Energy from biomass and biogas – Lexology

Introduction

On 17 March 2020 the eagerly awaited federal law on the expansion of energy from renewable sources (the Renewable Expansion Law (EAG)) was passed in the Council of Ministers. The government bill was submitted to the National Council for further processing. Changes may still arise due to the two-thirds majority required in the National Council, but the main points are likely to remain unchanged. To help achieve the goals of the Paris Climate Protection Agreement 2015, the EAG will create new framework conditions for the expansion of renewable energies in Austria.(1)

Instead of the previously granted fixed feed-in tariffs, the EAG relies on market premiums, which are intended to foster greater market integration of the generation plants. The market premium is aimed at compensating for the difference between the production costs of electricity from renewable sources and the average market price for electricity. It is granted as a subsidy for the marketed electricity from renewable sources that is fed into the public electricity network. Unlike in the past, the Clearing House for Clean Electricity is not obliged to purchase the electricity; the producer will market the electricity directly.

Tendering process for biomass

For biomass plants with a bottleneck capacity of at least 0.5MW, the tendering process will apply. This means that the market premium recipient and the value relevant for the market premium calculation (applicable value) are determined by tendering. A specially licensed EAG funding agency should be responsible for processing the tenders and funding. However, the tendering process does not apply to biomass plants with a bottleneck capacity of less than 0.5MW. For these plants, funding is granted through a market premium based on an application process. In the application process, the ‘first come, first served’ principle, as outlined in the Green Electricity Act (ÖSG) 2012, will apply. In this case, the applicable value used for calculating the market premium is determined in a technology-specific manner by means of an ordinance issued by the federal minister for climate protection, environment, energy, mobility, innovation and technology (BMK). For this reason, the term ‘administrative’ market premium is used in this context.

Which biomass plants are eligible for a market premium?

Newly built and repowered biomass plants with a bottleneck capacity of up to 5MW and newly built and repowered biomass plants over 5MW (to the extent of 5MW) are eligible for funding. The plant must:

  • achieve a fuel efficiency of at least 60%;
  • have state-of-the-art measures to avoid fine dust;
  • have a state-of-the-art heat metre; and
  • have a concept of raw material supply based on the first five years of operation.

The term ‘repowering’ is understood to mean the investment in the modernisation of power plants that produce renewable energy, including the complete or partial replacement of plants or operating systems and devices to exchange capacity or to increase the system’s efficiency or capacity.

Biomass plants that do not meet the above requirements will be excluded from the tendering process and cannot obtain an administrative market premium. The connection to the public electricity network, controllability via remote control and equipment with a load profile meter are further funding requirements for biomass systems.

Calculation of market premium for biomass plants

The market premium for biomass plants is granted for the amount of electricity fed into the public grid in a calendar year. The amount of the market premium is based on the difference between the value determined in the context of a tender (ie, systems from 0.5MW) or administratively determined by the BMK’s regulation (ie, systems below 0.5MW) and the reference market price (RMP) of the relevant calendar year calculated.

The applicable value minus the RMP results in the market premium for biomass plants. For the tender, this means that the lower the value determined in the tender, the lower the market premium. Accordingly, the contract is awarded in the order of the respective bid value. For the determination of the RMP, the trading result of the uniform day-ahead market coupling for the bidding zone relevant for Austria is to be used. The RMP is determined from the arithmetic mean of all hourly prices of the previous calendar year. E-Control – Austria’s national regulatory authority – will calculate and publish the RMP at the beginning of each calendar year for the previous year. If the calculation of the market premium results in a value less than zero, the market premium for biomass plants is generally set at zero.

With regard to the repowered biomass plants, an ordinance can set a discount on the surcharge value, the amount of which is based on the degree of reinvestment.

The administrative market premium (ie, systems below 0.5MW) is calculated based on the applicable value, which is determined on the basis of one or more expert opinions. The determination of the applicable value must be based on the costs of a cost-efficient, state-of-the-art system. The costs must include depreciation and an appropriate return on equity and debt for the investment. A financing cost reimbursement is to be used, which is determined from a weighted average cost of capital reimbursement for equity and debt capital based on a standard capital structure and income tax. The standard capital structure is not defined in more detail in the EAG draft. In addition, the price may not be set in a form which requires that the biomass is withdrawn from its material use or that the food and feed are withdrawn from their original purpose. Fulfilling this eligibility requirement will raise questions in practice. Prima vista it is not clear on the basis of which criteria such a withdrawal should be assessed. Further, a differentiation according to the use of raw materials should be permissible. The EAG draft does not specify the criteria according to which such a differentiation may be made.

The applicable value must be determined separately for each year, whereby adjustments during the year should be expressly permitted according to the EAG draft. However, it appears to be that any adjustment of the applicable value does not affect the funding agreements that existed at the time of the adjustment.

How do planned tenders for new biomass plants work?

The market premium recipients and the applicable value for the calculation of the market premium for biomass plants are determined by means of a tender, which is carried out at least once a year. The annual tender volume for biomass plants is at least 15,000kW. The specific dates and tender volumes are determined by ordinance of the BMK. If the tender volume available for a bid date is not exhausted, the unused tender volume is to be added to the subsequent bid date. If the tender volume is not exhausted in three consecutive years, the unused volume can be added to other (tendered) technologies.

