Spain: Biomethane investments versus green hydrogens
“Biomethane is one of the most attractive segments of the energy transition for investors,” was the message sent to the market by Goldman Sachs just a few days ago. The firm has launched its newly formed Verdalia Bioenergy in Spain as part of its commitment to biomethane.
Goldman Sachs revolutionized the Spanish renewables sector with a big bet to gain a foothold in the energy transition. The merchant bank has launched Verdalia Bioenergy, a new fund with 1 billion euros, which will be used exclusively for the acquisition, development and management of biomethane assets; biomethane is one of the renewable gases that aspires to become the key substitute for natural gas. Verdalia will start in Spain and then hopes to expand its scope to Italy and the rest of Europe, with a time focus of four years.
Leading the energy transition from Spain
In unveiling its energy plan, the Wall Street giant has also issued a warning to the market: "We believe biomethane is one of the most attractive segments of the energy transition for investors," said Matteo Botto, Infrastructure Managing Director at Goldman Sachs. The company is thus positioning itself on the side of biomethane as the golden vector of decarbonization, as opposed to other alternatives, such as green hydrogens, which are apparently attracting more interest from investors.
Biomethane is a renewable gas obtained from organic waste such as slurry, manure, crop residues or sewage sludge. Spain, an agricultural and livestock powerhouse, has the strength to become the backbone of the EU biomethane chain. It is no coincidence that Goldman Sachs has kick-started Verdalia's activity in Spain, with the acquisition of its first portfolio of projects under development with the potential to produce 150 gigawatt/hour/year.
Towards biomethane expansion in the EU
Spain has more than 2,300 plants that could be converted to generate biomethane, a process that would entail an investment of more than 40 billion euros, according to a recent report by the gas sector organization Sedigás.
In May last year, the Commission presented the REPower EU plan to end energy dependence on Russia. The initiative includes measures for supply diversification, efficiency and the production of other energy sources such as green hydrogen, biogas and biomethane. In the case of the latter alone, an EU target has been set to produce up to 35 billion cubic meter/year of biomethane by 2030. Spain will contribute 12-13% of this amount.
The path to biomethane expansion seems clearer than the path to renewable hydrogen deployment. This is something that is already starting to be discussed in the financial world, where the word "bubble" comes up more and more frequently when talking about renewable hydrogen.
Spain’s potential
The European Commission places Spain among the three EU countries with the greatest potential for biomethane production by 2050, according to a report published in April 2020. The same appears in the International Energy Agency's 2022 report, which places Spain after Germany and France.
Even so, the distance in power levels in Spain with respect to the first two countries is very notable. For the CEO of Nortegas, "institutional support is needed through a stable and clear regulatory framework, which accelerates the processing of generation plants and allows the valorization of this source of renewable energy through an efficient system of guarantees of origin". In this regard, Sedigás has been working for "many months" with the Spanish administration on an implementation of the guarantees of origin (certifying a source as renewable), which the association expects to be in place by March 2023.
The biogas pathway in Spain
In March 2022, the Ministry for Energy Transition and the Demographic Challenge published a roadmap for a four-fold increase in biogas production by 2030 (full text in Spanish here Hoja de Ruta del Biogás V6 (energia.gob.es). At the same time, a call for proposals was launched to grant up to 150 million euros in aid to this sector to be paid for by NextGenerationEU.
The most important challenge in the development of biogas is to make its production and sale profitable. Thus, the Spanish government's plan is a necessary boost. "A sea of opportunities is opening up for rural Spain to produce biogas," Dr. Martín Ramírez, professor at the University of Cádiz, points out, "as Spain is the second largest producer of agricultural waste in the EU”, according to him.
Biogas and biomethane, what’s the difference?
Biogas is a renewable fuel from the recovery of organic waste, key to the decarbonization of industry and transport. Biogas is a mixture of methane (highly valued for its high energy potential), CO2 and small quantities of other gases produced by anaerobic digestion of organic matter in an oxygen-free environment. Biodigesters are airtight systems (e.g. containers or tanks) in which organic material, diluted in water, is broken down by naturally occurring micro‑organisms (Fig. 1). Biogas can be used directly to produce electricity and heat or as an energy source for cooking.
Biomethane (also known as “renewable natural gas") is a biogas from which the carbon dioxide and other contaminants have been removed. As a result of that purification process, the biomethane has the same characteristics as natural gas and can be injected into the grid. Biomethane production thus helps increase the proportion of green gases in our gas consumption, with benefits for the energy transition and the reduction of greenhouse gas emissions.