There was only one topic on attendees’ minds at the recent Renewable Gas conference in Dublin: the Renewable Heat Obligation (RHO).
The RHO is the main support tool that the Government plans to introduce to support the rollout of anaerobic digestion (AD) in Ireland.
It will see the introduction of a new legal obligation for suppliers of fuel to the heat sector to blend biomethane and other renewable fuels into their fuel mix.
The mandate is expected to force suppliers to enter into a corporate gas purchase agreement with AD plants, requiring them to buy biomethane at three to four times the price of wholesale natural gas, or face a penalty.
The inclusion rate is expected to start at 2% and increase to 10% by 2030. The policy has been in development for six years and is now running significantly behind schedule. Without the policy in place, many large-scale AD investments are on hold.
The policy is being developed by the Department of Environment, Climate and Communications (DECC) – which has so far given little detail away since it confirmed the policy was to go to its third consultation this year.
However, Niamh Hamill, DECC, who joined a panel discussion at the conference, said that the Department is on the right track for AD. They have decided what type of AD market they want, and that they will achieve this through creating a long-term biomethane demand and introducing capital grants for AD plants.
Importance
Dale Guest is CEO of Stream Bioenergy – an AD developer operating in the UK and Ireland. The company plans to build seven plants in Ireland, including one of Europe’s largest in Little Island, Cork. It aims to become the biggest biomethane producer in both countries.
Speaking at the conference, he said that the delivery of the RHO as quickly as possible is critical to the success of the sector.
He said it doesn’t need to be perfect, but it needs to be long term with in-built protections from imports that could undercut Irish producers. Without it, nothing will happen, he said.
Imports
The overriding concern in the room was the risk of biomethane and hydrotreated vegetable oil (HVO) imports from around the world to meet the obligation. Indeed, there were a number of international developers in the room who were seeking more information on how biomethane produced in France, Denmark or Spain could be exported to Ireland as this new obligation market emerges.
As it stands, it appears that HVO will be an eligible fuel to meet the obligation, but there remains concerns that unsustainable palm oil is being fraudulently used instead of used cooking oil to produce the fuel. HVO is highly competitive and outcompetes biomethane for market share, as has happened to other fuels in a similar biofuels obligation for transport fuels, according to Sean Finan, CEO of the Irish Bioenergy Association.
In response to these highlighted concerns, Brian Carroll, assistant secretary general (climate action and environment) at DECC said they are looking at designing something into the RHO that will promote indigenous supply coming forward.
While not giving many details, he said the measure could be linked to the credit an obligated party can get for sourcing indigenous versus foreign fuel. While they are still working on the mechanism, this is their intention, he said.
Economics
The Irish Farmers Journal understands that the buyout rate for the obligation will be €180/MWh (€0.18/kWh). This is essentially the fine that fuel suppliers must pay if they fail to meet the obligation by sourcing and blending renewable fuels. However, this does not necessarily mean that biomethane will be priced at this level, as market prices could trend 20%–30% below the buyout rate. This presents a challenge because if the market price of biomethane settles at 20%-30% below the buyout (€125-€145/MWh), AD in Ireland will not be viable, even with the 20% capital grant. If the grant were increased to 40% – in line with what is available in other EU countries – and if additional credits were awarded to indigenous suppliers, as suggested by Carroll, the viability of projects could improve. Without the publication of the scheme design, this, of course, is just speculation.
The RHO will require a careful balancing act – ensuring the market purchases renewable gas at a price that is economically viable for biomethane producers while managing the cost increase for consumers.
Difficulty
The challenge of this plan was highlighted by Bord na Móna’s David Sutton. He said that where the rubber meets the road in AD is in financing the project.
Bord na Móna has plans to double its renewable capacity by 2030, and double it again by 2035. This includes 2,500 MW of onshore wind, 360 MW of solar, 700 MW of thermal, 300 MW of battery storage and 150 MW of renewable gas. This includes its Cúil na Móna AD plant in Laois, currently under the judicial review process.
He said that, while many of the ingredients are there to make a biomethane project in Ireland attractive, the capacity of the renewable gas market is small and hasn’t really taken off.
