Johannes Steigleechner, Matthias Herold and Dr. Rolf M Zöllner, TÜV SÜD Industrie Service
April 18, 2012 | 0 Comments
Where biogas projects are concerned, a comprehensive analysis is often critical for lending strategies, as the investment risks involved must be made transparent before the project can be financed. This applies equally to the construction of new biogas plants and to the expansion or modification and modernisation of existing ones. A technical due diligence review offers a suitable tool for presenting data on profitability, systems and installations and energy and material flows. This information is of interest not only to potential investors. Owners and operators of biogas plants also benefit from a detailed assessment of investment risks, realistic calculations of yield and revenue and the examination of issues related to systems, installations and safety.
Identifying Risks and Opportunities
Any such review reduces investment risks and identifies opportunities for optimisation of the plant by enabling operators firstly to assess the efficiency and competitiveness of their project as precisely as possible. Secondly, at an early stage in the project’s development it also provides operators with analysis to offer potential investors.
Technical due diligence specifically provides answers to a host of questions including: What is the technical design of the plant? What is the state of repair of existing components? Do processes run smoothly and efficiently? Is there any potential to save on costs? Have aspects of safety, health and environmental protection been taken into account?
Such reviews extend further to include the business plan and the calculated profit and loss accounts, the statement of assets, the financial model, the structural and system-related design and the suitability and wiring of safety devices from a technical point of view. In the case of a biogas installation, a due diligence review looks at all plant systems from the reception pit and fermenter, gas lines and gas storage tanks to combined heating and power (CHP), gas flare and final digestate storage.
Managing Raw Materials and Residues
A stable raw material supply ensures permanent production of biogas, and analysis must focus in particular on the availability, price level and composition of the required raw material mix. Of course, delivery contracts and the terms and conditions should raw materials have to be purchased, the scope and quality of infrastructure, and foreseeable quantity and price trends should also be considered.
However, a secure supply of raw materials is only one variable in the overall equation. Disposal of the digestate is equally important. Focal aspects in this area concern the amount of digestate produced, the necessity of suitable storage, the terms of existing purchasing agreements and the possibilities for use as an organic fertiliser.
Analysing Business Factors
For the financial model, technical parameters and assumptions such as the costs calculated for raw materials, energy and spare parts; the assumed availability of the systems and the calculated income from the sale of energy or fertiliser must also be thoroughly analysed. Within the scope of valuation, the state of repair and residual service life of the relevant system components and their current fair value should also be assessed. By considering the financial model, technical due diligence also identifies gaps in the completeness, appropriateness, traceability and plausibility of data.
Assessing Technical Systems and Installations
For the construction of a new plant or extension of an existing one, technical due diligence first looks at the available planning and design documents. These generally include approvals and permits, the design documents, and evidence proving the chemical and technical safety of the digestion process and the intended use of the biogas. In this context, biogas injection into the gas grid as well as a wide range of other possibilities for energy generation are explored.
In the case of existing plants, due diligence also starts with a review of the available documentation. In this case, an assets overview plays a major role, in addition to the standard design documentation. This should include information about the type and exact designation of a system or installation, its acquisition costs, age, location and current asset value. Records of the plant’s damage history, maintenance, repair and downtimes also supply important information. Due diligence further takes into account operating hours, capacity utilisation, the results of recurring inspections, servicing activities and work, maintenance and system plans.
Based on documentation, an initial assessment and classification may then be carried out. At existing plants, an on-site inspection may also be required for a qualitative assessment of the plant’s state of repair. The mode of operation and the maintenance regime are of particular importance in this context. The results of initial assessment and on-site inspections may then be aggregated to provide a clear picture of the state of repair and the value in use of the plant’s technical systems and machinery. The results may also trigger owners to examine their safety regime in more detail.
Clarifying Safety Issues
In practice, stakeholders tend to underestimate the complexity of existing plants and the extent of the safety measures required. Ensuring safety firstly requires consideration of the gas, electrical and pressure systems. Secondly, issues related to fire, lightning and explosion protection are also significant, as are organisational questions including escape routes and emergency plans.
In this context, operators have a high level of responsibility, including conducting the necessary inspections, ensuring sufficient explosion protection and expert training of employees. Operators in breach of these duties risk operating illegally, which may result in a shutdown and in restriction or even loss of insurance cover.
Biogas Plant Structure and Risks
Generally, agricultural biogas plants comprise a reception pit for collecting and preparing the slurry, a fermenter, a biogas storage tank, a final digestate storage tank and a combined heat and power (CHP) unit in which the biogas is converted into electricity.
The biogas produced in the fermenter includes aggressive substances such as ammonium and hydrogen sulphide which are in contact with the tank walls, pipes and valves. Given this, the materials used for these components need to be highly corrosion resistant over long periods. Leaking gases and liquids pose serious hazards, containing substances which may cause asphyxiation, fires or explosions. Furthermore, leakage of fermentation substrates into water may cause severe environmental pollution.
Safety and Cost-Effectiveness
Comprehensive hazard assessment also frequently offers the opportunity to uncover hidden potentials for savings in operations. The objective is to realise the best possible plant design within the framework defined by ordinances, standards and technical rules. In this approach the focus of attention is increasingly turning to organisational measures in addition to aspects of technical safety. After all, it must not be forgotten that carefully designed emergency preparedness and response plans may save lives.
Emergency Response Plans
First and foremost, it is important that basic rules on how to behave in the case of a fire are established and communicated (for example, via a publicly displayed notice). Secondly, they must establish concrete instructions for all employees on site.
To ensure an effective alarm system, sensors of automatic gas and fire detectors must be correctly positioned, calibrated, wired and serviced. Practical tests of the alarm systems and emergency drills are imperative in this context, as is ensuring that the alarm signals will actually reach all people on the premises.
When planning escape and rescue routes, special attention must be paid to transition areas between rooms and buildings, ensuring that doors can be opened from the inside even if locked. In addition, steps must be taken to ensure that emergency lighting is independent from the mains power supply and explosion-proof (in line with the relevant ATEX zone), and that emergency routes are signposted throughout. During plant operation it is imperative that the escape routes are kept free of blockages. Discussing and coordinating the rescue and escape plans with the local fire service is also highly advisable.
Decisive for cost-effective planning and financing of biogas facilities is a 360° screening which supplies reliable information on investment risks and provides the basis of realistic profit/yield calculation. Safe operation is based above all on an integrated solution which always also includes organisational measures. The task on hand is to find the ideal plant solution in terms of safety and cost-effectiveness, while ensuring compliance with ordinances, laws and regulations.
Matthias Herold is head of risk & reliability, Dr Rolf M Zöllner is senior consultant in risk management and due diligence, and Johannes Steiglechner is head of combustion systems and heat engineering at TÜV SÜD Industrie Service, Munich.
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