AGRICULTURAL BIOGAS CDM PROJECTS IN CHINA

Transcription

1 AGRICULTURAL BIOGAS CDM PROJECTS IN CHINA Prepared by UPM Environmental Engineering Project Management Consulting (Beijing) Company Ltd. - Charles Cheng, Martin Dilger - Prepared for Delegation of German Industry and Commerce Beijing, China, May 2009

2 Agricultural Biogas CDM Projects in China Status Quo CHENG CHUNLONG, MARTIN DILGER MAY, 2009 Summary China s livestock industry experienced great development in recent years, while animal waste became a big pollution threat to water, soil and air. Anaerobic fermentation is considered as an effective way to treat and recycle animal organic waste to generate biogas, a renewable energy source. Thus, the construction of biogas plants in Animal Waste Management Systems (AWMS) is encouraged by the Chinese government. In spite of the government support, biogas plants are still not a financially attractive option for power generation in China. In addition, project developers are still reluctant due to low efficiency of domestic technology and poor management practice in the biogas sector. CDM can provide new financial means and technical support to biogas from AWMS in China. The target of this report is to find out the CDM potential of AWMS for implementing biogas generation facilities in China. It will first analyze the situation of AWMS biogas projects in China based on the data from livestock industry, common practice of AWMS and analysis of the biogas situation. This will be followed by a summary of the CDM requirements of AWMS biogas projects and a screening of all relevant CDM methodologies. After that, this study will evaluate the existing AWMS biogas CDM projects in China, provide an overview of the barrier arguments for project additionality and point out current challenges for CDM application and project implementation. Finally, the study will list recommendations for foreign companies who want to engage in the AWMS biogas sector in China.

3 Table of Contents Summary Potential of Animal Waste Management System biogas projects in China Animal husbandry development in China Animal waste treatment practice in China Potential of AWMS biogas projects in China Requirements of AWMS biogas CDM projects CDM requirements CDM methodologies AWMS biogas CDM projects in China Evaluation of current AWMS biogas CDM projects in China Project organization Barriers and Additionality Problems Recommendations for foreign companies... 13

4 1. Potential of Animal Waste Management System biogas projects in China 1.1 Animal husbandry development in China Livestock management is a key sector in China's agriculture and a top priority target for rapid development and modernization in China's current 5-year plan ( ). China is the world s largest livestock producer and consumer. Its annually raw meat output reached 74 million tones, accounting for 28.57% of world production in The turn-over for 2007 of the livestock industry was more than 1,610 billion RMB, 34.6% more than that of China processed 440 million pigs, 106 million cows, 285 million sheep and 5 billion poultry at the end of It is forecasted that China's consumption of meat and dairy products will continue to climb sharply due to a rising population and improving living standards. In recent years, the consumption of milk and dairy products was increasing rapidly with annually growth rates of 10%. This trend is likely to continue in the future (25% per year). For the analysis we will distinguish between two different forms of livestock breeding and management in China. On one hand, there are millions of individual small sized farms or household farms which own several animals. The animals are fed in a traditional way, but with a very low efficiency. On the other hand, there are industrialized large-scale live-stock breeding and management facilities which are usually located in the subareas of municipalities. These large and medium sized farms implemented standardized industrialized feeding procedures. Although small-scale and household farms represent a higher share among animal husbandry, the trend of animal breeding is clearly pointing towards centralized and industrialized forms. In 2007, 48% of Chinese pork meat was produced in industrial farms, increased by 5% compared to The location of the two different animal husbandry farm types varies greatly across China. Large and medium farms are concentrated in Eastern areas. At the end of 2005, farms in Eastern-China process 79.4% of pigs in China. 34.1% of beef were produced in three provinces around and south of Beijing (Hebei, Henan and Shandong), while Chinese sheep farms are mainly located in Hebei, Inner Mongolia, Shandong and Henan provinces Animal waste treatment practice in China The system of animal waste treatment depends on the scale of the farms. In common Chinese households and small-scale farms, solid wastes are composted (sometimes in combination with other agricultural residues). Liquid wastes are stored in deep pits for anaerobic decomposition before being applied to the farmland as fertilizer. Thus, animal waste at household level can be recycled in a sustainable way. 1 Food and Agriculture Organization of the United Nations (last accessed 24 May 2009): 2 China Livestock Yearbook 2008, China Agricultural Press, Beijing, China Livestock Yearbook 2008, China Agricultural Press, Beijing, Caichangda: Analysis and evaluation report of equipment and industrialization of animal husbandry farm biogas project in China.2008.

