In this video, Michael Horton, Associate Director at Gravis, talks us through an anaerobic digestion investment case study.

The transcript can be viewed below.

Tell us about your investments in anaerobic digestion and the Inchdairnie plant

We were one of the first investors into Anaerobic Digestion (AD) in the UK. In 2013, we invested into a portfolio of biogas AD plants in Northern Ireland. We own and operate those plants still today. The next step in the expansion of our UK AD portfolio was into biomethane, where we identified Inchdiarnie and its two sister plants in Scotland. The portfolio now sits at 19 assets, with approximately 100 million invested in England, Scotland, and Northern Ireland.

Explain how the asset makes its revenue

Our biomethane portfolio is accredited through renewable subsidy schemes. This aligns to the Company's mandate of investing in UK infrastructure that's supported by government-backed revenue streams. The plant has three sources of revenues. First, subsidies: the renewable heat incentive and renewable obligations. We also derive income from merchant gas sales through gas purchase agreements, and finally through green gas certificates. We receive these certificates for the amount of biomethane that is produced through the plant.

How does this asset complement the wider portfolio?

The Company is widely diversified, investing in 18 infrastructure sectors. The renewables portfolio accounts for approximately two-thirds of assets under management, of which the AD portfolio remains a core asset class. What we like about AD is its reliability and consistency in its baseload generation. If we look at wind and solar, for example, when the wind doesn't blow and the sun doesn't shine, generation is limited. With AD, however, even during periods of maintenance, the plant will continue to produce biogas.

What is Gravis’s day-to-day involvement in the asset?

As with all our investments, Gravis maintains a hands-on approach, maintaining strong relationships with our landlords and feedstock suppliers, and our operating team on the ground. These are all paramount to the operational success of the portfolio, which ultimately leads to returns for our shareholders. This hands-on approach extends to optimising the plants with a view to life extension. 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 to the plants through the sale of liquefied CO₂.

How does an asset like this benefit the environment?

Biomethane is a perfect replacement for fossil gas. Not only does it decarbonise the gas grid, but it heats our homes. Inchdairnie produces enough biomethane to heat approximately 3,000 homes annually, and it also decarbonises industry.

Through the digestion process, our feedstock suppliers are returning biofertiliser to their land to grow our grass and our rye. This eliminates the use of synthetic fertilisers and decarbonises their operations. At Inchdairnie, the plant receives pot ale and draff that the Inchdairnie Distillery produces. Waste for the distillery is feedstock for the plant. This decarbonises the distillery’s processes, whilst also allowing us to contribute to decarbonising the gas grid.

As the UK continues to push towards net zero in 2050, we need to look at additional revenue streams so the plants can continue to contribute to the decarbonisation targets. As mentioned previously, CO₂ is very much part of this transition. CO₂ is a naturally occurring gas in the production of biomethane. We can capture and liquefy that. The CO₂ can then be sold to industry, can be used in food and beverage, transport fuels, aviation fuels, etc. More importantly, and which is a really exciting opportunity, CO₂ can be permanently sequestered in geological stores, such as the repurposed North Sea gas and oil wells that will permanently remove the CO₂ from atmosphere. Following the sequestration of CO₂, the plants will become carbon negative. This will create greater value in the renewable certificates that we can sell to energy suppliers and to corporates.

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