Biogas is a climate friendly solution that Finland now needs
The war in Ukraine has led to a situation where we should be able to move away from Russian natural gas on short notice. Biogas is the quickest sustainable alternative, as its implementation does not require drastic changes to the existing infrastructure. Biogas is also an environmentally friendly solution: it can help reduce greenhouse gases, promote the circular economy, and close nutrient cycling loops. However, the availability of biogas is limited and investments are required in its production.
The war in Ukraine has driven Europe into an energy crisis, in which the availability of natural gas plays a key role in Central Europe. In some European countries, the share of Russian imported natural gas makes up nearly a sixth of the country’s total energy consumption, which makes it hard to move away from.
The situation in Finland is less critical, as the corresponding share here is less than three percent. Currently, roughly half of natural gas goes into the industrial sector and half into electricity and heat production, where it is possible to replace it with tanker-imported LNG, wood, coal, and peat.
However, it is important to remember the sustainability aspect: while replacing natural gas with another fossil fuel may be a temporary solution to an acute crisis, the direction must clearly be toward a more sustainable transition.
The situation is challenging for industrial undertakings
Moving away from natural gas may require significant technological investments from industrial undertakings, and these can be difficult to implement on short notice. One possible solution would be electrification, where the industrial processes that use natural gas would be replaced with processes that use electricity instead. In practical terms, this can be done with direct electrification using electric boilers or, for example, replacing industrial gas furnaces with electrical ones.
In some cases, it is also possible to use indirect electrification, where heat pumps and electrical resistance used for priming play a central role.
The easiest way to replace natural gas is by using biogas. This way, the changes to the existing infrastructure are small. However, in our acute situation, the availability of biogas is limited and investments are required in its production. Let’s take a closer look into what these investments could be in Finland’s case.
Biogas projects require public support
In our current situation, various elements are required to support biogas projects, one of which is the act on promoting the use of renewable energy sources in transport that entered into force in 2022. In the legislation, biogas becomes part of the must-carry obligation with set limitations.
At the time of writing this text, a change in the legislation has been proposed, where increasing the share of the must-carry obligation is postponed. It is important to note that this proposal does not seek to change the additional obligation for advanced biofuels and biogas. This is a good direction, and we hope the round of statements sees the approval of the proposal as is.
The state should support biogas projects also through other means, such as by clarifying and harmonizing subsidies for operators. This would make it easier for smaller operators to plan projects and implement cooperation projects with multiple operators collaborating. Various benefit-based financial instruments where the price of the subsidy is tied to the environmental gain from the project would make it easier to get projects started.
Tax-related decisions also play a role
Tax-related decisions play their part with regard to the profitability of projects and the market development. From the perspective of biogas, the excise tax and electricity tax are relevant.
At the start of 2022, the legislation made biogas a fuel subject to the excise tax, with the exception of biogas used for heating, which was classified as sustainable. Producers of biogas need to have a sustainability system approved by the Energy Authority in place in order for the gas to be classified as sustainable and therefore tax-free. In other cases, gas is subject to the full excise tax for biogas, also when used for heating.
With regard to the electricity tax, the industrial production of recycled materials and processing afford operators with energy tax subsidy, as in practice electricity used by these factories belongs in the electricity tax class II. As for biogas, the interpretation remains somewhat unclear, but the lower tax class naturally affects the profitability of the factories.
Tools of direction need to account for predictability
We also need to remember that, at some point, the limited production of biogas may need to be directed where its use produces the greatest benefit and most significant environmental effects. We need to carefully consider these direction tools and communicate in a predictable manner to help operators adapt to the changing situation.
In general, all the direction tools of the state need to account for predictability. This way, there is no need for the operators to hesitate to drive their projects forward. In addition, the state should attempt to streamline the permit process and clarify the financing and subsidy concepts.
The attractiveness of the biogas sector should be promoted
As investing in clean solutions is seen as a central risk management tool in the financing market, the circular economy and the production projects for renewable energy sources are currently highly interesting as potential investments. This development can be expected to be highlighted especially with regard to biogas, as it can be used to influence various areas of sustainability: reducing greenhouse gases, promoting the circular economy and closing nutrient cycling loops.
However, it is important to remember investors inspect opportunities from a holistic perspective in relation to other potential investments. Therefore, we should seek to promote the attractiveness of the biogas industry as a potential investment.
The Finnish biogas market is still developing
In 2020, the production of bio methane in Finland was approximately 110 GWh, and the production of biogas was approximately 768 GWh (total sum corresponds to roughly 3.5 percent of natural gas use in Finland). At the time, there were around 79 reactor plants. In addition, bio methane was processed in 21 plants.
It is worth noting that the market sees the sector divided between one strong operator in Gasum and heterogenous smaller operators, with a focus on promoting individual projects. This division may in part reduce the interest of investors toward projects in the sector.
Especially with regard to smaller projects, the technological risks and business risks are highlighted, which is reflected in financing for the projects.
The environmental perspective of biogas should be emphasized
State action has its own significance in promoting financing opportunities, but the development of the biogas industry’s visibility and image is just as important. Farm-scale opportunities have yet to come up in any large capacity in the public debate.
In Finland, the image has been influenced by past technology producers’ technical and financial challenges, which have ultimately resulted in bankruptcy and several unfinished factory projects. However, new players have entered the sector and the number of ongoing projects has increased.
Now would be the opportune moment to develop the public image of the sector as, in the industrial sector, many operators would like to utilize biogas as part of the process of moving away from natural gas. On the other hand, securing the viability and security of supply in the agricultural sector have become ever more important themes following the war in Ukraine. Therefore, the environmental perspective of biogas should be further emphasized in the public debate.
Cooperation will play a key role in the future
The technological side of the sector has been characterized by relatively small operators whose limited resources have not easily allowed for the development of scalable technologies. For this reason, there is clearly room for technological suppliers in the sector who can implement large-scale projects.
On its part, technological development is limited by the lack of competence both on the side of project operators and the authorities. It is worth noting that the production of biogas requires interdisciplinary competence. For example, the heterogeneity of raw materials has affected technological reproducibility and scalability.
In a typical project, competence is required from biology, design, and logistics to financing and profitability. For this reason, it is especially important to “projectify” the whole as part of more extensive ecosystems and cooperation networks.
The role of the biogas sector as part of the energy system
What is the role of the biogas sector in the future? It is hard to give a definitive answer, but it is my belief that in the short term it will be a significant operator regarding the move away from fossil fuels. According to different scenarios, the need for biogas was estimated at 4–11 TWh before the war in Ukraine, and the ongoing crisis works to speed up this development.
Following the resolution of the acute situation, the focus will presumably move more on the expansion of the use of biogas and mapping new ways to use it. The security of supply perspective will be one that will promote the expansion of the use of biogas and will pave the way for more versatile use of gases both in transport and the industrial sector.
I believe that, in the future, we will be using synthetic methane, bio methane, biogas and hydrogen, which will also open new doors for other electricity-based fuels and solutions in the hydrogen economy.