Ireland’s renewable heat obligation can fuel its biomethane sector

With industry waiting for details of the RHO to be published, we highlight how Irish policymakers can learn from the experience of other markets in designing biomethane support schemes to help promote growth of biomethane production and use in Ireland.

The RHO and the potential role for biomethane

Broadly, the RHO is expected to oblige suppliers of fossil fuels used for heat to ensure that a proportion of the energy they supply is renewable. The RHO will be key for Ireland’s biogas industry and achieving ambitious climate targets.

The RHO is set to be the main support mechanism for the emerging anaerobic digestion sector in Ireland. The RHO will build on the national biomethane strategy (51 pages / 676 KB) published by the Department of the Environment, Climate and Communications (DECC) in May 2024. A support scheme for biomethane in Ireland needs to accommodate various factors. For example, businesses need to know how green gas is certified and that any stipulation that green gas, or a percentage thereof, be derived from indigenous fuels is compatible with EU state aid rules.

Given the ongoing delay in the publishing of the RHO structure, it is arguable that DECC may yet pursue a different type of support scheme – noting that the emergence of the Irish wind sector was underpinned by a series of feed-in tariff schemes over 15 years. Moreover, a reported ongoing dispute in the Netherlands on the status of imported biomethane within a domestic support scheme may also have some bearing on the design, and the delay, of the Irish RHO.

The growth of a strong biomethane sector and the associated supply chain will be critical across the all-island market to achieve decarbonisation targets – particularly in those hard to decarbonise areas such as heat and transport.

Northern Ireland has an established base of anaerobic digestion plants but to drive the step change required, a coherent strategy must be put in place.

The Dutch case

In 2022, under the REPowerEU Plan, the EU set bold targets to use biomethane to reduce methane emissions. Biomethane is made from organic waste and can be blended with natural gas to heat homes and power businesses. The Netherlands is one of the largest biomethane industries in Europe. Under new rules introduced last year, the Dutch government stated that, to qualify for Dutch supports for biomethane production, such biomethane must be derived from supplies of organic waste from the Netherlands – i.e. an indigenous feedstock.

This has led to a dispute between the Dutch government and the European Commission, according to the Financial Times. The Commission deems the requirement for an indigenous feedstock to be an illegal obstacle to free trade in the EU single market, one of the fundamental principles that attaches to EU membership. As a result, the introduction of the proposed new rules has been postponed by the Dutch government until 2026. The legislation at issue is being considered as a measure having equivalent effect to a quantitative restriction on imported green gas units. The Dutch government argues that it cannot be sure of the origin of imported biogas without an EU-wide certification system and therefore can only be sure that Dutch production contributes to the broader EU production targets established by Brussels.

The primary objective of the RHO, or similar, is to establish increased and sustained demand for biomethane in Ireland. However, to kickstart domestic biomethane production, industry is calling for policy levers to be applied in the RHO to encourage suppliers to meet their obligations with indigenous feedstocks. The use of the indigenous feedstocks will, however, result in the domestic biomethane being more expensive, at least initially, than what is available from more established biomethane industries in other member states.

The outcome of the Dutch case will therefore be observed closely by DECC. It will need to consider a range of other issues too.

RHO structure

The RHO will likely be structured as an obligation on suppliers. Potential developers of anaerobic digestion projects will therefore be looking to enter into contractual arrangements with these suppliers for the suppliers to purchase such biomethane.

Ultimately, this means that producers of biomethane will be seeking financing on the back of business-to-business commercial contracts. It remains to be seen if this structure will be as attractive to investors as earlier government supports, such as the Renewable Electricity Support Scheme (RESS) or its predecessor the Renewable Energy Feed in Tariff, in seeding the market in much the same way the first decade of wind power development was supported.

Unintended consequences

Care must also be taken in drafting the RHO to minimise the emergence of unintended consequences or gaming type concerns. France had to impose a restriction on "energy crops" when their equivalent scheme to incentivise biomethane production resulted in intensive farming practices being used. Further, restrictions and controls had to be imposed on digestate management as digestate from the anaerobic digestion plants was being spread all year round due to storage difficulties and expense, which can have adverse environmental impacts.

Likewise, careful thought will need to be given as to whether any complementary subsidy will need to be made available to producers of biomethane to incentivise production. The design of such subsidy and the RHO will be critical in shaping the industry in terms of project size, technology type, feedstocks used etc. Effort should be made to encourage innovation and avoid any unduly onerous limiting effects, whilst also ensuring that environmental standards are maintained.

Policy direction is vital

What Ireland can learn from the UK, and even the initial wave of anaerobic digestion projects in Northern Ireland in the wake of the Northern Ireland renewables obligation, is that policy support is vital for establishing a new sector such as biomethane.

Conversely, policy inconsistencies can halt development and undermine the potential that the RHO has to create a lasting biomethane sector in Ireland.

Given the potential across the island for biomethane production and its utility as a like-for-like substitute for natural gas, we would hope to see clear, unambiguous support for biomethane production.

Given the size of the market and the transportable nature of biomethane, care will also need to be taken north and south to avoid a two-speed market forming. On that basis, Northern Ireland will need to accelerate its own policy ambitions to keep pace with progress in the south.

Certification

Another important element for the growth of the biomethane industry is ensuring that biomethane produced from appropriate renewable sources is certified as renewable by trusted sources in the market and that such certificates have real and tradable value across Ireland, the UK and EU.

Where things go from here

It will be interesting to see how the Dutch case with the Commission progresses, but further, what the draft RHO high-level scheme outline looks like for Ireland.

There have been indications that the RHO will include a mechanism to encourage the sourcing of indigenous biomethane, but it remains unclear what form this will take in the context of the Dutch case.

Biomethane has an increasingly important role to play in security of supply and the decarbonisation of Ireland’s energy use, particularly the heat and transport sectors. The technology already exists. However, to accelerate deployment and uptake, policy needs to catch up and quickly. 

Investors in Northern Ireland and Ireland need to have confidence that these projects are capable of being built at scale and can make the necessary returns, in much the same way that policy has driven growth in renewable electricity generation. 

It will be interesting to see the impact of the RHO in comparison to similar support arrangements in the electricity sector where contracts are entered into directly with government or a government-backed entity, such as RESS in Ireland and the similar ‘contracts for difference’ scheme in Britain. 

From our discussions with industry, a major priority for the government should also be to ensure that any such policy includes appropriate protection for indigenously produced biogas to avoid the market becoming saturated with subsidised imports from other EU member states.