5 In large scale farms the solid manure is collected and stored for a certain period on open ground. A mixture of urine, waste water and small parts of solid manure are flushed into open lagoons for a simple sedimentation process before being discharged to natural water resources. During growing season, parts of the solid manure can be sold to surrounding farmers as fertilizer. But usually the amount and organic density of animal wastes exceeds the available farmland and manure cannot be safely consumed by the farmlands. Dense concentrations of industrial livestock production create regions with vast quantities of excess manure 5. The concentration of pig and poultry production in parts of China is approaching and surpassing levels found in Europe and North America. The pollution derived thereof puts threats to clean water, soil and air supply 6. The Chinese government is aware of this situation and has established a range of laws and regulations to control animal waste discharges. These are: Discharge standard of pollutants for livestock and poultry breeding (GB ) and Technical standard of preventing pollution for livestock and poultry breeding (HJ/T ). These standards require livestock farms to meet certain wastewater discharge standards before the wastewater can be flushed into natural water resources. But as many farm owners lack capital and technology means, these regulations have not been fully implemented. The Chinese government is well aware of the household biogas potential of animal waste treatment and rational use of natural resources in rural areas. During 2003 to 2006, the Chinese government provided a total subsidy of 5.5 billion RMB to 5.7 million households for biogas digester production, and provided 93.8 million RMB to support 98 large or medium scale biogas projects 7. Since 2003, each Chinese household is entitled to receive 1,000 RMB (about US$ 150) from the government as a subsidy for biogas digester installation. Until the end of 2006, 22.6 million households (15%) have installed biogas digesters. As displayed in Table 1, large and medium size biogas digester plants developed very quickly: 5 University of Science and Technology Beijing, Centre for Sustainable Environmental Sanitation: Opportunity for German Know-how and CDM Application the Chinese Biomass Sector Henning Steinfeld & Pierre Gerber: Livestock Policy Briefs series 02, FAO - Food and Agriculture Organization, Rome, Italy, Yuhuan agricultural information (last accessed 25 May 2009):

6 Table 1: Large and medium size biogas engineering 8 Number of Projects* Total Volume (m 3 ) Waste Treated (Mio tonnes) Biogas Yield (Mio m 3 ) , , ,094, ,724, ,900, *Sewage sludge from centralized waste water treatment plants is not included in the table. 1.3 Potential of AWMS biogas projects in China China has great potential for AWMS biogas projects as abundant animal wastes are available. About 1.12 billion tons of animal manure were produced by 3.91 million livestock farms in 2005, yielding a production potential of 6.7 million m 3 of biogas (equivalent to 50 million tons of standard coal). 142 million tons of animal manure were generated in 11,952 large and middle scale farms (more than 3000 pigs per farm) 9. It is expected that the Chinese biogas-to-electricity generation potential will amount to 200 MW in 2015 (30% from agricultural large scale biogas power plants, 70% from agro-industrial plants) and to 1500 MW (50% from agricultural large scale biogas power plants and 50% from agro-industrial plants) 10 in During the 11th Five Year Plan ( ), the Chinese government will implement measures to increase the number of annual biogas digester construction. The government planned to devote great effort to develop 4,000 biogas engineering projects for wastes from intensive animal husbandry farms and install another 23 million household biogas digesters 11. CDM can play an important role for biogas development in China. Chinese biogas technology is still low efficient with poor biogas output. CDM can facilitate the process of introducing high efficiency biogas technology from developed countries such as Germany and Denmark. CDM can also improve the operational efficiency of biogas plants by implementing strict monitoring plans. The comparative cost of biogas technology is higher than that for electricity generation from fossil fuel. Due to current electricity and fertilizer prices, biogas plants cannot be operated in a financially attractive way. That is why banks are reluctant to issuing loans and credits to project owners and developers. CDM can fill this vacuum by generating additional revenue from Greenhouse gas (GHG) 8 University of Science and Technology Beijing, Centre for Sustainable Environmental Sanitation: Opportunity for German Know-how and CDM Application the Chinese Biomass Sector Haibo Meng, Lixin Zhao, Yishui Tian: Development Status and Trends of Agricultural Biomass Energy in China University of Science and Technology Beijing, Centre for Sustainable Environmental Sanitation: Opportunity for German Know-how and CDM Application the Chinese Biomass Sector National Biogas Construction Plan, Ministry of Agriculture, 2007.

