Biomethane as an option for sustainable restoration of damaged gas infrastructure in Ukraine

As a result of Russia’s attacks on Ukraine’s gas infrastructure in 2024-2025, significant damage and destruction was caused in the sector. According to Naftogaz Ukraine, Ukrgasvydobuvannya, Ukrtransgaz and estimates by Razumkov Center, Ukrainian gas production has decreased by 40% (approximately 8 billion m³ per year) due to the complete or partial destruction of gas infrastructure and production facilities resulting from Russian strikes, with estimated direct losses ranging from EUR 2 to 4 billion1. Although the gas transportation system is currently intact, in the event of continued Russian strikes, there is a direct risk of its fragmentation into separate “islands” tied to existing gas sources – the remains of gas extraction and production facilities (mainly the northeastern regions of Ukraine), gas storage facilities (mainly the western regions of Ukraine), and the strings of networks for imports from the EU (southwestern regions). Thus, the damage already caused is threatening, and in the event of increased attacks and scaling of destruction, they pose a strategic risk to the energy sector and national security of Ukraine, specifically to the stability of provision of the basic needs of the population – heat, gas, electricity, and motor fuel (CNG/LPG). The energy sector of Ukraine has been in a critical state since at least the end of 2022 and requires immediate solutions to overcome it. Soon, the crisis may affect not only electricity generation, as it was in 2022-2024, but also gas supply and, most dangerously, heat supply (since 85-90% of the fuel of district heating is natural gas). Since there are seven months left before the next heating season, now is the time to evaluate concrete solutions to address these critical challenges.

In addition to the obvious restoration and repair of damaged gas production facilities, their additional protection and, if possible, dispersal of related infrastructure, another and more fundamental sustainable alternative way to overcome the critical state may be the introduction of facilities that produce renewable natural gas – biomethane.

Biomethane is a gas that has almost identical properties as natural gas. According to the definition in the Law of Ukraine “On Alternative Fuels” and “On Amendments to Certain Laws of Ukraine on the Development of Biomethane Production”2 “… Biomethane is a biogas that, by its physical and chemical characteristics, meets the requirements of regulatory legal acts for natural gas for supply to the gas transmission or gas distribution system or for use as motor fuel.” Enriched biomethane is indistinguishable from natural gas, so it can be transported and used in the already existing gas infrastructure. Biomethane has all the technological advantages of natural gas, while remaining a renewable carbon-neutral fuel. In general, biomethane production facilities or the “extraction” of biomethane are inherently analogues of gas-producing debit installations. However, for the former, raw materials are renewable waste in the form of biomass of various types, and for the latter, a mixture of fossil gases from the earth interior are used.

The introduction of biomethane production facilities in Ukraine in the context of overcoming this crisis state in the energy sector has several advantages and features:

• Decentralization and separation of production and supply infrastructure – it is almost impossible to simultaneously destroy several dozen new small biomethane production facilities scattered throughout Ukraine (and to some extent in some cases it is even financially inexpedient, because the cost of damage can be compared to or exceed the cost of a biomethane facility), while it is much easier to destroy centralized gas production facilities in the regions with strikes,  which are directly adjacent to either the border with the Russian Federation or to regions with active hostilities, and some are in the war zone (so their use or restoration is currently impossible at all).

• Large farms and agricultural holdings in Ukraine, which have all available resources for the introduction of biomethane plants in one ownership – a significant amount of their own feedstock (manure, primary field agricultural waste, corn silage, secondary processing waste, etc.) for the introduction of individual facilities with a capacity of 5-30 million m3/year, own logistics capabilities, land for construction, financial capabilities, personnel, etc.

• Linking to feedstock generation points (rural areas) and to individual clusters of distribution networks where there is gas consumption (cities, industrial facilities, CNG filling stations).

• The presence of an alternative link to the consumer – it is possible to either consume biomethane in the vicinity of the place of production, (for example, a city or an industrial facility near the BM plant connected to same network where the BM is pumped), or it can be pumped into clusters of distribution networks, including the gas transmission network, and consumed elsewhere far from the BM plant.

• No need to build additional infrastructure for gas preparation, pumping, processing. All preparation processes take place within the framework of a biomethane plant.

• Renewable energy source – reduction of CO2 emissions, promotion of the transition to green energy, fulfilment of the goals of the Energy Strategy of Ukraine with respect to targets of the development of renewable energy sources, integration of Ukraine and the EU in the context of energy.

