Although it has recently become more fashionable with investors, biogas is a very established and proven technology, and the first German plants are now nearly 20 years old. However, despite the longevity of the technology, it is important to bear in mind that projects that convert organic matter into gas or a liquid are intrinsically more complex than those that convert wind/solar energy into electricity.

As Green Giraffe Advisory, we are currently working on £1bn of funding for nine deals across Europe, ranging from fish waste in Norway through chicken manure in the Netherlands to food waste in the UK. However, despite these differences, all have the same three additional risks compared to solar or wind – securing the feedstock that provides the energy, finding an offtake for the digestate produced by the process, and finding markets for the green gas certificates.

Hungry bacteria
Biogas plants are unique in the pantheon of renewable energy technologies in that at their very core are trillions of live bacteria that have to be fed with organic matter to turn into gas. This sounds obvious, but the risk of securing long-term reliable sources of feedstock for the constantly hungry little bugs is no doubt what keeps most plant operators awake at night. Bacteria are also unreasonably fussy eaters – they like a bland, homogenous diet and don’t react well to sudden variation, so the feedstock has to remain broadly the same over time.

In order for new projects to be bankable, developers have to take a twin-track approach to this risk; the plant should have a long-term feedstock contract with a strong counterparty and the developer should also provide third-party evidence of a wider liquid market at the price assumed in its model. Feedstock contracts need to cover both the quantity of the material but also the acceptable physical parameters of viscosity, chemistry etc. This is easier for feedstocks that are already collected, such as chicken manure, but harder for feedstocks that are either not currently aggregated or have varying chemistry such as household food waste.

Biogas plants are unique in the pantheon of renewable energy technologies in that at their very core are trillions of live bacteria that have to be fed with organic matter to turn into gas.

As more biogas plants have been developed, feedstocks markets have matured and we are starting to see the emergence of aggregators who collect waste from a plethora of sources and sell a homogenised ‘soup’ to biogas plants. We are also seeing more investments in front-end pretreatment processes so the plant can take a wider range of feedstocks whilst keeping the fussy bacteria happy. These developments will go a long way to de-risking biogas projects and opening up new feedstock markets such as date-expired packaged food.

Digestate disposal
Biogas plants also differ from wind or solar in that they produce a physical output as well as energy. The mass loss from gas production is surprisingly low, so as much as 95% of what goes into a biogas plant comes out the other end as digestate. This can be used as fertiliser or converted into biomass pellets. However, a lot of plants don’t have much storage capacity, so if the offtake arrangements break down, the digestate starts to pile up pretty quickly in the yard and the plant has to stop production.

This has a domino effect on the feedstock provider whose chickens are still producing manure which suddenly has nowhere to go, and also affects the now even hungrier bacteria left with nothing to eat. Offtake arrangements are fundamental and, once again, funders are looking for twin track approach to risk: a robust offtaker and third-party evidence of a wider accessible market.

Renewable guarantees
Finally, new biogas plants tend not to be directly subsidised by governments anymore, but awarded Renewable Gas Guarantees of Origin (RGGOs) based on each kWh of biomethane injected into the grid. These certificates are purchased by industrial gas consumers to offset their use of fossil fuel gas. The certification arrangements vary by country and this gives rise to both a new risk and probably a new word for most of us, fungibility.

As well as being a cracking Scrabble word (scoring 20 points), fungibility is a posh way of describing how exchangeable something is. For certificates, the question is whether an RGGO produced in one country can be sold to a gas consumer in another European Union state? Frustratingly the answer is, at the moment, ‘maybe’. To make this more certain governments are slowly groping their way in the dark towards establishing international standards to improve the fungibility of certificates.

In conclusion, biogas is inherently harder to fund than wind or solar. At the heart of the process is living, breathing bacteria which have to be fed, and which produce waste that has to be disposed of. Funders are becoming comfortable with the technology, but feedstock and offtake risks need a twin-track approach, strong counterparties and evidence of wider markets on both sides of the equation. The growth in the number of biogas plants in Europe shows that, like giving up beer for Lent, it’s hard, but possible.

The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy Institute.

• Further reading: ‘Europe’s market for anaerobic digestion and biogas production’. Paul Hudson, Senior Industry Analyst at Frost & Sullivan, takes a look at biogas trends across Europe.
• The production of useful biogas through the anaerobic digestion of waste sludge at wastewater treatment plants is an elegant example of the circular energy economy; but system efficiencies can be improved through the addition of thermal hydrolysis plants.