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Irish Energy Sector Update: Ireland’s National Biomethane Strategy 2024

Posted on by darion

What is biomethane?

Biomethane is an improved form of biogas. Biogas is produced from the anaerobic fermentation of organic materials such as food waste, sewage sludge and agricultural raw materials. This process uses an anaerobic digester (“AD”). The biogas can then be upgraded to biomethane by removing impurities, resulting in a high-quality renewable gas that can be exported to the national gas grid.

Why is biomethane important?

The Irish energy industry currently relies heavily on imported fossil gas, and in 2023 around 75% of Ireland’s gas consumption will be imported from the UK. Biomethane, a renewable alternative, holds great promise as a direct substitute for fossil gas, especially for difficult-to-decarbonize-limited sectors such as heavy transportation, high-temperature industrial processes, and the built environment. Biomethane can make a significant contribution to achieving our renewable energy targets and increase security of supply. Despite Ireland’s strong potential to develop a domestic biomethane industry from a reliable supply of agricultural raw materials, the industry is still in its infancy, with only two operational AD power stations currently injecting biomethane into the national gas network.

What is the aim of the biomethane strategy in Ireland?

The primary goal of the Strategy is to achieve the biomethane production target set by the Government for 2030 at a level of up to 5.7 TWh per year. It will achieve this by implementing a total of twenty-five actions, ranging from new support measures to policy enablers. The four key elements of the Strategy, discussed below, are the sector’s implementation approach, sustainability, financial support and policy enablers.

1. A dual approach to the use of the biomethane sector

The strategy sets out a dual approach of ‘economic implementation’ and ‘wide scale implementation’ for the implementation of the Irish biomethane industry.

  • Economic implementation, which provides for the development of a smaller number of larger AD power plants (with an average size of 40 GWh) feeding gas directly into the national gas network, is seen as the most economical and profitable way to develop the biomethane industry. Larger AD plants benefit from economies of scale, lower off-take prices and require less infrastructure.
  • If widespread implementation occurs, numerous smaller agricultural-scale AD plants are being built. Most of these plants will have to transport biomethane to centralized gas injection facilities. This element engages rural communities and farmers directly in the biomethane industry, supporting the strategy’s aim to lead agriculture and focus on farmers.

2. Sustainability

Promoting a sustainable biomethane industry is a key element of the Strategy and covers a number of elements, including:

  • Sustainability Charter: A Biomethane Sustainability Charter will be established to apply to all biomethane projects that receive government support or operate under the Renewable Heat Obligation or ‘RHO’ (discussed below). This charter will outline key sustainability requirements for industry participants;
  • Regulatory Compliance: For biomethane from an AD plant to be classified as a zero carbon fuel, compliance with the stringent sustainability criteria of the Renewable Energy Directives (“RED”) II and RED III must be met. Communicating information about sustainability requirements to potential developers will be a key part of the communications planned as part of the strategy. An online information hub will also be established to share information, guidance and best practices on sustainability. Methane leakage best practice guidelines for the biomethane sector will also be assessed;
  • Ensuring a sustainable life cycle: The strategy focuses on the importance of sustainability in the life cycle of biomethane production, both in terms of the raw materials used and the sustainable management of digestate waste. The task of the Biomethane Implementation Group will be to support sustainable development in both areas; AND
  • Renewable Certification: The Strategy highlights the continued development of regulatory arrangements for the issuance of Guarantees of Origin (GO) for renewable gas, which disclose the origin of renewable gas to the end consumer. Moreover, there is a need to introduce a mechanism for certification of biomethane not injected into the national gas network. The implementation of these arrangements is important, particularly in the context of entering into gas purchase agreements with corporate customers (“GPA”) who seek guarantees of origin to achieve sustainability goals. With growing business demand for renewable gas in Ireland, GPAs are likely to be an important “route to market” for AD developers.

3. Financial support mechanisms

The strategy identifies a capital subsidy fund and the obligation to use heat from renewable sources (“RHO”) as optimal support measures to stimulate the immediate development of the biomethane industry and achieve the production target of 5.7 TWh by 2030. In particular, permanent price support in the form of no tariff selected guaranteed, which was successful in other EU countries (e.g. Germany), due to the long implementation process which would not be in line with the government’s 2030 target.

  • Equity grant support: An initial €40 million equity grant fund for early stage investments is expected to be launched this year. These grants are intended to help developers with the significant capital investment costs associated with AD projects. Further details will be expected in the coming weeks, however the strategy states that new AD projects must have full planning permission and permits to be eligible for the initial grant. Given the current timeline for construction permits and permitting requirements, it is possible that only a few AD projects will be eligible for grants when they are launched later this year. Operating AD plants wishing to upgrade their facilities to produce biomethane will also be eligible to apply for capital grants. A second round of financing in the form of equity grants will be introduced from 2026.
  • Renewable Energy Obligation: The RHO will be introduced by the end of 2024. The RHO will require suppliers of fossil fuels used to produce heat to ensure that part of the energy they supply comes from renewable sources, thereby increasing demand for biomethane in Ireland. A key challenge in implementing RHO will be determining the appropriate annual obligation rate. The stake must be high enough to increase demand for biomethane and incentivize development, but also accurately reflect the available supply of biomethane. The strategy recognizes this challenge and includes a gradual increase in the obligation rate to allow time for the market to develop appropriately.

The introduction of these supports is a welcome development. However, the strategy provides little detail on the mechanisms underpinning this support. Industry stakeholders will welcome further information and it remains to be seen whether this support becomes a significant enabler of biomethane projects in Ireland, as observed by our colleagues at Addleshaw Goddard in Germany, where feed-in tariffs significantly boosted the German biomethane sector several years ago.

4. Policy enablers

The strategy recognizes the need to improve the development process of the biomethane sector and the important role of non-financial policy and regulatory factors in this process. Developing an AD project typically requires a number of approvals from various agencies. These include a planning and waste permit from your local authority or an industrial emissions license from the Environment Agency, depending on the size of the project. Inconsistent decision-making on planning applications and delays in permitting have been a problem in the biomethane sector to date. Providing relevant state agencies with adequate resources in terms of capacity and expertise is critical to making timely and appropriate decisions on applications. This was considered a key priority in the Strategy, especially in the context of achieving the 2030 goal.

Interestingly, the Strategy indicates that the high financial costs of connections to the gas network will also be reviewed. Developers wishing to connect their facility to the national gas network must currently pay a financial deposit of up to 70% of the connection fee. Furthermore, in view of the increasing network development demands expected from Gas Networks Ireland in the coming years, the strategy proposes to review the status of contested connection works that may be undertaken by AD developers. This shift towards allowing developers to make a significant portion of calls could minimize network latency and potentially reduce call costs, so this will be an interesting development to watch.

Application

Given the growth potential of the biomethane industry in Ireland and the Government’s rapidly approaching 2030 target, the strategy is a welcome first step towards developing an indigenous biomethane industry that would reduce dependence on imported fossil gas. The announcement of financial support proposals and the recognition of the need to streamline the development process are welcomed. However, industry stakeholders will want to see further details on support mechanisms and the rapid implementation of policy changes in key areas of the development process, namely planning, permitting and network connections, to instill confidence and hopefully deliver significant scale into the sector.