He said that at ground level, the reality is that these biomethane projects are extremely difficult to deliver.
Biomethane is only a small part of Bord na Móna’s portfolio, but Sutton said that, on a per-MW basis, it is the most resource-intensive and challenging part of their portfolio – a significant statement.
He said that if Bord na Móna tries to secure funding for its AD plant in Laois, even with an RHO in place and an agreement with a corporate buyer for the gas, it will still be very difficult to get the project financed.
“I can tell you from our wind portfolio that when you move from a RESS-type (State-backed) contract to a corporate-type contract, the number of investors drops significantly, and the cost of debt starts to increase.”
He explained to the room that the risks associated with renewable gas development in Ireland need to be reduced through ongoing market support until the market is fully established.
He said that was what was done with wind energy and that, if Ireland is serious about renewable gas, the same approach is needed.
While the RHO will get some projects off the ground, lessons need to be learned from wind and solar by looking at what worked there. The challenge of building an AD industry solely on corporate gas purchase agreements was put to Hamill, who responded by stating that this form of support – ie, an ongoing support tariff – was not chosen; the RHO was.
What is a co-operate gas purchase agreement?
In 2023, AstraZeneca agreed to buy biomethane from UK AD developer, Future Biogas, under a long-term corporate gas purchase agreement to decarbonise its UK operations. The gas will be purchased without subsidy support, the first deal of its kind in the UK. While the UK has around 143 biomethane plants, only one operates under this model. The rest avail of schemes that provide state-backed support for 15–20 years.
Ireland’s AD model will follow a similar approach, with AD plants securing corporate gas purchase agreements with fuel suppliers and even directly with large energy users, without state-backed support. However, they may receive one-off capital grants towards construction costs.
There remains uncertainty around the flagship renewable heat obligation, aimed at supporting the anaerobic digestion sector.There remains little certainty on its introduction date, rates, structure, eligible fuels and protections for indigenous producers. Many AD developments are on pause until its introduction.Many question if it will work even when introduced. The author, Stephen Robb, is currently involved in a family/community proposal for an anaerobic digestion facility in Co Donegal.
There was only one topic on attendees’ minds at the recent Renewable Gas conference in Dublin: the Renewable Heat Obligation (RHO).
The RHO is the main support tool that the Government plans to introduce to support the rollout of anaerobic digestion (AD) in Ireland.
It will see the introduction of a new legal obligation for suppliers of fuel to the heat sector to blend biomethane and other renewable fuels into their fuel mix.
The mandate is expected to force suppliers to enter into a corporate gas purchase agreement with AD plants, requiring them to buy biomethane at three to four times the price of wholesale natural gas, or face a penalty.
The inclusion rate is expected to start at 2% and increase to 10% by 2030. The policy has been in development for six years and is now running significantly behind schedule. Without the policy in place, many large-scale AD investments are on hold.
The policy is being developed by the Department of Environment, Climate and Communications (DECC) – which has so far given little detail away since it confirmed the policy was to go to its third consultation this year.
However, Niamh Hamill, DECC, who joined a panel discussion at the conference, said that the Department is on the right track for AD. They have decided what type of AD market they want, and that they will achieve this through creating a long-term biomethane demand and introducing capital grants for AD plants.
Importance
Dale Guest is CEO of Stream Bioenergy – an AD developer operating in the UK and Ireland. The company plans to build seven plants in Ireland, including one of Europe’s largest in Little Island, Cork. It aims to become the biggest biomethane producer in both countries.
Speaking at the conference, he said that the delivery of the RHO as quickly as possible is critical to the success of the sector.
He said it doesn’t need to be perfect, but it needs to be long term with in-built protections from imports that could undercut Irish producers. Without it, nothing will happen, he said.
Imports
The overriding concern in the room was the risk of biomethane and hydrotreated vegetable oil (HVO) imports from around the world to meet the obligation. Indeed, there were a number of international developers in the room who were seeking more information on how biomethane produced in France, Denmark or Spain could be exported to Ireland as this new obligation market emerges.
