If the events of the last 12-months are anything to go by, sizeable private capital investments into the bioenergy industry may only just be getting started.
The industry looks to have numerous tailwinds in its favour that could continue to propel it forward for the remainder of the decade – and possibly beyond – in a way it has not yet experienced.
From an energy policy perspective, the EU’s need to diversify away from Russian gas has seen the bloc go from importing 56 percent of its gas from Moscow in September 2019, down to 12.9 percent in November 2022, as the RePowerEU initiative took hold.
The long-term energy security and diversification strategy includes plans to invest €37 billion into biomethane and increase annual production to 35 billion cubic metres (roughly 350 TWh) by 2030, up from roughly 3 billion cubic metres in 2022.
The undertaking will require the construction of 5,000 new biogas plants and around €80 billion in capital investments.
Beyond the catalyst provided by EU policy, national waste management policies are also creating investment impetus – the UK, for example, produces around 10 million tonnes of food waste annually and has committed to eliminating the use of landfill for food waste by 2030 – while the clean energy transition and the contribution biogas makes to energy security is also fuelling interest.
Prestige Funds co-founder Craig Reeves told Agri Investor these converging drivers have made the industry “trendy” and it is now getting more “shelf space” among LPs. The firm has two project finance funds, one of which is sharia-compliant, dedicated to biogas projects. Reeves said there is a further tailwind being created by the macroeconomic climate’s impact on traditional sources of returns.
“A lot of Islamic fund investments are based on real estate and real estate is a very crowded space,” said Reeves. “In many, many markets, it’s stopped going up. In the UK, real estate prices have fallen for five months in a row because of high interest rates. So if you have an Islamic investment vehicle that is not in real estate and focuses on energy transition and energy security, I think that is quite distinctive and is something that is going to attract more and more interest from both Islamic investors and investors generally.”
The logbook of LP and GP investments in the space seems to grow with every passing month. In February, Goldman Sachs committed to deploy €1 billion in greenfield and brownfield European biomethane assets in the next four years, with global co-head of infrastructure Tavis Cannell telling affiliate title Infrastructure Investor: “Biomethane is still in its infancy in many European markets”. January saw IFM Investors acquire GreenGasUSA while Macquarie Asset Management acquired Germany’s BayWa r.e. Bioenergy in October.
Dealmaking is also heating up among the energy majors, with BP agreeing a $4.1 billion deal in October to acquire American renewable natural gas company Archaea Energy. Shell followed this up with a $2 billion deal in November to buy Danish RNG business Nature Energy.
The New Year kicked off with Swiss company VARO Energy striking a deal of an undisclosed size to acquire Dutch biogas manufacturer Bio Energy Coevorden, while Chevron paid $3.15 billion for biodiesel business Renewable Energy Group in February.
Reeves added that governments are increasingly only interested in supporting large biogas plants due to the rapid need for scale, which naturally means there is a larger upfront cost attached.
“Ten years ago, a plant cost £1 million ($1.2 million; €1.1 million) to £5 million,” said Reeves. “Today, £15 million is small, £25 million is medium and £35 million to £50 million is a good-sized plant. And they’ve evolved – they were aimed at the farming and food industries and they’re moving on to industrial waste and supporting municipalities and everything else.”
Given the additional capability certain biogas plants have to support fertiliser and bottled CO2 production as well, the industry could be on the cusp of big fund commitments and capital deployments, the like of which it has not yet seen.