Landfill gas power generation rides ahead on ROC funding

Electricity generation from landfill gas has continued to grow strongly over the past two years, as the renewables obligation has turned marginal schemes into lucrative business opportunities - and made many small sites viable for the first time. There are clouds on the horizon, however, with the Government now threatening to exclude new landfill gas projects from the obligation.

While the recent growth in wind energy has attracted the greatest attention, the sector still has less than half the output of landfill gas. Through the 1990s, five successive rounds of the Non Fossil Fuel Obligation (NFFO) led to steady growth in landfill gas generation (ENDS Report 336, pp 24-28 ).

According to the Renewable Power Association, projects under the final NFFO round in 1998 have been commissioned much more slowly than earlier rounds - probably because the low prices bid by developers proved unrealistic.

Nevertheless, electricity generation from landfill gas continued to grow sharply during 2002 and especially 2003 - helped by the introduction of the renewables obligation in April 2002 (see figure).

Landfill gas schemes received 42% of all renewables obligation certificates (ROCs) issued during 2003/04. The total payment was more than £90 million - bigger than the sum going to wind, biomass and co-firing combined. These figures include capacity contracted under NFFO, the ROCs for which are auctioned by the Non-Fossil Purchasing Agency. Developers with NFFO contracts do not benefit from this income.

The obligation is worth about 4.5p/kWh, bringing the total electricity price to over 6.5p/kWh - more than double the prices landfill gas secured under NFFO.

It is an important income stream for landfill operators facing up to the twin pressures of the EU landfill Directive and landfill tax increases (ENDS Report 354, pp 24-27 ). For operators planning large schemes outside of the NFFO system, projects can now offer very high returns on investment - amounting to an unexpected windfall in some cases.

But Andrew MacLellan from landfill gas generation developer Natural Power said that the obligation's main effect has been to make generation viable from smaller landfills. Whereas all large landfills have already been developed there are "probably thousands and certainly hundreds" of undeveloped sites which could generate 300kW or less, he said.

Natural Power has developed a 300kW engine that can be connected cheaply to the low voltage grid. It can also add capacity to existing sites and prolong their generation when larger engines are no longer economic.

The obligation is also more flexible than NFFO, Mr MacLellan added. It enables projects to be planned according to when gas production starts rather than predicting capacity years ahead to tie in with the next funding round.

Dick Turner from Viridor Waste Management said that the introduction of the obligation has allowed the company to add 8MW of capacity on previously untapped landfills plus 6MW of additional capacity on sites that were already generating. Viridor's total capacity now stands at 50MW.

Similarly Sita has developed two new sites with support from the obligation and is considering a further seven, said general manager Tim Otley. It has also significantly increased capacity at existing sites.

Sita has over 20 NFFO contracts but has so far only commissioned eight of them, Mr Otley said. Many of the projects were extremely marginal at the price bid and vulnerable to less gas being produced than forecast. Although most of them would be viable under the obligation, Sita is tied to its NFFO contracts - leaving the sites "sterilised".

Amendments to the obligation in April were meant to resolve this problem by allowing another company to develop a site under the obligation, providing it was not "linked" or "connected" to the NFFO contract holder (ENDS Reports 344, pp 47-49  and 348, p 38 ).

But the changes did not free up any of Sita's sites, Mr Otley said, because the company has probably worked with all the UK's developers at some time and may therefore be considered "linked" to them.

Mr MacLellan said that Natural Power had been prevented from commissioning some of its NFFO contracts by site owners, who preferred to develop the site with another developer under the obligation. "Instead of sterilising the site the amendment has sterilised the developer," he said.

Viridor only owns one sterilised site, which was acquired from another waste company. Mr Turner will shortly apply to revoke the NFFO contract so that the site can be developed under the obligation - which he believes could be the first such attempt nationally.

A review of the obligation next year gives the Government an opportunity to clarify the rules on sterilisation. But instead it could withdraw landfill gas from the obligation altogether. The Government signalled in August that it will consider reducing or removing support for certain technologies - although operational projects would continue to receive support (ENDS Report 355, p 43 ).

A factor in this equation is that the landfill Directive introduces a legal requirement for landfill gas to be collected, treated and "used". Only if the collected gas "cannot be used to produce energy" can it be flared. Arguably, therefore, the Environment Agency should be requiring landfill operators to invest in power generation schemes even where the returns on investment are relatively poor.

However, Sita's Tim Otley argues that excluding landfill gas from the obligation would be "absolutely crazy". "Why pull the rug from under the industry's feet?"

Emissions from landfill gas engines are being regulated more strictly, Mr Otley noted, and this is adding to capital and operating costs (ENDS Report 336, p 25 ). Without continued support from the renewables obligation, the industry might be forced to revert to flaring, he claimed.

Removing landfill gas from the obligation "would take away support from precisely the sites than need it," said Andrew MacLellan from Natural Power. "We're getting to the stage where the sites that are left [undeveloped] are those particularly in need of support."

Even if support continues, Mr MacLellan estimates that electricity generation will only continue to grow for perhaps another three or four years. New sites will still be developed after then, but their generation will no longer exceed the decline in output from older sites.

Mr Otley broadly agrees, forecasting growth for another two or three years. Sita's current landfill gas capacity of 43MW will rise to about 60MW by next year and about 80MW in a few years' time, he said. "We've had the dash for gas - now it's the dash for the remaining landfill gas."

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