7 emission reduction and provide an extra finance channel for project investors. 2. Requirements of AWMS biogas CDM projects 2.1 CDM requirements In the AWMS biogas sector, the main CDM requirement is project additionality. That means that projects have to be additional to any activity that would occur without CDM 12 in order to be entitled to earn Certificates. Further requirements are 13 : Farms where livestock populations, comprising of cattle, buffalo, swine, sheep, goats, and/or poultry, is managed under confined conditions; Farms where manure is not discharged into natural water resources (e.g. rivers or estuaries); In case of anaerobic lagoons treatments systems, the depth of the lagoons used for manure management under the baseline scenario should be at least 1m; The annual average temperature in the site where the anaerobic manure treatment facility in the baseline existed is higher than 5 C; In the baseline case, the minimum retention time of manure waste in the anaerobic treatment system is greater than 1 month; The AWMS/process in the project case should ensure that no leakage of manure waste into ground water takes place, e.g., the lagoon should have a non-permeable layer at the lagoon bottom. Small scale project activities 14 should fulfill the following requirements (in additional to the above mentioned) 15 : The final sludge must be handled aerobically. In case of soil application of the final sludge the proper conditions and procedures (not resulting in methane emissions) must be ensured. Technical measures shall be used (including a flare for exigencies) to ensure that all biogas produced by the digester is used or flared. Only applicable to AMS III.R 16, methane recovery systems should achieve an annual emission reduction less than or equal to 5 tonnes of CO 2 e per system 2.2 CDM methodologies Until May 2009, there are 4 methodologies with respect to the AWMS biogas sector approved by the CDM Executive Board. Details of these methodologies are displayed in the following tables: 12 A CDM project activity is additional if anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity (3/CMP.1, Annex, paragraph 43). In other words, additionality is the requirement that the greenhouse gas emissions after implementation of a CDM project activity are lower than those that would have occurred in the most plausible alternative scenario to the implementation of the CDM project activity. 13 ACM0010 Version 5 Consolidated methodology for GHG emission reductions from manure management systems 14 The annual emission reduction should less than or equivalent to 60kt CO2 e for small scale biogas project. 15 AMS III.D, Version 14 Methane recovery in animal manure management systems 16 Small scale methodology applied to householder digesters

