Biomethane: Europe’s next step in sustainable gas?

Biomethane has a huge role as a sustainable energy vector for the future of Europe, with its potential to integrate into existing infrastructure, and its promising potential in diversifying energy sources and reducing greenhouse gas emissions. We examine the European Union's strategic initiatives and policy frameworks and zoom in on Italy's dynamic market and regulatory landscape.  

inspiratia insights:

• Biomethane easily integrates with existing natural gas infrastructure, offering a sustainable energy alternative
• The EU's REPowerEU plan highlights a commitment to scaling up biomethane production
• Italy demonstrates significant market growth and supportive policies in biomethane development

Understanding biomethane

Biomethane represents a sustainable and versatile form of renewable energy, produced through the anaerobic digestion or gasification of organic matter such as agricultural waste, sewage, and food waste. Biomethane is a purified variant of biogas, removing CO₂, water vapour, and other impurities, meaning that it can be utilised in a very similar way to natural gas. This allows it to be seamlessly integrated into existing natural gas infrastructures, including pipelines and gas grids, facilitating its use in heating, electricity generation, and as a vehicle fuel.

The production and utilisation of biomethane hold substantial promise for contributing to energy diversification, reducing greenhouse gas emissions, and enhancing energy security. Its ability to leverage existing gas infrastructure negates the need for substantial new investments in distribution networks, a significant advantage over some other renewable energy sources.

EU policy

The European Union's approach to biomethane is deeply intertwined with its broader energy and climate objectives. Notably, The EU's strategic focus on biomethane is outlined in the REPowerEU plan, which sets an ambitious target to scale up biomethane production to 35 billion cubic meters per year by 2030. Over the same period, it predicts that a total investment of €37 billion (£31.7bn $40.1bn) is needed in this sector. This plan underscores the EU's recognition of biomethane as a critical component in the renewable energy mix.

To realise these objectives, the EU has initiated several key actions. These include expanding the production of biogas for upgrading into biomethane and promoting the production of biomethane from waste and residues. The revised Renewable Energy Directive broadens the scope of biomethane use, covering all applications beyond transportation. Moreover, the upcoming implementation of the Waste Framework Directive, which mandates separate collection of organic waste across EU countries, is poised to significantly enhance the production of sustainable biomethane.

At the national level, several EU member states are advancing their biomethane strategies, aligning with the EU's overarching goals. Germany, a leader in the European biomethane market, reached a feed-in volume of 9847GWh in 2020. The country's biomethane sector, predominantly focused on electricity generation, is diversifying towards transportation fuel.

In the Nordic countries, particularly Sweden, policies have been geared towards utilising biomethane mainly in the transport sector, driven by a tax exemption support system.

The Biomethane Industrial Partnership, a coalition of the European Commission, EU member states, and industry actors, exemplifies the collaborative efforts to meet the EU's biomethane targets. This partnership involves various task forces, each addressing specific aspects of enhancing biomethane production and consumption.

The efforts in the EU and at the national levels reflect a concerted approach to harnessing the potential of biomethane. This involves not only advancing technological solutions and infrastructure but also fostering regulatory frameworks and financial instruments conducive to the growth of the biomethane sector. As EU member states continue to refine their strategies and policies, the biomethane market is expected to play an increasingly prominent role in Europe's renewable energy landscape.

Biomethane in Italy – policy focus

On 14 November 2022, a ministerial decree aimed at promoting biomethane production came with a €1.7 billion pot of incentives, including capital grants covering up to 40% of eligible investment costs and differentiated tariffs for net biomethane production. Financed by the National Recovery and Resilience Plan, the decree aims to enhance sustainable biomethane production.

To assess how the new incentives have influenced the market, inspiratia asks Matteo Trabacchin – counsel, Francesca Angelilli – associate, and Dario Matrecano – associate at Watson Farley & Williams, based in Milan.

"Following the entry into force of the new incentive scheme for biomethane (DM 2022), we have noticed an increased market interest both in the conversion of existing biogas plants and in the production and use of biomethane in several sectors other than the transport one.

"With reference to the DM 2018, still applicable under certain conditions, we would like to point out the new application procedure (i.e., procedure applicative) issued by the Gestori Servizi Energetici on 20 December 2023 and approved by the Biofuels Technical Advisory Committee."

The trio also point out significant changes related to the certificate of sustainability and guarantees of origin, as well as modifications in the algorithms for calculating energy incentives.

"Such procedure delves into issues related to the biofuel release obligation system, on the regulations inherent in the quality of biomethane, as well as on the modalities, defined by the Regulatory Authority for Energy Networks and the Environment for the metering and release of biomethane into the natural gas grid.

To conclude, Trabacchin, Angelilli, and Matrecano stress the importance of robust and up-to-date rules for citification in biomethane production and usage.

"Other key changes according to the above-mentioned procedure concern those related to the certificate of sustainability and guarantees of origin, the certificate of release for consumption in transport, the modification of the algorithms for calculating incentives energy, and the updating of the methods for calculating the number of CICs due, together with the introduction of new types of CICs."

Italy's commitment to biomethane as a key component of its energy transition strategy is evident in its comprehensive policy framework and significant market developments. The country's focus on biomethane is part of a broader effort to reduce dependency on imported fossil fuels and enhance sustainable energy production. There have also been a number of recent significant moves from the private sector that are moving Italy closer to a biomethane transition.

Italian market

The 2023-2027 Strategic Plan by Snam, a leading Italian gas, energy, and infrastructure company, earmarks a substantial investment of €11.5 billion, with a notable allocation of €400 million dedicated to biomethane. This investment aims to boost the capacity of biomethane production to approximately 135 million cubic meters per year by 2027. Snam's strategy encompasses strengthening the interconnection of biomethane plants to the network and developing new plants, highlighting the sector's dual role in both infrastructure enhancement and energy transition.

Another notable example is the partnership between the investment firm abrdn and Blu-H Energy. This collaboration focuses on acquiring and upgrading biogas facilities to produce biomethane, aligning with the objectives of Italy's Biomethane Decree. This partnership underscores the private sector's growing interest in the biomethane sector, driven by both environmental considerations and economic opportunities.

Another strategic development in Italy's biomethane landscape is the agreement between Italgas, Italy's largest gas distributor, and the agricultural body Coldiretti. This collaboration is geared towards developing biomethane production to replace a significant portion of gas imports from Russia, emphasising the sector's relevance in enhancing energy security through the diversification of supply.

These initiatives, supported by a robust policy framework, position Italy as a leading player in Europe's biomethane market. The strategic investments by key players like Snam and abrdn, coupled with supportive government policies, are pivotal in driving the growth of the biomethane sector in Italy, making it a model for other European countries in the energy transition journey.

Looking ahead

The European biomethane market is characterised by diverse national strategies and projects and is undergoing significant expansion and evolution. As Europe steers towards a more sustainable and energy-secure future, biomethane emerges as a key player in this journey. The integration of biomethane into existing energy systems, backed by strategic EU-wide and national policies, showcases a concerted effort to embrace renewable energy sources. Italy, with its robust policy framework and significant market developments, exemplifies this commitment, setting a precedent for other countries in the renewable energy sector. The evolution of the biomethane market in Europe, while not without challenges, marks a significant stride towards achieving energy diversification, sustainability, and climate goals.