The client, a
provider of wholesale water and sewerage services licenced by The Water
Services Regulation Authority (Ofwat), approached NNFCC as an independent third-party
to establish a fair market price for the biogas they generate. The client
produces biogas from the sewage treatment process, and trade it for the
production of biomethane, heat and electricity. The independent third-party
review was requested by the regulator, who wanted to ensure that the biogas
transfer price established by the client was ultimately fair for their
customers. NNFCC was chosen for this task due to their in-house expertise and
knowledge of how AD plants operate, and the outline economics of biogas and
electricity production and trade from AD facilities.
A
logical systematic approach was taken to the calculations, establishing full
site revenue, costs and returns, before allocating a fair split of revenue
between the trading businesses, to determine a fair biogas transfer price. Thus,
the market proxy calculations proposed by NNFCC took the income from support
mechanisms including Renewable Heat Incentive, Green Gas Certification Scheme
or Renewable Obligations into account, as well as other revenues streams such
that from selling biomethane and electricity to the grid. The calculations also
considered the known running costs of the gas to grid and combined heat and
power (CHP) plants provided by the client, and the efficiencies of all relevant
process steps.
All
these costs and revenue streams were checked by NNFCC and validated against typical
UK plant costs; representative industry values for process efficiency at each
step of preparing and injecting the biomethane were then applied, based on the
scale and type of upgrading plant being used.
Overall, NNFCC delivered the following to the client:
- An update on the biogas market, including key changes since 2014, and how the market has evolved over the last 12 months.
- Whether a `market price’ for biogas exists and if not, how one could be derived.
- A review of the client’s own `market proxy’ calculations and their appropriateness.
- Provision of additional `market proxy’ calculations.
- Provision of a list of indices, markets and sources from where information and prices on biogas can be derived, including suggested timeframes for updating such values.