• Removal of waste from farms, recycling (including disinfection of hazardous waste).
• The possibility of creating complex projects based on biomethane plants with the production of several products (biomethane, electricity, heat, cooling energy, synthesis gases, renewable CO2, hydrogen, organic fertilizer, ammonium compounds) and using several types of raw materials simultaneously (livestock waste, agricultural waste, corn silage, energy crops, “excess” electricity from solar power plants/wind farms).

Where the financial resources for BM plants implementation have to be taken from.

In the period from October 2022 to March 2025, international assistance to Ukraine’s energy sector recovery amounted to up to 3-4 billion euros.34 These funds were mostly used for the restoration and reconstruction of transmission systems, transformation, repair of damaged generation facilities (coal-fired thermal power plants), implementation of cogeneration plants based on natural gas, introduction of solar power plants, purchase of household generators, etc. To demonstrate the potential and scale of the biomethane sector, let’s stipulate that Ukraine took decision to use 10% of this amount (400 million EUR) starting from 2022 for the implementation of biomethane projects (which, by definition, is a component of the energy security and increasing the stability of the energy system and thus are to be considered as projects for recovery and restoration as other implemented in reality using financial resources for recovery). Using open data on the cost of biomethane plants in the range of 300-1200 Euros/1000 m3 and taking a more conservative figure for the calculation of 1000 Euros/1000 m3, would be equivalent to the production of an average of 200-300 million m3 of biomethane as of March 2025, and another 100-200 million. m3 would be “on the way”, i.e. implemented by mid-2026 (since the full project cycle of implementation of biomethane (BM) projects based on experience in Ukraine and the EU-27 is 2-3 years). Such decentralized system would look like 40-80 individual biomethane “extraction” units in different regions of Ukraine with a unit capacity of 5-10 million m3. This would already be a significant step forward towards Ukraine’s energy independence, sustainable restoration and stability for decades, the introduction of innovative technology based on RES, ensuring energy security in the context of dispersing the production of various types of energy – biomethane, electricity, and heat.

Since the end of 2024 the new packages of macro-financial assistance to the energy sector of Ukraine till 2030 are being discussed and partially approved – USD 54 billion from the Ukraine Facility and USD 50 billion loan package G7 from Russia’s frozen assets56.  If Ukraine considers the option for discussion with international partners on the consultations to allocate 10% of this recovery financing to biomethane projects (which are directly eligible for the targets of mentioned recovery financing), it would result in replacement of the full 8 billion m³/year of gas production capacity lost due to Russian strikes, while building a cleaner, and, most important, decentralised energy system  more resilient for new potential strikes to ensure long-term (for decades) energy security and stability of the energy system. The total scale of such a solution is 500-1000 individual biomethane plants by 2032-2035 (about half of them by 2030). They should have a unit capacity of 5-30 million. m3/year, distributed more evenly over the territory of Ukraine than the existing extraction of fossil natural gas (three regions close to the war zone). Experts (UABio, Green Deal Ukraine, Ukrainian NECP-2030)789 estimate the potential for biomethane and the capacity of gas networks for connection to be 9.7 billion cubic meters. m3/year, and in the future to be increased to 21 billion. m3/year, so the specified scale does not exhaust the entire potential of biomethane in Ukraine according to conservative estimates. This potential includes feedstock as biomass waste and biomass residues (excluding products), the organic fraction of municipal solid waste, the organic fraction of wastewater, as well as biomass from energy crops on degraded/abandoned/contaminated/marginal lands, i.e. only the sustainable fraction of biomass according to the RED-III definitions and related sustainability criteria. EBRD has pledged to finance 1.1 billion euros for energy recovery in 2025 with a focus on technologies for generating energy from gas and restoring gas infrastructure, introducing distributed generation based on RES.10 Biomethane projects are 100% eligible also for this programme and could be financed immediately. The implementation of biomethane projects from now through 2030-2035, using 10% (EUR 8 billion) of the funds allocated for the restoration of Ukraine’s energy sector is in itself a component of the restoration of damaged energy infrastructure. However, not through a one-to-one replacement of destroyed fossil gas infrastructure, but by investing in the creation of a modern, decentralised energy system based on renewable energy sources, in this case, biomethane, which offers long-term sustainability, resilience, and energy security using Ukraine’s own biomass resources. This will naturally become a component of Ukraine’s energy security, increase its resilience and flexibility, ensure reliable loading of distribution networks and GTS, and make it significantly harder (and sometimes financially irrational for the aggressor) to disable such a large decentralized system by missile strikes.

