Guarantees of origin and biomethane

28 May 2024

Article by Marco Pezzaglia on RiEnergia – Staffetta Quotidiana

Biomethane represents a significant opportunity for the decarbonisation of energy end uses, with particular reference to uses in which gas represents a significant production factor and is difficult to replace with other economic alternatives. Biomethane is also a renewable energy vector produced in the European Union and contributes to the continent’s energy independence, so much so that in 2022 the European Commission, specifically for biomethane, defined an action plan and launched an industrial partnership in collaboration with the main representatives of the industry, with a commitment in favour of the energy transition to support the objective of increasing the annual production and use of biomethane to 35 billion cubic metres by 2030. This objective aims to replace 20% of natural gas imports from Russia with a sustainable, cheaper and locally produced alternative.

In this context, the guarantee of origin (GO) is the main tool for proving the use of biomethane for consumers in light of the growing sensitivity of many consumer groups towards the energy transition and the increase in environmental sustainability for numerous production sectors.

From a regulatory point of view, the guarantee of origin of biomethane is the guarantee of origin on the production of biomethane (pursuant to Article 46 of Legislative Decree no. 199 of 2021) which serves to prove to the final consumer the use of biological methane. The set of GOs is distinguished between GOs used in the transport sector and GOs used in other uses (other than transport and other than the use of biomethane for the production of electricity only, i.e. the so-called thermoelectric uses) and, even more, GOs can be cancelled exclusively in the sector of use identified at the time of issuance (transport/other uses). The value of biomethane GOs is therefore a direct consequence of the value that end customers place on the use of biomethane instead of the use of natural gas.

From the producer’s point of view, the value of guarantees of origin is of natural interest due to the fact that it constitutes a source of revenue in the event that the producer directly manages the valorization of its production on the market. For plants incentivized according to the provisions of the ministerial decree of September 2022, the GO also plays an important role in defining the premium received in terms of incentives. In fact, for plants with a production capacity greater than 250 Smc/h, as well as for all production plants that inject biomethane into natural gas networks other than networks with third-party connection obligations, the guarantees of origin are assigned to the producer and the applicable tariff is paid in the form of a premium tariff calculated as the difference between the reference tariff, reduced by the percentage reduction offered and accepted in the competitive procedures and the sum of the average monthly price of natural gas and the average monthly price of GOs. The average monthly price of GOs means the value of the average monthly price recorded on the market platform for the exchange of guarantees of origin (M-GO) in relation to the guarantees of origin of biomethane used in the transport sector or those relating to use in other uses, as published monthly by the GME on its institutional website. Therefore, for producers who cannot avail themselves of the GSE’s production withdrawal mechanism or who do not avail themselves of this mechanism, it is of fundamental importance to valorise their guarantees of origin on the market as best as possible (valorisation which, it should be remembered, can also take place bilaterally without the need to use the M-GO platform) so that the overall value obtained by the producer is at least not lower than the reference tariff granted during the access phase to the incentive.

The decree of the Minister for the Environment and Energy Security no. 224 of 14 July 2023 which implemented the provisions of article 46 of Legislative Decree 199/2021 introduced numerous interesting provisions regarding the guarantees of origin of biomethane, establishing that the GOs issued for the production of biomethane from incentivised production plants:

if they refer to self-consumed biomethane, they are simultaneously cancelled and, consequently, for the purposes of the premium tariff valuation and for the same quantity of biomethane, the average monthly price of the GO is zero;
upon indication by the producer, they can be issued directly to the buyer with whom he has signed an agreement for the sale of biomethane. In this case, the GO are simultaneously cancelled;
if used in the transport sector, they can be cancelled only for use in the Italian territory by companies selling natural gas for the transport sector and/or by managers or owners of road distribution plants of natural gas for transport;
if used in the other uses sector, they can be cancelled only in the Italian territory by natural gas sales companies, which must indicate, at the cancellation stage, at least the information on the end customer benefiting from the cancellation of the GO and the type of use of the biomethane in the other uses sector, or the sub-sector of use, for example: industrial processes, heating and/or cooling, cogeneration.

From the above, it follows that particular contractual arrangements and configurations such as self-consumption and contracts with buyers can lead to a direct benefit for consumers included in the aforementioned arrangements and/or counterparties of the contracts, as they can directly enjoy the value associated with the use of GOs.

The national regulatory framework then introduces a link of particular interest for the industrial world where it establishes that GOs issued for the production of renewable gases from biomass, including biomethane, can be used within the Emission Trading system if the conditions established in Article 39 of the EU Implementing Regulation 2018/2066 and the sector Guidelines are met – in particular by the “Guidance document: Biomass issues in the EU ETS – MRR Guidance document No. 3. In such cases, the GO cancellation certificate specifically indicates the purpose of the cancellation: disclosure or disclosure and ET. This element explains the recent great interest of the gas-intensive industry in biomethane, which constitutes a significant opportunity for the decarbonisation of its production processes without neglecting the fact that the GOs that will be used for such purposes will assume a value directly related to the values of the emission titles they replace.

The GO also constitutes a tool for understanding the level of decarbonisation of the sector of the gas obtained through the production of biomethane: in fact, the GOs for biomethane also contain the data relating to greenhouse gas emissions associated with the production of biomethane.

In the auction session of 20 March 2024, the GSE offered the Operators admitted to the competitive procedures 490,701 GO GAS relating to the production of biomethane for the period from October to December 2023 (type of certificate offered corresponding to “Non-Exportable Transport”): 77% of the available GOs were sold at an average price of €1.20/GO. It should be noted that this value only concerns a particular set of GOs linked to plants incentivised solely for transport and represents a first experiment in allocating GOs to a sector which, as is known, currently expresses a relative interest in biomethane. From this point of view, it will be interesting to evaluate the actual evolution of the biomethane market by intercepting the interests and expectations of consumers in sectors other than transport, taking into account all the interesting prospects introduced by the recent framework regulations on the development of biomethane.