Integrated Production and Multi-Market Optimization of Biomethane in Germany: A Two-Step Linear Programming Approach

From the perspective of biogas plant (BGP) operators, it is highly challenging to make a profitable decision on optimal biomethane production and allocation across interconnected markets. The aim of this study is to analyze the dynamics of biomethane markets, develop the gas allocation portfolio (GAP) for BGPs, investigate the impact of GHG quota price on the market dynamics and substrate mix consumption, and evaluate the profitability of the biomethane market system under various demand-based scenarios. A two-step optimization approach based on linear programming is adopted. Firstly, the optimized substrate mix and corresponding GAP are determined for all BGPs. Secondly, by leveraging the options flexibility created by the interconnected nature of biomethane markets, the BGPs’ GAP is further developed. Through an in-depth sensitivity analysis, the effects of GHG quota price variations on the market dynamics are assessed. The results indicate that integrated production, obtained by implementing the improved GAP across all BGPs, maximizes the profitability of the system. At higher quota prices, the consumption of manure, residuals, and grass is encouraged, while the use of energy crops declines. Furthermore, higher quota prices lead to a substantial increase in biomethane price in the EEG market, highlighting the need for further governmental support for biomethane CHP units. The anticipated competition between hydrogen and biomethane to achieve a greater share in the heating sector could pose risks to long-term investments in biomethane. The system achieves its highest profitability, a total contribution margin of EUR 2254.8 million, under the Transport Biofuels Expansion scenario. Generally, policies and regulations that raise the quota price (e.g., the 36. BImSchV) or promote biomethane demand in the heating sector (e.g., the GEG) can provide both economic and ecological benefits to the system.