Fuelling the Future: Ireland’s National Biomethane Strategy

The Irish Government took another step in its bid to create a domestic biomethane sector with the publication of the National Biomethane Strategy.

The Government has committed to the ambitious target of delivering up to 5.7 TWh per annum of locally produced biomethane by 2030. Existing biomethane activities in Ireland are relatively small and will need to scale up quickly to achieve this target. The Strategy sets out the Government’s vision of how biomethane will be produced and used in Ireland, as well as the policy developments required to enable the growth of the industry at scale. Twenty-five actions are set out in the Strategy to be delivered in the coming years to enable the development of the sector, under five key pillars.

We consider some of the key issues associated with scaling the biomethane industry in Ireland and how the Strategy addresses them.

Biomethane in Ireland

Biogas is produced as the main product of the anaerobic digestion (AD) of biological feedstocks, including food waste, sewage and agricultural feedstocks (including manures and grass silage). Biogas is generally comprised of 60% of methane and 40% of carbon dioxide. When biogas is upgraded to methane with purity greater than 97% it is then considered biomethane. Biomethane is generally compatible for use in Ireland’s national gas network and therefore represents a sustainable alternative to natural gas. In particular, biomethane offers a great opportunity to replace the use of natural gas to reduce emissions in heating, transport and power generation.

Although biomethane is produced at scale across Europe, the volume of biomethane injected into the Irish grid is fairly small, equating to approximately 75 GWh per annum (0.001% of Ireland’s current gas demand). The size of the industry is due in part to its economic competitiveness compared to natural gas. The draft Strategy noted that currently the average total cost of using natural gas is €70/MWh. The cost of producing biomethane ranges between €120/MWh and €220/MWh depending on the scale and number of plants.

Accelerating the industry via the Renewable Heat Obligation and capital grants

The Government envisions that a number of large AD plants (around 40 GWh or similar scale) will be developed. It is expected that these plants will be connected to the gas network. These larger plants will be supported by a number of smaller (10 – 20 GWh) farm scale plants which will likely transport biomethane to gas injection facilities or end users via truck.

It is important that Government creates an environment for demand of biomethane and a sector that can deliver it. The Government believes the production and use of biomethane will be increased via the Renewable Heat Obligation Scheme (“RHO”) and the availability of capital grants for the development of AD infrastructure. This compares to other European jurisdictions who have introduced Feed-in-Tariffs to support their biomethane industries.

Renewable Heat Obligation Scheme

To support the decarbonisation of the heat sector, the Government has agreed to introduce a finalised RHO by the end of 2024. The RHO will require suppliers of fossil fuels (including oil, liquid petroleum gas (LPG), natural gas, coal and peat) used for heat to ensure a proportion of the energy they supply is renewable. Many of these suppliers are already required to take energy efficiency measures under the Energy Efficiency Obligation Scheme. The RHO would socialise the cost of the supply of renewable heating fuels across all consumers of fossil fuels in the heat sector. Under current proposals, the RHO would recognise biomethane as an eligible renewable fuel.

Based on current proposals, the RHO will be introduced on a phased basis with the suppliers of a 1,000 GWh of fossil fuel used for heat obligated to demonstrate, initially, that 2% of the energy they have supplied is from a renewable source over an initial 3-year period. From year 4, annual rate increases up to a final target level of 10% by 2030 are proposed. The phased approach recognises that the availability of biomethane (and their feedstocks) will need time to be develop.

EU Emissions Trading Scheme

Another interesting avenue of biomethane demand is the link to the EU Emissions Trading Scheme (“EU ETS”). EU ETS installations that procure biomethane for their gas demand do not have to purchase EU ETS allowances to cover that gas consumption, to the extent that the biomethane qualifies as a zero-carbon rated fuel. With ETS allowance prices in the region of €70-€90 per tonne in 2023, this is potentially an economic incentive for these installations to switch to biomethane.

Other routes to market

There will also likely be demand for biomethane in the transport sector under the Renewable Transport Fuel Obligation under the Energy (Biofuel Obligation and Miscellaneous Provisions) Act 2010 and from corporates via Corporate Gas Purchase Agreements. There could also be a role for Gas Networks Ireland (“GNI”) in purchasing domestically produced biomethane to meet its own gas needs.