8 Table 2: Applicable CDM methodologies for AWMS biogas projects (May 2009) 1 ACM AM0073 Consolidated baseline methodology for GHG emission reductions from manure management, v5 GHG emission reductions through multi-site manure collection and treatment in a central plant, v1 3 AMS III D Methane recovery in animal manure management systems, v 14 4 AMS III R Methane recovery in agricultural activities at household or small farm level, v 1 Table 3: Methodology application conditions 17 Methodology AM0073 ACM0010 AMS III D AMS III R Baseline activity Multiple livestock farms with anaerobic manure treatment systems Anaerobic manure treatment system Existing anaerobic Biogas manure management system Uncontrolled Methane emissions in small farms and Project activity Centralized anaerobic treatment facility with transportation possibility Multiple anaerobic manure treatment systems Upgrade or modification of existing AWMS Recovery and destruction of Methane emissions in small farms and Option for power production Thermal electrical production Thermal electricity generation Thermal or electrical energy generation Thermal energy production (applying AMS I C) What kind of material may be used? Biogenetic material from livestock farms Biogenetic material from livestock farms Manure from livestock population at project site Manure wastes from agricultural activities households households 17 University of Science and Technology Beijing, Centre for Sustainable Environmental Sanitation: Opportunity for German Know-how and CDM Application the Chinese Biomass Sector.2009 Project size (CER) Large scale Large scale SSC SSC

9 3. AWMS biogas CDM projects in China As of May, 2009, the Chinese DNA has approved 11 AWMS biogas projects. Thereof 2 activities are registered, 1 project is under correction, and 3 are currently being validated. Five of them have not started UNFCCC procedure. More details can be found in Table 4. Henan Muyuan pig farm biogas project is the first registered large scale AWMS CDM project in the world. It treats raw manure and wastewater from 188,500 pigs annually by anaerobic digestion with Chinese technology (Upflow Anaerobic Sludge Bed Reactor (UASB) and Internal Circulation Anaerobic Reactor (ICA)). The total installed electrical capacity of this project is 1 MW el. The project management has submitted its first monitoring report in June 2008 for monitoring period from December 2007 to May 2008 to apply CER issuance. No CERs have been issued, but according to the report, this project only monitored and requested 3,254 CERs in the first monitoring period (162 days). The project s annual estimated CERs amounts to 110,461 (shown in the PDD), which indicates an issuance rate as low as 6.6% during the first period. One small scale household biogas digesters project located in Hubei has been registered in February This project sets the guidance in terms of baseline setting and monitoring plan and provides a good example to promote household digester development through CDM in China. This project also stimulated some similar household biogas projects applying CDM in Henan, Chongqing, Sichuan, Hunan and Guizhou province. Shangdong Minhe biogas project is the largest biogas project in China with a total installed capacity of 3 MW. Until the finalization of this study, it is under correction due to additionality and monitoring methodology issues.

10 Table 4 AWMS Biogas project in China overview Project Name location CER average Project owner CER buyer Methodology applied Chinese DNA UNFCCC status status Hubei Eco-Farming Biogas Project Hubei 58,444 Hubei Qingjiang IBRD as trustee of AMS-III.R Approval Registered Phase I Zhongye Company Community Development Carbon Fund Methane Recovery and Utilization CDM Henan 110,461 Muyuan Livestock Marubeni Corporation, ACM0010 Approval Registered Project at Muyuan Swine Farm in Henan Province Feeding Co.,Ltd. Japan Animal Manure Management System (AMMS) GHG Mitigation Project, Shandong 67,443 Shandong Minhe Livestock Co.Ltd. IBRD as trustee of Community ACM0010 Approval Under correction Shandong Minhe Livestock Co. Ltd., Penglai, Shandong Province, P.R. of China Development Carbon Fund Beijing Deqingyuan Chicken Farm Beijing 94,833 Beijing IFC Netherlands ACM0010 Approval Validation 2.4MW Biogas Power Project Deqingyuan Agricultural Scientific 北 Co. 京 朝 阳 Ltd 亮 马 桥 路 光 明 饭 店 区 室 Inner 电 传 话 真 转 Mongolia 联 系 人 Inner-Mongolian Mengniu Aoya Biogas Power Project (1.36MW) Carbon Facility 22,968 Mengniu Co. Ltd China Carbon N.V. ACM0010 Approval Validation

