Proposal to undertake a Study on the Impact of Compressed Natural Gas on the Gas Network September 2016
Table of Contents 1 Introduction 3 2 Background 4 3 Benefits of CNG 5 4 Development of CNG 6 5 European Funding 7 6 The Causeway Study 8 7 Cost Benefit 10 8 Approval sought to allow Causeway Study implementation 12 9 Conclusion 12 2 Gas Networks Ireland
1 Introduction Gas Networks Ireland (GNI) is focused on the development of innovative applications that drive sustainability and efficiency in the natural gas network and also deliver benefits for the gas user in Ireland. As part of a growth strategy aimed at increasing utilisation of the existing gas network, GNI has developed a plan to broaden the market for natural gas through the development of a Compressed Natural Gas (CNG) refuelling station network. The plan is aligned to national and EU policy and addresses an increasing demand from new and existing gas customers for alternative transport fuels in the form of Natural gas and Renewable gas. The plan consists of a network of up to 70 CNG stations servicing public transport, haulage and private CNG vehicle operators. The CNG stations delivered through Causeway will act as the foundations for the future national CNG refuelling network. In February 2016 GNI with the participation of Firmus Energy, Phoenix Gas and National University of Ireland Galway (NUIG), submitted an application for grant funding entitled The Causeway Study to the European Commission under the Connecting Europe Facility (CEF). The Causeway Study will examine the impact of the introduction of CNG on the gas network, through the installation and operation of 17 high capacity fast fill CNG stations (13 in the Republic of Ireland and 4 in Northern Ireland) and the installation and operation of a renewable gas injection point. The Causeway Study application was successfully awarded 7.4m in funding ( 5.96m to GNI) in July and INEA confirmed the grant agreement process timeline to GNI in mid-august 2016. This funding approval represents a significant step forward in implementing GNI s overall CNG plan. The study will provide valuable information to support the development of best practice for CNG infrastructure rollout while delivering benefits for all existing gas customers. This document specifically relates to the elements of the Causeway Study relevant to Gas Networks Ireland. The average utilisation per CNG station in the Study is expected to ramp up to 25 GWh per station per year, or an average of 40 large vehicles per station, with a technical capacity capable of delivering above this, if required. This will result in c. 1.8m per annum in additional network revenue from the 13 stations owned and operated by GNI. In addition GNI propose, through the Causeway Study, to assess the introduction of a compression fee to address the ongoing cost of providing the enhanced pressure required for vehicle refuelling. A summary of the of the Causeway Study Costs and Benefits limited to 13 CNG fast fill stations, 1 Renewable Natural Gas injection Point and the associated studies, over a 15 year and 25 year assessment period is presented in Table 1.1. Table 1.1 Causeway Study costs and benefits over 15 years and 25 years. Item Value (15years) Value (25years) Total Cost ( 33,575,341) ( 51,645,880) Total Benefit 48,715,759 90,953,457 Benefit - Cost 15,140,417 39,307,577 Net Present Value @ 5.2% 2,915,438 11,049,552 IRR 7.16% 10.00% GNI expect the following benefits for the natural gas customer to be realised through the Causeway Study: 3 Gas Networks Ireland
A NPV of 11.05m over the 25 year life of the project which will contribute directly to lowering customer gas prices; Improved long term sustainability of the gas network; lowering the carbon footprint of the gas network through the introduction of renewable natural gas into the gas network; Broaden and Increase in the customer base for natural gas in the Irish market; Increased efficiency of the natural gas network through the potential for load management and the off peak use of CNG stations; Potential for CNG high pressure storage to be used to sustain network integrity in case of emergency will be investigated; GNI wish to secure the CEF funding and proceed with the Study. GNI are requesting approval from the CER to spend an additional 12.83m, which is the balance required to complete the study, and to recover this spend through regulated income. 2 Background Ireland had a challenging task to meet its climate change targets for 2020. In particular, the binding obligation that 10% of all transport energy must come from renewable sources by 2020 is difficult to meet. On the current trend, this target, and others for overall emissions, are not going to be met. Ireland is also going to face extremely challenging targets for 2030 which it will struggle to meet. Compressed Natural Gas (CNG) as a clean, affordable and indigenous fuel can form part of the solution and is an essential step towards carbon neutral transport. Ireland is mandated to develop CNG refuelling stations by the EU. In 2014 the EU introduced a Directive for the Development of Alternative Fuels Infrastructure 1 which requires each member state to construct an appropriate number of CNG stations in urban and suburban areas by 2020 and along the main transport corridors by 2025. The European Commission has recently stated: Alternative fuels are urgently needed to break the over-dependence of European transport on oil. Transport in Europe is 94% dependent on oil, 84% of it being imported, with a bill of up to EUR 1 billion per day, and increasingly costly effects on the environment. 