Market review 2024: Developments in the biomethane market

2024 was a year of renewal and strategic rethinking for the German biomethane market, with important impetus provided by new legal regulations. We shed light on these developments in our market review.

The new Building Energy Act came into force, which introduced heat from biomass as a flat-rate fulfillment option
Consequences of flooding the biomethane market with fake UER certificates and supposedly non-advanced biodiesel on the GHG quota
The BMUV (Federal Ministry for the Environment) adopts a new UERV (Upstream Emission Reduction Ordinance)
Consequences of the GHG quota crisis and triggering further uncertainties in the market, primarily due to payment difficulties for biomethane trading players
A new BImSchG (Federal Immission Control Act) is passed by the BMUV
Upturn in German biomethane production

A new building energy law strengthens the biomethane market

At the beginning of the year, on 1.1.2024, the new Building Energy Act (GEG) (20). It marked the start of the heating transition and focused on heating with renewable energies. Biomethane is a particularly interesting option as it enables the use of existing infrastructure and heating systems. In addition, the use of biomethane is considered a "blanket fulfillment option". This means that homeowners do not need to provide individual mathematical evidence. This change promises a solid long-term sales market for biomethane from waste and residual materials (1). These substrates are used in the heating sector as they have a fuel value of less than 21.6 g CO2/MJ. It exempts biomethane from the BEHG (Fuel Emissions Trading Act) (21).

Estimates by dena in relation to the GEG

The new Building Energy Act not only marks an important step in the energy transition. It also has a direct impact on the biomethane market by creating new incentives for the use of renewable energies. According to estimates by dena, EWI and BMWK, this new legislation will increase biomethane demand in the heating sector from the current level of 1 TWh to at least 13 TWh by 2040 (2).

Falsified UER certificates and the fall of the GHG quota

Figure 2: Overfilling of the GHG quota and quota price (Stellungnahme-Gutachten-SG2410100001.pdf)

In the GHG quota market, however, the effects were still being felt. On the one hand, the falsified upstream emission reduction (UER) certificates and the falsely declared biodiesel from palm oil, which was confirmed for the first time in mid-2023. ViGo Bioenergy estimates that 50% of the GHG quota was due to falsely declared certificates. The figure for 2024 remains untitled. Other factors influencing the quota price were the slow increase in the quota, rising electromobility and the expansion of the market abroad for quota fulfillment. In addition, the previous extreme overfilling of the quota destabilized the market. From 3.4 million tons of CO2eq in 2022 and 8.1 million tons of CO2eq in 2023 and kept demand low (19, 22).

After much finger-pointing and denial, there were some new laws to reinstate the GHG quota as a serious tool. For example, on August 14, 2024, an executive order on anti-dumping duties was published, strengthened domestic production and was part of the measures that contributed to the recovery of the GHG quota (7, 8, 9, 24).

The new UERV

In February 2024, the draft bill to amend the UERV was published. This would end the future eligibility of UER projects, but did not address the damage already caused by the certificates placed on the market. So while the quota has continued to fall steadily, to less than half since the fraud cases became known, it was still possible to claim the UER certificates and even carry them over to 2025. The damage to the renewable energy sector was estimated at 4.4 billion euros. According to the Stop Climate Fraud initiative, the money went to the fossil fuel industry.

The topic gained further attention in May when the ZDF "frontal" report uncovered fake UER projects. This led to an increase in statements from political circles in Berlin. In July, Federal Environment Minister Steffi Lemke admitted that there had probably been a lack of controls. According to the police, the involvement of external inspection bodies is legally difficult. Lawyers suspect that parallels can be drawn with tax evasion. This could mean redemption periods of up to 10 years. According to a lawyer Altenschmidt for commercial and corporate law, the UERV can be interpreted individually. It is not possible to speak definitively of fraud; moreover, neither the UBA nor the BMUV has the final decision-making power, but rather the Federal Administrative Court (4).

'Stop climate fraud initiative' for the biomethane market

Some key players from the renewable energy sector then founded the "Stop Climate Fraud Initiative" on September 4, 2024 and exerted media pressure on politicians. The President of the UBA then announced the reversal of 45 UER projects in mid-September. This was a clear sign of a reappraisal, as according to a press release a week earlier, there had only been 8 projects. The amendment to the 38th BImSchV was also amended to suspend the transfer of the GHG quota overfill for 2025 and 2026. However, the damage caused not only affects the renewable energy sector, but also the Federal Republic of Germany (5, 6).

If these allegations prove to be true on a large scale, Germany could face higher financial costs as a result of the EU Effort Sharing Regulation (ESR). It is already estimated that potential fines for insufficient emission reductions in the transport sector could amount to around 16.2 billion euros by 2030. However, companies subject to quotas have not yet had to fear any consequences, as the certificates enjoy protection of confidence in the biomethane market (3).

Effects of the THG quota crisis and insolvency in self-administration of a market leader

Landwärme GmbH, a major provider of biomethane for energy supply companies, municipal utilities and industrial companies, ran into financial difficulties in 2024. On August 13, the Berlin-Charlottenburg district court ordered provisional insolvency under self-administration. This was officially opened on November 1, 2024. The subsidiary Landwärme Service GmbH also filed for insolvency after THE terminated its balancing groups on October 15. Such terminations represent an exceptional situation and are considered a last resort measure to minimize risk on the part of THE(10).

Landwärme GmbH attributed its insolvency primarily to falling revenues in GHG quota trading. The VKU also reports that a good 100 member companies, mainly municipal utilities, still have outstanding claims against Landwärme (11). Customers feared delays or problems with the timely invalidation of certificates, which is particularly critical for the EEG subsidy certificate. Subsequently, sales of biomethane from farm manure fell so sharply due to the drop in quotas that in some cases it was already being sold and sold into the heating market. This further unsettled the already unstable biomethane market, with many trading partners unclear about which supply contracts were available. exist would remain.

Amendment of the law to stabilize the quota market through BImSchG in the biomethane market

The next amendment to the law came with the declared aim of making the GHG quota a relevant instrument for greenhouse gas reduction and climate protection once again.

On September 20, 2024, the BMUV published the draft bill (RefE) of the Third Ordinance amending the Ordinance on Further Provisions for the Reduction of Greenhouse Gases from Fuels (38th BImSchV). This amendment brought some life back into the market at the end of the year, even if it was criticized by some biogas industry stakeholders for being short-sighted. The Bundesverband Bioenergie e.V. wrote in a statement that producers of sustainable fuels could not forego the turnover for certificates from 2024, which led many to accept sub-par prices, while financially strong quota-obligated companies can now buy quota fulfillment options cheaply, which could push the 2027 quota price down again. This price had already fallen further at the end of 2024 for the 2024 compliance year, as most buyers were not interested due to suspended transfers and producers had to pay for uneconomical Prices sold to limit the damage.

The central change in the RefE was the suspension of the quota transfer for 2025 and 2026. This change was a reaction to the fact that the GHG quota had fallen sharply in value, from around €160 at the beginning of the year to as low as €50 per tCO2eq in October (16). The news of the first draft of this legislative amendment alone caused the biomethane market to breathe a sigh of relief, as a result of which the price of fuel-grade biomethane from slurry/manure with a GHG value of -100 gCO2/MJ rose from 9.5 ct/kWh in September to 12.5 ct/kWh in November.

Domestic production volumes rose noticeably again for the first time

According to dena, seven plants with a total processing capacity of over 2,500 Nm³ per hour were commissioned by September 2024. In other words, more plants than in the three previous years combined (15). These observations are supported by the Market Master Data Register. It records an increase of 3,125 Nm³ for the full year 2024, which is fed into the grid by 12 plants. This corresponds to an expansion of approx. 5%. According to dena, growth is expected to remain constant at 10 to 15 new plants per year in the coming years. The average plant size is 2.8 MW, which reflects an increasing consolidation of the market and producers into large company mergers. This is a sign of a mature market. The substrates used in the two largest plants are liquid manure and dung. This makes the biomethane produced interesting for the fuel market (12, 13).

Positive signs for the market

Despite difficulties in the market, new construction efforts indicate a stable interest in investment and a positive outlook for the coming years. The European Biogas Association (EBA) shows that Germany is lagging behind the EU member states despite increased growth. It records a steady expansion of biogas production volumes of around 20% percent. But even this was surpassed in the first quarter, as 6.4 billion cubic meters were produced in the EU-27. Compared to the previous year, this represents an increase of more than 30% (14). The fact that other European countries are catching up in terms of biomethane production volume promises to diversify and thus stabilize the biomethane market.