The power of biogas: Maneuvering increased competition for feedstock

The EU has set an annual biomethane production ambition of 35 billion cubic metres (bcm) by 2030. In alignment with this, the European Biogas Association expects a flow of EUR 27 billion into the biomethane sector by 2030 via private investments. The growth in biogas and biomethane production will, inevitably, put pressure on the feedstock supply chain, and in parallel, we will see a significant impact on the economics from regional and national developments in regulations and incentives.

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The two core drivers behind the increase in biogases, in addition to emissions reductions, are the maturity of the technologies involved and the potential utilization of existing natural gas infrastructure. Other benefits include the contribution to building a circular economy around residue and waste, and the positive influx towards rural economies. During 2022, the energy crisis created an increased focus on the value of biomethane as an energy source that could help enhance energy security.

In 2020, the International Energy Agency (IEA) reported that biogases (biogas and biomethane) accounted for only a 0.3% share of total primary energy. However, it is expected that biogases will play a key role in GHG emissions and net-zero ambitions towards 2050.

The EU’s biomethane production target is expected to drive the demand for feedstock upward 

Although the feasibility of the EU’s 35 bcm goal by 2030 is debated, other (adopted and planned) EU policies aim to directly and indirectly incentivize biogas production. Examples are the Renewable Energy Directive , EU Decarbonised Gas and Hydrogen Market Package, aiming to ensure that renewable gases have non-discriminatory access to gas infrastructure, or the updated EU Nitrates Directive. Few countries, such as the Netherlands, Germany, France, Austria and Portugal, have launched (or are considering) specific targets for produced volumes but there has been an increase in incentives for biomethane that is expected to help drive the build-out of biomethane production plants. 

The demand side is expected to be driven by the phase out of free emission rights and expected increase in ETS CO₂ prices. In addition, the implementation of ReFUEL EU Maritime or other national blending mandates will start to force shipping companies to switch to renewable fuels. In both cases, using biomethane is likely to be one of the most economically advantageous solutions.

According to the European Biogas Association’s Biomethane Investment Outlook, 950 biomethane plants will enter into operation in the next five years in Europe, with the top countries being Denmark, Poland and Italy . In the Nordic countries, large biomethane plants are being developed using traditional feedstocks like manure and waste from the industrial, agricultural and forestry sectors. More exotic residues from the fish farming industry in Norway are also driving momentum in the country and region. Furthermore, the implementation of REDIII, which has a stronger focus on sustainability criteria and phasing out of food and feed crop usage, is expected to increase demand for RED-eligible feedstocks even further, especially in Germany. 

Competition for feedstock

Despite strong positive signals, the ramp up of biomethane production in Europe will have to deal with one main issue with waste-based feedstocks, which is the inelasticity of supply. In this setting, the inelasticity of supply refers to the fact that if demand increases for a waste-based feedstock, supply is not increasing (more waste is not produced to respond to increased demand). This can lead to rapid price increases for certain biomass feedstocks. 

For a biomethane installation in Europe, competition for feedstock may be both local and regional, depending on what feedstock mix is being used, and what the inherent qualities of this feedstock mix is. The competitive situation for a feedstock depends on the relationship between the cost of transport and the yield of the feedstock. The yield relates to how much biomethane is produced per unit of feedstock. 

For low yield feedstocks, e.g. feedstock that produces a small amount of biomethane per unit, competition is typically hedged by the cost of transport. A common example of this is cow manure, which is often sourced by smaller local or regional farmers in close proximity to the biogas plants. These installations typically have limited geographical sourcing options due to the cost of transporting the feedstock to the plant, as well as the cost of transporting the digestate back. Competition for this manure is therefore naturally limited, and no new biogas plants would be built locally without additional feedstock manure available. 

For high yield feedstocks, e.g. feedstock that produces larger amounts of biomethane per unit, the transport cost is less of a limitation. These feedstocks are typically traded as commodities, serving the highest paying bidder, and taking the transport cost into account. Global examples include glycerine and residue cooking oils. In Norway, the more common example is category 2 fish silage, a waste product from the aquaculture industry. Category 2 fish silage is sick or dead fish that is sourced from fish farms along the coast of Norway and transported to biogas/biomethane producers domestically and to Denmark by ship. If the demand for fish silage should increase, the supply will not increase as a reaction to this, as it would always be more beneficial to the fish farmers to sell the fresh fish rather than the silage. 

Vast feedstock availability despite competition

One of the inherent benefits of biogas and biomethane production is the flexibility in use of feedstock, allowing operators to pivot if prices or supply of certain feedstocks fluctuate. A strong biogas or biomethane business case will depend on the capability of the operator to identify and secure diversified feedstock in the short, medium and long term to manage feedstock price and availability fluctuations. In addition, the commercial capability of sourcing feedstock is connected to the technical capabilities of operating assets with varied feedstock mixes and controlling the digestion process to optimize production . 

Financiers looking to back biogas and biomethane assets should be keenly aware of these features and understand the nuances of both the technical constraints and feedstock market characteristics. Although increasing competition for feedstock is expected, the consensus is that there is still a vast availability of feedstock to produce renewable biogases in Europe - tapping into these resources will be a key contributor in meeting the EU’s 2030 GHG reduction target, while simultaneously enhancing European energy security. 

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Join us to dive deeper into the power of biogas and its role in the energy mix

📅 Join us in Oslo or via live stream on 27 February for DNV’s Financing the Energy Transition event. Together with industry leaders, we’ll examine how to truly unlock the potential of biogas and utilize feedstock in the production of renewable gases as part of supporting the energy transition.
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2/20/2025 8:30:00 AM