Funding the Government’s €2bn biomethane ambition

Budget 2023 was an opportunity for the Government to follow through on its ambitious target to ramp up indigenous, farm-based biomethane production by 2030.

By the night before the budget, news had swept across the agricultural industry that a significant announcement was imminent. The anticipation was that significant capital funding to contribute towards the cost of constructing anaerobic digestion (AD) plants in Ireland was set to be announced.

Instead, what the industry got was confirmation that the Department of Agriculture and the Department of Environment remain on different pages when it comes to sector. While both departments backed biomethane, they differed in terms of the funding allocated to the sector and the timelines on when this will be available.

Pilot programme

The Department of Agriculture announced €3m per year of fresh funding for a period of four years to assist in establishing an AD pilot programme.

When asked, the Department of Environment suggested the €24m already allocated in the National Development Plan (NDP) by the Department of Agriculture for AD sector capital expenditure will be used across 2023 and 2024.

While the Department of Environment will not be overseeing this funding, it expects €8m of it to be spent next year.

However, there was no mention of the Department of Agriculture’s plans for NDP funding by Minister Charlie McConalogue when queried by the Irish Farmers Journal following the budget.

Target

Budget 2023, while coming up short on funding for AD, reaffirmed long-held suspicions in the industry that neither Department is claiming responsibility for the sector and that they are not working together to develop its potential. This has long been the case. However, the key difference now is there are substantial AD targets in place for the country.

In July’s announcement of the sectoral emissions ceilings, Minister Eamon Ryan substantially increased the country’s target for biomethane production. The 2021 Climate Action Plan set a target of 1.6TWh of biomethane by 2030. This would require roughly 80 farm-scale AD plants (20GWh in gas output and approximately 30,000t of slurry and biomass). Minister Ryan has increased this target to 5.7TWh by 2030, up 256%. This would satisfy around 10% of our current natural gas demand and abate roughly 2.1 MtCO2eq. The minister says this would require 150-200 plants, likely larger than the accepted farm-scale plant.

While many in the industry thought this wasn’t doable, they were at least expecting an early announcement of financial support to get the process of developing these plants started.

On average, an AD plant typically has a lead-in time of around three to four years, from idea to commissioning. No other country has managed to develop an AD industry without government support and Ireland will be no different.

So, the question is then asked if by the time the Government realises this and puts funding in place, will it be too late to even come close to meeting the 2030 target?

Funding

The reason the industry was taken aback by the Government’s lack of movement on substantial support was due to the scale of funding needed to realise its 2030 ambition.

Building modern AD plants is not cheap. But then again, neither is building a wind or solar farm.

Adjusted for inflation and supply chain issues, the Capex of a modern 20GWh AD plant is around €10m.

If we’re being conservative and say it’ll take 200 plants to meet the 2030 target, that’ll require an investment of €2bn.

Based on support schemes in place across Europe, State support comes in the form of capital grants, ongoing tariff support or both. If we take capital supports alone, and assume that a grant of 50% is needed to match our EU counterparts, that’s a State support requirement of €1bn by 2030.

While this is a considerable amount, it pales in comparison to the €7.2-€12.5bn budget for the Irish Renewable Electricity Support Scheme (RESS). RESS will run to 2025 and is supporting the development of large-scale wind and solar farms.

Speaking on the matter to the Irish Farmers Journal, PJ McCarthy, CEO of the Renewable Gas Forum of Ireland, explained that capital funding is a basic requirement for the industry to progress at this point.

EU funding

Much hype has been made recently about whether or not Ireland has applied for EU funding under the €300bn RePowerEU initiative for renewables and in particular biomethane. It is difficult to get a definitive answer to this question from the Government or indeed the EU. Furthermore, we have had conflicting answers to this question from senior politicians.

Ireland’s National Recovery and Resilience Plan (NRRP), which was published earlier this year, will see €915m spent in grants across 16 investments and nine reform commitments across the economy. These funds come from the European Recovery and Resilience Facility.

Speaking to the Irish Farmers Journal, the Department of the Environment explained that REPowerEU does in fact provide the potential for funding via the EU’s Recovery and Resilience Facility. Member states are now allowed to amend their NRRPs, potentially increasing their budget for investment in renewables.

Ireland already has one of the the highest levels of climate-based funding in NRRP, at more than half of the total funding. But while the NRRP includes some supports for renewable energy, biomethane is currently not included.

A key focus of REpowerEU was to enhance diversification from Russian gas. Many member states are expected to use the funds from the initiative, in part to increase indigenous biomethane production. However, according to the Department, as Ireland uses little Russian gas, it does not require similar actions to other countries.

The Department says it is now working with the Department of Public Expenditure and Reform in considering proposals for funding under NRRP/REpowerEU. However, as it stands, it appears that Ireland has not applied for biomethane funding from the EU.

Renewable Heat Obligation

The Government is banking on the introduction of a Renewable Heat Obligation (RHO) in 2024 to kickstart the industry.

The obligation would require fuel suppliers in the heat sector to ensure a percentage of the fuel they supply comes from renewable sources. Biomethane will likely be used to help meet the obligation for natural gas customers. The cost of the biomethane, which comes at a premium as it would not be State-supported, would then be spread across all customers. This percentage would start off low, below 1%, but would increase each year to around 3% by 2030.

The Government has said it is hopeful that supply contracts between fuel suppliers and AD plants will be signed “by the end of next year”.

However, this RHO methodology has been criticised by many in the industry. A successful market-led incentivisation scheme, without any State support, is rare in European countries. This is even more unusual coming from a country which has less than a handful of farm-based plants in operation.

Even if capital grants of 50% were introduced, that would only bring the cost of production for a 20GWh plant to €110/MWh. Many in the industry believe this is still too high for customers and that State support of around €50/MWh is needed to bridge the gap.