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Key opportunities for biogas-to-energy projects in South East Asia

With biogas engine sales amounting to more than 50 MWe of installed capacity per year in the region, where exactly are these units being sold?

The market for biogas* power generation projects in South East Asia is currently buzzing, especially in Indonesia, Malaysia, Thailand and the Philippines. Delta-ee analysis shows that this is down to a combination of improved incentive schemes ranging from feed-in-tariffs and tax relief to subsidy grants as well as abundant availability of palm oil mill effluent, industrial waste, and livestock manure to be used as feedstocks.

2-3 years ago, the South East Asian market for biogas projects stagnated in response to falling carbon credit prices and uncertainty over the Clean Development Mechanism (CDM)’s continuation. The market value of carbon credits fell from ~€20/tCO2 in 2008 to €0.7/tCO2 in 2014, completely wiping out any tangible benefit from engaging in this scheme. A number of biogas projects (especially using landfill gas) were discontinued following this price fall, as they were deemed economically unviable without the CDM revenue.

The biogas market (for engines larger than 400 kWe) was kept afloat by opportunities in the palm oil industry. To meet the Roundtable of Sustainable Palm Oil (RSPO) criteria, palm oil mills have to cut emissions from mill effluents. They can either flare or generate electricity from the effluent-based biogas. However, in reality most palm oil mills can meet their energy needs through biomass plants, and hence choose flaring. With the introduction of generous feed-in-tariff (FiT) schemes, this provided palm mill operators the extra nudge to invest in biogas-to-energy plants instead of flaring.

However, there is a limit to how many new projects the FiT scheme and other incentives will likely spur if other barriers are not addressed sufficiently. For example, many agro-industrial sites like palm oil mills are located in remote areas with limited connection to the public grid, meaning they cannot export excess electricity to the grid.

(*We have included landfill gas and sewage gas under the term ‘biogas’ in this case)

While palm mills will remain the largest biogas opportunity in South East Asia, other industries including tapioca, cane sugar, fruit juice / beer production, and agriculture also present significant opportunities for biogas.

Below we discuss some of the main end-use segments in key countries within the region.

Indonesia and Malaysia

The main biogas opportunities lie in palm oil mills. Indonesia is the world’s largest producer of palm oil, with some 600 palm mills. Likewise in Malaysia, where an estimated 400 palm mills are located. The majority of biogas / landfill gas engines installed in Indonesia and Malaysia are within the 1 – 2 MWe size band, with a smaller number in the 0.4 – 1 MWe size band as well.

Landfills are also key end-use segments, especially for the engine size bands mentioned above. For example, Java (in Indonesia) is the most populous area in the region and unsurprisingly produces the largest amount of waste (21 million tonnes of waste are sent to landfill every year).

Figure 1: Map of biogas activity in Indonesia

DPS Indonesia

Thailand

In Thailand, the installed capacity of biogas power plants at the end of 2014 was ~300 MWe, incentivised largely by the “adder scheme” (feed-in premium) as well as tax incentives and investment grants. End-use sectors primarily include bio-waste from pig farms and agricultural production e.g. in the starch, palm oil and sugar industries.  The average biogas engine size band is between 250 kWe to 1 MWe. Most of the engines used at livestock farms tend to ≤1 MWe which results in a lower average compared to Indonesia and Malaysia.

The Thai Government has also set a target of 500 MWe of Municipal Solid Waste (MSW) and 1,280 MWe of biogas power plant capacity by 2036, of which more than 50% (680 MWe) is to come from Napier grass feedstocks. To achieve this, roughly 50-100 MWe of new biogas-to-power plants need to be installed per year leading up to 2036.

Figure 2: Map of biogas activity in Thailand

DPS Thailand

Philippines

Like Thailand, abundant availability of livestock manure in the Philippines provides investment opportunities for biogas project developers. Stricter implementation of pollution control protocols on livestock farms also means farmers have to effectively use animal waste.

Capturing opportunities

The South East Asian biogas market is likely to be an active one in the next five years. But navigating through potentially crippling market barriers and understanding market drivers and financing options are fundamental to successfully identifying sweet spots within the region. The majority of biogas power plant developers use the BOOT model (Build, Own, Operate and Transfer). They finance, construct and operate the plants over an agreed period of time. Investments are recovered by selling biogas, electricity and emission reductions. At the end of the contract period the ownership and responsibility for operating the plant is transferred to the customer.

For larger engines (>1MWe), we anticipate that annual sales will eventually level-off after the larger and “low-hanging-fruit” agro-industrial / palm mill / landfill operators are targeted, followed by a healthy replacement market in the longer-term. In the short- to medium-terms, there will be a gradual switch to smaller engines (<1MWe) to capture opportunities in farms and smaller industrial sites.

Thailand, with its energy crop utilization targets, will likely see increased activity with larger biogas engines if current pilots using Napier grass demonstrate success (more than 10 demo projects are already underway with capacities of 1MWe per site).

Don't miss out! To find out more about these markets, available policy incentives and our market forecasts, contact Delta-ee’s Distributed Power Team or email service manager, Dina Darshini at [email protected]

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Wednesday, 17 July 2019

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