BIOGAS IN BAVARIA: A MODEL FOR ENERGY INDEPENDENCE?

UNCLAS SECTION 01 OF 02 MUNICH 000463

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD PGOV EINV PREL ENRG TRGY KGHG GM
SUBJECT: BIOGAS IN BAVARIA: A MODEL FOR ENERGY INDEPENDENCE?


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SUMMARY
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1. ConGen Munich visited a biomethane plant in Pliening, Bavaria
built and run by Schmack Biogas AG, a leader in the biogas field.
The plant is a showcase for the state of the art in biogas
technology, and an example of the potential of biomass as a fuel
source. Schmack representatives are optimistic about the future,
predicting that biogas could replace as much as 50 percent of
Russian natural gas imports to Germany by 2020.

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SCHMACK - A LEADER IN A GROWTH INDUSTRY
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2. Founded in 1995, Schmack Biogas AG
(http://www.schmack-biogas.com/wEnglisch/inde x.php) is one of the
pioneers in the field of high-utilization biogas plants. Schmack
offers a complete range of services for biogas plants, from project
development, planning, construction, commissioning, technical and
biological services, and financing assistance. The firm holds
patents on several of the main components used in its production
process. Schmack, a market leader in the industry, is headquartered
in Schwandorf, Bavaria, and has about 300 employees. In 2006
Schmack had sales of 90 million Euros and a profit of four million
Euros. Sales this year are expected to be between 140 and 150
million Euros. Due to high commodity prices resulting in poor sales
of gas production facilities to farmers (they can currently make
more selling their crops on the open market than converting them to
biogas),the company expects to incur a loss of 6 million Euros this
year.

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BIOGAS - ENERGY FROM FARMER'S FIELDS
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3. "Biogas" refers to a steam-saturated reactant gas mixture made
up of 40-80 percent methane and 20-60 percent carbon dioxide formed
through anaerobic fermentation. The feedstock for the fermentation
process can be most any agricultural fruits and grasses, and even
sewage sludge. Corn, grain and grass are the most commonly used.
The Pliening plant utilizes shredded corn and grains. The feedstock
is fermented without oxygen in a closed and heated fermentation
system. The gas product can be burned on-site to generate
electricity, or when high-quality feedstocks are used, can be
purified and fed into natural gas distribution grids.


4. Before biogas can be fed into the natural gas grid, it must be
purified to natural gas quality, which includes maintaining 96
percent methane content and limiting nitrogen, oxygen and
hydrogen-sulphide through low-level gas combustion. In Pliening,
the purified gas produced is then fed into the Munich municipal gas
grid. Part of the biogas can also be used to generate electricity
on site, thus supplying the plant's energy needs. Any excess
electricity can be fed into the public power grid. Additionally,
the relatively odorless fermentation residue is returned to the
feedstock farmers for use as solid and liquid fertilizer, reducing
the need for petroleum-derived fertilizers. The Pliening plant
produces about 3.9 million cubic meters of biomethane a year (or 40
million kilowatt hours of electricity) - the amount of natural gas
used by about 1,300 four-person households. The biogas produced is
considered "stackable energy," in contrast to solar and wind power,
it can be continuously produced and temporarily stored, providing a
sustainable power supply.

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SETTING-UP SHOP IN THE BUCKEYE STATE
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5. Schmack has teamed with the city of Akron, Ohio to construct a
$7 million plant that will use bacteria to convert sewage sludge
into electricity. City officials say the operation will help reduce
the $1.3 million Akron spends annually on electricity costs for
sewage treatment, and estimate that the operation will use 20-30
percent of the energy it generates. According to Schmack, most
current and planned biogas projects in the U.S. are designed
primarily for waste processing, rather then energy production. Our
contacts noted that generating business in the U.S. is more
difficult because prices for electricity are lower (the U.S. retail
price of electricity is about a third the cost in Germany),taking
away much of the economic incentive. Nevertheless, Schmack views
the U.S. as a viable market due to projects such as the one in
Akron, and incentive programs established by various states -- they
specifically mentioned Oregon -- to promote alternative fuel
production and use. Schmack currently has 10 employees in the U.S.,
all based in Ohio.

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MUNICH 00000463 002 OF 002


AN ALTERNATIVE ENERGY SOURCE WITH A BRIGHT FUTURE
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6. The Schmack representatives were optimistic about the prospects
for biogas, claiming that by 2020 biogas could potentially replace
as much as 50 percent of Germany's gas imports from Russia (Note: A
recent study by the federal Economic Ministry suggested that up to
10 percent of the Germany's total natural gas consumption could
potentially be replaced by biogas). They said there are currently
3,500 biogas plants in Germany. The bulk of them are operated by
farmers producing electricity which is fed into the national grid,
producing about one percent of Germany's total electricity output.
Production of electricity for distribution is more common than gas
production due to the difficulty in meeting the natural-gas quality
standard, which requires more expensive equipment and higher-quality
feedstocks.


7. Schmack's management maintains their technology promotes
national energy independence because both the construction of
facilities and the supply of feedstock materials benefit local
firms. They noted that while at present there are no direct
government subsidies for biogas production in Germany, the federal
law on renewable energies requires energy producers to pay a price
of between eight and 20 Euro-cents per kilowatt hour for electricity
generated from biogas, depending on the size and type biogas
facility, as well as the feedstock material used (the cost is
ultimately passed-on to the electric consumer). The price remains
in effect for a period of twenty years, providing a significant
incentive for the construction of additional plants.


8. This report was coordinated with Embassy Berlin.


9. Previous reporting from Munich is available on our SIPRNET
website at www.state.sgov.gov/p/eur/munich/ .

NELSON