Introduction
Ireland is setting its sights on biomethane as a key vector in the energy transition. Despite significant potential for growth, biomethane in Ireland remains underdeveloped in comparison to our European counterparts. The Department for Environment Climate and Communications recently consulted on the National Biomethane Strategy which the EAI responded to (available here). The strategy seeks to implement measures which will lead to reaching the target of 5.7TWh of biomethane production in 2030. EAI’s response emphasised the need for clear planning and policy certainty, cross sector regulation and addressing administrative barriers to the development of the biomethane industry.
Biogas is a product of anaerobic digestion that contains carbon dioxide and methane and can then be upgraded to biomethane by removing the carbon dioxide. The characteristics of biomethane are similar to that of natural gas and thus can be easily blended with natural gas to facilitate adoption by end users. Because biomethane can use waste organic matter to produce gas and recycle minerals such as nitrogen, carbon and fertiliser, it is a circular product with a low environmental impact. ‘The carbon emissions associated with biomethane production from a grass silage/slurry mix and its combustion are around 38 kg CO2 eq/MWh. For comparison, carbon emissions from the combustion of fossil gas are 185 kg CO2 eq/MWh[1].’
Whilst the production of biogases is environmentally friendly, and sustainable, it is not currently economically attractive when compared with natural gas. The draft biomethane strategy outlines that currently natural gas costs €50/MWh with a carbon tax value of €20/MWh, bringing the average total cost of using natural gas to €70/MWh. The cost of producing biomethane on the other hand ranges between €120/MWh and €220/MWh depending on the scale and number of plants[2].
Therefore a green premium for biomethane that encourages a market to offtake biomethane is vital. The proposed policy enabler is the recently consulted upon Renewable Heat Obligation (RHO) scheme[3]. This is a demand-side measure, obligating suppliers to purchase and use biofuels with the aim of creating a market for biomethane and encourage more developers to enter the industry. An alternative to this is a supply-side measure, such as a feed-in tariff or a feed-in premium, which guarantees remuneration, for the developer, for each unit of renewable energy produced, usually over a long-term contract.
Renewable Heat Obligation
This RHO scheme requires energy suppliers to purchase and use a certain percentage of biofuels annually. This percentage steadily increases with the aim of stimulating the bioeconomy.
Renewable obligation schemes are well established means of stimulating growth. One example of this is the Northern Ireland Renewable Obligation Certificates (NIROCs) which obligated energy suppliers to ensure a percentage of the electricity sold to a final customer has been delivered through renewable energy sources. The outcome resulted in huge growth in onshore wind during the obligation period.
The Renewable Heat Obligation Scheme, high level design is due for delivery before the end of the year, according to Tony Collins, Head of Heat and Business Energy Division with the DECC, speaking at the SEAI Energy Show last week. This obligation will likely be introduced on a phased approach, requiring suppliers to purchase 2% of their heat from biofuels by 2026, rising to potentially 10% by 2030. Not meeting targets under a RHO, would require the supplier to purchase a buy-out at a higher cost. A key concern for those who will become Obligated Parties under the scheme is the level of biomethane available to meet the targets. Whilst Ireland has the capacity to deliver over 5TWh of biomethane feedstock, currently only 1TWh of available feedstock is from waste sources (SEAI National Heat Study). Therefore beyond 2026, agricultural land will have to be developed to produce the feedstock. Similarly, more anaerobic digestion plants will have to be developed.
This may result in the cost of renewable gas increasing due to the high levels of investment needed.
RHOs are certainly a dominant feature of the market across Europe. A 2022 study by SIA Partners into European biomethane regulatory developments looked at the deployment of anaerobic digestion plants across 11 European countries, and the supports which the plants were offered. This study only focused on countries with a minimum of 15 plants in operation at the time of writing the report. The trend arising in the report is that countries are moving from feed in tariffs to obligation schemes[4].
Feed-in Tariffs
A supply side measure like a feed in tariff are long-term contracts can be won at an auction and allow for the government to procure a fixed amount of renewable energy at a known price. Such support schemes provide financial certainty to biomethane industry developers, creating price certainty for the quantity of gas produced and improve the competitiveness of renewable gas to natural gas thereby increasing the likelihood of its use in industry.
The UK recently revitalised their feed in tariff for the biomethane industry through the Green Gas Support Scheme (GGSS), open for applications from 2021 to 2025. The GGSS is supported through the Green Gas Levy, which places an obligation on licenced natural gas suppliers, including the requirement to make a quarterly levy payment[5].
Since 2011 in France, a feed in tariff is in place for biomethane injection into the natural gas grid. A fixed tariff between €0.05/kwh and €0.15/kwh is offered for a period of 15 years[6].
Other schemes, such as the SDE++ scheme in the Netherlands stimulates biogas development with a feed-in-tariff which covers the non-profitable portion of production costs. The tariff compensates the difference between the production costs and the market prices of the competing non-renewable energy[7].
Conclusion
Policy enablers can be viewed as carrots and sticks, supply and demand. Both have been used successfully in European markets and warrant discussion. The clear approach from Ireland to date has been more stick than carrot. With the final decision on the RHO scheme imminent and suppliers will soon be obligated to begin purchasing biofuels to meet their energy demands, there is a concern among energy companies that there is not a sufficient level of biomethane production capacity to meet the obligation period targets leading to increased costs through penalties or buy-outs.
Supporting biomethane production through a feed in tariff that has demonstrated growth in the UK, France and the Netherlands may be a better option for Ireland.
[1] Low Carbon Gases for Heat, National Heat Study, SEAI, Feb 2022 (Low-Carbon-Gases-for-Heat.pdf (seai.ie)
[2] Draft National Biomethane Strategy Consultation, DECC, 30 Jan 2024 (gov – Consultation on the Draft National Biomethane Strategy (www.gov.ie))
[3] Renewable Heat Obligation Scheme, DECC, July 2023 (gov – Renewable Heat Obligation (www.gov.ie))
[4] European Biomethane Benchmark, SIA Partners, May 2022 (Sia Partners Benchmark Europe Biomethane.pdf (sia-partners.com))
[5] Green Gas Support Scheme and Green Gas Levy Launch, Ofgem, 6 Jan 2022 (Green Gas Support Scheme and Green Gas Levy Launch | Ofgem)
[6] Biomethane Injection Into the Natural Gas Grid, IEA, 20 Jan 2017 (Biomethane injection into the natural gas grid – Policies – IEA)
[7] European Biomethane Benchmark, SIA Partners, May 2022 (Sia Partners Benchmark Europe Biomethane.pdf (sia-partners.com))