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SECOND PROJECT PROGRESS REPORT (PPR)

Commercial BioSNG Demonstration PlantGas Network Innovation Competition

NGGD (National Grid Gas Distribution)

| DECEMBER 2016

£46 billionpotential energy system savings by 2050

482 milliontonnes CO2eq GHG savings by 2050

The commercial BioSNG demonstration project will build and operate a commercial facility that will process 10,000 tonnes per annum of refuse derived fuel and waste wood to produce 22GWh per annum of grid quality natural gas. This will catalyse the construction of a pipeline of larger scale facilities. The approach has the potential to produce 100TWh of BioSNG at a cost that matches fossil gas.

The funding and strategic backing for the project comes from the project partners together with Ofgem’s Network Innovation Competition and the Department for Transport’s Advanced Biofuels Competition.

In 2013, the Project Partners success-fully applied for £1.9m of NIC funding to construct a BioSNG Demonstration Plant (the “Pilot Plant Project”). That project is proceeding well and is reaching the conclusion of its operational testing phase. The objective of the Pilot Plant Project was to prove the technical and economic feasibility of thermal gasification of waste to renewable gas.

This project is focussed on commer-cialisation of the technology. Funders, waste suppliers and gas off-takers will

only support deployment of large scale plants if the technology is demonstrated at intermediate scale on a continuous basis. The experiences of other waste to energy technologies such as those developed by Enerkem and others show that a facility of the scale proposed in this project has enabled the develop-ment of fully commercial, large scale plants.

This project will deliver a demonstration plant at a scale of around 20–25GWh/a which is an essential intermediate

step in the commercialisation of the technology. The successful completion of the project will give stakeholders the confidence to construct larger scale facilities leading to a rapid growth in BioSNG production.

BioSNG (bio-substitute natural gas) is an energy vector which can deliver cost effective, low carbon heat and transport using the existing gas network. This project will demonstrate, under commercial conditions, the conversion of waste through to delivery of renewable gas using thermal gasification and methanation. This will be sold via the gas grid and will provide a national reference plant addressing commercial, legal and funding barriers. As such this Project will facilitate investment in full scale operational plants, with the potential to increase the availability of renewable gas in the UK by 100TWh.

Analysis of sustainable UK feedstocks by the Committee for Climate Change and the Department for Energy and Climate Change shows that BioSNG has the potential to produce 100TWh of low carbon gas. This would play an important role in decarbonising the gas grid and help the UK achieve its climate change goals. The graph below shows that sufficient BioSNG capacity could be in place by 2030 to make an important contribution to the fifth carbon budget.

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INTRODUCTIONPROVING THE COMMERCIAL VIABILITY OF PRODUCTION OF GREEN GAS FROM WASTE

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Overall good progress is being made on the project and the plant remains on track to enter operation in the second quarter of 2018.

During the period there have been external events which have affected the project, although the impact has been mitigated. Specifically a change of ownership of the site impacting consents and the fall in the value of sterling following the UK’s decision to leave the European Union. These challenges have now been overcome but have resulted in a three month delay to the project. Total expenditure to date is £3.7m which is around £9.8m lower than the original budget. However, now that orders are being placed for capital equipment project expenditure will return to budget.

The forecast cost of the project is £25.3m, which is £2.2m above the budget, because of the impact of exchange rate movements and the addition of the sale of carbon dioxide to the project objectives. During this period, National Grid has demonstrated its commitment to the project by agreeing to invest a further £6.3m in the form of a loan. This, combined with £1.7m of Network Innovation Allowance funding to be channelled through NG, has completed the funding package for the project.

The plant is expected to enter operation at the second quarter of 2018, in line with the project programme. The key risks to on time delivery are that suppliers will meet contractual obligations for delivery of equipment and that the integration of that equipment will be carried out efficiently.

The project has secured planning permission and an environmental permit. Obtaining consent from the landlord has been delayed by the sale of the site. However, following a successful sale to the Duchy of Lancaster an agreement has been made in principle and contracts are being drafted. A commercial agreement is in place with the fuel off-taker and supply of feedstock has been agreed with a local waste company.

