Last month the REA released its market report on UK Biomethane. It reports significant expansion of the biomethane to grid sector, with more than 50 projects completed by the end of 2015. Another 15 plants are expected to be completed in 2016 – almost achieving the Government’s ambition of 20 biomethane plants to be deployed each year by 2021.
Looking further into the future, National Grid models a 10 fold increase in gas to grid connections over the next decade – and forecasts that by 2035 the biomethane to grid sector could contribute up to 10% domestic UK gas demand. In its response to the EU consultation on sustainable bioenergy policy for post 2020, ADBA contends that AD offers an excellent return on government investment – amongst other things by strengthening the rural economy, improving energy security and supporting cost effective carbon abatement.
Another potential focus for growth is the application of biomethane in the transport sector. The DfT has also indicated that it plans to consult on the RTFO, the government subsidy for renewable transport fuels, later in the summer. Early indications suggest government will support the use of biomethane for transport – at least in the medium term.
So is confidence in the biomethane sector justified?
Key to continued sectoral growth and increased deployment is a policy stability and visibility of the direction of policy travel. Developers need confidence that, if they spend time and money developing a project (often spanning one or more parliaments), that their development will have value. This confidence is being threatened by the major consultation on RHI reform which closed late last month and the impending Brexit referendum.
If Brexit were to happen, the UK would have full control over its regulatory regime and the support schemes it puts in place. The UK could, if it decides, completely re-design them. This could, of course, be a terrific opportunity or a dire threat depending on your point of view. One thing we can probably conclude, however, is that energy policy in a post-Brexit UK would be less certain (at least for a while) since there appears to be a greater divergence of view on energy and environmental policy among the main political parties in the UK than there is across the EU.
We await outcome of the two consultations and the Brexit referendum with keen interest, and look forward to the development of a policy vision and renewed policy stability, which could revitalise investment in the biomethane sector, a sector whose underlying dynamics appear to be in good shape. If you have any questions or would like to discuss this topic further please get in touch with Ali Rimell, or your usual Brodies contact.
On May 16, 2016