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FEATURE: Biomethane GOs cross-border trading needs a harmonized EU registry system

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FEATURE: Biomethane GOs cross-border trading needs a harmonized EU registry system


Biomethane GO cross-border trading to take off in Europe

Sweden, Germany and Denmark trade on bilateral agreement

Future gas grid will be dominated by biomethane, hydrogen: trader

Biomethane is set to play an important role in the decarbonization of gas supplies, but the lack of a harmonized certification system is preventing the development of a cross-border trading market in Europe, biomethane Guarantees of Origin traders told S&P Global Platts.

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The hype on biomethane as a sustainable, green source of energy started when the EU's RED II policy extended guarantees of origin to forms of energy other than electricity, including renewable gases, in December 2018. However, a transparent European framework to ensure renewable gases certification standards are needed to push the market further.

"There is currently no harmonized EU legislative body for biomethane as there is for power GOs. Registry certification bodies exist on a country level, although all European countries have an established body," a biomethane trader said.

"It is possible to transfer [biomethane] from Denmark and the Netherlands to Germany. Maybe also from Austria to Germany, but Spain does not even have a biogas registry yet. Neither does Finland, who is still in the process of setting it up," another trader added.

As a result of different renewable gases standards set on national GO registry systems, the price of biomethane GOs is showing great disparity across Europe.

"Prices can differ on their greenhouse gas (GHG) targets, which feedstocks were used, whether they need to operate under CSR compliance -- these factors are relevant in determining the price and whether it will form a successful structure/deal," a trader said.

"Greenhouse gases produced across the entire [biogas] production process are also factored in – e.g. transporting feedstock from Italy to Denmark carries additional CO2 production," a source said.

In France, biomethane GOs are currently priced at Eur1-2/MWh, while in the neighboring Netherlands the certificates trade at around Eur9-11/MWh. In the Nordic region, Danish biomethane GOs trade at around Eur13/MWh.

Supported vs. Unsupported certificates

The price varies whether the biomethane producers benefit from governmental financial support or not.

"In Austria and Germany, certificates are issued to claim subsidies so GOs are not really traded. For example, in Germany the price is around Eur40/MWh -- but these are canceled immediately, and the government gives Eur45/MWh to the producer," a market participant said.

Another trader added, "Supported contracts are a lot cheaper than unsupported ones. Unsupported [German] contracts must be around Eur50-60/MWh. I think Dutch ones might be even slightly less, also supported of course."

Another trader noted, "Currently prices across Europe are difficult to compare. Germany which makes up over 50% of the market is based on consumption support, thus the prices would be wildly different to a system of production support seen in other European countries."

In the UK, the Green Gas Certification Scheme, or GGCS, is the main registry for Renewable Gas Guarantee of Origin certificates, or RGGOs, dealing with 80% of the total liquidity.

A UK biogas trader mentioned that biomethane markets are currently opening for cross-border trading and a lot of interest is focused on exporting RGGOs out of UK, where they can capture a premium.

When asked about the harmonization, he mentioned that the market will coincide, but "there will always be bias towards domestic production which will introduce price discrepancies between countries."

"The quality of gas had been a real issue over the last 10 years as it needs to meet a certain quality to be able to feed into the grid," a biogas trader said to Platts.

Current trading hub

Sweden, Germany and Denmark are grid-connected and have a bilateral agreement to facilitate cross-border trading of biomethane GOs but questions remain on how this scheme can be extended to other parts of Europe. Currently, Germany is the largest biomethane producer with an annual production estimated around 60 TWh, while the overall European production accounts for less than 100 TWh/year.

"The number of biogas facilities is growing; however, a lot of production is not injected into the grid so there are limited certificates on the market which ultimately dictates the high price of Green Gas GOs," a biomethane trader commented.

"Trades between the countries will come, but we are still very early, and this will develop at a fast pace going forward," a source noted.

Biomethane use in Europe is also set to rise, another source noted. "In France there is a lot of potential for biomethane, in Spain there is no system yet ... it will come."

A Dutch biogas trader saw it as a huge growing market in line with climate ambitions of a future gas grid dominated by biomethane and hydrogen.

He added, "It would make sense in an environmental and profitable capacity if we have the correct infrastructure connecting the local supplier to consumers."

Most of the market participants said that number of transactions will gradually increase with greater market transparency and biomethane price assessments. A source said that greater transparency and coverage on biomethane GOs would ultimately benefit the whole industry and attract further investment into biomethane production.