Fuel good factor: why biomethane is a key infrastructure opportunity
Europe’s push for greater energy security and affordability is creating a growing role for biomethane. But scaling the market will require capital – and an understanding of the distinct investment landscapes across the continent.
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Europe’s energy transition is often framed as an electrification story. Wind and solar generation are expanding to meet growing demand as sectors electrify and power consumption surges. Batteries are similarly becoming increasingly critical to enable grid flexibility and stability, supporting the renewable revolution.
But decarbonising the economy is a broader story. Heavy industry, heating and parts of the transport system will continue to require fuel (i.e. molecules), at least until new technologies are developed. At the same time, there is a critical need for Europe to reduce reliance on imported fossil fuels, which has been exposed by the succession of energy crises since 2022.
That leaves Europe with a dual challenge: finding low-carbon alternatives to the fuels on which certain industries still depend, and producing them locally.
Enter biomethane. As well as meeting the dual challenge above, it has three characteristics that make it particularly interesting:
- It is a readily dispatchable source of power, meaning supply can be easily adjusted to meet demand.
- It can make use of the existing gas infrastructure across Europe, making it a potentially readily deployable solution.
- It contributes to a more circular economy.
Biomethane investments are also an unusually local and agro-industrial form of energy infrastructure. The economics of an individual plant depend on access to feedstock, relationships with farmers and waste suppliers, outlets for digestate (leftover material from anaerobic digestion processes), grid connections and local routes to market. These factors vary considerably between countries and even between regions.
For investors, this is creating an infrastructure opportunity that is growing rapidly, but that remains some distance from its potential – and that benefits from specialist knowledge to maximise value creation.
From organic waste to renewable gas
Biomethane starts with organic matter – and the primary process of producing it creates by-products that contribute to a more circular economy.
- Agricultural residues, manure, food waste and other organic materials can be broken down by bacteria in an anaerobic digestion plant. As this organic material decomposes, it produces biogas.
- This biogas is captured and then purified, principally by removing carbon dioxide, to produce methane – the same molecule as natural gas. This molecule can be injected directly into existing gas networks and used in existing infrastructure and appliances.
- Meanwhile, the separated carbon dioxide is biogenic, meaning it comes from recently living organic material rather than fossil fuels. Depending on the plant and local market, it can be sold for uses including food and drink production, greenhouses and lower-carbon fuels, or potentially stored.
- The process of producing biomethane also produces digestate, a nutrient-rich material that can be used as fertiliser.
In short, the process converts waste into useful energy, can prevent methane from manure and other organic material escaping into the atmosphere, and reduces the need for fossil gas.
The graphic below shows this process, in addition to a second production route: biomass gasification that uses heat to convert dry organic material into synthetic gas, which then undergoes methanation.
Graphic: How biomethane is produced
Source: International Energy Agency, 2026.
Both routes produce renewable gas that can use Europe’s existing pipelines, storage facilities and end-user infrastructure. This is important because building an entirely new energy system is expensive and slow. Using established infrastructure can significantly improve both speed to market and fuel affordability.
It also provides something that intermittent renewables cannot: dispatchability. Biomethane can be stored in the network and used when required rather than when weather conditions permit, for example when you need your boiler to run on a cold day.
In addition to being a substitute for fossil gas in the grid, biomethane has major applications in its compressed and liquefied forms (bio-LNG and bio-CNG) as alternative green fuels for shipping and heavy road transport, as these sectors also seek to decarbonise.
A market that needs to scale
Installed biomethane production capacity in Europe increased by more than 1 billion cubic metres (bcm) year-on-year, reaching 8.2 bcm per annum at the end of the second quarter of 2026, according to the European Biogas Association (EBA).
The number of operational plants has also increased sharply. The EBA's 2026 European Biomethane Map counts 1,975 plants, up from 1,678 in the previous year's data collection, with 327 new facilities commissioned over the year.
But those numbers need to be viewed against Europe's ambitions. The European Commission's REPowerEU plan targets 35 bcm of annual biomethane production and use by 2030, which it estimates will require €37 billion of annual investment. Countries across the EU are responding to this central target by implementing long-term schemes for biomethane production and use.
That translates to new investment opportunity – and private capital is already responding. The EBA's 2026 Biomethane Investment Outlook identifies €36 billion of investment commitments, up from €28 billion a year earlier. If fully realised, the EBA expects these investments to add 9 bcm of annual production capacity by 2030.
Europe’s biomethane market is grwoing – but remains well short of its 2030 ambition
Sources: European Biogas Association and Gas Infrastructure Europe, European Biomethane Map and Biomethane Investment Outlook, 1 July 2026: https://www.europeanbiogas.eu/news/europe-adds-1-bcm-of-biomethane-production-but-acceleration-of-its-own-source-of-renewable-gas-can-go-much-faster/ ; European Commission, Biomethane: https://energy.ec.europa.eu/topics/renewable-energy/bioenergy/biomethane_en . Notes: Q2 2025 capacity is derived from EBA’s reported 17% year-on-year increase to 8.2 bcm (approximately 7.0 bcm). EBA describes the absolute increase as more than 1 bcm. 2030 implied is arithmetic: 8.2 + 9 = 17.2 bcm, and is not an EBA forecast of total market capacity.
