model, the list of values and the supply and recycling of raw materials.
A due diligence review covering all these aspects supplies a comprehensive evaluation of the biogas project, minimising the investment risk and pointing out possibilities for plant optimisation.
By way of a case study to illustrate the scope of technical due diligence, TÜV SÜD analyses an array of aspects including safety measures for the chemical and technical processes of biogas generation; safety-related requirements; and health and environmental protection in terms of air and water pollution.
The review covers all parts of the biogas plant, from the inlet tank to the digester, the gas lines and gas storage tanks. It also includes inspection of the combined heating and power (CHP) station, the electric installations, the gas flare, and the digestate storage tank.
The organisation also reviews the structural plans, as well as those of the technical systems (material selection and design). Finally, it is important not to forget the safety instrument systems (suitability, wiring etc).
The technical assessment
In making an assessment of planned and existing technical systems and machines, the experts first review the available documentation, including the standard planning and design documents and – in the case of existing plants – the assets overview, which provides information about the age of the plant, its acquisition cost, location and current asset value. Maintenance programmes, periodic inspection results and maintenance activities provide further information about the plant's state of repair. Last but not least, the experts analyse the records of plant operation, failure history, failure data and availability.
If the biogas plant is still in the planning phase, the available planning documents are of crucial importance. In this case, the scope of the due diligence review extends from ensuring the chemical and technical safety of the digestion process, to approvals and permits, the contracts concluded with suppliers and purchasers, and the design documentation of technical systems.
The due diligence review also examines the intended future use of the biogas. Will it be injected into the gas grid, for example, or will it be used for energy generation?
On the basis of the reviewed documentation, the biogas experts first analyse the current situation, which includes classification and initial assessment of the plant. In the case of an existing plant, it is important to start with an on-site inspection to make a qualitative assessment of the plant's state of repair. In this context, special account is taken of the maintenance regime, and the mode of operation implemented at the plant.
Finally, the state of repair of the plant and its technical systems is evaluated on the basis of analyses and on-site inspections. It is also important to determine the ‘value in use’ of the machines and technical systems under review.
The financial plan needs to be thoroughly analysed and evaluated. TÜV SÜD due diligence for example takes an array of aspects into account, including assumed plant availabilities, the forecasted costs of maintenance, spare parts, energy and raw materials, and the estimated revenue from the gas or energy as well as the residues sold, e.g. organic fertiliser. The evaluation standard is defined by a number of criteria, including plausibility and suitability, as well as traceability and completeness.
To determine the current value of an existing plant, information about its state of repair must be systematically consolidated and interpreted. The expected remaining service life of the plant components is estimated, and a current ‘fair value’ determined. The output is a detailed list of values, which may be used, for example, as collateral for an investment loan to expand the plant.
Raw material and residues
Apart from its state of repair and its financing model, other critical factors for the success of a biogas plant are the availability – and cost of – raw materials. Which raw materials will be used, and how many tonnes of substrate per hour will be necessary? Can the required quantity of raw materials be sourced directly and reliably? What are the details of the delivery contracts if substrate has to be purchased? How is the plant connected to local infrastructure?
TÜV SÜD for example would analyse and evaluate the source areas from which raw materials are purchased, as well as the competition situation, the submitted delivery contracts, the calculated raw material quantity structures and the quantity and price trends.
However, the supply of raw materials is only one issue. The disposal of the residues from the digestion process of biogas generation is equally important. The key issues in this context are quantity structures, interim storage facilities and further use as organic fertiliser. The result of this analysis is a comprehensive assessment report on raw materials and residues, stating open issues and opportunities for optimisation.
Systematic and comprehensive SWOT analysis provides both plant operators and potential investors with a sound basis for decision-making, and is a key success factor for energy generation from biogas.
- Dr Rolf Zöllner is senior consultant risk management and due diligence at TÜV SÜD
- Matthias Herold is head of risk and reliability, TÜV SÜD
Renewable Energy Focus, Volume 12, Issue 1, January-February 2011, Pages 64-65