Direct marketing of electricity from biogas and biomethane: an economic analysis of several business models in Germany

Abstract

At the beginning of 2012 the legal framework for the promotion of electricity generation from renewable energies in Germany was amended. The compensation scheme for electricity generated from biogas and biomethane, previously based on a fixed feed-in tariff, will henceforth be supplemented by an alternative direct marketing option, which consists of market-based and flexibility premiums. In this article two possible business models for the direct marketing of electricity from biogas and biomethane are economically compared to two state of the art business models based on fixed feed-in tariffs. A linear optimization model taking into account economic and technical restrictions is developed and applied to the two business models based on direct-marketing, in order to compare the costs and revenues for these two models to state of the art biogas plants generating base-load electricity. The key findings are that by applying direct marketing, additional income can be generated that more than compensates for the necessary additional investments. The results also show that the income from direct marketing of electricity generated from biogas mainly consists of the market and flexibility premium and the revenues generated on the spot exchange are of minor importance. Hence the direct marketing of electricity from biogas and biomethane remains heavily dependent on subsidies. The fact that the developed model assumes perfect foresight regarding the development of market prices means that the determined additional incomes represent an upper limit.