Currently, the biomethane market in Ukraine is functioning, but is still in its initial state of development. Single projects that were laid down in 2021-2023 already supply biomethane to the gas grids (up to 50 million m3/year and with a prospect of up to 120 million m3/year by the end of 2025), but experience certain difficulties, namely: difficulties and high cost of connecting to networks, difficulties in quality assurance/control and technical communication with regional gas company/GTS operator, difficulties in customs clearance for exporting, lack of a biomethane register in Ukraine, lack of linking with the European Biomethane Register (within the framework of the UDB, which is also in the process of discussions and establishing), continuation of application of CO2 tax on biomethane, despite its renewable nature (legislative inconsistency that merits urgent alignment with EU practices), and a need for stronger national coordination and a clearly articulated strategic vision to provide confidence to potential investors in the biomethane sector, which would serve as a key signal about the state’s commitment to supporting long-term sector growth from the state to attract investments. At present, biomethane installations in Ukraine operate primarily for exports due to the lack of incentives for domestic consumption and non-market prices for natural gas for certain categories of consumption. However, according to project developers, these facilities could be quickly redirected to supply the domestic market if appropriate regulatory and economic conditions were put in place.

To scale the biomethane sector to the specified level of 8 billion. m3/year by 2035, it is necessary to carry out at least the following measures in 2025:

1. Implementation of the biomethane register and its linking with the European registers through the UDB;
2. Abolition of PSO and cross-subsidization of domestic gas prices between counterparties, introduction of gas prices for all categories of consumption (including the population) at the market level. Seeing the current state of the energy and gas sector of Ukraine, access to gas is becoming a more pressing concern than its price, reinforcing the importance of stable and diversified supply options. To ensure this the gradual phase-out or reform of PSO combined with targeted social support for vulnerable consumers is necessary to unlock alternative options like biomethane. This could ensure affordability while enabling a functioning market.  Having access to energy at a higher cost is preferable to having none at all, a reality that is already understood by certain share of population (with respective actions already taken by population in for instance for self-electricity supply by local generators).
3. Cancellation of the CO2 tax on biomethane. In more broad sense the harmonisation of taxation policies with EU legislation, ensuring that renewable gases like biomethane are appropriately recognised under the EU ETS, UA ETS and carbon tax;
4. Development of a strategy for the development of the biomethane sector until 2030 with a clear indication of the course for recovery through RES and decentralized systems, plants capacities, number of installations, investment plan in the sector, transparent coordination and communication to international partners of sources of financing and benefits of recovery through biomethane, and non-return to the use of fossil fuels.
5. Establishment of a coordination center that will be responsible for technical aspects (monitoring, reporting, connection issues, issuance of technical specifications, amendments, coordination and exchange of technical documentation, etc.), within, for example, NJSC Naftogaz Ukraine, Ukrgasvydobuvannya, Ministry of Energy, Ministry for Development of Communities and Territories;
6. Stimulation of domestic consumption through:

• the introduction of incentive mechanisms in form of a premium on the price of biomethane in case of internal biomethane consumption,
• symmetrically additional excise tax on biomethane exports if Ukraine sees risk of disruption of internal gas consumption as a high risk for its energy security,
• grant financing of pilot projects with specific configurations as per best EU practices,
• the return of part (20-30%) of initial capital expenditures subject to sale in Ukraine (and subject to the registration of biomethane projects as energy facilities),
• preferential lending (zero interest for the first 2-3 years or other mechanism analogical to 5-7-9 preferential loan programme),
• the issuance of green bonds guaranteed by the state,
• direct co-financing from the Decarbonization Fund (filled with CO2 tax),
• preferential taxation,
• attraction of international companies and funds that buy CO2 emission reductions under voluntary trading systems,
• financing from the CO2 emission reductions trading under the domestic emissions trading system that is currently being implemented.

Among the constant threats to energy, the development of the biomethane sector offers a double benefit: it contributes directly to restoring energy capacities damaged by missile strikes, and at the same time it supports the creation of a new, integrated and decentralized energy system of Ukraine based on renewable energy sources.  Such a system is significantly less vulnerable to future missile strikes. By investing in this sector now, Ukraine has the opportunity to transform its energy landscape, ensuring long-term resilience, sustainability, and secure clean energy production.

The article was developed by Oleksii Epik within Capacities for Climate Action (C4CA) project, which is implemented by GIZ on behalf of the German Ministry for Economic Affairs and Climate Action (BMWK) within the framework of the International Climate Initiative (IKI) and co-financed by the European Union.