Capital grants

Developing AD plants is an expensive undertaking. The Strategy seeks to stimulate the growth of biomethane infrastructure by introducing a capital grant scheme. The Department of Agriculture, Food and the Marine (“DAFM”) is set to receive funding of €40 million intended to support a portion of the costs of the initial development (up to 1 TWh) of biomethane in Ireland via capital grants. The Strategy envisions that, along with new AD plants with full planning and permitting permissions, AD plants currently producing biogas will be eligible for capital support to upgrade their facilities to produce biomethane and other biobased products. While all sustainable feedstocks will be eligible to apply for this initial capital funding, a key aim of the initial grant support will be to develop agri-led AD plants.

Comprehensive details on the provision of funding are not included in the Strategy. Further details on the requirements will be set out when the competitive call for funding is announced in the coming weeks.

Ensuring sustainability of biomethane

Ensuring the environmental sustainability of the plants and their processes is a key issue. The Strategy recognises the importance of this. For biomethane from AD plants to be classified as a zero-carbon renewable fuel, plants must be able to satisfy the sustainability criteria set out in the EU Renewable Energy Directive. Other sustainability measures include the introduction of a Biomethane Sustainability Charter. The Charter will apply to all biomethane projects being developed in Ireland in receipt of any form of support or operating under the RHO. The Charter is expected to include issues covered by the EU Renewable Energy Directive, as well as land use, water quality, methane leakage, biodiversity, fertiliser use, carbon sequestration, and any other life-cycle sustainability issues to the extent that they are not addressed in the Directive.

The Strategy recognises the ongoing development of a framework for Guarantees of Origin for renewable gases and notes that a certification scheme or guidance regarding the sustainability of biomethane that is not injected into the gas network will also need to be developed. Corporates seeking to purchase biomethane under Corporate Gas Purchase Agreements will require assurances as to the sustainability of such biomethane and its compliance with applicable laws and rules. This is particularly relevant to corporates in the data centre industry who may procure biomethane as part of their operations.

Delivery of AD infrastructure

Consenting

The Strategy recognises AD plants and related infrastructure will be subject to various consents, including planning permissions, licences and permits approved by DAFM, the Environmental Protection Agency, Local Authority or An Bord Pleanála (as applicable). These bodies will need adequate resources to manage the increased workflow associated with AD plants to achieve the biomethane target (as well as other renewable and infrastructure targets) in an accelerated timeframe. The planning process presents particular challenges, including lengthy timelines for decisions. Although AD plants are a well-established technology in other jurisdictions, they are a relatively new technology in Ireland. The Strategy recognises that increased awareness of AD technology would improve understanding and consistency of approach by planning authorities to assessing proposed AD developments. The development of guidelines to support local authorities when assessing AD and biorefinery planning applications is one of the actions set out under the Strategy.

Connection policy

It is likely that many of the larger AD plants will be directly connected to the gas network. Connection of the biomethane infrastructure to the gas network in a prompt, efficient and cost effective manner is a key issue. The Strategy notes that the cost of connecting AD plants to the grid in Ireland is around 2 – 3 times more expensive than other neighbouring countries. This cost obviously has a knock on effect on a developer’s offer price for their biomethane to end users.

Under existing connection policy, a customer contributes 30% of the estimated costs for the connection and a supplemental “economic test” contribution to provide for any shortfall in the capital costs of the connection not recovered through attributable tariff payments. There is also a requirement for customers to have a financial bond in place for the other 70% of the estimated connection costs (which increases the costs for developers). Pursuant to the Strategy, the cost policy and financial bonding requirements will be reviewed by the Biomethane Implementation Group, in conjunction with GNI and the Commission of Regulation for Utilities (“CRU”).

To reduce grid connection delays, the Strategy also commits GNI and the CRU to review the status of contestable works eligible to be carried out by AD developers. Increasing the ability of the developer to carry out certain works has the potential to significantly reduce delays and costs. The outcome of these reviews will be greatly anticipated.

Conclusion

The Strategy sets out a first comprehensive policy statement on the development of a biomethane industry in Ireland. The success of the industry will depend largely on the ability of all stakeholders to deliver on the key actions set out in the Strategy in an accelerated manner (whilst at the same time pursuing other renewable targets in other sectors). There is a huge opportunity for Ireland with respect to biomethane to achieve climate ambitions, particularly reducing emissions in the agricultural sector. We expect industry will be keeping a close eye on measures and details flowing from the Strategy in the near future.

Please get in touch with any member of our expert team for further information.