Thursday, 11 November 2021
With COP26 underway and the global methane pledge recently announced, biomethane as a renewable resource has attracted attention. An estimated 32 TWh of biomethane was produced in 2020 in Europe, with much of this coming from established producers including Germany, Denmark, the Netherlands, and the UK.
However, biomethane is gaining traction throughout the continent, including Spain. The large population giving rise to ample feedstock supply as well as gas demand, and well-developed gas infrastructure meet conditions required for rapid development over the next decade.
Greenfact had the opportunity to talk with Carlos Arruego Martín about developments in Spain. Carlos’ current role is Head of European Regulation, at the Spanish multinational energy company Naturgy. His experience in gas markets and legislation spans over a decade, making him well positioned to comment on renewable natural gas in the Iberian nation.
1. Can you please give us a current overview of the biogas and biomethane in Spain?
In Spain, there are 146 biogas facilities, of which 129 were operational in 2020, with an energy production of 2.74 TWh/yr. Of the operating plants, 46 are associated with landfills, 34 with wastewater treatment plants, 13 with the agricultural sector, 7 with the paper sector and the rest with chemical, food and other sectors. One facility is injecting today biomethane into the transmission network (Valdemingomez Urban Waste Treatment Plant, commissioned in 2012, ca. 97 GWh/yr) and two units into the distribution gas grids (Elena landfill, commissioned in June 2021, ca. 12 GWh/yr and Biogasnalia industrial waste-to-energy project, ca. 20 GWh/yr, commissioned in November 2021).
Today, most of the biogas (2.45 TWh/yr, 89% of total) is used for electricity generation (of which some CHP facilities use 0.16 TWh/yr of biogas for heating purposes). Considering the reduction of costs of wind and solar generation and the lack of flexibility of biogas electricity generation (as biogas production is flat), the industry expects that the upgrade of biogas for its injection into the gas grid, wherever is technically feasible, is incentivized. Its combustion in generation units like CCGTs -supplied from the gas grid- is more energy-efficient and doesn’t displace other renewable electricity sources.
Considering the existing biomethane production potential (estimated between 120-134 TWh/yr), the biogas sector is at a nascent phase in Spain with huge growth potential. The conventional gas demand in Spain in 2030 will be around 175 TWh/yr. Therefore, biomethane alone could supply 70%-75% of the gas demand, taking advantage of the Spanish gas system -one of the most modern systems in the EU- and thus optimizing the infrastructure needs associated with the energy transition. The Spanish gas industry (SEDIGAS) and the Spanish biogas association (AEBIG) are accordingly demanding the establishment of a regulatory framework facilitating investment in such a promising sector.
2. Are there any prevailing thoughts on the development of the biomethane market in the country?
The consensus in the energy industry is to commit firmly to the development of biomethane. Naturgy, the largest gas supplier in Spain and operator of the largest distribution network, has recently announced €3.0 bn investment opportunities in renewable gases before 2025, including the development of 1 TWh/yr of renewable gas as part of its 2021-2025 strategic plan (for more information, please see here). In the last weeks, for instance, Naturgy signed an agreement with the regional Government of Valencia aimed at producing 87 GWh/yr of biomethane from rice straw.
In parallel, the Spanish Government published a few months ago a draft Roadmap for Biogas for public consultation. It has also recently consulted on a draft code transposing the Renewable Energy Directive 2018/2001 regarding overall provisions for the establishment of a Guarantees of Origin (GO) system. It transitorily designates the Spanish gas system operator as the issuing body. Both texts should be close to final enactment, although more technical details should likely follow.
The draft Roadmap proposal aimed at 10.4 TWh/yr of biogas production in 2030. It was also proposing a 45% direct consumption of biogas -in thermal or electrical uses, especially in industry- and only 55% would be transformed into biomethane for use in mobility or for injection into the network. The proposed volume and the share of biogas entering the gas network have been considered unambitious by the industry. SEDIGAS for instance is demanding 10-11% of the 2030 conventional gas demand by energy content is covered with renewable gas -fully aligned with the 11% target requested by European gas industry at EU level. Companies like Naturgy are directly proposing a more concrete 25 TWh/yr target production in 2030.
3. What are the significant biomethane supply/demand trends are you currently observing in Spain?
On the supply side, an increasing number of producers and investors are looking at investment opportunities to materialize biogas projects based on the large potential identified. In the short term, the transportation sector may have the largest appetite for renewable gas. Public or private vehicle fleets, for instance, are particularly suitable for the procurement of renewable gas associated with gas mobility solutions. This month, for instance, Naturgy closed an agreement of this kind to deliver biomethane to a company’s last-mile delivery fleet, securing the reduction of up to 350 tCO2/yr.
