Recent trends in biogas value chains explained using cooperative game theory

In Denmark, since 2014, it has been possible to upgrade biogas to a gas grid and achieve support in line with biogas-based heat and power production. Since then, most new biogas production plants have chosen to upgrade their biogas. In this study, a mixed integer programming model is used to find the optimal biogas value chain, and cooperative game theory is used to understand real world observations compared to this study's results. Specifically, three profit allocation mechanisms are applied to allocate the profit between the heterogeneous owners in the value chain. It is found that Danish biogas plants should use large shares of manure combined with deep litter. Furthermore, it is found that input suppliers have relatively poor bargaining power in the profit allocation negotiations due to poor alternatives. This may explain why livestock farmers tend to receive little payment for their manure, and why they are hesitant to join biogas projects. Finally, it is found that biogas plants prefer to upgrade their biogas for several reasons. First, if the natural gas price is expected to be high, it is preferable to upgrade biogas than to use it directly in a local combined heat and power plant (CHP). Second, if the natural gas price is expected to be low, it is preferable to upgrade because the CHPs have better alternatives and therefore better bargaining power before investments (ex ante). Third, when the value chain contains an upgrading plant, the biogas plant has a greater bargaining power—in particular ex post. •A mixed integer programming model is used to find the optimal biogas value chain.•Three allocation mechanisms are applied to determine a profit allocation sample space.•Cooperative game theory is applied to explain recent trends in the biogas industry.•The preference for upgrading can be due to strategic thinking from the biogas plant.•Poor bargaining power can explain why farmers hesitate to join biogas projects.