Closing the renewable gas cost gap

The official consultation question

Q25 · §4.1(e) · paper page 25

What types of policies or mechanisms across the renewable gas value chain might best address the cost gap between renewable gases and natural gas? In your response, please describe how these measures would help improve cost competitiveness and support market development.

Shelby’s response

Shelby recommends combining long-term revenue support with targeted capital assistance, beginning with modular upgrades to existing anaerobic digestion and biogas facilities alongside new regional plants. A 15-year purchasing or equivalent revenue arrangement should be the starting point for assessment, with published pricing, indexation and eligibility. As an initial policy-design range, Australia should test total biomethane revenue of approximately A$140-200/MWh HHV (approximately A$39-56/GJ HHV), including commodity value, renewable-gas premium and certificates, with A$160-180/MWh HHV as a central range for early deployment. This is a policy-testing range, not an asserted Australian market price. Projects requiring materially higher support should demonstrate why through transparent whole-of-chain economics. Capital assistance can reduce upfront investment, while revenue certainty supports financing and continued operation.

Electricity should be treated explicitly because upgrading, compression, CO2 purification and liquefaction are electricity-intensive. For policy modelling, Shelby recommends testing projects against a long-term process-electricity reference of approximately A$100-120/MWh for the energy component, while recognising that network, demand and retail charges vary materially by location. Rather than imposing a general retail electricity price cap, policy could compensate part of the excess above an agreed reference for eligible renewable-gas production, facilitate long-term renewable electricity contracts, or provide equivalent production support. This protects project economics while retaining an incentive for efficient plant design and electricity procurement.

For capital support, Shelby recommends a normal co-funding range of approximately 30-50% of eligible project CAPEX, with support calibrated to additionality and value for money. A ceiling of 50% is consistent with the current NSW Renewable Gas Production Program. Lower grant intensity should be preferred where a project is already financeable, while the upper end can be justified for first-of-a-kind projects, enabling infrastructure or projects that create replicable regional supply chains.

Illustrative project tests. Shelby recommends three reference scales: 0.10 PJ/year (approximately 27.8 GWh/year), 0.15 PJ/year (approximately 41.7 GWh/year) and 0.20 PJ/year (approximately 55.6 GWh/year). To reflect moderate economies of scale, an illustrative total biomethane revenue test could use A$180/MWh HHV, A$170/MWh HHV and A$160/MWh HHV respectively. Annual biomethane revenue would therefore be approximately A$5.0 million, A$7.1 million and A$8.9 million. These are policy-modelling assumptions, not guaranteed tariffs or asserted market prices; final support should account for commodity gas value, certificates and project economics.

For sensitivity only, assuming recoverable qualified biogenic CO2 of approximately 150 t/GWh of biomethane, the three cases would yield about 4,170 t/year, 6,250 t/year and 8,330 t/year. At A$250/t ex-works netback, this represents approximately A$1.04 million, A$1.56 million and A$2.08 million/year; at A$400/t, approximately A$1.67 million, A$2.50 million and A$3.33 million/year. Both CO2 yield and netback are illustrative: actual values depend on feedstock, gas composition, recovery efficiency, product specification and contracted demand. The purpose is to show how scale and contracted co-product revenue can materially affect bankability.

Published Australian studies reinforce the need for a range rather than a single tariff. Recent estimates cited by the Future Fuels CRC place biomethane production at approximately A$10-13/GJ for landfill pathways, A$15-25/GJ for anaerobic digestion of waste and A$28-36/GJ for crop-residue pathways, while earlier ARENA Bioenergy Roadmap estimates for anaerobic-digestion biomethane were higher. Support should therefore be calibrated to demonstrated project economics, feedstock, scale, utilisation, delivery route and contracted co-product value.

Complement this with coordinated approvals, sustainable feedstock arrangements, transparent connection costs, shared infrastructure where justified, and usable gas and co-product certification. These measures address both production costs and access to paying customers. Evaluate commercial viability with support included, then refine future arrangements using actual utilisation, delivered costs, emissions performance and public benefits.

Frequently asked questions

What is Shelby’s position on closing the renewable gas cost gap?

Shelby proposes combined revenue support, capital assistance and practical market access. Interactive reference cases test gas revenue, scale and qualified CO2 netback; all are declared policy-modelling assumptions, not guaranteed prices, profit forecasts or bankability assessments.

What should a project team read alongside this answer?

Read the linked commercial guides and original question. Separate the response’s recommendations and illustrative assumptions from source-reported operating evidence.

Sources & References

• Department of Climate Change, Energy, the Environment and Water, National Renewable Gas Policy consultation

  Publication: Date not verified

  Observation period: Not recorded

  Relevant page / section: Claim-level locator not yet verified

  Last link / title verification: 2026-10-11

  Publisher link checked; individual claims, costs and regulatory applicability still require review.

  Check scope and current applicability before relying on this reference.

• Department of Climate Change, Energy, the Environment and Water, National Renewable Gas Policy consultation paper

  Publication: 2026-08

  Observation period: Australia; 2026 consultation

  Relevant page / section: Consultation questions; use answer-specific paper page and question reference

  Last link / title verification: 2026-10-11

  Publisher link checked; individual claims, costs and regulatory applicability still require review.

  Source for questions/context, not proof of an implemented support mechanism. Question text attribution: Commonwealth, CC BY 4.0, as noted in Shelby’s supplied consultation response.

• Creative Commons, Attribution 4.0 International

  Publication: Date not verified

  Observation period: Not recorded

  Relevant page / section: Claim-level locator not yet verified

  Last link / title verification: 2026-10-11

  Publisher link checked; individual claims, costs and regulatory applicability still require review.

  Check scope and current applicability before relying on this reference.