How to improve the profitability of biogas projects?Author Teemu Turunen
In order to improve the profitability of biogas projects, it is important to develop the entire production value chain. The end product should meet an adequate degree of refinement, and a market should be found for the process side products. Increasing the size of a project usually improves overall profitability, in addition to which the location of the factory plays a significant role. It is important to note that most of the ways to affect the profitability of operations can only be utilized at the design stage.
The profitability aspect of biogas projects has proven to be challenging despite various forms of support having been available. Developing the entire value chain plays a key role in promoting the profitability of projects. In practice, this means development with regard to both raw materials and end products.
Developing the end product market plays a central role: the end product should meet an adequate degree of refinement based on the need, and a market should be found for the process side products, such as digested sludge.
For instance, at the farm scale, the leftovers from the digestion of manure-based biogas can be processed into recycled fertilizer, which could be used to replace manure in the fields. The benefits of recycled fertilizer are smaller rates of phosphorus washouts in the waters as well as the type of nitrogen, which plants can more effectively use.
The current problem is that spreading manure directly in the field is more profitable for the farmer, as the recycled fertilizer market is still developing. The development of the market calls for clearer legislation, new research, and active operators in the market.
Factory location and project size play a key role
The profitability of biogas projects is greatly influenced by the location of the factory, which contributes both to the profitability of the raw materials and the end product logistics. A suitable industrial-scale user of biogas who commits to purchasing the end products of the factory in the area can also positively affect the convenience of the location.
Both with regard to small- and large-scale production, increasing the size of the project usually improves profitability on the whole. In practical terms, at the smaller scale, this means joint projects between several farms, and at the larger scale, the involvement of notable industrial operators in the projects.
The food sector in particular has been active with projects as of late. For example, Valio has started developing a carbon-neutral milk chain in cooperation with its producers. The involvement of industrial-scale operators usually also increases the interest of investors toward the projects.
The project should be developed with a focus on the value chain
Projects can involve, for example
- an industrial enterprise, who supplies the raw material
- a consultant / design expert
- a biogas plant operator
- an operator who purchases the main product and
- a possible operator who processes the side products.
In this case, the project is developed with a focus on the value chain, which makes it possible to demonstrate the benefits more comprehensively.
One possible developmental direction is for individual projects to be compiled as part of a more extensive project portfolio at as early a stage as possible. Such a model would call for an operator who would focus on the subject, be responsible for the development of the project, construction, or maintenance as well as the coordination of financing. The operator could possibly also take the role of owner.
Thereby, individual projects would gain access to the operator’s competence, which in turn would speed up the start of the projects and reduce the financial risk as a result.
Profitability is largely determined in the planning phase
On one hand, the profitability of the projects can be influenced through technological development and, on the other hand, by seeking to account for the use of the factory already in the planning phase. Biogas plant technology is constantly developing, and as efficient and scalable technologies become available on the market, the profitability of the projects is improved both through decreased investment costs and more efficient operations.
It is important to note that most of the ways to affect the profitability of operations can only be utilized at the design stage. Due to this, it is important to sufficiently make use of available or external expertise in the planning phase.
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