Kickstarting a biomethane industry

In May, the Government finally published the eagerly anticipated National Biomethane Strategy, which outlined an initial capital investment of €40m, sought under Ireland’s application for  REPowerEU funding. While he welcomed the strategy, Seán said it was a long time coming, and he stressed that further market certainty is required from the Government to provide the necessary conditions to attract investment and ensure the long-term viability and financial sustainability of the biomethane sector.
“The Government has indicated that the €40m is for capital support. The reality is that it’s quite a small figure in the greater scale required for the development of this industry. The Government has a target of 5.7 TeraWatt hours (TWh) of biomethane production, which is the output of 200 plants of scale. The €40m figure would provide capital support for maybe eight or 10 plants. So, it’s only really a start. We’re concerned about whether it would be enough to attract any interest from an investment perspective.”
At the recent Pathway to 2030 biomethane conference, chair of the Renewable Gas Forum Ireland (RGFI), PJ McCarthy put this level of capital funding into perspective: “If Ireland is to achieve the 2030 target for biomethane and emissions reduction, this requires €1bn in future support to ensure the development of the additional plants needed.”

Farmer involvement

Minister for Agriculture, Food and the Marine, Charlie McConalogue, has been quoted several times since the biomethane strategy launch that it is ‘farmer centric’ and ‘agri led’. But is farmer involvement worthwhile? “Certainly,” said Seán. “There is a potential for co-operatives like Tirlán and Dairygold to get involved and apply for these capital-support grants. These could be also utilised by a group of farmers in a co-op or a company who come together to plan a project and get involved at that level.
“It remains to be seen whether the Government capital will be enough to attract the investment that will be required,” he reiterated.
“Farmer involvement in potentially owning and running these plants, in the form of a co-operative or a private company, could provide an opportunity to get involved in more than the supply of feedstocks. There needs to be farmer involvement at all levels and key to farmer involvement is that they get paid adequately for what they produce. There is a concern that capital support isn’t the best mechanism to fund that, given that there’s an ongoing feedstock requirement at these plants and that feeding requirement, from a cost perspective, is considerably greater than the current price paid for gas. There’s a bit to go yet in terms of understanding how the various obligation schemes that are going to be placed on the fossil-fuel market will work, what level of ambition those schemes will have and then how that can translate back into paying farmers for their feedstocks, or indeed for farmers who want to get involved and invest money in the sector.”

Competitiveness

Discussing the competitiveness of supplying slurry or grass to biodigesters, Seán said: “There will be opportunities in certain parts of the country for farmers, but in other parts of the country, land competition is greater, so that would pose bigger challenges The big thing about the price is that it fluctuates, depending on the input cost and a mechanism needs to be developed whereby some form of benchmark pricing is published on a regular basis and that is potentially used as the basis for the price that farmers are paid. But the mechanism for that is not clear. "If farmers aren’t adequately paid, then there’s going to be a challenge around getting the feedstock. The reality is that it’s going to be more economically viable to put that tonne of dry matter into a dairy cow and produce milk than if put into a sheep or a beef animal, given the market returns that are currently there. There’s quite a bit to be worked out here from the perspective of how we ensure that farmers are paid adequately for what they produce because without farmers the industry won’t develop.”

Continuity of supply

“Biogas plants will require some form of medium- to long-term contracting. So how do you balance that with the potential fluctuations in the price of feedstocks. That’s something that needs to be assessed. We very strongly highlighted during our engagements with Government and other stakeholders that there would be some form of feed-in tariff and that feed-in tariff could fluctuate based on fluctuations in the feedstock pricing.
“With the capital grant, you get a once-off support. Then you must fend for yourself. This goes back to my first comment on whether that will be enough to encourage people to invest in this industry. It remains to be seen. There is no other industry across Europe that has used capital grants to encourage the development of a biomethane industry. They’ve all had some form of ongoing operational support.” He said it was disappointing that this approach is not being considered, explored or referenced in the strategy.
“Ongoing operational support has been the funding mechanism of choice used in many developing and established European biomethane markets including Denmark, which is broadly lauded as a best-practice example.
“Coming back to the feedstock question, if you have ongoing operational support, there can be inbuilt mechanisms which allow fluctuations and flexibilities around feedstock pricing. As a result, you have some flexibility in what you can pay, because your guarantee is around the gas price. If the gas price fluctuates up and down your support could fluctuate up and down. But the Government is very reluctant to get involved in a scheme like that, considering the volumes of funding required.
“However, that funding could be spread over a 15-year period. Whereas if you invest to develop the sector, that’s all front-loaded towards building the facilities. We have a long way to go in terms of how this rolls out.”

Renewable heat obligation

The strategy commits to the introduction of a renewable heat obligation (RHO) in the heat sector in 2024 which will incentivise suppliers of fossil fuels used for heat, to ensure a proportion of the energy they supply is renewable. Until the details of this obligation are finalised it is not possible to determine if it will constitute an adequate market stimulant, said Seán.
“They’re talking about an RHO, which means that fossil gas would include a percentage of biogas within the gas blend. That would drive a market for biogas and would also drive a viable price for biogas and that’s the scheme currently in development. For an RHO to work, it has to be ambitious. It must obligate a large percentage of the market. There’s no good in having a scheme where the threshold is low. You need to have an ambition to get to a high percentage rate by 2030 or 2035. As a result, you’ll need significant volumes of biogas that can be put directly into the grid or into fossil gas. The renewable obligation certificates created by the gas can be used to offset the renewable gas obligation.
“We currently see that in the transport sector where there is an obligation scheme on liquid fuels. That provides a mechanism by which the biogas industry could be funded and provide a base in terms of the market for biogas and biomethane. It ultimately will depend on the design of that scheme and the design hasn’t been published yet, though it has been referred to in the strategy. It is up to promoters and developers to look at their economics and figure out whether this cap-and-support is a mechanism that they can avail of to build a facility and then have the ability to pay enough for feedstocks to provide farmers with the returns that they require to make a margin.”