2 A national CNG refuelling network, co-located in existing forecourts, on major routes or close to urban centres will be required to satisfy the Alternative Fuels Infrastructure Directive. It will also provide a comprehensive refuelling station network, allowing a transition to both natural gas and renewable gas as alternative fuels. The existing natural gas network, including the fast fill CNG stations, can be utilised as a national vehicle refuelling network, giving the commercial transport sector access to a cleaner, cheaper fuel that mirrors the operational performance of diesel. As more renewables are introduced to the electricity network and energy usage per household continues to reduce, the subsequent reductions in natural gas usage, if not offset by new sources of demand, may increase the cost of gas transportation. In short, CNG has been identified both at a European and National level, as having a key role to play in the achievement of low carbon and cleaner transport. The benefits can be delivered in a short 1 http://ec.europa.eu/transport/themes/urban/cpt/index_en.htm 2 http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32014l0094&from=en 4 Gas Networks Ireland
period of time with a modest level of investment and at the same time address some of the challenges facing the gas network from reducing demand. 3 Benefits of CNG Using CNG to power trucks and buses offers a real opportunity to reduce emissions from diesel-fuelled heavy goods vehicles. This is important considering that heavy goods vehicles account for 20% of all energy related carbon dioxide (CO 2) emissions in the road transport sector, despite accounting for only 3% of the total number of road vehicles 3. CNG is a proven, globally-used technology whereby natural gas (the same fuel used to generate electricity, heat homes and power industry) is pressurised and used as an alternative fuel to diesel. Refuelling is undertaken at standard refuelling stations, providing vehicles with refuelling times and travel ranges similar to diesel powered vehicles. A CNG vehicle emits 22% less carbon dioxide, 97% less carbon monoxide, 60% less nitrogen oxides and 75% less non-methane hydrocarbon than diesel fuel while emitting virtually no particulate matter. This will provide significant air quality and health benefits for Irish citizens. The introduction of CNG heavy vehicles is a gateway for the use of renewable gas in transport. Renewable gas in the form of biomethane is an upgraded form of biogas with the same specification as Natural Gas. Renewable gas is a clean carbon neutral fuel produced through the anaerobic digestion of organic matter. Where renewable gas is used in CNG vehicles, emissions are CO 2 neutral, helping to address targets for renewable transport. Renewable gas can be produced from agricultural wastes, thereby also helping to address emissions from the agriculture and farming sector. Presently all road fuels are imported into Ireland and 98% are oil based. Since 1 st January 2016 gas supply in Ireland has changed dramatically with up to 60% of gas demand being met with an indigenous supply from the Corrib gas field. With the introduction of renewable gas, Ireland has the opportunity to potentially achieve energy independence in relation to gas while maintaining system security with a connection to the larger European gas network. If CNG is supported and developed, the Irish transport sector would have access to an indigenous fuel source for the first time, resulting in energy diversity and helping to address concerns about security of fuel supply for the transport sector. GNI owns and operates a modern and efficient national network. With a relatively small investment in CNG refuelling equipment, this network will allow the safe, clean and efficient transportation of road transport fuel for the commercial market in Ireland, broadening the customer base of the gas network and securing the efficient future of the network. CNG stations are a mature and predictable technology providing safe, fast and efficient refuelling for commercial operators. The deployment of these fast fill CNG stations will allow vehicle operators to switch from diesel to natural gas while maintaining operational efficiency and refuelling times. Natural Gas Vehicles are a proven technology even in the most demanding environments. There is a wide range of right hand drive gas vehicles available to suit different applications with the full support of vehicle manufacturers and in-market distributors. 3 Energy in Transport 2014, Sustainable Energy Authority of Ireland 5 Gas Networks Ireland
