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Biogas could be “traded” as a commodity

Biogas produced through anaerobic digestion (AD) could be traded as a commodity, according to the chairman of the Anaerobic Digestion and Biogas Association (ADBA).

The ambitious plans announced this morning, by Lord Redesdale at ADBA’s inaugural UK AD & Biogas 2010 exhibition and conference, is an attempt to remove some of the problems associated with the funding and subsidies for AD plants.

As reported previously in MRW, the funding of AD plants has been beset with problems because of a lack of investor confidence due to questions over the subsidies available for the financing of plants. In February it emerged that Renewable Obligation Certificates (ROCs) for AD would not be grandfathered and the level for the Renewable Heat Incentive (RHI) has yet not been set.

However, Lord Redesdale believes that the main way to remove this uncertainty and encourage confidence in AD investment would be to offer an alternative solution to the Government subsidies for AD via a biogas trading floor. The Liberal Democrat peer confirmed he has already had interest in these plans, meaning it could become a reality in the not too distant future.

Lord Redesdale told delegates: “The unique selling point is that biogas is low carbon. We can actually come up with a mechanism, and the Carbon Reduction Commitment (CRC) is such a mechanism of introducing a tradable market in biogas.

“I’ve already had people approaching me and I am thinking of setting up a carbon trading floor. We could actually trade that gas, and then people would buy the futures in the gas because it is a tradable commodity, and that would give us a much higher premium than the RHI.”

According to Lord Redesdale, such plans could provide the momentum needed to kick-start the AD industry through the construction of more plants, and realise the ADBA’s ultimate aim of 1,000 AD plants built in this country during the next 10 years.

He said: “I know there will be people in the field who will pay a premium for low-carbon gas – we have already talked to quite a few. They will try to buy as many years hence as they can of low-carbon gas because there is a scarce supply. You could then take that to the banks and that will appeal to them because you will be saying ‘we have got this deal selling our gas at this rate’. That is a very good financial model.

“I believe that model is going to work, and the reason is that we already have a meeting set up with someone from Germany who wants to do it there and buy our biogas at a premium.

“It is not additionality like ROCs because you either take the subsidy or you take the trade. It could be a really exciting way forward and, if this comes off, the amount of interest of building AD on absolutely everything is going to be enormous. The future could be that we build 1,000 plants far quicker than anybody suspects at the moment.”

Lord Redesdale also told delegates that ADBA will continue to work with both the Department for the Environment Food and Rural Affairs (Defra) and the Department for Energy and Climate Change to ensure that AD remains at the forefront of the political agenda.

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