The Danish biogas market is undergoing significant changes; encompassing the establishment of new installations and the formulation of new solutions for optimising the green transition.
The process of extending biogas production in Denmark is very much dependant on and driven by the subsidy and framework conditions applicable to such production. From our experience from projects involving establishment and transfers of biogas plants, we have learned that the subsidies available to the relevant biogas plants as well as the framework conditions regulating biogas plants constitute essential elements as they have significant impact on the profitability of the projects.
We expect the subsidy and framework conditions for biogas to improve causing the market to grow further. This article outlines the subsidy and framework conditions for biogas production.
Given the current security policy situation, we anticipate the arrival of an increasing number of initiatives that may boost the use of biogas. Concluding the National compromise on Danish defence policy, Danish political leaders have resolved to phase out gas consumption to ensure Denmark's independence from Russian gas. The political consensus aims at examining the possibility of increasing the use of biogas. The concrete initiatives must be discussed in connection with a climate proposal for green energy and energy supply scheduled for the spring of 2022.
The outlook for future biogas production
Biogas is a renewable source of energy contributing to the increase in renewable energy's share of Danish energy consumption as well as to the reduction in the emission of greenhouse gases. Most of the biogas production in Denmark is upgraded to a quality corresponding to that of natural gases and fed into our gas grid. In this way, the biogas is gradually superseding fossil natural gas in our energy consumption.
According to the government's Green Gas Strategy draft proposal, biogas accounted for approx. 20% and natural gas for approx. 80% of Danish gas consumption in 2021, and – looking ahead – the government expects biogas to account for 70% of gas consumption in 2030.
The process of upgrading and preparing biogas for the gas grid involves removing CO2 from the raw biogas. This leaves us with the potential for applying CO2 released from the biogas (biogenic CO2) in the production of PtX products, including e-methanol, which are based on green hydrogen and CO2 from upgrading facilities. Nature Energy has established a PtX pilot project at its biogas plant in Holsted. Nature Energy's ambition is to have set up full-scale facilities at every Nature Energy biogas plants within the next few years.
According to the Danish Energy Agency, towards 2023 we may see a demand for biogenic CO2 for use in PtX production from the least expensive individual sources such as biogas plants.
Financial support to existing biogas installations and installations put into operation by 31 December 2022
Since 2013, financial support schemes have been available in order to facilitate the use of biogas in the electricity production, in the supply of biogas to the natural gas grid, for transport, for processing purposes in enterprises and for other purposes (heating). Subsidy rates are regulated on the basis of electricity and gas prices and the price development in general.
The biogas support schemes were discontinued in 2020, no longer accepting any applications. Only existing biogas installations and a few projected installations which the Danish Energy Agency has committed to support will be eligible for support under the schemes that are now discontinued. Subsidy payable has furthermore been capped and the subsidy periodis limited to 20 years.
Support granted under the discontinued support schemes may be reduced if there is a risk of overcompensation according to EU's State aid rules. The most recent overcompensation assessment concludes that no such overcompensation has occurred in the period 2018-2020. Read more about overcompensation and how to assess whether overcompensation has taken place here (in Danish only).
Upcoming tenders for support to biogas and other green gas production
The 2020 Climate Agreement for energy and industries allocates a total pool of about DKK 13.6bn for six tenders for support to green gas production in the period until 2030.
A follow-up political agreement from December 2021 lays down the framework governing how to design and implement the support tenders .
Contrary to previous biogas support schemes, only green gas for the gas grid will be eligible for support. In the first tender round, upgraded biogas and e-methanol constitute the gases eligible for support.
The successful tenderers will be those making the lowest premium bids until the budget is exhausted. The first-round budget totals DKK 4bn, and the first tender round is expected to take place in 2022 or 2023.
The Danish Energy Agency expects upgraded biogas to be the successful tenderer and to defeat other green gases based on PtX as upgraded biogas currently generates the lowest production costs, see the Danish Energy Agency's Climate status and projections 2022 – biogas production.
Framework for tenders for support to biogas and other green gas production:
- The bid price must be quoted as a fixed premium for each GJ green gas supplied to the gas grid, and gas eligible for support is subject to a maximum amount
- An upper limit on bids ensures that excessive bids may be rejected
- Support is granted for 20 years, corresponding to the successful tenderers' bid prices
- Support is capped at a gas price of DKK 120/GJ. If the gas price exceeds this upper limit, support will be reduced correspondingly
- Obligation to meet minimum gas production quota which is subject to a penalty for non-compliance.
The use of energy crops for biogas production – stricter requirements
The biogas production eligible for support must satisfy certain sustainability criteria.
As a consequence of a Danish political agreement on new energy crop requirements from 2021, the use of energy crops in the biogas production will become subject to stricter requirements, which will also apply to unsupported biogas production.
The agreement entails phasing out maize as a source of energy by 2025. Moreover, a reduced energy crop threshold will gradually be phased in, falling from 12% to 8% in 2022. In 2023, the energy crop threshold will be reduced to 6%, stopping at 4% in 2024/2025. However, it is also proposed that energy crop production be subject to a decreasing allowance threshold under which energy crops may still account for 12% of the amount of applied biomass.
The political agreement introducing stricter requirements for the use of energy crops will be implemented by amendments to the sustainability executive order which the Danish Energy Agency expects to take effect on 1 July 2022. The first reporting period subject to the stricter energy crop threshold is expected to commence on 1 August 2022.
Biogas supplied through the gas grid is currently subject to ordinary natural gas taxes, including CO2 taxes. These taxes apply albeit biogas constitutes climate friendly fuel.
According to the 1st Report from the Expert Panel for a Green Tax Reform, an exemption from tax on biogas supplied to the gas grid might be achieved by funding biogas through intervention at an amount or rate corresponding to the CO2 tax on natural gas. This is also the recommendation of the expert panel.
The 2nd Report from the expert panel is due for publication in the autumn of 2022. The report will provide an assessment of a CO2 tax levied in the agricultural sector, which may have an impact on the extension of the biogas production in Denmark, including an assessment of the effect of a CO2 tax on agricultural emissions.
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