In the absence of stable support schemes or demand obligations (e.g., in the transport sector), the use of GOs as established in the Directive 2018/2001 should contribute to the development of biogas projects. The compatibility of the national GO system with other European mechanisms, allowing for the recognition of Spanish GOs abroad, will also ease and encourage short term trading.
Gas Purchase Agreements (GPAs) may certainly support biogas production, leveraging on a couple of factors.
First, renewable gas should be encouraged to enter the system and the gas market, through existing gas infrastructure and platforms. This will grant producers and users access to a larger market -reducing market risk for captive producers/consumers- and prevents the emergence of fragmented markets, enabling competition among final consumers.
Secondly, improving trust in GOs including transparent information on the sustainability of gases is key to ensuring that companies that have a genuine interest in improving their environmental footprint will consider these options for corporate sourcing. To this extent, it should be noted that renewable gases cannot be physically tracked once injected into the grid. Sound progress of European rules regarding GOs, sustainability certificates and the Union Database will be critical for the successful rollout of GPAs.
Other soft regulatory instruments such as the development of standard Renewable Gas Purchase Contracts may also accelerate the establishment of the market. We find examples of master contracts in the electricity sector, even at the EU level, such as the EFET Standard Corporate Power Purchase Agreement. A similar instrument should be adapted for renewable gas and tailored to the national regulatory framework where the producer is located.
4. How do you see fossil natural gas developing over the next five years, and the effect it will have on biomethane development and production?
The penetration of gas in Spain is far from that of other countries (close to 100% in some EU countries). There is room for further reducing carbon and other air pollutant emissions through fuel switching in industry, buildings, and transport, where oil-based fuels are still consumed. Even in the Iberian electricity sector, there is still a coal generation fleet in operation. To this extent, in this decade, the Spanish NECP (National Energy and Climate Plan) foresees a rather stable gas demand consumption.
This shouldn’t be interpreted, however, as a complacent scenario for the gas industry. To achieve our headline long term climate targets, gas systems are critical to embrace and to gradually introduce new forms of renewable and decarbonized gases. Political and regulatory certainty will define the pace of investments materializing in each Member State in the next years. Many 10-year NECPs might lack sufficient broad insight by selecting and promoting short-term winners only -namely renewable electricity- and lacking concrete commitments supporting renewable gas.
Regarding pricing, short-term energy prices would have no impact on long term biomethane development. Anyway, the current global price of natural gas has recently highlighted the great opportunity of renewable gas and its contribution to reducing energy dependence. The advantages of biomethane reach beyond their cost-competitiveness regarding gas natural, as it provides wider economic, social, and ecological benefits. Since its societal value is well above its cost of production, the establishment of competitive support schemes is largely justified. Additionally, promoting connection to the grid of biogas installations with a partial charge to the gas system would accelerate the development of biogas and its efficient use.
5. Do you see any opportunities for regional biomethane cooperation or opportunities in the international biomethane markets in general?
Regional cooperation shouldn’t be excluded of course. The Renewable Energy Directive contains diverse instruments for member state cooperation on renewable energy projects which might be used. Nevertheless, some structural pillars are still necessary.
Surprisingly, we are still raising awareness of the huge opportunities that renewable gases could bring to Spain. The priority is to structure a suitable energy policy and regulatory framework, providing regulatory stability and certainty. This would certainly attract the interest of regional and European investors and consumers. Concretely, in terms of energy policy: a national assessment of the renewable gas potential and its social welfare; setting long-term targets and a solid Roadmap for biogas are paramount. At the regulatory level, swift implementation of a GO system will facilitate the surge of projects and even trading opportunities with other EU consumers. A grid connection regime, streamlining administrative procedures and the establishment of stable support schemes are also critical.
On the international front, our company is continuously exploring possibilities in those European and American markets where we have a strong presence. We can mention, for instance, a biogas landfill project developed in Chile (La Farfana). The support of a reliable regulatory framework is one of the most important preconditions. To this extent, in the EU the recent developments in the biomethane sector in France and Italy are worth mentioning.
6. What are your thoughts on the role of renewable gas in the revision of the Renewable Energy Directive?
Renewable energy sources are the key instrument for decarbonizing the EU economy. Gas systems are critical to embrace new forms of renewable and decarbonized gases which will gradually replace natural gas – even if the latter will remain a key energy source facilitating the road towards climate neutrality-. As pointed by major long-term analysis, renewable gas will be needed on a large scale to meet our targets, achieving significant emission reductions at an efficient cost.
Therefore, the revision of the Directive must facilitate the transformation of the gas sector integrating new technologies and sources (renewable gas, hydrogen, and mobility solutions).
To this extent, some elements are missing or could be highlighted: