A marriage made in heaven: biogas, bankers and being boring

Tidal energy is a classic example of this. Every politician who is interested in renewables looks wistfully at the North Sea and thinks that huge mass of water being dragged back and forth every day by the moon must be a source of energy. At a rough estimate, about a trillion tonnes of water is moved with every tide. As a result, we have had decades of ministerial enthusiasm, glossy strategy documents, and generous subsidies, but what we have is a black hole rather than a constellation because investors and banks still won’t go near the sector.

Last week, sitting in the echoey grandeur of the European Biogas Conference, I was reminded of this disconnect. There were drinks receptions, expensive trade stands, and the politicians were all super bullish: “Europe will scale biomethane production fivefold by 2030!” but I looked around the hall and noticed how few banks were actually there. You can have all the policy ambition you like, but without finance, it’s just lofty pronouncements echoing around a hall full of other politicians and slightly hungover financial advisors.

The 2030 arithmetic

Europe consumes approximately 350 billion cubic metres (bcm) of gas per year, and this is nearly all imported. The Russian invasion of Ukraine has made energy security very much today’s special on the European policy menu. The most popular session at the conference wasn’t about biogas technology or feedstock logistics- it was a talk by a NATO general.

To try and reduce reliance on imports, European leaders have agreed on a biomethane target of  35 billion cubic metres (bcm) per year by 2030. Current production is about 7 bcm. You can do the maths: that leaves a gap of 28 bcm. This equates to roughly 560 large-scale plants, each producing 50 million cubic metres per annum, needing to be built in the next five years.

There are 1,862 days until 31 December 2030. That means a new biogas plant has to come online somewhere in Europe every four days.

Each large plant costs around EUR 50 million. Therefore, 560 plants require EUR 28 billion of capital — approximately EUR 19.6 billion of debt and EUR 7 billion of equity. Following the same maths, this requires an investment of EUR 50 million every four days, all to be invested before the 2030 deadline.

Policy Levers and the competition for capital

Across Europe, different politicians from different countries are dangling different worms to lure in this money to decarbonise their gas systems and reduce their own reliance on energy security:

• The UK has the Green Gas Support Scheme
• The Italians offer generous grants
• The Dutch and French are experimenting with blending obligations on gas producers

But support mechanisms will only get you so far. Banks and investors are now spoiled for choice, and they will go where projects are clean, clear, and creditworthy.

What makes a biogas project bankable?

Bankers want to be bored by your project. No alarms and no surprises. It should be like every other biogas project they have ever funded, with the same five things every time:

1. Feedstock – Long-term, reliable, low-cost supply contract. No feedstock certainty, no project. Theoretically, there is enough feedstock in Europe to supply 150 bcm, so 35 bcm should be achievable. Your challenge is to find and contract it
2. Technology – Proven kit only. Some unhappy people crave constant novelty in their lives. These people tend not to be bankers
3. Grid connection – This is hopefully less of an issue, as gas networks are less congested and the gas can be liquefied for transport
4. Planning – Varies wildly. Almost impossible in the Netherlands, painfully slow in Spain, surprisingly smooth in Norway
5. Revenue – Semi-fixed is fine; guaranteed is better. Bankers will take the risk of the gas price, but they really want a floor price on certificates

Remember: this is a pan-European competition. If your feedstock or certificate story is weak, another developer somewhere else will have a stronger one, and that’s where the bank’s money will go. There’s no God-given decree that says somebody has to fund your project.  

What are achievable terms?

Pretty much every new client will ask me what the typical terms for bank debt are, and my answer is always, “well, that depends”.  That doesn’t make for a very interesting blog, so I am going to stick my head above the parapet and say this is roughly what you can expect.

Looking to 2030

Europe’s biogas sector stands at the start of a decisive five years. Energy security is now driving the transition to biogas and thanks to the Russians, this initiative commands significantly more political support than Net Zero targets. As winter approaches, getting even 10% of gas from within Europe seems like a good idea.

To get there, we need to invest EUR 28 billion in 1,862 days, which is a huge challenge and requires an awful lot of bankers and infrastructure funds to get on board quickly. Politicians may make lofty speeches, but the reality of building 560 plants takes shape in business cases, dreary credit committees and densely worded feedstock contracts.

And if we drill down from 560 plants to just a handful, the requirements remain the same: feedstock, proven technology and at least a degree of contracted revenues. If you can supply these somebody somewhere will fund your project on the terms set out above. If you can’t, then they won’t.

Mrs. Ware has lost the last three elections she stood in, but she keeps going pounding the streets and knocking on doors because she believes that she can make a difference.

Her only real expense is printing leaflets and a new pair of comfortable shoes each election.  We can make a difference with biogas in Europe, but unlike her, we can’t do it alone – we need the bankers and infrastructure fund to join the party. They are willing, but only if your project is really, really boring. We need to move on from lofty announcements to shovels in the ground, so hopefully there will be a lot more bankers and fewer politicians at the next biogas conference I go to.