11 Project Name location CER average Project owner CER buyer Methodology applied Chinese DNA UNFCCC status status Beixu Group Methane to Energy Project Henan 64,147 Beixu Group Co. Ltd South Pole Carbon Asset Management AMS-III.D Approval Validation Biogas project in animal husbandry Henan 68,731 Qingxian biogas Arreon Carbon UK ACM0010 Approval N.A farms in Qi County, Henan province technology service Limited Co.Ltd Biogas and power generation project for Shandong 221,215 Nenghuan Arreon Carbon UK ACM0010 Approval N.A animal waste treatment in Nenghua pig eco-agriculture Limited farm, Shandong engineer Co. Ltd Biogas project of pig farms at Donghua Yunan 32,449 Chuxiong city Climate Corporation AMS-III.D, Approval N.A township, Chuxiong city, Yunan province Minghong Emissions Trading AMS-I.D Eco-technology GmbH Co. Ltd Rural household biogas project in Guizhou 22,942 Guizhou Haikang Global Envrionmental AMS-III.R Approval N.A Kaiyang county, Guizhou province Biogas Co. Ltd development Group, 国 办 公 室 京 朝 阳 区 Japan Henan 18,895 Zhongmu 中 北 Dongzheng 亮 电 马 话 桥 路 光 明 饭 店 室 Breeding 传 真 Industry 转 Co. Ltd 联 系 人 Greenhouse Gas (GHG) mitigation Project of Waste Management System ADVANTEC Co. Ltd ACM0010 Approval N.A

12 4. Evaluation of current AWMS biogas CDM projects in China 4.1 Project organization AWMS biogas CDM projects usually are developed by farm owners. They are guided by a third consultant for the CDM application and monitoring as they generally lack CDM expertise. The primary objective of the farm owner is to treat the animal waste in a harmless manner as well as to receive benefits from CDM. The project owner is entitled to receive CERs based on the amount of real achieved GHG emission reductions per period. A project investor is also engaged and provides upfront investment in order to purchase technology and cover transaction costs. After CER production, the project investor will be entitled to buy the CERs from the project owner upon a previously agreed price. CDM therewith creates another income opportunity for the project owner. Typical household biogas CDM projects are organized and applied by third-party companies. For example, Hubei Eco-Farming Biogas project includes 33,000 individual households scattered in 8 counties of Enshi City. Project management authorized a third company to complete the application, registration and CER verification of the proposed project activity on their behalf 18. The Company closely involved local government rural energy agencies in providing technical services to households, organize and supervise project implementation, and carry out project monitoring. The overall project investment including the biogas digester installation, operation and maintenance cost, was covered by three entities: 25% was covered by loan finance from World Bank, the Chinese government raised 15% and the participating farmers were required to contribute 60% Barriers and Additionality In order to prove additionality of the activity, the CDM requires the project developers to analyze existing barriers would prevent the project from implementation. Only by receiving the benefits of CDM, the proposed activity can overcome this financial, market and technical barriers. This study identifies the following barriers to implementing AWMS biogas projects in China: a) Financial barrier For large or medium sized farms in China, producing biogas is not a financial attractive income source. The additional investment demand is considered too high. The production cost of electricity from biogas is also too high compared to the market electricity price. Additionally, it is difficult for project owners to receive financing from banks. The Chinese government issued a great number of financial subsidy programs for household 18 Validation report of Hubei Eco-Farming Biogas Project Phase I (last accessed 24 May 2009) 19 Project Design Report of Hubei Eco-Farming Biogas Project Phase I (last accessed 24 May 2009)

