The Renewable Natural Gas (RNG) coalition reported in July that 300 RNG facilities were now in operation in North America, a ten-fold increase from twelve years ago. The Coalition touted the growth to the commitment of the industry to a greener future.
These numbers are slated to increase even more rapidly, with almost 500 additional plants in construction or planning stages.
The Coalition promotes RNG and facilities as being a solution in capturing global methane emissions. In 2019, it announced the “Sustainable Methane Abatement and Recycling Timeline” (SMART) endowment, supporting initiatives for the waste sector to capture their emissions and harness the resulting gas as a resource.
The benchmarks set as part of SMART are with respect to facility numbers:
The most recent development in support of producers are incentives via the Inflation Reduction Act (IRA) of 2022, effective since 1 Jan 2023. The benefits available to RNG (biomethane and biogas) facilities are dependent upon feedstock, but generally most new operations will be able to take advantage of investment tax credits. Production support is available for biogas via a product tax credit, but this is indirect and limited to power generation from landfill gas.
Offsets for two of the main cap-and-trade programs, the Regional Greenhouse Gas Initiative (RGGI) and the Western Climate Initiative (WCI) collaboration can provide support to RNG facilities. However, these programs value the avoidance or capture of fugitive emissions rather than the carbon-neutral RNG product. As a result, the scope is restricted to landfill or agricultural, manure-based RNG facilities.
Note: Veyt provides coverage (fundamentals, analysis and market data) of these North American carbon markets. Please contact wci@veyt.com or rggi@veyt.com for more information.
Furthermore, the relatively low carbon price in these two schemes tends to deliver relatively low value to these projects, in comparison to the physical value of the RNG. Rather, the greatest value for upgrading biomethane comes from transport markets, where there are two schemes of note.
The RFS is a federal program, that places an obligation on fuel suppliers to ensure a portion of their offerings to the market is backed by renewable fuels. Producers of renewable fuels are eligible to receive Renewable Identification Numbers (RINs) which can be sold to obligated parties. There are four different renewable fuel categories:
Note most biomethane can qualify for the D3 category, as well as the less stringent D5 and D6 categories. Biomethane typically receives 40 RINs per MWh (based on Higher Heating Value, or HHV). At prevailing RIN prices, this can provide substantial value for producers over the physical fuel.
For example, at the end of October 2023 a D3 RIN price of approximately 3 USD, and a Henry Hub Natural Gas Spot Price around 3 USD/MMBtu were observed. The RINs (120 USD/MWh) represents a value of almost twelve times the value of the physical gas (10.2 USD/MWh) to a biomethane producing facility.
The LCFS is a California initiative. Renewable fuels are eligible to receive credits, which they can sell to obligated parties (fuel providers).
Credits are awarded based on avoided emissions compared to the use of a similar fossil fuel and have a unit price in USD/t. Notably, the carbon price associated with the LCFS is higher than those associated with the cap-and-trade programs.
Given the focus on the actual emissions reductions rather than fuel classification (as per RFS), the LCFS awards fuels with low Carbon Intensity (CI, in gCO2/MJ) – this is of particular interest to biomethane production from manure which often achieves negative CI values.
Note, a producer cannot receive credits for both LCFS and RFS programs for a given volume of biomethane. Carbon intensity, LCFS carbon price and RIN price will determine the optimum choice.
Biomethane production in 2021 amounted to approximately 2 TWh, similar to Italy or the Netherlands. This is expected to reach approximately 4.8 TWh by 2025, with several projects committed to.
Investment support is available to fund RNG projects. However, production support is limited. Like the US, landfill operations which capture methane can apply for federal offsets (in addition to the province of Quebec being part of the abovementioned WCI) although the value of offset programs to these biomethane operations is low.
Gas provider FortisBC offers a green gas tariff, where customers can choose to pay extra to represent green gas consumption, which can in turn help compensate producers. However, this is limited in scope.
In July 2023, the Canadian government introduced the Clean Fuel Regulations, which will likely become a target market for biomethane although the value on this market is still unclear for this fledgling program. More significantly, natural gas vehicle uptake is also minimal in the country, with only 38 filling stations that offer compressed or liquefied natural gas (CNG/LNG) as of November 2023.
While biogas sees some direct usage for electricity generation, there is no notable biomethane production in the country. In March 2023, Engie announced work on the first biomethane project to be connected to the grid.
The large population base and agricultural activity should provide ample feedstock streams for anaerobic digestion and biomethane production. However, it is not clear whether the legislative or investment support can be rallied to develop the industry in Mexico.
It also should be noted that RNG activities in Mexico are not covered by the RNG Coalition.
Veyt specialises in data, analysis, and insights for all significant low-carbon markets and renewable energy.
