Italy’s biogas space – and the conversion of plants to biomethane production – has seemingly become a must for many infrastructure investors in recent years, with Goldman Sachs-backed Verdalia, Aberdeen Investments, Macquarie, Equitix and Vesper Infrastructure among others all now building up platforms in the country.

Investor appetite was initially spurred by the country’s introduction in autumn 2022 of a new 15-year CfD style gas price mechanism for biomethane producers, and successive GSE auction processes have led to a wave of projects securing contracts.

However, the country also clarified new legislation at the end of May which defines the contract structure between biomethane producers and industrial players classified as Hard-to-Abate, which should allow for the proliferation of biomethane purchase agreements (BPA) and therefore further upside for plant owners. This revenue upside would sit on top of any revenue from the GSE tariffs.

“Industrial players can buy the biomethane – avoiding the payment of the carbon tax – at the same price as natural gas, because they won’t even pay the Guarantee-of-Origin (GOO) price, and they are willing to share part of this [saving] with producers,” explains Our New Energy senior advisor Sofia Ubaldini.

This saving, or premium, is now a key feature of BPAs and is typically captured via one of two structures – “either a fixed price, that is fixed for the whole duration of the contract of the BPA [typically 15 years], based on the current EU ETS futures of the CO2 price, or through a variable premium that follows the the price of CO2,” Ubaldini explains.

In the former case, around 30% of the premium is shared with the producer, while in the latter case it is typically 40%.

BPAs not only offer additional revenues to producers, but in some offtake cases also provide a way to diversify plants’ revenue streams and make them “a multi commodity…so it’s not just the sale of the biomethane, but it would be the sale of the biomethane, the compost and the captured CO2,” Ubaldini explains.

The new filip to the biomethane investment case was first made public in 2024 as part of Article 5-bis of the Agriculture Decree, but remained poorly outlined until the clarifications in May. BPA negotiations which had stalled due to the uncertainties are now picking up steam again as a result, multiple sources say.

Recent activity

Clearly, energy infrastructure investors are still attracted to the Italian biomethane space – with Vesper Next Generation Infrastructure Fund, for one, in June announcing the acquisition of Italian bioenergy platform BioHold alongside engineering and technology group Pietro Fiorentini. The company has also been linked to the latter stages of the bidding process for Eni’s Italian biomethane division, as has Verdalia.

Infranity meanwhile earlier in July provided an initial EUR 145m in debt to Italian biomethane platform Femogas to support the refinancing and construction of seven liquid biomethane plants in the country, as part of a potential eventual EUR 245m package.

Nevertheless, biomethane is not a sector without challenges.

Long-term security of feedstock supply remains a perennial issue for plant owners, for example, with feedstock ultimately coming from small, local farmers and in variable volumes. This is a key challenge to overcome in order to secure project finance.

There was also an initial bottleneck around available EPC contractors when the first wave of 15-year GSE biomethane contracts started to be awarded two-to-three years ago, as plants awarded contracts need to be in operation by June 2026 in order to secure the contracts.

Biomethane project owners with the requisite resources therefore in recent quarters rushed to sign EPC contracts and start construction on an equity basis.

Femogas had charted its own course by taking a merchant approach for its portfolio rather than GSE tariffs, but was nevertheless subject to the same EPC constraints as everyone else. It therefore opted to start the build-out of its portfolio on an equity basis last year before securing the Infranity debt package.

And numerous others, such as Aberdeen, have adopted the same initial all-equity approach.

Further drivers

While the 15-year GSE tariffs have been a key driver for energy infrastructure fund involvement in the Italian biomethane space in recent years, Infranity’s recent provision of up to EUR 250m in debt to the Femogas platform, which won’t be utilising the mechanism, is evidence that other business models exist.

The use of biomethane for supply to the transport sector, both in Italy and cross-border into Germany, is seen as one such revenue option.

This route could also provide a neat solution to another key challenge facing the Italian biomethane sector – getting plants connected into the gas network. This can take well over a year to implement and is typically an expensive process. Indeed, the grid operator, Snam, which has traditionally been focused on managing gas import infrastructure, is encountering some challenges in connecting biomethane plants to the grid.

“That’s why some plants are also considering not securing a grid connection and to instead use trucks to bring the gas from the production plant to the closest injection point. However, there are just a couple of injection points in Italy and it’s also expensive [to do it this way],” Ubaldini says.

Looking further ahead, biomethane investors also anticipate greater regulatory support for the use of bio-LNG in the maritime industry to ultimately be introduced.

In May, Italy’s Ministry of Infrastructure and Transport (MIT) published “Guidelines for Ship‑to‑Ship Bunkering of LNG and Bio‑LNG in Italian Ports,” for example, marking the first time any EU country has issued a unified national regime for LNG/bio‑LNG bunkering across all its ports.

A key objective is to streamline and harmonize LNG and bio‑LNG bunkering throughout Italy, support port decarbonization, and enhance Italy’s position as a bio‑LNG bunkering hub in the Mediterranean.

*This story was originally published exclusively for NPM Europe subscribers.