FutureGas- Markets and Regulation for Renewable Gases in an Integrated Energy System

Abstract

With the decarbonisation of the European energy system, the question about the future role of gas and its infrastructure in a renewable energy system arises. With significant investments made into the European gas system, there is a high value in utilising this infrastructure in the future. Renewable gases, particularly biomethane, can utilise the gas infrastructure to offer a green alternative to natural gas-consuming sectors and contribute to their decarbonisation. Regulatory frameworks and policy instruments can have a deciding influence on the value chain of renewable gases. They will determine which sectors will consume renewable gases, and which renewable gas technologies will thrive in the future. On top of that, like with every other commodity, competitive markets will enable renewable gases to be consumed where they have the highest value for the customer at the most efficient prices. This thesis explores the potential role of gas in an integrated energy system by using two examples of technologies that connect the electricity grid with the gas system directly and indirectly. Power to Gas (P2G) plants demonstrate how the electricity system integrates with the gas infrastructure, and Gas Electric Hybrid Heat Pumps (GEHHPs) demonstrate the competition between gas and electricity markets in the individual heating sector. The feasibility of these technologies is evaluated and compared with their possible substitutes. The thesis investigates the economic implications of replacing natural gas with renewable gases and how regulatory frameworks affect the operation and feasibility of these two technologies. Another objective of this thesis is to study the current situation of renewable gas markets and develop a methodology to evaluate the performance of these markets. It suggests which measures are critical to improving the competitiveness and transparency of renewable gas markets. The main contributions of this thesis are divided into three key outcomes that can offer policymakers insight over the regulatory and market issues renewable gases face in the transition period towards a decarbonised energy system. These outcomes are as following: 1. In the individual heating sector, the gas system adds value during the transition period to a renewable energy system, by covering the heat demand during peak hours of the electricity market. In general, the GEHHP utilises the heat pump component as a heating source for 88% of its lifetime. Higher shares of wind energy in the last years, leading to less extreme peaks will strengthen this result. 2. Electricity grid tariffs have been identified as the primary regulatory cost factor inhibiting P2G plants from making profits in Denmark. Since these tariffs are system costs required for maintaining and operating the electricity grid, the thesis suggests re-thinking tariff structures, especially for sector coupling technologies that are not real end-consumers but offer storage capacities to the energy system. 3. If renewable gases are to compete with their fossil fuel substitutes, they will not be able to participate in the market since they currently have higher production costs than natural gas. Unless their production cost decreases or the CO2 price increases significantly, renewable gases rely on support instruments to be able to compete with fossil fuels, based on their green value and their contribution to fulfilling renewable energy targets. The registration and auditing of the green value chain of renewable gases through certification enables them to be transferred and traded as a green fuel, with a higher value than identical energy carriers with lower sustainability standards.