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? -------------- SUMMARY -------------- ¶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. -------------- SCHMACK - A LEADER IN A GROWTH INDUSTRY -------------- ¶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. -------------- BIOGAS - ENERGY FROM FARMER'S FIELDS -------------- ¶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. -------------- SETTING-UP SHOP IN THE BUCKEYE STATE -------------- ¶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. -------------- -------------- MUNICH 00000463 002 OF 002 AN ALTERNATIVE ENERGY SOURCE WITH A BRIGHT FUTURE -------------- -------------- ¶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