4 Development of CNG CNG is widely used in transport across Europe with over 1.7 million natural gas vehicles, primarily in consumer vehicles or light duty transport. Italy has 57% of the total European share of natural gas for transport. There has been a significant increase in the number of natural gas vehicles in recent years, primarily in mass-transport and heavy-duty transport, i.e. haulage. Since 2007, Finland has increased their number of natural gas vehicles by 633% to 1,172; Holland by 613% to 5,201 and Austria by 460% to 7,065. In Belgium, there are currently 66 CNG refuelling stations and 4,500 natural gas vehicles compared with just 15 CNG refuelling stations and 650 gas vehicles in 2013. 4 In the UK, 89% of gas vehicles are used in heavy-duty transport. Gas Networks Ireland, through the Innovation allowance in PC3 has worked with the transport industry to develop the required, policy, technical and physical arrangements for CNG. This included a number of on-the-ground demonstration projects with the participation of some of the country s largest fleet owners and operators. The results of the projects have been extremely positive with expected benefits delivered in relation to technical, environmental and economic performance. The critical success factors to allow commercial adoption of CNG in commercial transport are: Policy Policy supports to provide a framework including incentives for a definite duration; Availability of Natural Gas Vehicles; and Availability of refuelling infrastructure (nationally) In relation to policy, excise duty for natural gas and renewable gas as a vehicle propellant has been set at the current EU minimum ( 2.60 per GJ) and this rate will be held for eight years, thus providing an incentive and certainty of duration for the measure. 5 The Department of Transport Tourism and Sport is presently developing the National Policy Framework to support alternative fuels infrastructure. This will include targets for numbers of CNG stations required to satisfy the Alternative Fuels Infrastructure Directive. It will also include a list of proposed supports to encourage adoption of alternative fuels. It is expected to be completed before the end of December 2016. The Energy White Paper, published on the 16 th Dec 2015, included the following actions: Vehicles We will support the adoption of electric and gas vehicles through grants and tax relief. We will develop a national policy framework to support infrastructure for alternative transport fuels. We will establish a green bus fund to support the purchase of cleaner and greener public transport vehicles in the period to 2020. In response to customer and industry feedback, the main truck manufacturers have developed more compelling natural gas vehicles, addressing two key issues horsepower and fuel efficiency. Over the last six months there have been major product announcements and physical launches of new gas 4 http://interfaxenergy.com/gasdaily/article/21629/belgiums-regions-are-pushing-for-ngvs 5 http://www.budget.gov.ie/budgets/2015/documents/budget%202015%20-%20full%20document.pdf 6 Gas Networks Ireland
vehicles. Scania released a double decker CNG bus that will be deployed in the UK market in early 2017. This complements an impressive range of CNG city buses and Bus Rapid Transit System vehicles available on the market for immediate deployment. Gas vehicles using CNG have a range of circa 600 km which in an Irish context allows for even the most demanding routes. Iveco has recently released the 400 horsepower Stralis Tractor unit with fuel efficiency performance that it getting closer to that of diesel. In addition, Scania has announced a 400 horsepower CNG tractor unit that will be available in 2017. A number of operators have invested in Natural Gas Vehicles and have found that the performance of the vehicles is in line with expectations. The lack of refuelling infrastructure has, to date, hampered their plans for further adoption. Refuelling Infrastructure GNI has commenced the deployment of the first high capacity fast fill CNG stations in Ireland. Clean Ireland Recycling a waste management company based in Shannon Co. Clare will be one of the first operators in Ireland to transition their fleet to Natural Gas Vehicles, thus capturing the environmental and economic benefits of CNG. In order to facilitate further adoption of CNG, GNI are working with forecourt operators to deliver the first publicly accessible CNG stations in Dublin and Cork. These stations will allow initial circulation of commercial traffic between Dublin and Cork. These three stations will be deployed with the support of the gas innovation fund provided for under Price Control 3. The CNG station equipment has been procured from the manufacturer, planning permission for these stations has been submitted and environmental reviews are underway. In addition, construction of the CNG stations commenced in September 2016. To facilitate the further development of CNG, a national network of stations is required which will allow circulation of vehicles. This will remove the risk of natural gas vehicles being limited to certain routes and ensure the rate of uptake is not curtailed due lack of refuelling infrastructure. 5 European Funding In order to lessen any initial burden on the natural gas consumer, Gas Networks Ireland has investigated the potential avenues of European funding. As CNG is an application of new technology in an Irish context which supports national and European policy actions, it matched the innovation criteria as outlined in the Connecting Europe Facility (CEF) for Transport call. The CEF is a key EU funding instrument that promotes growth, jobs and competitiveness through targeted infrastructure investment at a European level. CEF Transport, a transport focused programme under CEF, supports innovation in the transport system in order to improve the use of infrastructure, reduce the environmental impact of transport, enhance energy efficiency and increase safety. The programme is managed by the Innovation and Network Executive Agency (INEA). INEA opened a call for proposals under the CEF Transport programme in November 2015. Eight eligible proposals were submitted from Ireland and four proposals were selected for funding. The Causeway Study was one of the proposals selected for funding and was awarded the second highest award in the innovation category in Europe 6. In July 2016, GNI received confirmation from INEA that the Causeway Study application was successful with an award, subject to contract, of 5.96m towards GNI s element of the project. In mid-august, 6 The budget for the General Call New Technologies and Innovation priority was 60m of which The Causeway Study was awarded circa 10%. 7 Gas Networks Ireland
INEA confirmed the timelines for the grant agreement process. Contract negotiations are underway and due to conclude by end of September 2016 with execution of the grant agreement by mid November 2016. INEA have set strict deadlines for contract negotiations and execution; failure to meet the timelines will result in a withdrawal of the funding. The total funding requirement for the Causeway study is given in Table 1.2. Table 1.2 Causeway Study funding requirement. Item Value ( m) Causeway Study Cost (A) 23.47 Awarded CEF Funding (B) 5.96 Current Innovation Fund (C) 4.68 Amount to be recovered (=A-B-C) 12.83 6 The Causeway Study This study aims to examine the impact of increased levels of fast fill CNG stations on the operation of the transmission and distribution gas networks in both the Republic of Ireland (ROI) and Northern Ireland (NI). To that end, a cross border pilot network of 17 CNG units along the TEN-T Core Road Network 7 between the ROI and NI will be built as a pilot activity to assess the impact on the gas network. Activities will encompass developing an understanding of the operation and planning of the network, CNG equipment, CNG user demand patterns and behaviours, and the injection of renewable gas into the gas transmission system. The Causeway Study consists of 6 activities with deliverables and milestones which must be completed by 2020. These activities are: Activity 1: Programme Management The programme management activity includes the coordination of all programme planning and delivery activities, including managing the budget, resources, risks, schedule, procurement and governance processes, as well as reporting to the European Commission (EC), INEA, the Partners and stakeholders at key milestones. Activity 2: Pilot CNG Network This Activity will see the installation of 17 fast fill CNG stations (13 in ROI). Connecting CNG and Biogas assets safely and efficiently to the natural gas network. The installation of these CNG stations across the network is essential to the success of the Action and to achieving a critical mass of demand on the gas network. The CNG Stations will be strategically located to deliver the required outputs of the Causeway Study and to maximise utilisation of the assets. 8 Activity 3: CNG Vehicles and Supports Under this Activity, transport operators will purchase dedicated CNG vehicles and will provide training to technicians to maintain vehicles and CNG equipment. This Activity will fund the price gap between 7 The pilot network will to a large extent be on the TEN-T Core Network Corridors North Sea Mediterranean Corridor. 8 A map of the proposed Causeway CNG Station locations is available in Appendix I of this document. 8 Gas Networks Ireland
dedicated CNG vehicles and a diesel fuelled vehicle. Training will also be provided for vehicle mechanics and CNG station maintenance technicians. Activity 4: Renewable Gas Injection Facility This Activity will facilitate the direct grid injection of renewable gas into the transmission system from an existing Anaerobic Digestion facility which generates renewable gas from organic and municipal waste. The injection facility will inject renewable gas into the gas network. The Activity will include pipe work, scrubbing equipment, compression equipment and control equipment. This Activity will provide both renewable gas and the operational data essential to developing the role of renewable gas in transport. Activity 5: System Operation & Data Analysis In this Activity operational data will be collected from Activities 2, 3 and 4, analysed and reported on. Three sub-activities will be completed to enable data collection, network operation in a safe and efficient manner and emergency response. The Partners will gather gas system operational data through their existing control systems. This operational data will be analysed to inform the interim and final Action reports. The sub-activities will focus on three areas: Connecting CNG and renewable gas equipment to the network operators Control and Instrumentation systems; Collecting and analysing gas system operational data to report on demand patterns, pressure impacts and operational requirements; and Examine the ability of CNG stations to reverse flow gas into the local distribution system during gas emergencies. This Activity will examine the role of CNG stations to back feed gas to the local network to increase the security of supply in the area. Activity 6: Communication & Dissemination The results of the study will be disseminated to other Member States across the EU so they may benefit and learn from the experience of the Action. A range of proposed activities will publicise the findings of this study to support the further development of similar networks across Europe. 9 Gas Networks Ireland