The carbon dioxide produced by the facility will now be captured and sold for commercial use. This significantly improves the greenhouse gas impact of the plant, ensuring it will meet targets for renewable fuels, and demonstrates the potential for combining BioSNG production with carbon capture and storage in future plants.

The design is now very well progressed and all major equipment has now been specified. This has allowed package enquiries to be issued for all major equipment and orders have been placed for over £9m of equipment with the balance to be ordered in the next two months. Civil works have commenced on site. Hazardous operation studies for individual packages have commenced.

EXECUTIVE SUMMARY


Internal and external risk review meetings have been held and, after mitigation, all risks are considered acceptable. The key risks are feeding waste wood to the gasifier cost effectively and refractory wear in the plasma converter. Tests carried out in the period on the BioSNG pilot plant have shown the successful production of methane from waste, reducing the likelihood of issues in the commercial plant.

During this period there has been a very well received stakeholder engagement event held in Swindon, predicated on breaking ground for construction of the plant. This was attended by over 100 guests including members of parliament, policymakers, industrialists and the media. This has significantly enhanced the project profile and role of renewable gas for heat and transport.

The focus in the next period will be on placing orders for remaining packages, expediting orders, completing civil works

SECURED, PROCESSEDWASTE FEEDSTOCK

CONVERSION TOHIGH QUALITY SYNGAS

CONVERSION TOGRID & TRANSPORT QUALITY SNG

DELIVERY TO GAS NETWORKAND EXISTING HGV FLEET

Technologies proven at pilot plant scale

There has been some slippage in the project programme but the objectives set out in the Project Direction will still be met.


ACHIEVEMENTS

The project remains on scope to deliver all its objectives, as outlined in the Project Direction. The focus to date has been on placing orders for equipment packages, securing consents, developing the plant design and securing commitments for feedstock supply and gas off-take.

The main achievements during the period are:

• Final project cost plan issued showing total cost of £25.3m.

• Successful testing carried out in the pilot plant on syngas quality and methane production.

• Orders placed for the gasifier, wet gas cleaning, waste heat boiler, compressor, and the bulk of the methanation packages.

• Enquires issued for power and controls, network entry, flare and carbon dioxide liquefaction packages.

• Enquiries prepared for mechanical and electrical integration.

• Detailed hazop review of methanation package completed.

• Secured landlord consent in principle and commenced drafting of agreements.

• Environmental permit issued by Environment Agency.• Stakeholder event to break ground.

A key decision in the period was to increase the project scope to include liquefaction of the carbon dioxide produced by the process. This has greatly enhanced the GHG performance of the facility. The liquefied carbon dioxide will be sold to industry, offsetting fossil carbon dioxide.

PROJECT MANAGER’S REPORT


PROJECT BUDGET

Committed project expenditure is £9.8m lower than the budget. This is due to the phasing of equipment expenditure and will reverse in the next 6 months.

RISK

Development projects inherently carry a degree of risk. However, our risk management approach is designed to identify potential risks at an early stage and then determine the most appropriate way of mitigating them. The risk mitiga-tion management system that has been set-up supports the achievement of all of the key aims of the project as set-out in the original Project Direction.

NEXT STEPS

The following activities will take place in the next period:

• Place orders for the remaining equipment packages.• Carry out hazop reviews for all equipment packages

and an overall plant hazop review.• Complete agreements for landlord’s consent.• Prepare detailed plans for commissioning of facility.• Complete on site civil works.• Expedite delivery of each package.

The purpose of this project is to facilitate deployment of commercial scale plants which are capable of delivering renewable gas into the market place.


