INTERVIEW: Optionality key as Italy prepares to bolster biomethane grid connections: Snam

Italy’s biomethane sector has seen significant growth emerge since the country’s Biomethane Decree took effect in 2022. With grid connection requests surging by more than 90% since then, increased optionality of those connections will be key in supporting continued development, Nicola Battilana, Snam’s director of infrastructure planning, told S&P Global Commodity Insights.

Italy’s gas transmission system operator has ensured provisions for biomethane grid connections match industry growth, and the process remains reliable and efficient.

“The process of [biomethane] connection needs to be seen under different points of view,” Battilana said.

On the one hand, transmission and distribution system operators must ensure engineering, permitting and construction costs are recovered in transportation and distribution fees, he said. On the other, biomethane plant developers must minimize the risk of stranded assets.

Biomethane is a near-pure source of methane that is typically produced by upgrading biogas or gasifying solid biomass. Italy ranks second behind Germany in European biogas production, with its 1,800 biogas plants producing 24 TWh in 2022, according to data from the European Biogas Association.

Italy’s Ministry of Ecological Transition, or MITE, formalized the Biomethane Decree in October 2022, earmarking some Eur1.73 billion to support biomethane production.

The decree provides support for the conversion (upgrading) of existing biogas plants in producing biomethane, in addition to incentivizing new biomethane plants. It also seeks to improve heat use efficiency and emissions from existing plants.

Since its first request in 2016, Snam has received and processed over 1,000 biomethane connection requests through its dedicated portal as of August, some 30% of which are now formal connection agreements, according to Battilana.

This reflects the additional 283 biomethane connection projects that are under construction across Italy, which combined with around 86 biomethane plants currently connected to the grid, and 30 plants to the distribution grid, could produce more than 1.9 Bcm/year.

European biomethane Guarantees of Origin have softened in recent weeks against limited trading activity after the summer lull.

Platts, part of S&P Global Commodity Insights, assessed the German biomethane spot GO price at Eur20.10/MWh on Sept. 10, down 0.25% on the day. It assessed the Dutch spot equivalent at Eur19.95/MWh over the same period, and the Danish spot GO price at Eur15.025/MWh on Sept. 10.

Increased optionality

Since the decree’s implementation, Snam’s support for biomethane grid connection has been multi-faceted, Battilana said.

On June 1, the operator took its position as Italy’s single point of contact for all connection requests, publishing on July 31 its first national map of natural gas transportation and distribution grids that are suitable for biomethane connections.

Snam’s preference for optionality led to a series of tools offered to biomethane market participants seeking to connect to the grid, while some elements of its support imply a reciprocal and mutual effort on the part of the producer, according to Battilana.

The company has implemented a “multi-step or modulated guarantee”, allowing for expenditure to be deployed “depending on the degree of maturity of the connection project,” Battilana said.

Snam has also established what it calls a “voluntary agreement for engineering activities” designed to help expedite procedural hurdles by providing project developers with permit documents more efficiently.

“Another option, in those cases where the distance from the grids would be too long to enable a successful business case, is the possibility to connect the biomethane plant to the grid by means of CNG trucks,” he said.

This “virtual” connection, although less reliable than a direct pipeline connection, is already in operation in Italy’s Brescia province and has garnered the interest of other parties, according to Battilana.

Transport dynamics

Italy’s renewable gas production speaks to its diverse geographical terrain, one that generally sees the bulk of agricultural and industrial activity in the north of the country, particularly in the Po Valley.

The country’s biomethane infrastructure has similarly reflected this, with Battilana noting a concentration of plants in the region “fitting perfectly” with the characteristics of the territory.

“We see significant potential in the center and south of Italy as well,” he said. “Especially related to development of human solid waste collection in large and medium cities, which could address oversupply problems traditional waste-to-energy incinerators and landfills have faced in recent years.”

In terms of transport dynamics, Battilana said Italy’s concentration of projects in its northern regions was not a concern, noting Snam’s transportation network could handle significant additional amounts of biomethane.

Despite this, Snam has implemented continuous running hydraulic simulations against different demand scenarios to identify the need for interventions, to anticipate and address possible bottlenecks in the future.

While it is yet to identify the need to intervene, one solution was to install reverse flow compressor plants located on some of the network nodes, which are a more efficient method in alleviating potential bottlenecks than pipelines, Battilana said.

Snam is involved in seven reverse flow projects, carried out by six Italian DSOs, allowing excess biomethane directly injected into the distribution network to be recompressed and delivered to Snam’s transportation network.

Grid connections per se did not pose challenges for the operator, Battilana said. The challenges were further upstream, where growing production of biomethane to material levels required access to reliable feedstocks and further cooperation among producers to move smaller volumes of biogas to larger, more centralized upgrading plants, thereby producing significant economies of scale, he said.