7 Cost Benefit GNI has undertaken a cost benefit analysis of the proposed 70 CNG station network and separately the Causeway Study portion of the CNG plan. Table 1.3 summarises the costs and benefits of the overall 70 CNG station Plan over a 25 year assessment period. Table 1.3 Costs and benefits of a national network of 70 CNG stations. Item Value Capital Cost 121,176,225 Operating Cost 54,796,704 Total Cost 175,972,930 Revenues 501,845,070 Total Benefit 501,845,070 Benefit - Cost 325,872,140 Net Present Value @ 5.2% 104,812,344 IRR Over 25 Years 15.56% The Causeway Study Cost Benefit The Causeway study has six associated activities of which only one (Activity 2) is directly associated with the deployment of CNG refuelling stations (13 CNG Stations). For the purpose of this cost benefit analysis, the total cost of all activities are included and only revenue from the CNG stations (Activity 2) is assumed. No revenue has been associated with biogas injected to the grid and no value has been placed on the other elements of the Study. The Causeway Study assumes an average vehicle take-up, when mature of 40 large vehicles per CNG Station. It projects ramping growth to year 10, by which time there will be 266 trucks and 254 Buses utilising the stations delivered through the Causeway Study alone. A summary of the costs and benefits of the Causeway Study over 15 year and 25 year assessment periods is presented in Table 1.4. There are six main costs of the Causeway study: 1. Costs related to the data collection, study management and dissemination of information; 2. Capital costs for the construction of the 13 CNG refuelling stations and connections; 3. Operating costs related to the maintenance of the CNG refuelling stations and station connections; 4. Capital costs related to the construction of the renewable gas injection facility; 5. Operating costs for the maintenance and running of the renewable gas injection facility; and 6. Incremental capital costs of CNG vehicles versus conventional diesel vehicles. The following are the financial benefits delivered, over 25 years, through the Causeway Study: 10 Gas Networks Ireland
1. Transmission revenue of 21.7m 2. Distribution revenue of 14.3m 3. Compression revenue of 48.9m Table 1.4 Summary of Causeway Study costs and benefits over 15 years and 25 years (13 CNG Stations, 1 Renewable Natural Gas Injection Point and associated studies). Item Value (15years) Value (25years) Capital Cost ( 23,471,743) ( 32,090,743) Operating Cost ( 10,103,598) ( 19,555,137) Total Cost ( 33,575,341) ( 51,645,880) Revenues 42,754,510 84,992,209 CEF Funding 5,961,249 5,961,249 Total Benefit 48,715,758 90,953,457 Net Cash Flow 15,140,417 39,307,577 Net Present Value @ 5.2% 2,915,438 11,049,552 IRR 7.16% 10.00% In addition to the specific study benefits, the Causeway Study will deliver multiple benefits to the general Irish gas customer including: 1. Potential for reduced tariffs to the gas customer over the long term as a result of increased utilisation of the natural gas network for transport. 2. Improved long term sustainability of the natural gas network and certainty of service; 3. lowering the Carbon footprint of the natural gas network through the introduction of Renewable natural gas into the natural gas network; 4. Increase in the customer base for natural gas in the Irish market; 5. Increased efficiency of the natural gas network through the potential for load management and the off peak use of CNG stations; 6. The potential for CNG high pressure storage to be used to sustain network integrity in case of emergency will be investigated; 11 Gas Networks Ireland
8 Approval sought to allow Causeway Study implementation GNI is requesting approval from the CER to recover 12.83m from regulated revenues in order to secure 5.96m of funding from INEA which will enable the implementation of the Causeway Study. 9 Conclusion The development of CNG has significant benefits for the gas industry in Ireland in addition to supporting national and EU policy. The causeway study will deliver a core network of refuelling stations as well as the required assessment of the impact of CNG on the network. The availability of CEF funding ensures minimal impact on customer tariffs in the short-term while paving the way for reduced tariffs through diversification and increased utilisation in the medium to long term. 12 Gas Networks Ireland
APPENDIX I Map of the proposed Causeway Study CNG Station Locations 13 Gas Networks Ireland