As it stands, it appears that HVO will be an eligible fuel to meet the obligation, but there remains concerns that unsustainable palm oil is being fraudulently used instead of used cooking oil to produce the fuel. HVO is highly competitive and outcompetes biomethane for market share, as has happened to other fuels in a similar biofuels obligation for transport fuels, according to Sean Finan, CEO of the Irish Bioenergy Association.
In response to these highlighted concerns, Brian Carroll, assistant secretary general (climate action and environment) at DECC said they are looking at designing something into the RHO that will promote indigenous supply coming forward.
While not giving many details, he said the measure could be linked to the credit an obligated party can get for sourcing indigenous versus foreign fuel. While they are still working on the mechanism, this is their intention, he said.
Economics
The Irish Farmers Journal understands that the buyout rate for the obligation will be €180/MWh (€0.18/kWh). This is essentially the fine that fuel suppliers must pay if they fail to meet the obligation by sourcing and blending renewable fuels. However, this does not necessarily mean that biomethane will be priced at this level, as market prices could trend 20%–30% below the buyout rate. This presents a challenge because if the market price of biomethane settles at 20%-30% below the buyout (€125-€145/MWh), AD in Ireland will not be viable, even with the 20% capital grant. If the grant were increased to 40% – in line with what is available in other EU countries – and if additional credits were awarded to indigenous suppliers, as suggested by Carroll, the viability of projects could improve. Without the publication of the scheme design, this, of course, is just speculation.
The RHO will require a careful balancing act – ensuring the market purchases renewable gas at a price that is economically viable for biomethane producers while managing the cost increase for consumers.
Difficulty
The challenge of this plan was highlighted by Bord na Móna’s David Sutton. He said that where the rubber meets the road in AD is in financing the project.
Bord na Móna has plans to double its renewable capacity by 2030, and double it again by 2035. This includes 2,500 MW of onshore wind, 360 MW of solar, 700 MW of thermal, 300 MW of battery storage and 150 MW of renewable gas. This includes its Cúil na Móna AD plant in Laois, currently under the judicial review process.
He said that, while many of the ingredients are there to make a biomethane project in Ireland attractive, the capacity of the renewable gas market is small and hasn’t really taken off.
He said that at ground level, the reality is that these biomethane projects are extremely difficult to deliver.
Biomethane is only a small part of Bord na Móna’s portfolio, but Sutton said that, on a per-MW basis, it is the most resource-intensive and challenging part of their portfolio – a significant statement.
He said that if Bord na Móna tries to secure funding for its AD plant in Laois, even with an RHO in place and an agreement with a corporate buyer for the gas, it will still be very difficult to get the project financed.
“I can tell you from our wind portfolio that when you move from a RESS-type (State-backed) contract to a corporate-type contract, the number of investors drops significantly, and the cost of debt starts to increase.”
He explained to the room that the risks associated with renewable gas development in Ireland need to be reduced through ongoing market support until the market is fully established.
He said that was what was done with wind energy and that, if Ireland is serious about renewable gas, the same approach is needed.
While the RHO will get some projects off the ground, lessons need to be learned from wind and solar by looking at what worked there. The challenge of building an AD industry solely on corporate gas purchase agreements was put to Hamill, who responded by stating that this form of support – ie, an ongoing support tariff – was not chosen; the RHO was.
What is a co-operate gas purchase agreement?
In 2023, AstraZeneca agreed to buy biomethane from UK AD developer, Future Biogas, under a long-term corporate gas purchase agreement to decarbonise its UK operations. The gas will be purchased without subsidy support, the first deal of its kind in the UK. While the UK has around 143 biomethane plants, only one operates under this model. The rest avail of schemes that provide state-backed support for 15–20 years.
Ireland’s AD model will follow a similar approach, with AD plants securing corporate gas purchase agreements with fuel suppliers and even directly with large energy users, without state-backed support. However, they may receive one-off capital grants towards construction costs.
There remains uncertainty around the flagship renewable heat obligation, aimed at supporting the anaerobic digestion sector.There remains little certainty on its introduction date, rates, structure, eligible fuels and protections for indigenous producers. Many AD developments are on pause until its introduction.Many question if it will work even when introduced. The author, Stephen Robb, is currently involved in a family/community proposal for an anaerobic digestion facility in Co Donegal.
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