BUSINESS CASE UPDATE

Renewable gas provides a non-disruptive and low cost solution for decarbonisation of heat and transport. Over the last reporting period there has been significant activity by stakeholders across the sector assessing the issues and options for decarbonising heat. These include:

• Policy Exchange “Too hot to handle” • Green Gas Book• KPMG Future Of Gas Networks

Key issues are the recognition that:

• Over 23 million homes are heated by gas using conventional wet radiator heating systems. Conversion of these to heat pump electrified systems would entail a significant level of cost and disruption to consumers.

• As highlighted by a study by Wales and West Utilities, many consumers do not have the thousands of pounds of ca-pital, nor the desire, to change their existing gas central heating systems to systems based on electric heat pumps. Most people only change their heating system when it goes wrong.

• Much for the UK housing stock is relatively old and is well suited to the existing gas heating system integrated into the building fabric. Most new housing stock is also predicated on gas due to the low capital cost and convenience. Even if there were changes in policy for new buildings, there is a large legacy of dwellings going forward.

• Heat demand varies substantially diurnally and seasonally. The existing gas network is designed to accommodate the capacity required for a 1 in 20-year peak demand. Analysis by Imperial College provides a valuable representation of this demand as compared with the swing in electricity demand.

• Mass electrification would also require significant infrastructural changes outside the home. The local distribution

system would need to be reinforced, entailing cost and disruption.

• Meeting peak heat requirements, even with building efficiency improvements, would require substantial additional power generation capacity, probably at low load factor in the absence of breakthroughs in not only diurnal but seaso-nal electricity storage.

• The gas network not only provides a means for distributing heat, but also transport fuel to fuel heavy goods vehicles and buses operating on CNG.


STAKEHOLDER ENGAGEMENT

An important part of developing the business case for the project is stakeholder engagement and dissemination. A major event was held on 23rd November at Swindon, signifying breaking ground. This was attended by over 100 guests inclu-ding members of parliament, policymakers, industrialists and the media.

This wider recognition and debate enhances the business case for solutions which are able to deliver renewable gas onto the grid.

The Consultations relating to revisions to the Renewable Heat Incentive as well as the Renewable Transport Fuel Obli-gation have been delayed due to the governmental changes associated with Brexit. They are expected imminently. The Consortium remains engaged with policymakers through this process.

The large variations in heat demand across the year, accommodated by the existing gas network, contrast with the much less seasonably variable electricity demand (Source: Dr Robert Sansom, Imperial College)

The project is well on schedule for delivery; progress on the programme to date is summarised in the following table.

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PROGRESS AGAINST PLAN

There is one item on the critical path: delivery of the gasifier.

The order for the gasifier was placed with Outotec in November 2016, three months later than planned. Outotec are committed to ship the equipment from their facility in the US in September 2017 and it will take three months to transport the gasifier and install and commission it. This package is limiting the delivery timescale of the project and every effort is being made to work with Outotec to improve the forecast shipping date.

More details on progress are set out below.

GRANTING OF STATUTORY CONSENTS AND APPROVALS

• Landlord’s consent agreed in principle and final contracts being drafted.

• Lease for additional land signed.• Environmental permit issued and meetings held with EA

to agree detailed approach on flaring and commissioning.

DESIGN

• Data sheets completed for all major equipment.• Work commenced on detailed civils design.

• Detailed Hazop completed on methanation package. • Detailed design updated following feedback from package

suppliers and landlord.

PROCUREMENT

• Orders placed for fuel preparation, gasifier, waste heat boiler, dry gas cleaning, wet gas cleaning, compressor, methanation and flare packages.

• Enquiries issued for network entry unit, CO2 liquefaction and power and controls.

• Enquiry prepared for mechanical and electrical integration.

COMMERICAL

• Fuel off-take agree with Howard Tenens. Discussion ongoing with other possible off-takers.

• Continued engagement with Public Power Solutions and Crapper and Sons on waste supply agreements.

• Agreement in principle with Air Liquide on oxygen supply and carbon dioxide off-take.


CONSTRUCTION

• Site asbestos and ground conditions surveys complete. No issues found.

• Statement of works for first phase of civils works issued.• Construction commenced on site.

Commissioning activities are not scheduled to have commenced at this stage.

Committed project expenditure is £9.8m lower than the budget. This is due to the phasing of equipment expenditure and should reverse in the next 6 months. Progress against budget is summarised in the following table.


PROGRESS AGAINST BUDGET

Package costs are £8,695k lower than the budget because orders for equipment have been placed later than planned and better terms than expected have been agreed with suppliers. This will result in a delay in project delivery but project objectives will still be met on time because of allowances for unexpected delays when the objectives were set.

‘Design and delivery’ costs are £700K lower than budget and ‘Other’ costs are £392K lower than budget because of the phasing of design work. This difference will reverse over the next six months

The remaining budget of £19.387k is not considered adequate to meet the remaining costs of the project. This is due to adverse changes in currency exchange rates arising from Brexit, as well as the inclusion of carbon dioxide liquefaction to enable export to industry. Total costs are now forecast to be £25,300k.

During the period National Grid agreed to provide £6.3m of direct funding to the project and to support the addition of carbon dioxide liquefaction to the project scope with £1.7m of funds from the Network Innovation Allowance. This provides the project with sufficient funds to meet its objectives.

PROJECT’S FINANCIAL PERFORMANCE TABLE

BANK ACCOUNTBank statements have been provided to Ofgem. Due to the confidential nature of the project bank statements, they have not been included in this report.

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The project successfully delivered its objectives on consents and commercial contracts (SDRC 9.1) and detailed design (SDRC 9.2) in the previous period. The next objective (SDRC 9.3) is to complete the equipment procurement process by 1 May 2017. Significant progress has been made on this objec-tive including:


• Tenders have been issued for all packages apart from mechanical and electrical integration, which will be issued in January 2017.

• Orders have been placed for the fuel preparation, gasifier, waste heat boiler, gas cleaning, compressor, methanation and flare packages. Orders for the rest of the equipment will be placed by January 2017.

• Kick off meetings have been held with most package providers and regular meetings will be held to expedite delivery.

Other SDRCs will be completed in line with the project plan.

SUCCESSFUL DELIVERY REWARD CRITERIA (SDRC)

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LEARNING OUTCOMESSTAKEHOLDER ENGAGEMENT

The consortium has been impressed by the impact of a substantial ‘media’ event on perception of the project in the industry and beyond. This has provided a dynamic focus and drive to the project. It also facilitates debate about the strategic directions being taken with regard to energy policy which provides the backdrop for future deployment and roll out.

IMPACT OF EXTERNAL EVENTS

This has been a turbulent period for the UK and internationally. This has had both economic impacts for the UK as well as raising concerns about wider attitudes towards the climate change agenda. The former has certainly had an impact on the project. Legislating the 5th carbon budget has provided high level confidence in UK commitment to addressing climate change. On a more local level, the change of ownership of the site had an impact on the project timeline. In all these cases, this has demonstrated the importance of a strong and committed consortium, along with focused project management. Projects will always face adverse events beyond the control of the participants; resilience and commitment are key to success.

SUPPLY CHAINS

Supply chains have a vital role to play in successful delivery of innovation and bringing new technologies to market. This project has benefited from some key suppliers in the sector who have engaged with the con-sortium to deliver key project elements. Equally there have been areas where the range of supply options are more limited. This shows the importance of learning-by-doing. Theoretical studies and feasibility work needs to be backed up by installing plant on the ground, which provides a driver to develop more mature supply chains to support widespread deployment.

The key learning outcomes over this period have been:


No registerable IPR has arisen during the period.

INTELLECTUAL PROPERTY RIGHTS (IPR)

Development projects inherently carry a degree of risk. However, our risk management approach is designed to identify potential risks at an early stage and then determine the most appropriate way of mitigating them. The risk mitigation management system that has been set-up supports the project achieving all of its key aims as set-out in the original Project Direction.

