Understanding the biomethane market in Europe

Biomethane, a refined form of biogas, has many advantages. Identical in chemical composition to fossil methane, it can be transported using existing infrastructure and does not require any technical changes for its use. It can also be produced and consumed sustainably, adding no CO2 into the atmosphere.

The EU currently produces enough biomethane to satisfy around 6% of its total natural gas consumption. According to the REPowerEU plan, the block aims to increase annual production to over 350 TWh by 2030 to meet its emission reduction targets. To get there, the European market needs to develop faster.

Biomethane production in Europe

“Three main factors determine biomethane production,” says Hugo Malfit, Senior Originator at Ecohz. “It depends on the availability of feedstocks, legislative support, and the share of biogas that is refined into biomethane.”

Not all the biogas produced in Europe is upgraded, or refined, into biomethane (to watch a 30-minute webinar on how biomethane is produced and used, click here). However, that share is increasing. Biogas production in the continent grew by about 10% between 2016 and 2023. During the same period, the volume of refined biomethane in the market is projected to triple, reaching close to 50 TWh.

Combined biomethane and biogas production in Europe (TWh)​ until 2022. Production is estimated to reach close to 50 TWh in 2023. Source: EBA

Capacity expansion is underway. In 2023, there were almost 20,000 biogas plants and almost 1,400 biomethane plants in Europe. Denmark, one of the continent’s top 5 producers, already satisfies 40% of its domestic gas demand – and as much as two thirds during the summer months – with biomethane and aims to reach 100% by 2030. Other top producers are Germany, France, the UK, the Netherlands, and Italy.

Although natural gas prices have softened, some uncertainty has remained in the biomethane space, compelling buyers to enter long-term agreements. Meanwhile, demand has remained strong and more certified volumes are entering the market. “There is a lot of growth in the pipeline. The market needs more supportive policies to get it off the ground,” Hugo adds.

Towards a harmonised European biomethane market

Like electricity, biomethane Guarantees of Origin (GOs) certify the renewable quality of gas. However, unlike the power system, there is not yet a harmonised European biomethane market that allows for the free transfer of Guarantees of Origin (GOs) and the Proof of Sustainability (POS), a certification by an independent third-party of the sustainability characteristics of biomethane.

Most countries have their own registries, where GOs are issued. But not all of them are connected in a way that allows for cross-border transfers. Yet, the Association of Issuing Bodies (AIB), the organisation for government-appointed GO issuers for electricity and gas in Europe, which oversees the system for electricity GOs, expects to have ten countries as gas members.

The latest version of the EU Renewable Energy Directive (RED III) also pushes for greater unification and growth. It sets higher national targets for biofuels and clarifies the life cycle of GOs. It removes barriers to long-term offtake agreements, too. Importantly, RED II mandates the creation of a Union Database, a single European registry with all the information about fuels, their environmental attributes, and transactions.

The Renewable Energy Directive (RED) pushes for greater unification and growth in the EU. In its latest revision (RED III), it recognizes the potential of biomethane to replace large volumes previously imported from Russia. The previous revision (RED II) already introduced GOs for biomethane — which some countries have yet to introduce — and required the creation of a Union Database as a single registry for European biomethane GOs and POS. There are still open questions regarding the actual functioning of the Union Database,

Simultaneously, more countries are harmonising the rules for the issuance and use of gas GOs and connecting to centralised hubs to allow imports and exports of biomethane certificates.

Why, where and how to use biomethane certificates

Companies can use biomethane certificates for voluntary and compliance purposes. Reporting to sustainability frameworks, such as CDP, and stakeholders is voluntary. Reporting under the Corporate Sustainability Reporting Directive (CSRD) or on emissions under the EU ETS falls under the mandatory umbrella.  

“Different standards require different levels of stringency in your biomethane sourcing,” Net Zero Advisor Nils Holta explains. For instance, to demonstrate voluntary action, it may be sufficient for organisations to buy unbundled certificates – generic gas GOs that match physical gas volumes obtained from other sources.

On the other hand, the EU ETS has stricter requirements. It demands gas GOs bundled with physical volumes and POS issued by an EU-recognized voluntary scheme such as ISCC. Any cross-border flows must have mass balancing performed correctly, to ensure that national statistics reflect the trade in gas and renewable attributes. The CSRD relies on the same methodology, meaning companies under its scope must fulfil the EU ETS requirements.

Higher requirements, however, also make bundled GOs more expensive. “In simple terms, bundled EACs are pricier because they come with a package of GOs, proofs of sustainability and physical delivery of gas, or a proof that physical gas has been transferred,” Hugo Malfit explains.

Transferring GOs across borders may be an option to cut costs. “Provided there is a connection to the EU gas network, it is sometimes possible to buy GOs in a country where they are cheaper and cancel them for consumption in another country even if their registries are not connected,” Hugo Malfit continues. “However, these ex-domain cancellations are a temporary solution. As more countries connect to a single GO system, more options will become available for consumers.”

How can Ecohz help?

Our team of experts helps companies source biomethane certificates that cover their needs in the most cost-effective manner. Ecohz can procure unbundled biomethane certificates in Europe, providing companies with flexibility and access.

Our advisors also assist in setting up Biomethane Purchase Agreements (BPAs). Although these contracts are not available in every country, GPAs ensure the availability of biomethane at a predictable price over an extended period in a market with limited supply.

Moreover, Ecohz provides personalised advisory services such as market analysis, assessment of needs on a case-by-case basis, and ongoing support. “We create customised plans that deliver your climate targets,” Nils Holta concludes. “We are here to help you use biomethane as part of your decarbonisation strategy.”