13 biogas digesters. But households with low income still lack sufficient funds to finance the rest of the investment. As there is no cash income from household biogas digesters it is not possible for farmers to get support from financial utilities. b) Technical barriers In China, biogas technology for large and medium plants is still immature. The experience of already implemented biogas projects show: Low efficiency of biogas output; Project operation is instable due to lack of standard operation guidance and expertise; Domestic equipment is unreliable and has a relatively short lifetime; Digestate cannot be properly treated 20. Farmers who possess household digester often lack management and technology know-how. Service for maintenance of biogas digester is not available in rural areas. As a result, a large proportion of household biogas digesters are not operating properly with varying and unreliable biogas output. c) Barrier from Prevailing Practice For a large scale animal farm owner or farmer, to keep the current AWMS is the most attractive option as it requires no additional investment and technology input. In addition, Chinese regulations do not stipulate the change of current AWMS. So AWMS biogas project cannot be a prevailing practice in China. With those barriers in place, it is expected that farmers will not change current AWMS treatment habits. Instead, biogas production will only be financially attractive if income from CDM can be considered. With the incentives from CDM, AWMS biogas project developers may have the following advantages: 1) CER revenues from the biogas project will improve the project IRR, which makes the project financially feasible. Farmers can also get bank loans with the security of payback from CDM incomes. 2) CDM can act as a transport vehicle of advanced biogas technology to China and introduce project operation expertise since the produced CER amount depends on the biogas output. Thus, the project operation efficiency of the biogas plant has to be increased for a maximum CER production. For household biogas projects, CER incomes enable third companies and consultants to provide technical service to farmers in order to ensure a sustainable biogas yield. 20 Caichangda: Analysis and evaluation report of equipment and industrialization of animal husbandry farm biogas project in China 2008

14 4.3. Problems a) Long CDM registration time For 2 registered AWMS biogas CDM projects, the average registration time is 383 days from the starting date of validation to the date of registration. Shangdong Minhe biogas project is waiting for over 2 years since it started validation, but it is still under correction right now. Beijing Deqingyuan and Mengniu Aoya biogas project have not experienced any progress at EB although both started validation at the end of b) Technical failure Mengniu Aoya biogas project stopped CDM procedure because of technical failure. Sand was not well separated from the manure before entering the digester. Therewith, too much sand settled at the bottom of digester which stopped the fermentation process. c) Grid connection approval According to the Renewable Energy Law of the PRC and relevant government regulations, biogas projects are encouraged to provide electricity to the public grid. The grid company is responsible for grid connection and maintenance. But biogas projects are generally located in remote areas with great distances to public electricity grid and relative small electricity amount compared to traditional power plants. This leads to an increased cost for the grid company, which transfers these costs to the project owner, thus boosting overall transaction costs of the biogas project. The Chinese government has not yet issued a legal solution to this problem. Grid connection used to be a big barrier for Beijing Deqingyuan biogas project which finally connected to the grid in April 2009, more than 1 year after finishing the project construction. d) Communication problems CDM involves international cooperation between farmers, CDM developers and CER buyers. In China, most of the farm owners do not understand the CDM techniques and also lack English language skills. This ends up in huge communication problems between project owners, developers, investors and CDM bodies. 5. Recommendations for foreign companies a) Find a good and experienced Chinese partner with international background as a consultant. These companies do not only have domestic biogas development experience but also employ foreign experts who are familiar with both Chinese and international businesses, which will facilitate communication between national and international CDM bodies and project development partners. b) Follow the CDM procedures and biogas methodology strictly. Involving a professional CDM

15 consultant at the early stage of project development will reduce CDM registration time. c) Start grid connection application as early as possible with the grid company on county, city and provincial level. Grid connection can be applied parallel with the feasibility study, EIA, or any other necessary governmental approval. d) Choose a reliable biogas technology. Sourcing a technical provider should involve the visit of 1 or 2 reference projects of the project technical provider. Furthermore involve a third party evaluation during the technical design phase. e) Find biogas project opportunities using animal waste from centralized farms. For decentralized biogas projects, reducing risk could be done by involving fewer and bigger farms which can withstand market fluctuations more easily.