Internal and external risk review meetings have been held. Some key risks have already been fully mitigated, for example securing planning consent for construction and securing End of Waste status for the produced gas. The key identified ongoing project risks are:


RISK MANAGEMENT

• The system will use refuse derived fuel and waste wood as feedstocks. Handling refuse derived fuel, which is baled, is well understood but waste wood, which is generally delivered loose, requires a different process for safe and cost effective feeding. There is a risk that processing waste wood may result in additional costs. This will be addressed by engaging with the supply chain to find appropriate solutions.

• Technical risks associated with higher wear of refractory in the plasma converter than expected which may lead to increased maintenance costs and reduced fuel production. The design is based on experience from the pilot plant and similar Tetronics Plasma converter systems, appropriate cooling design and consideration of appropriate sparing strategy.

• Variation in feedstock composition. Addressed by an ongoing monitoring regime of feedstock and the use of waste wood blending as required.

• Budget risk. This is a complex facility so requires close management of costs. This is managed by early engagement with the supply chain, value engineering processes and competitive tendering to ensure value for money.

• The variations in exchange rates cause by the vote to leave the European Union have resulted in additional project costs. Options for mitigating exchange rate risk are being explored.

• The project needs to demonstrate greenhouse gas savings of 60% compared to diesel in order to receive support under the renewable transport fuel obligation. Savings of more than 80% will be achieved on large scale plants but the target is more challenging for smaller plants because of relatively higher thermal losses and parasitic loads. This has been addressed by increasing the project scope to include liquefaction and sale of the carbon dioxide produced by the process for use in industry. The carbon credit from offsetting fossil carbon dioxide ensures the 60% target will be met.

• Programme risk. This is an aggressive schedule with a large number of complex contracts to be delivered. Addressed by strong management structure with clear roles and responsibilities, regular project meetings and an agreed procurement plan.

Use of the gas grid for distribution of biomethane offers an opportunity to the project to increase the attractiveness of its product. During the period the DfT have confirmed that they will allow the use of the grid at present and should decide on a long-term position in the near future. Project partners will continue to engage with the DfT to encourage the use of the grid for gas distribution.

Lorna Millington has confirmed that the processes in place and steps taken to prepare this Project Progress Report are sufficiently robust, and that the information provided is accurate and complete.

This report has been prepared in accordance with the Gas Network Innovation Competition Governance Document published by Ofgem. The project has been subject to review and challenge by the National Grid Gas Distribution Project Manager and signed off by Lorna Millington, NGGD Network Design Manager, who is Project Sponsor for this NIC project.


ACCURACY ASSURANCE STATEMENT

NATIONAL GRID GAS DISTRIBUTIONconnects people to the energy they use and delivers it safely, reliably and affordably to around 11 million customers in Britain. Each year National Grid Gas Distribution replace around 1,000 miles of gas mains and connect 20,000 new customers to the network.

ADVANCED PLASMA POWER (APP)is a world leader in advanced waste to energy and fuels technology. APP is revolutionising the way in which we treat waste sustainably by maximising the value derived from it as a source of materials and energy while minimising its impact on the environment.

ABOUT THE PARTNER ORGANISATIONS

PROGRESSIVE ENERGY is an estab-lished independent UK clean energy company focusing on project development and implementation. It comprises a team of highly experienced energy professionals providing the skill sets necessary to under-take all aspects of the development and implementation of energy projects.

CNG Services provides consultancy and project management services in relation to the use of natural gas as a vehicle fuel. CSL is independent from equipment suppliers and provides an ‘owner’s engineer’ service including design, project specification and management.CSL owns and operates the UK’s largest CNG filling station which has the capacity to fill more than 300 dual-fuel vehicles per day.

Wales & West Utilities is part of the CKI group and provides the safe and secure transportation of gas across its distribution network to more than 2.5m customers. The company is committed to the protection and enhancement of the environment and is always seeking new ways to minimise the environmental impact of its activities, as well as providing excellent value to its customers.

FOR MORE INFO ON GOGREENGAS AND THE PROJECT PARTNERS PLEASE VISIT

WWW.GOGREENGAS.COM

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