Reducing the cost of Net Zero with biomethane

Phase 1 - If production can be scaled sustainably, further cost reductions and increasing revenues mean biomethane can offer a relatively low-cost option to reduce emissions 

Baringa have used internal cost modelling and real-world data from a survey of UK biomethane producers to assess biomethane production economics to 2050. We find that production costs for a typical biomethane project could be reduced by approximately 25% if key barriers are overcome. There is also potential to increase revenues from captured CO₂ and digestate (an organic fertiliser) key co-products of biomethane production. 

Our analysis highlights the importance of plant size and feedstock availability in reducing production costs. Savings can be achieved at larger scale and AD plants in the UK are typically smaller than European counterparts such as Denmark. While AD is a mature technology, greater deployment can yield efficiencies, with potential to reduce capex costs by c.10-20%. Regulatory change can also deliver production cost savings by replacing propane enrichment with more cost-effective solutions. There is currently a limited supply of high energy density feedstock with recognised sustainability credentials. Evaluating the role and sustainability of rotational crops as a feedstock and adapting policy to prioritise the most cost-effective sources of GHG savings can support efficient scaling of feedstock supply. 

Significant improvements to production economics can be supported by realising the value of captured biogenic CO₂ and digestate that can be delivered as co-products of biomethane production. Biogenic CO₂ could be captured and stored to provide Greenhouse Gas Removals (GGRs) which emitters, typically in hard-to-abate sectors, can purchase to offset their emissions. While not a like-for-like replacement, greater use of digestate can increase revenues for biomethane producers and reduce reliance on artificial fertilisers, which are currently emissions intensive. 

Biomethane can already provide cost effective carbon abatement and, if production can be scaled sustainably, further cost reductions and increasing revenues from biomethane co-products can increase biomethane competitiveness and potential to provide cost effective carbon removals. In the Barriers Overcome scenario, biomethane costs are assumed to decline as opportunities to improve economics through greater scale and operational efficiency are realised. Our Central Case assumes some efficiencies in biomethane costs are achieved as production grows while in the Persistent Cost Barriers scenario only limited progress is made and alternative technologies are more competitive.   

In the Barriers Overcome scenario, typical biomethane projects could deliver GHG savings with an abatement cost below £200/tCO₂ by 2050. In the Persistent Cost Barriers scenario, the typical projected abatement cost is approximately £300/tCO₂ by 2050. This means biomethane can offer a relatively low-cost option to reduce emissions compared to alternatives, such as direct air capture and sustainable aviation fuels, which may have abatement costs exceeding £500/tCO₂.

Phase 2 - Scaling up biomethane production can be a low-regrets option with estimated savings of £150-220bn to the energy system by 2050 

The study models three scenarios to reach Net Zero by 2050, to explore the potential cost reductions and value to the energy system that greater biomethane production can deliver.  

In the Central Case, with barriers for biomethane production economics partially addressed, biomethane can deliver cumulative savings of £175bn by 2050. Savings are estimated by comparison with the modelled costs of building and operating the energy system to deliver Net Zero 2050 without biomethane. Total savings of £211bn are offset by £36bn of costs associated with greater biomethane production. 90%+ of savings come from four key sectors:  

• Transport (£93bn): Decarbonisation options for heavy-goods-transit, aviation and shipping are limited and costly. Additional biomethane creates more headroom in the carbon budget, saving investment in transport while still achieving Net Zero emissions 
• Power generation (£64bn): Biomethane can support a greater role for gas to deliver reliable power and provide cost-effective carbon abatement. This reduces the need to scale up renewables
• Buildings (£24bn): Biomethane reduces the pressure to install up to 6 million heat pumps and enables the phase out of gas boilers to be deferred by 5-10 years
• Power network (£23bn): Biomethane reduces the emissions intensity of the gas grid, reducing the challenge to electrify heating and industry, and reducing the investment required to upgrade the power grid to accommodate additional demand and renewables 

Our analysis indicates scaling up biomethane production can be a low-regrets option for supporting decarbonisation. The case for biomethane supporting system cost savings on the path to Net Zero is robust to a range of assumptions. In the Persistent Cost Barriers scenario, the least favourable for biomethane, savings of more than £150bn are achieved. In the Barriers Overcome scenario, estimated savings increase to almost £220bn.  

By 2050 optimal biomethane production exceeds 100 TWh per year by 2050 in all scenarios. To achieve production levels that may be optimal later in the pathway to Net Zero, production capacity needs to grow in the near term to allow higher levels of production to be realised.  

Phase 3 – Baringa set out nine recommendations to scale production and support competitiveness 

In the near-term continued policy support is essential to scale production and build a competitive market  

The GGSS has provided long-term revenue certainty but does not fully incentivise cost-effective production and is slated to end March 2028. Under the policy, larger size projects receive lower tariffs per unit of biomethane, incentivising producers to optimise scale for the relevant tier rather than project fundamentals. Tariffs are also set by Government, providing limited space for competition among producers. 

Investment in biomethane production is expected to dry up without clarity on future policy and the announcement of an extension of the GGSS. Given typical project construction timelines, the window for Final Investment Decisions (FID) under the current regime is now closing, and developers are unlikely invest to progress earlier stage projects.  

Continued policy support is essential to scale production and build a competitive market and by 2035 biomethane policy support can up to 60% more cost-effective than the current GGSS per unit of biomethane production. Baringa identifies an incentive for gas suppliers or shippers to ensure a minimum level of biomethane injection into the gas grid as a medium-term policy option with high potential.  

In the longer-term, enabling carbon removals and realising wider value means direct support for biomethane production can be phased out  

Captured biogenic CO₂ from biomethane production presents a high potential use case for the developing CCS transport and storage network. Facilitating, and potentially stimulating, a market for GGRs in the UK allows demand for carbon removals to be matched with biomethane production.  

By 2050, if value delivered from captured biogenic CO₂ enabling GGRs and from digestate application can be realised, direct support for biomethane production at significant scale may be limited or phased out.

Read Reducing the cost of Net Zero with biomethane for more.