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In the quest for industrial decarbonization, every lever should be explored for its potential to move the needle. Biogas is an emerging lever and is considered a critical success factor in the race to Net Zero. Biogas and other green gases have multiple advantages, the most prominent being their capacity to serve as a sustainable, renewable alternative to fossil fuels that help abate greenhouse gas (GHG) emissions in multiple industries, across the entire value chain.
Food and beverage (F&B) companies, for instance, can valorize their own organic waste by using it as a biomass feedstock for generating biogas to complement the electrification of their operations, with the potential to commercialize excess production. They can also integrate the waste of their ecosystem into the supply of biomass and decarbonize their Scope 3 emissions. And with first-generation technologies reaching maturity, these biogases are becoming increasingly cost-competitive even for non-F&B organizations.
Biomethane production is set to grow exponentially by 2050, supporting the energy transition. Underlining the importance of biomethane, the EU has set a target of 35 billion cubic meters (bcm) per year by 2030, with estimated investment needs of €37B, as part of its REPowerEU plan.
This investment, originally spurred by the Russian invasion of Ukraine, which constrained European gas supplies, is part of the EU’s effort to make biomethane one of the main renewable gases of the future. Transitioning to a balanced energy system through an alliance of molecules and electrons will relieve the pressure on the electricity system – investments in electricity infrastructure and grids are expected to skyrocket to €584B by 2030 in Europe alone – and can replace electricity for applications where electrification does not suffice, such as for high-temperature heat.
Despite its promising potential, uncertainty looms over the biomethane landscape, particularly concerning available volumes and market mechanisms. Biomethane production will have to scale up to meet ever-increasing demand, while the evolving nature of regulatory frameworks, certification schemes and their recognition by governing entities add another layer of complexity. For instance, it is unclear whether market-based mechanisms (tradable certificates, Guarantees of Origin, etc.) will be considered “green” under widespread decarbonization standards like the GHG Protocol and SBTi (Science-Based Target initiative).
Yet amidst this uncertainty lies an excellent opportunity for F&B companies to leverage their biowaste for biomethane production, by partnering with experienced biomethane producers. Multiple benefits are associated with such a circular valorization of one's own biowaste, including securing priority access to biomethane volumes in a constrained market, reducing the cost of green energy, fostering energy independence, building a better business case with lower feedstock costs, and the potential to capture biogenic CO2. And should a company include the farmer or even the fertilizer used to grow their crops within their virtuous circle, it will also benefit from Scope 3 emissions reduction and better integration within their environment. Indeed, the output of the biomethane production process – the digestate – can be used as organic fertilizer and replace carbon-intensive mineral fertilizers.
There are two types of waste valorization projects to consider: onsite biogas production and delivery of feedstock to an offsite digester hub.
Illustrating the feasibility of biowaste valorization, a major, forward-thinking F&B company with an ambitious 2030 Net Zero target across its entire portfolio of production sites carved out a pathway to better utilize its abundant process biowaste.
The corporation first launched a program to repurpose copious quantities of biowaste as fertilizer for local farmers. It then initiated a program to separate the nutrients from its biowaste to be valorized as food for human and animal consumption, using the remaining waste as feedstock to produce biogas on-site.
For certain sites, on-site biogas production feeding a biogas boiler is estimated to be the most cost-effective option to complement heat pumps and achieve 100% green thermal energy for production sites. In parallel with their on-site usage, this F&B giant is exploring opportunities to deliver biowaste to a biodigester hub that collects feedstock from various sources. It is also considering how to valorize its biogas either via certificates for the decarbonization of sites where biogas production is not a viable option, or for Scope 3 reduction initiatives for its suppliers.
For companies considering the biomethane production opportunity, several considerations must be kept in mind. At the top of the list is obtaining the right type of sustainable feedstock. Biomethane is “green” according to the Renewable Energy Directive (RED) and EU Taxonomy, provided that the feedstock is sustainably sourced. There are currently three requirements for feedstock to be considered sustainable:
Companies should keep in mind, however, that the definition of “sustainable” or the ability to use bioenergy might change over time.
Another critical requirement for biomethane feedstock production is that it should avoid competition with the food supply chain for resources (land, water, etc.), by ensuring the feedstocks are composed of waste or byproducts.
