Cleantech start-ups delivering green gas solutions can reshape the EU gas industry landscape and uphold the REPowerEU ambition. Investors need clear market and policy signals

Gas is dead, long live the gas

The unprovoked Russian invasion of Ukraine has significantly impacted decision-makers’ priorities and accelerated Europe’s need to end its decades-long dependency on Russian coal, oil, and gas. However, investing in new energy infrastructure and intermittent renewables will not suffice to implement the REPowerEU plans and the long-term Green Deal goals. Instead, and notably to reduce the need for fossil baseload, we will need all kinds of energy technologies alongside mainstream renewables – solar and wind – including promising wave and tidal energy, as well as rolling out large‐scale electrical energy storage. Biomethane, green hydrogen and other green gases are bound to play a significant role with new, cleantech start-ups delivering innovative and sustainable solutions.

New opportunities

Recent events and European Commission’s REPowerEU plan have significantly changed the perception of fossil gas as a transition fuel. They have given renewable gases, such as biomethane and green hydrogen, a new impetus. The increased plan to ramp up biomethane production to 35 billion cubic metres (bcm) by 2030 – a twofold increase of the current EU production – creates many opportunities to reduce our dependence on fossil energy sources. It shall also mean new business opportunities for the biogas value chain. Similarly, the strategic importance of green hydrogen by doubling the EU’s green hydrogen production target previously set out in the European Hydrogen Strategy to over 10 million tons of domestic production gives a strong  market signal.

Funding and financing in hydrogen have risen on the back of surging interest in energy sovereignty and the necessity to replace gas and other fossil fuels with green hydrogen in hard-to-abate sectors – mainly in heavy industry, chemicals, long-distance transport and everywhere else where electrification will meet technology or cost barriers.

However, to meet the ambitious 2030 REPowerEU targets for a still nascent hydrogen economy and make 10 million tons of domestic green hydrogen production a reality, innovative hydrogen projects must reach commercial-scale earlier and with a bigger impact. Hence, we must leverage the expertise and capabilities of seasoned cleantech investment experts and use that expertise to facilitate industry-scale hydrogen economy projects. This is the logic behind why  InnoEnergy created EGHAC – the European Green Hydrogen Acceleration Center, supported by Breakthrough Energy. EGHAC is well placed to catalyse hydrogen projects bridging the silo mentality between various sectors of the European economy with their value chain approach. It creates industrial players and de-risks and accelerates their green hydrogen (and derivatives) projects and does this through early-stage investment and acceleration services delivered in collaboration with its ecosystem.

No silver bullets

Yet, for making the full decarbonisation of the energy system a reality, also other green gases are needed to meet demand, especially from industry. This is the context in which green gases and, in particular, biomethane become a vital energy source. Capable of displacing as much as 20% of Russian natural gas imports by the end of the decade, biogas – where necessary upgraded to biomethane standards – will play a key role in the energy transition by providing an immediate source of clean energy.

Therefore, EIT InnoEnergy supports start-up companies that are on the front line of this activity. These businesses often have a profound societal impact in rural areas, while improving carbon neutrality and waste management practices within essential food value chains. But not every country in the EU has tapped into the biogas potential equally yet. Germany is the European leader in biogas production, and recently France announced new investments in this sector, coupled with extensive support for biomethane producers. Last year, the country counted 365 installations designed to inject biomethane into natural gas networks, with a capacity of 6.4 terawatt-hours (TWh) per year. 

The greening of existing gas infrastructure and creating a well-functioning guarantee of origin scheme should be a European priority. EIT InnoEnergy, as a truly pan-European impact investor, strongly believes that cross-sectoral partnerships including grid owners and energy companies will play a significant role in the successful deployment of biomethane projects across the Union.

And innovations will serve as a toolkit to extend the role of existing infrastructure, relying on it rather than making it redundant, and enabling more meaningful involvement of incumbent companies in the energy transition. This is our experience with our portfolio start-ups and scale-ups such as Arol, Deltalys, Naoden or Enosis. Unlocking distributed bio- and waste-derived feedstocks as sustainable, local natural gas substitutes could reduce the burden on the environment, provide additional income in rural areas and become one of the steppingstones on the pathways toward a net-zero Europe. In addition, diverse technological pathways for green gas production (gasification, pyrolysis, biomethanation, etc.) should be embraced, also at an EU regulatory level. Success stories of biogas-to-biomethane purification expert Arol, or small-scale bio-syngas producer Naoden demonstrate how technology and innovation open new prospects for sustainable use of locally available resources, strengthening distributed energy generation role in the overall energy transition. 

Much remains to be done. Countries like Germany, the Netherlands, Denmark, Sweden and France are already using meaningful amounts of biomethane. Yet in countries like Poland, the biogas potential is not sufficiently tapped into, and beyond biogas, no biomethane production nor gas grid injection takes place in the country at all. Polish long-term estimates indicate a potential of even 31 TWh, with the use of main substrates coming from waste in agriculture. But the country is off to a slow start. For years this lack of growth could be explained by the gap between the natural gas price and the price of biomethane. However, nowadays, the CO₂ price and supply constraints give biomethane a competitive edge, and European funding – as well as the boosted targets for green gases – further incentivise biomethane project development.  

Creating a European biogas economy for the long-term

A long-term and robust strategy to support innovative technology companies in the biogas sector should be at the centre of the ongoing energy transition planning and discussions. Ambitious policies and aspirational targets mean clear signals for investors and translate into tangible business opportunities for solution providers and energy companies alike. At the same time, the EU must give a clear signal that the use of biogas to decarbonise crucial sectors, especially industry, is a long-term solution beyond 2030.

With high CAPEX costs for biogas plants, investors and companies would otherwise not make the decision to start projects. This will support faster technology implementation but will also create an economy of scale, enhance economic growth in the sector and create high-value-added jobs.  

As outlined above, it remains crucial to tap into the local potential of waste streams for biogas production. Waste streams, such as food or biomass residues, that are currently not used for energy purposes and would end up in landfills make up a feedstock that has to be tapped into. Therefore, the proposal in REPowerEU that the Member States should assess their local biogas potentials as well as identify their application areas will make sure that countries are aware of their feedstocks and that an adequate strategy for each region is drawn up. Only with such analysis and detailed national biogas strategies is the 35bcm target a realistic one.