Biomethane: from niche market to energy security fix?

Increasing concerns over security of gas supply have put biomethane in the spotlight as a potential alternative to Russian gas in Europe.

Europe could boost biomethane production to 35 bcm/y by 2030, up from around 3.5 bcm/y in 2022, the European Commission said in its recent REPowerEU paper. This is more than a doubling of the target proposed in the EC’s Fit-for-55 climate package last year.

Biomethane is a renewable natural gas that can be produced for example from animal manure or waste from agriculture and food. It has a quality close to natural gas and can therefore be injected into the gas grid. It can also be used as fuel for transport and shipping, in energy intensive industries and in power generation.

Since Russia invaded Ukraine on February 24th, the EU has said that it will reduce Russian gas imports by two-thirds this year and stop the use of Russian gas completely by 2027, leaving European countries scrambling for alternative energy sources.

Until now, biomethane has been a niche market. Projects have generally been small-scale and not always looked commercially attractive from an investment perspective.

“The problem with biomethane is that you have a lot of very small facilities. It is not always easy to have visibility. But it also requires having a lot of them,” says Anne-Sophie Corbeau, Global Research Scholar at the New York-based Center on Global Energy Policy.

With European gas prices at very high levels, however, biomethane is increasingly looking like a potential alternative. Corbeau says costs estimates are usually between EUR70 and EUR 90/MWh for new projects. “One can argue that with the current gas prices, biomethane is in the money,” she says.

“I am not sure we want to have these sorts of gas prices for a long time. But they will definitely help the case of biomethane as an indigenous source of gas,” she says.

However critics say that biomethane relies on large-scale industrial agriculture, which would make it unsustainable in terms of land acquisition and the pressure that it would put on soils, among other climate-related problems.

Private investors eyes potential

Olivier Guerrini,  Vice President for the Biogas Business Unit at TotalEnergies, says a number of private equity funds are moving into biomethane as the sector shows signs of maturing.

“35 bcm/y by 2030 is a huge target, but it is fully possible. It requires around EUR 100bn in investments,” Guerrini says. “But we are entering a new era in terms of biomethane; a lot of private equity funds are moving into the sector because projects are bankable. Higher energy prices help, but the sector is also more mature and has a good track record on delivering projects on time and budget.”

“Five years ago there were not so many private equity firms investing in biomethane. It was seen as a small-scale industry. But now big players like Verbio, Nature Energy and TotalEnergies are investing in projects and the sector is scaling up.”

Nations with vast amounts of agricultural land have potential for biomethane production. France is one of them, but other nations including Germany, the UK, Poland, Spain and northern Italy, with the latter utilising waste from cheese production, also look like a good bet.

“Biomethane production requires low-value products such as animal or agricultural waste so we are not in competition with food production,” says Guerrini.

In addition to boosting energy security, biomethane can also play a role in reducing greenhouse gas (GHG) emissions. Guerrini says 95% of organic waste is dumped underground or in nature. This accounts for 18 % of Europe’s CO2 and methane emissions.

Regulatory obstacles need attention

Yet there are hurdles. Regulatory support mechanisms are at different stages of development across member states and firm progress is needed for the sector to scale up quick enough. Guarantees of Origin (GOs), or green certificates, as well as long-term Biomethane Purchase Agreements (BPAs) between buyers and suppliers are examples of regulatory frameworks that can boost investor confidence.

“National subsidy schemes whereby costs are passed on to consumers is the way forward, not direct subsidies from state budgets. France is to implement in the forthcoming period a set-up based on the obligation for energy suppliers to acquire ‘Biogas Production Certificates,’” says Guerrini.

At the EU level, the European Biogas Association has called for enshrining the 35 bcm/y by 2030 biomethane target into the Renewable Energy Directive ll (RED ll), which is currently under revision, with the aim of accelerating projects. The EC’s proposed regulation for decarbonised gases could also help biomethane producers to get access to existing gas grids.

“When it comes to biomethane, without an initiative at EU level, it is likely that by 2030 a regulatory patchwork would still exist regarding access to wholesale markets, connection obligations and transmission system operator – distribution system operator coordination measures,” says the EC’s proposal from December last year.

It is also worth noting that, in peacetime, Ukraine could play a major role in biomethane production owing to its huge agricultural sector. Before Russia’s invasion, the European Biogas Association estimated Ukraine had the potential to produce 6 bcm/y of biomethane by 2030.

“Ukraine has great potential for biogas and biomethane production,” says Guerrini. “We are hoping this will help to rebuild the country in the future and reduce its natural gas dependency.”

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