How can more efficient trading contribute to scaling up biomethane?
The Netherlands is on the verge of a major scale-up of biomethane. At the same time, the European biomethane market remains highly fragmented: pricing differs between countries and sectors, trading practices are complex, and transparent price information is often lacking. Commissioned by RVO and the Dutch Ministry of Economic Affairs and Climate, Common Futures investigated whether a trading platform or exchange product for biomethane could contribute to more efficient trading and faster market development.
The challenge
Biomethane is playing an increasingly important role in decarbonising the built environment and industry. The expected introduction of the Dutch Green Gas Blending Obligation, growing industrial demand, and the increasing need for flexibility in the energy system are expected to drive a sharp increase in demand.
While natural gas in Europe is traded through liquid and transparent trading markets, a comparable market structure for biomethane is still lacking. Trading largely takes place bilaterally, and there are many different types of Guarantees of Origin (GOs), each with its own pricing and policy conditions. As a result, the market remains fragmented, with limited price transparency and high transaction costs.
Our approach
Common Futures investigated how the current biomethane market operates and which preconditions are required for a successful trading platform or exchange product. To do so, we combined literature research with an extensive market consultation involving Dutch and European stakeholders, including producers, energy companies, traders, brokers, gas exchanges and policy makers.
Key insights
The study shows that market participants clearly see added value in more efficient and transparent biomethane trading. In the long term, a trading platform or exchange product could contribute to improved price formation and market transparency, lower transaction costs, and greater market integration across Europe. In addition, a central trading platform could improve market access for producers and support buyers and investors in managing risks.
At the same time, we concluded that the necessary preconditions for a successful trading platform are currently still lacking. The market remains too fragmented, trading volumes are limited, and there is not yet a sufficiently standardised biomethane product.
Towards a better functioning European market
Common Futures formulated three recommendations to improve the efficiency of biomethane trading and accelerate market integration:
- Harmonisation of policies and product standards across Europe;
- Development of a public price index for biomethane;
- Deployment of large-scale import tenders to stimulate market standardisation.
The study shows that further development of the biomethane market is not only about increasing production capacity, but also about market design, transparency and policy coordination.
