In the seventh of a series of real asset investment case studies, Michael Horton, Associate Director at Gravis Capital Management, looks at anaerobic digestion.

Ever wondered how a cow’s stomach could help power your home? While it might sound like the start of a pub quiz question, the answer lies in the same natural process: anaerobic digestion (AD). Nature’s oldest recycling system is now at the heart of some of the UK’s cleanest, most efficient energy solutions.

Gravis, via GCP Infrastructure Investments Limited, was one of the first investors into AD in the UK. In 2013, the Company invested into a portfolio of biogas AD plants in Northern Ireland. The Company’s portfolio now sits at 19 assets, with approximately £107 million (book value)* invested in England, Scotland, and Northern Ireland.

What Gravis likes about AD is the reliability and consistency in its baseload generation. Taking wind and solar as a comparison, when the wind doesn't blow and the sun doesn't shine, power generation is limited. With AD, however, even during periods of maintenance, plants will continue to produce biogas.

There are a number of uses for biogas. First and foremost, it is used as a fuel source for the plant’s CHP engines (Combined Heat Power), which then generate heat and power for the anaerobic digester, referred to as the AD plant’s parasitic load. For CHP-to-grid plants (i.e. electrical generation plants) surplus power produced by the CHP over and above the parasitic load requirement is then exported to the national grid as renewable electricity.

For biomethane plants (i.e. gas-to-grid plants), following adequate fuelling of the CHP engines, surplus biogas is filtered and upgraded to biomethane prior to injection to the national gas grid. Biomethane is a perfect replacement for fossil gas thereby decarbonising the national gas grid and UK industry, whilst also heating our homes, schools, hospitals and businesses.

For the feedstock suppliers, AD provides a holistic and circular platform for their farming operations, as digestate (a biofertiliser produced through the digestion process) in both liquid and solid form is returned to their land, thereby eliminating the use of carbon intensive synthetic fertilisers, and decarbonising their operations.

CHP-to-grid plants are accredited under either the RO (Renewable Obligation) or the FiT (Feed-In Tariff) subsidy schemes. The Company’s biomethane portfolio is accredited through two renewable subsidy schemes, RHI (Renewable Heat Incentive) and RO (Renewable Obligation). This aligns to the Company's mandate of investing in UK infrastructure that's supported by government-backed revenue streams. New biomethane plants constructed from 30 November 2021 onwards can be accredited under the GGSS (Green Gas Support Scheme). The Company’s biomethane portfolio pre-dates the GGSS.

The Inchdairnie AD plant and the wider biomethane portfolio has three sources of revenues. The first is via the RHI and RO subsidies. The plant also derives income from merchant gas sales through gas purchase agreements with a registered gas shipper.

The third source of revenue is from trading renewable certificates that are generated back-to-back against the volume of biomethane, power and heat that the plant produces. The certificates are typically purchased by energy suppliers to verify the volume of energy they are purchasing and then selling to end users, which are from renewable sources. The certificates are known as RGGOs (Renewable Guarantee Gas of Origin) or green gas certificates, ROCs (Renewable Obligation Certificates) and REGOs (Renewable Energy Guarantee of Origin).

As with all our investments, Gravis has a hands-on approach, maintaining strong relationships with our landlords and feedstock suppliers, and our operating teams on the ground.

This hands-on approach extends to optimising the plants with a view to life extension beyond subsidies and looking at additional revenue streams so the plants can continue to contribute to decarbonisation as the UK pushes towards net zero in 2050. The subsidies on our Scottish biomethane plants expire in 2036 and we've recently received planning application approval at each of the three sites for carbon upgrading equipment. This is a really exciting opportunity which will allow us to add further value through the sale of liquefied CO₂. Biogas is primarily composed of methane (CH₄) and carbon dioxide (CO₂) with the carbon upgrading equipment allowing us to liquefy the CO₂ which can then be used in the production of food and beverages, medical applications and in the production of sustainable transport and aviation fuels.

More importantly, the liquefied CO₂ can also be permanently sequestered in geological stores, such as the repurposed North Sea gas and oil wells. This will permanently remove the CO₂ from atmosphere. Following the sequestration of CO₂, the AD plants will become carbon negative thereby completing the decarbonisation journey whilst creating greater value in the renewable certificates sold to market.

*as at 30 June 2025

Important Information

This article has been prepared by Gravis Capital Management Limited (the "Investment Adviser“ or “Gravis”) and is for information purposes only. It is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients of this article outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction and are treated as having represented that they are able to receive this article without contravention of any law or regulation in the jurisdiction in which they reside or conduct business.

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Gravis Capital Management Ltd is authorised and regulated by the Financial Conduct Authority; registered in England and Wales No: 10471852 and its principal place of business is 24 Savile Row, London W1S 2ES.