The opportunity is therefore less about proving that biomethane works, than about building the infrastructure needed to take an established technology to significantly greater scale.
Yet this pan-European growth story can disguise significant differences beneath the surface. Regulation, subsidies, feedstock, grid access and routes to market differ considerably between countries. The EBA's figures demonstrate just how concentrated the market remains: just five countries account for 95% of European biomethane production.
For infrastructure investors, understanding these local differences is critical.
The Netherlands provides one example. Its dense gas network offers numerous potential connection points for injecting biomethane. There are multiple routes to market, ranging from government support mechanisms to long-term commercial offtake agreements. The country's large livestock sector also provides an abundant source of manure that can be used as feedstock, producing valuable gas from an agricultural waste product that, if left untreated, introduces its own environmental challenges through the leaching of nitrates into soil and waterways.
Other European markets have different combinations of these characteristics. An attractive top-down policy environment alone is therefore insufficient. Investors need to understand how national regulation interacts with the economics of an individual plant.
Number of biomethane plants per country across Europe
Source: European Biogas Association, 2026.
What makes a biomethane asset investable?
These considerations shift the question from how quickly the overall market can grow to which assets can generate attractive, resilient returns. The existence of powerful structural tailwinds does not remove the need for detailed bottom-up underwriting.
The first consideration for a growing sector like biomethane, is what stage of an asset's lifecycle is the most appropriate to target.
An operational plant with a proven performance history and established revenues presents a different risk profile to an asset still under construction. Development-stage projects, of which there are many given the relative immaturity of the market, introduce another layer of permitting, construction and delivery risk.
That distinction should be reflected in valuations and risk-return profile. Operational assets with resilient or contracted cashflows can exhibit characteristics associated with Core infrastructure. Construction-stage assets, by contrast, offer Value Add return potential to compensate investors for uncertainty around build costs, timelines, commissioning and ramp-up. The premium attached to construction is notably higher than for traditional renewables.
Value can therefore be created as projects progress, and these risks are progressively retired. For investors able to operate across this spectrum, that creates multiple potential entry points into the same structural growth theme, rather than a single biomethane risk-and-return profile.
Where to position yourself in this value chain depends not only on an investor’s risk appetite, but also a number of key characteristics that can be both market wide and asset specific.
Feedstock is one such consideration. A plant needs a reliable supply of appropriate organic material at an economic cost. Feedstock that must travel significant distances can undermine project economics, while competition for the same material can push costs higher.
Revenue visibility matters too. Depending on the market, revenues can be supported by subsidies, markets for renewable gas certificates and commercial offtake contracts. Strong contractual structures can turn these into relatively predictable, infrastructure-like cashflows.
Then there is execution. Permitting and grid connections can slow deployment, while plant design, construction costs, commissioning and most of all the quality of management oversight all affect the economics of an individual project.
In this context, experience and expertise matter in a market where investment outcomes depend on specialist knowledge, relationships, and local execution. Schroders Capital and Schroders Greencoat’s teams have decades of experience and specialised expertise, having invested in dozens of biogas and biomethane plants in most of the biggest markets across Europe.
Exploiting the opportunity
Europe has set ambitious targets and the biomethane industry is expanding quickly. But policy ambition alone does not make an infrastructure asset investible.
The next stage of the market will require significant capital. Just as importantly, it will require investors able to distinguish between markets, secure input materials, identify revenue opportunities, manage construction and operational risks, and turn Europe's biomethane ambitions into operating infrastructure.
More than an energy story: our Dutch biomethane platform case study |
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There is another dimension to biomethane that is particularly visible in agricultural markets: its place in the circular economy. How these considerations come together is demonstrated in Schroders Greencoat’s investment in Dutch biomethane platform APF Energy. As noted above, the Netherlands provides a market that is supportive of current and further investment, with individual investment opportunities and sites driven by local and compelling asset specific factors. The platform combines three operational plants in the Netherlands with three ready-to-build projects and a pipeline of further opportunities. It is diversified through the asset lifecycle, with the ability to capture premium as each project progresses from development-stage to becoming fully operational. The Netherlands provides a strong market backdrop. Its large livestock industry produces significant quantities of manure, creating associated challenge around nitrate management. Using manure as feedstock for biomethane can therefore address two problems: managing agricultural waste and producing domestically sourced renewable gas. The benefits can extend further. Strong relationships with local farming communities can support more resilient feedstock supply and digestate offtake, while improving local stakeholder support. The market benefits underpin the fundamentals of APF Energy’s investment case, but it is revenue visibility, regulatory stability and technical deliverability that supports the central thesis of the investment case. |
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