The BMK must set maximum prices for the tenders up to which offers in tenders can be considered. The maximum prices should be determined based on one or more expert opinions. The maximum prices must be based on the costs that are necessary for the operation of a cost-efficient, state-of-the-art facility and the costs must include depreciation and an appropriate return on equity and debt for the investment.

The EAG funding agency must publish the tender on its website at least two months before the respective bid deadline. Bids are to be submitted electronically to the EAG funding agency. They must contain, among other things, the bid amount in kW, the bid value in cents per kWh and proof that all necessary permits have been issued by the relevant competent authority for the new construction or repowering of the system. Therefore, all first-instance approvals must be available before the bid is submitted. A cost, time and financing plan must also be submitted together with the bid.

Bids are to be excluded from the award procedure if the requirements and form specifications have not been fully complied with. In addition, the systems must be put into operation within 24 months from the publication of the award on the EAG funding agency’s website (a one-time extension of up to 24 months is possible). If the non-legally binding approval (eg, as a result of annulment by appeal) lapses only after the award of the contract, and if the system cannot be put into operation within the specified period for this or for another reason attributable to the applicant, the applicant must pay a penalty which is secured by a security deposit to be provided in advance.

The permitted bids are ranked according to the amount of the bid value, starting with the lowest. In accordance with the ranking, the EAG funding agency awards all admissible bids as long as the tender volume is not exceeded. In addition, the EAG draft contains detailed provisions on:

  • security;
  • the award procedure;
  • the exclusion of bids or bidders; and
  • the publication of surcharges.

The EAG funding agency must conclude contracts for funding through market premiums with bidders which have been awarded a contract. Market premiums are granted for 20 years after the system is commissioned.

In the event of disputes between the EAG funding agency and funding recipients, bidders or funding applicants, the ordinary courts decide. It can be argued that if the funding requirements are met and a permissible bid that is successful in the context of the invitation to tender is submitted, there should be a legal right to conclude a funding contract with the EAG funding agency.(2)

Cost-oriented market premium for existing systems

An administrative market premium model is provided for existing systems. However, this applies only if the funding period according to the ÖSG 2012, ÖSG 2002 or state implementation laws issued on the basis of the Basic Law on Biomass Funding has expired. A funding application can be submitted at the earliest 24 months before the end of the funding period. In addition, existing systems must not only meet the requirements that also apply to new systems, they must also have a fuel efficiency of at least 60%. However, this requirement does not apply if the system uses more than 50% damaged wood due to extraordinary natural events.

The administrative market premium for existing systems (follow-up premium) is calculated differently from that for new systems based on an applicable value, which must be based on the ongoing operating costs. It seems to be that the criterion of cost efficiency is not applicable to existing systems. Depreciation and interest on the investment must not be considered. The follow-up premium for existing systems can be granted up to the end of the 30th year of operation.

Biogas

New biogas plants with a bottleneck capacity of up to 250kW should be subsidised by an administrative market premium, but only if they achieve a fuel efficiency of 65% and biomass in the form of biodegradable waste and residues (at least 30% farmyard manure and a maximum of 30% catch crops and residual grassland) is used as fuel. In addition, the biogas plant must be more than 10km away from the next connection point to the gas network.

Existing biogas plants should benefit from a follow-up premium, provided that they achieve a fuel utilisation rate of 60% and use a maximum of 60% fuels from the crops of grain and maize. The calculation of the follow-up premium is based on the same principles as for existing biomass plants.

Follow-up premiums for systems based on biogas with a bottleneck capacity of at least 250kW which are 10km or less from the nearest connection point to the gas network are granted for 24 months, with a one-off extension of a further 24 months on application if the beneficiary demonstrates credibly that the system cannot be connected to the gas network within the original duration of the follow-up premium for reasons beyond its control. For all other systems, follow-up premiums are granted up to the end of the system’s 30th year of operation.

The granting of follow-up premiums for only 24 months for the biogas plants that can feed into the gas network is in line with the effort to focus the promotion of biogas on the production and processing of renewable gas.

Possibility to change for subsidised systems

Plants based on biomass and on biogas, for which there is a valid funding contract based on the ÖSG 2012 at the time that the EAG comes into force, can be funded with a market premium upon application.

Applications for funding through market premiums must be submitted to the EAG funding agency within two years of the EAG coming into force via the electronic application system to be set up by the EAG funding agency. Applicants must enclose a copy of the funding contract and a self-declaration that the applicant is the system operator.

Comment

The procedure for determining the applicable value for new biomass systems below 0.5MW and existing systems leaves room for discussion and gives rise to questions such as the following:

  • What is considered a cost-efficient operation?
  • What criteria are used to differentiate according to the use of raw materials?
  • How and based on which plants is the cost-oriented value for existing plants specifically calculated?
  • Based on which criteria is it judged whether biomass will be used for material purposes?

A legal clarification of these questions would be advantageous.

Endnotes

(1) For other articles discussing the EAG, please see:

(2) Mandatory contract, cf VfGH V 111/10.

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