Biogas production is an important contemporary topic within agriculture as well as bioenergy production, both from an industrial and an academic point of view. The Danish biogas sector, which has been around for many years, is still struggling to establish itself as an economically viable energy production sector. Through a two-step approach by combining a location-allocation model with a production constrained spatial interaction model, this paper addresses the dual problem of determining optimal location and production capacity. What-if scenarios, in combination with the strategic economic analysis framework developed in this paper, facilitate the analysis and discussion of how national policies can be fulfilled.

The capacity expansion of the Danish biogas sector should be centred on large-scale biogas production since large biogas plants are found to have 16% lower transportation costs than small biogas plants. Consequently, this minimizes the single most important production cost factor, transportation.

The developed framework can be used and further developed in an analysis of how the spatial availability of, and competition for, different types of biomass can supplement each other in the development towards a bio-based economy.