Feedstock variety is another point of attention. Biomethane producers should ensure their feedstock has sufficient variety and methanogen value for the biodigester. If not, they will need to find complementary sources of biowaste. F&B players should either be able to leverage their network of suppliers to obtain those complementary sources or call on other biowaste generators nearby.
Before joining a biomethane production system, companies must ensure it is cost-effective. They should consider how valorizing their own biowaste can help reduce biomethane sourcing costs as compared to purchasing biomethane on the spot market. The price is currently in the range of €80-140/MWh for a biomethane purchase agreement (BPA), depending on the volume and type of feedstock that the F&B company can provide at no cost.
Companies should also assess the cost-competitiveness of biomethane compared to other decarbonization levers. As a decarbonization plan for an industrial site typically involves a range of complementary solutions, it is important to take a holistic approach to define the cost-optimal mix of those solutions, considering the total cost of ownership as a financial metric.
Given that a company may valorize its biowaste either with onsite biomethane production or at a nearby production facility, it should value its feedstock with these options in mind. A key component of this calculation is that, as a supplier of feedstock to biomethane developers, companies should have the opportunity to negotiate a better price for the biomethane produced from it and secure their required volumes. The question is whether there are innovative businesses converting waste into renewable energy close to your site. And if so, is that financially preferable to converting your feedstock on-site?
Scale – The average size of a commercial biodigester in France is 20 GWh of production. This differs from country to country, but the larger the scale, the better the business case will be. For offsite production, we recommend at least 50 GWh to start developing economies of scale and improving the project's financial viability. Do you have enough feedstock to supply those quantities, and do you have sufficient demand for biomethane or the potential to sell the excess to justify a standalone digester?
Transport – If the biodigester is not on-site, does the business case confirm that transporting one’s feedstock elsewhere is economically viable? As a rule of thumb, the maximum distance between the feedstock storage site and biodigester should be no more than 40-50 km (25-31 miles)
BPA – If the biowaste volume is insufficient for a viable biomethane production project, connect with developers who can integrate feedstock from various local sources and deliver a BPA.
Keeping a close eye on the evolving green gas market mechanisms is imperative. Because the bioenergy industry is still working through its growing pains, it is advisable to reduce sourcing risks by securing your supply early on. If you are producing, explore opportunities to sell your surplus biomethane to the market in the form of certificates.
We expect the biomethane certification scheme to mature through the creation of a single European market for green gas certificates, with convergence of national registries, much like what is now in place for green electricity certificates. We also expect to see clarification in 2024/2025 about what qualifies as a “green gas certificate” under the Greenhouse Gas Protocol, enabling it to be used to meet SBTi targets.
The maturation of biomethane certification will create opportunities for developing off-site projects and optimizing biomethane sourcing across an entire portfolio of sites – such as converting a biomethane surplus into certificates that can be used to offset other sites or sold to other players.
We expect that as markets mature, demand for biomethane will increase significantly, but supply may not be able to follow. Being an early mover by securing a position now will mitigate the sourcing risks.
Even if the business case looks sound and the market is promising, it can be challenging to get a biomethane project off the ground. Engaging with the right energy transformation company is crucial for navigating the technical and financial hurdles of biomethane production. F&B companies will have to identify an experienced technical partner with sufficient resources to support the project from start to finish – from the feasibility studies to construction, operation, and maintenance of the biodigester. Some technical partners can also provide financing in the form of service contracts.
Given the current momentum in the bioenergy sector and the urgency to decarbonize, there is no reason to delay your biomethane journey, particularly if biowaste is part of your operational process, like F&B companies. Not only is biomethane an excellent opportunity to move the decarbonization needle, but it also enables companies to valorize their biowaste, gives them a hedge against sourcing risks in a tight biomethane market, and demonstrates sector leadership, differentiating a company from its competitors.
Even for those with insufficient feedstock or a less-than-competitive business case, biomethane still offers a decarbonization solution. Procuring biomethane on the market through certificates for smaller volumes or BPAs for larger volumes is a viable option. Engaging with experienced partners can provide the necessary insights to kickstart this transformative journey. Embrace the biomethane revolution today and set your company apart in the race toward a greener future.
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