FRANKFURT (Reuters) - Germany's biogas sector is likely to get a boost from new legislation at a time where the gas row between Russia and Ukraine has again highlighted the growing need for alternative gas sources.
Analysts see the country's new Renewable Energy Sources Act -- which became effective Jan. 1 -- as a growth driver for biogas, but they also pointed to the sector's growing importance regarding Germany's high dependence on foreign gas.
"The sectors' profitability has increased through the new laws and it (the sector) is set to become the growth driver within renewables in Germany in 2009," said SES Research analyst Karsten von Blumenthal.
At the moment, biogas accounts for 3 percent of Germany's market for natural gas, according to the Association for Biogas in Germany, but the Federal Government is aiming to improve that share to 10 percent by 2030.
Biogas can be generated from organic waste, sewage gas, agricultural waste and manure. Germany is Europe's biggest market for biogas. Around 92,000 people work in the country's bioenergy sector, which includes biogas, according to the German Environmental Ministry.
The main factors benefiting biogas companies "include the Renewable Energy Sources Act...
under which biogas companies benefit from a better remuneration structure than the previous one, making biogas plants more affordable," said UniCredit analyst Alexander Stiehler.
"Basically, biogas is the only (renewable) sector where the remuneration structure has substantially improved," said Karsten von Blumenthal, analyst at SES Research, referring to the new legislation.
Under the new legislation, the basic fees for customers of electricity from biogas have increased substantially, depending on plant output and the amount of manure used.
Companies that use 30 percent of manure in their mix to produce electricity from biogas will, for example, receive an additional 4 cents per kilowatt on top of the basic fee of 11.67 cents for the first 150 kilowatts of output. The legislation also provides for additional incentive payments for companies that do particularly well in protecting the environment while producing biogas.
Gas rift
The new legislation also comes at a time when some 18 countries including Germany are facing gas supply disruptions due to the ongoing rift between Russia and Ukraine, which also highlights the potential value of biogas companies.
About 42 percent of Germany's gas for domestic use comes from Russia, while big German utilities such as E.ON and BASF's Wingas rely on gas stores and a transit route via Poland, which was unaffected by the supply halt.
"The gas dispute shows how quickly large supply chains of gas can be disturbed. Companies producing modern heating and energy-efficient technologies could emerge as the indirect winners in the long term," said HSBC analyst Burkard Weiss. "If the fear remains that scarcity in the gas supply sector will become an issue, then sentiment-wise energy efficiency stocks like Centrotec, Nibe, Schulthess or biogas companies like Schmack Biogas and Envitec could potentially benefit," he added.
The new legislation and the rift mean that investors may come to see some of those German small-cap companies as an interesting target in the world of renewable energies.
"For Envitec, the gas dispute is not all that bad and it could also benefit Schmack," said Robert Schramm, analyst at Commerzbank.
Envitec's share price fell about 40 percent since the beginning of 2008, weathering the global economic crisis much better than solar competitors in Germany such as Conergy, which has lost about 88 percent in value over the same period.
Schmack won an order in September from RWE to build a 6.5 megawatt (MW) biogas plant. It plans to build another 10 plants by 2012. Since the new legislation came into effect, its share price has recovered by 10.8 percent.
Peer BKN biostrom saw its share price rise by a third in the same period. (Additional reporting by Vera Eckert, Editing by Hans Peters)
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