Biomethane certificate price is driven by many factors, for example, feedstock used for production, subsidies for production, end-use applications, and consumer preferences. In this article, we analyse the potential impact on the biomethane certificate price based on a reflection from the GfC’s recent report on biomethane production potentials in the EU. Two key factors potentially influencing the certificate price are:

GfC - Key factors

The feedstock used to produce biomethane is one of the most important elements in determining the price of certificates, as feedstock effect the carbon intensity of the biomethane produced. Generally, animal manure is one of the best feedstocks, as it delivers a low carbon intensity product and can even create negative emissions when considering biomethane production by applying a life cycle analysis approach (as processing helps avoid fugitive emissions from the manure). Hence, the biomethane certificates from manure often fetch the highest premium.

According to the GfC’s estimate, biomethane produced from animal manure is expected to dominate the source of feedstocks by 2030 (32%), followed by agricultural residues (24%) and sequential crops (21%). Nevertheless, by 2050 the main feedstock used for biomethane production is predicted to switch to sequential crops (47%), while animal manure and agriculture residues would decrease to 19% and 17%, respectively.

GfC - Total feedstocks

With the potential of biomethane capacity in EU-27 at 41 bcm/year in 2030 and 151 bcm/year in 2050, biomethane production from manure and sequential crops would reach:

GfC - Manure & Sequential crops

By 2030, the green gas production from manure is predicted to exceed biomethane from other feedstock and roughly around 4.5 bcm/44 TWh exceeds the output from sequential crops. This could imply that the premium price of biomethane certificates from manure may continue to greatly influence the market, resulting in bullish sentiment in the European biomethane certificate market.

However, the 2050 estimate suggests that biomethane from sequential crops would considerably increase and hence overtake biomethane production from other sources, with a production capacity of 71 bcm/694 TWh, being 42 bcm/410 TWh greater in volume than production from manure. The big shift of feedstocks from manure to sequential crops would potentially affect the certificate price. Since biomethane from sequential crops is likely to have a higher carbon intensity, additional certificate supply from sequential crops could push down the overall certificate prices in the market, leading to the possible lower premium level in the long run when compared to the market condition in 2030.

The country of origin of biomethane certificates also plays a role in setting the price for biomethane certificates. Government subsidies given to biomethane production contribute greatly to the price of biomethane certificates offered to the market. Biomethane certificates from unsubsidised production generally have higher prices than those from subsidised production, as the green gas producers from the unsubsidised system need to compensate their income through a pure market mechanism.

If the policy landscape in the EU countries shifts towards subsidies for biomethane production, we might see biomethane certificate prices being offered at a lower premium level than certificates from the non-subsidised system. Looking at the status quo, the current European biomethane certificate price from certified waste from subsidised markets is fetching a price around 40 EUR/MWh while the certificate price from unsubsidised countries, e.g., Germany and Switzerland, can reach near 100 EUR/MWh. Therefore, the future policy to incentivise biomethane production would affect the future price of the certificates.

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Following the recently released Gas for Climate (GfC)’s estimate of European biomethane potential by 2030 and 2050, the possible increase in biomethane supply will generally affect the biomethane certificate/GO market, in terms of the liquidity and price of biomethane certificates.

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How does the increased potential of biomethane capacity in Europe impact the biomethane certificate market?

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