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Wednesday January 5 2022

Is Biogas Production a Profitable Business Model?

With an array of incentives and subsidies available to develop AD plants in the past, investing in biogas was generally a safe bet. Not only did it provide electricity and heat to run localised applications, thereby slashing traditional energy bills, surplus electricity could be sold to the National Grid at a guaranteed price. If upgraded, surplus biogas could also be sold to the national gas network as biomethane, making it a profitable endeavour.

But with most incentives schemes now closed, the Green Gas Support Scheme (GGSS) is the only option remaining. The scheme officially opened for applications on November 30, 2021, to support investment in new AD Plants, but only those creating biomethane. If successful, applicants are guaranteed tariffs for 15 years.

So, with this new initiative now underway, what does the future of biogas look like? Does the GGSS offer enough of an incentive to develop new plants and will they be profitable? That is what we set out to discover in this article.

Can Biogas be Sold?

The most obvious question when it comes to assessing the profitability of biogas production as a business model is whether or not it can be sold. The answer to this is, of course, yes.

However, for this to be the case, biogas needs to be upgraded to biomethane. Biomethane is a purified form of biogas and an alternative to natural gas. Whereas biogas is typically around 40 percent carbon dioxide and 60 percent methane, biomethane is more than 95 percent methane, making it a high-quality fuel.

In fact, under the GGSS, tariffs are only available for new AD plants that produce biomethane.

How much does Biogas sell for?

Although like any other commodity, biomethane is subject to market fluctuations, at the time of writing it sells for around 1 Euro per litre.

Where can I sell my Biogas?

The vast majority of biogas sold in the UK goes into the national grid network. However, as previously stated, to do this, the biogas has to be upgraded to biomethane. This involves stripping impurities out such as carbon dioxide, water vapour, and other gases in lower concentrations.

Although the GGSS only supports the development of new AD plants, existing plant owners can also sell biomethane to the gas grid. However, with the non-domestic Renewable Heat Incentive (RHI) closing to new applicants in March 2021, if you missed this deadline, there are no tariffs currently available.

But that doesn’t mean there are no other options.

One way plant owners can generate a profit is to sell biogas for road transport under the Renewable Transport Fuel Certificate (RTFC) scheme.

This attracts two revenue streams. Firstly, there is the revenue generated by the sale itself, and then there are the RTFCs which can be traded with larger businesses that are unable to fulfil their energy needs through renewable sources alone.

Earlier this year, the government raised the buy-out ceiling for RTFCs from 30p per litre to 50p per litre, so if you already have an AD plant, now is a good time to look into this.

As fleets continue to convert to renewable sources of fuel, this scheme could help justify the capital costs for new farm biogas plants.

Carbon capture

Another potential revenue stream for biogas plants owners is carbon capture. Although anaerobic digestion is a carbon-neutral process, the process does generate a lot of carbon dioxide which is a potent greenhouse gas.

Capturing this is one-way of turning anaerobic digestion from a carbon-neutral process into a carbon negative one.

It can also be profitable. For example, if you negotiated a five-year contract at £75 per ton of carbon dioxide, investing in carbon capture technology would be worthwhile.

Is it expensive to make biogas?

The answer to this, like so many things, is it depends!

The cost of an anaerobic digestion system is dependent on the size and complexity of the plant. Complexity is generally determined by the types of feedstocks to be treated. For example, a plant treating slurries and manure that includes a simple digester and CHP unit could cost in the region of £750,000 – £1m.

Naturally, larger systems increase in cost relative to their size and biogas generating capacity, as well as design constraints require from planning and permitting authorities.

A plant generating 1,000m3 of biomethane, for example, which employs a biomethane upgrading facility and is connected to the national gas grid, will be considerably more and investments sums of around £15m should be expected.

Large plants treating food waste and requiring significant investment in waste reception and pre-treatment systems would come at a higher cost.

Investment costs

It is important to understand that if considering developing a biogas plant, the different costs involved. These include:

  • Capital expenditure (CAPEX). This includes a feasibility study, costs associated with achieving planning consent, project conception, ground preparation works, system components and installation, the gas utilisation system and grid and service connection.
  • Commissioning costs. The running costs as the AD plants takes time to become efficient. The costs during this time tend to be high relative to the return as staff need to be paid and the ongoing running costs of the plant covered. This will usually last six to 12 months.
  • Operational expenditure (OPEX). The day-to-day costs of keeping the plant running. It includes costs such as recruiting and paying staff, maintenance, transport, and other general business costs.
  • Capacity factor. Capacity factor is a measure of the efficiency of the digester. Generally, a plant operated by inhouse employees will return a capacity factor of around 85 per cent. However, this figure may be increased by outsourcing the day-to-day running of the plant to a trust O&M partner as this reduces staffing numbers and optimises plant performance.
  • Plant lifetime. An AD plant should last at least 20 years so if you are investing primarily to see a return, you need to consider if this is too long or not, and if the ROI will be great enough after this time.
  • Feedstock management. The biggest overall factor when it comes to ROI is managing the feedstock well. If you don’t produce your feedstocks in another part of your process, then it is essential that you enter into long term contracts to receive waste from relevant businesses if you are going to make your plant pay.

The typical biogas business model

Previous incentive schemes such as the Feed-In Tariff rewarded biogas producers for generating electricity from renewable sources and selling it to the National Grid at an agreed price for an agreed term, ensuring a return on the investment into their plant.

Biogas producers could also use the heat and electricity produced to heat and power local buildings such as their own workshops, offices, warehouses, and other commercial buildings.

However, with the Feed-In Tariff now closed, this business model will change. Its replacement, the Green Gas Support Scheme (GGSS) incentivises the development of AD plants that produce biomethane to be injected into the national gas network.

Therefore, new plants will require technology to clean up biogas into biomethane, adding to the Capex of the plant.

However, with guaranteed gas prices and long-term contracts on offer, the GGSS will provide the incentive for investment in new AD plants, meaning generating biomethane for the national grid will be the dominant business model for all future biogas plants.


Generating biogas has traditionally been a good investment for those with the land to build and resources to build an AD plant, and consistent access to relevant feedstocks at an affordable price.

This, coupled with government incentives fixing electricity purchase prices for pre-determined periods meant an AD plant could generate a healthy return.

This remains the case going forward, although the business model has now changed. With the introduction of the GGSS, new plants will need to generate biomethane to qualify for support and make them profitable to build.

However, generating biomethane favours larger plants and those with the facilities to upgrade biogas to biomethane, adding considerably to the Capex of a project.

Therefore, before embarking on any such investment, it is essential you take professional advice from experts to assess the feasibility of an AD plant on your land.

To speak to us about this, or any service, maintenance or operation of an existing plant, get in touch.