Deal of the year: ENGIE

Energy Risk Awards 2023: ENGIE structures and supplies long-term, large biomethane deal

Aurélie Boscarolo, ENGIE

In the race to net zero, Europe’s energy-intensive companies are scrambling to find alternative, low-carbon inputs in the face of high and volatile costs and an evolving regulatory landscape. ENGIE’s ability to provide its client Arkema with a long-term, large-scale supply of biomethane, in a structure that can adapt to expected regulatory developments, won Energy Risk’s Deal of the year award.

Arkema, a French speciality materials manufacturer, has ambitious climate goals. It has committed to a science-based target that requires it to reduce its direct emissions by 46% compared with 2019. To do so, it is aggressively investing in energy efficiency, which it plans to increase by 25% by 2030, and to accelerate the decarbonisation of the energy it purchases.

Biomethane is produced through the fermentation of organic matter and therefore is a renewable alternative to natural gas with a lower carbon footprint. It is storable and dispatchable. But supply and ongoing regulatory challenges are making it difficult for energy-intensive companies such as Arkema to source biomethane in the volumes they need.

The company approached ENGIE, as its supplier of gas for several years, to discuss options relating to the decarbonisation of its gas consumption, in line with their strong sustainability targets. Such options notably included Renewable Gas Guarantees of Origin (RGGOs). These instruments, analogous to green certificates for renewable power, can be traded separately from the physical gas, and allow the buyer to claim the environmental benefits of the biomethane generation.

ENGIE was able to design for the client a 10-year physical biomethane purchase agreement (BPA), sourcing both significant volumes in physical gas and associated renewable energy guarantees of origin (REGOs). The gas will be sourced from around 15 anaerobic digestion plant projects across France. That deal, which required six months of intensive negotiations, offered competitive fixed prices on a long tenor, plus flexible options to deal with regulatory uncertainty and future opportunities to benefit from the European Union Emissions Trading System (EU ETS)-RGGO offset mechanism.

It will be used to significantly reduce the carbon footprint of Arkema’s bio-based high-performance Rilsan polyamide 11 and Pebax Rnew elastomers. These are used in a wide range of applications, from footwear and medical devices to 3D printers and alternative fuel systems.

“This deal directly improves the sustainability of Arkema’s end-products,” says Aurélie Boscarolo, biomethane and low-carbon gases originator and business developer at ENGIE Global Energy Management & Sales.

“We leveraged our expertise in Corporate Power Purchase Agreements to create a BPA including both physical volumes and REGOs, that ranks among the largest private biomethane deals in Europe to date. It’s also the chemicals sector’s first voluntary, long-term physical biogas purchase.”

Critical to the structure was ENGIE enabling Arkema to benefit from expected regulatory relief for the treatment of biomethane. In future, consumers of biomethane from qualifying plants – those that can demonstrate high levels of sustainability – will be able to count part of the associated avoided emissions against their EU ETS targets.

This “innovative, tailor-made green gas supply deal” has been structured to address the challenges Arkema faces in the midst of market and regulatory uncertainty,” says Cédric Fousse, head of European sales and origination at ENGIE Global Energy Management & Sales. “Unlike other players, we were able to offer locally sourced volumes from agri-food waste, which dovetails with Arkema’s aim to tap into the agricultural sector.”

ENGIE’s existing biomethane portfolio enabled the firm “to go from deal design to deliveries in around six months,” says Boscarolo. ENGIE is targeting the production of 10TWh/year by 2030 and marketing a total of 30TWh/year by that date.

The transaction with Arkema offers a template for other energy-intensive users to shift to zero-carbon gas supply, says Edouard Chevalier, managing director for risk management and supply – origination at ENGIE Global Energy Management & Sales. “This deal further establishes biomethane’s general viability for energy-intensive industries as a decarbonisation solution that is flexible, dispatchable and storable.”