Renewable natural gas (RNG) emerged over the last two decades as a practical, cost-efficient, and environmentally beneficial solution for creating value while transforming waste feedstocks into a sustainable source of energy. The fuel has proven itself as a seamless replacement for traditional natural gas in powering homes, businesses, and transportation fleets at scale.
Yet, despite its vast applications and steadily increasing demand, a handful of high-profile partnerships and projects have underperformed. Those underwhelming results have caused some to question whether RNG is ready to meet the moment as a more sustainable energy alternative.
In that context of challenge and opportunity, a new era for RNG is taking root. In this RNG 2.0 age, proven results – not rhetoric – are the lens through which traditional energy companies must evaluate new investments in the space.
This so-called “fuel of the future” is growing up – and energy executives looking to position their portfolio for growth, while also reducing its carbon footprint, will do well to pay close attention.
Robust Demand Presents Clear Opportunities for Growth
The tremendous potential and robust economic viability of RNG has attracted substantial investment in recent years. Traditional energy companies have led this trend, strategically acquiring RNG operators with the goal of expanding their sustainable energy portfolios.
However, despite the heavy capital flows, RNG supply is only anticipated to address approximately two-thirds of demand by 2040, according to Boston Consulting Group’s (BCG) recent report, Is Renewable Natural Gas Poised for Future Growth or Doomed to Decline?. This is while demand for RNG in the U.S. alone is expected to increase approximately tenfold, to roughly 2 BCF per day, by that same year.
The RNG supply-demand imbalance exists even though BCG researchers find that “there is enough economically viable feedstock available … to develop projects to cover expected demand” and less than one-third of economically viable feedstocks are currently under contract. Four main sectors are poised to be the biggest beneficiaries of this underutilized RNG supply: gas utilities, commercial and industrial, power generation, and transportation.
From a purely financial standpoint, the demand and growth trends for RNG create a compelling investment case for new entrants seeking to take advantage of the fuel’s carbon-offsetting attributes while building their company’s bottom line. And yet, potential investors will also note other key benefits:
- A seamless substitute for immediate needs: RNG’s status as a “drop-in fuel” allows it to be seamlessly integrated into existing natural gas infrastructure right away. This means parties currently utilizing natural gas – whether upstream or downstream – can use existing equipment because the RNG molecules are chemically identical to natural gas molecules.
- An environmentally sustainable solution for the long term: RNG is a supremely attractive investment option for companies and their partners looking to reduce their Scope 1, 2, and 3 emissions. The waste-to-energy production of RNG reduces harmful emissions into the atmosphere by converting methane, a potent greenhouse gas, into a renewable fuel. RNG sourced from diverted landfill food and green waste can achieve a carbon dioxide reduction of 125%, while RNG derived from dairy farm animal waste can yield a carbon reduction of 400% when substituted for traditional vehicle fuels.
- Easily integrated into existing renewables portfolios: RNG is a fitting complement to other renewable energy sources like wind and solar power because it can be both stored and combined with other energy inputs. RNG’s flexibility makes it a versatile solution in satisfying the distinct sustainable fuel needs of various stakeholders across end markets and geographies.
Viridi Energy’s American Organic Energy project will convert 210,000 tons of New York City waste per year into renewable fuels equivalent to 10 million gallons of gasoline annually – highlighting the environmental, societal, and financial benefits of these large-scale waste-to-value projects.
A New Age of RNG to Bring a More Sophisticated Approach
Amidst these broader dynamics, the RNG space is evolving – and maturing.
Fifteen years ago, when RNG was just starting to be commercialized, an influx of operators flooded the space looking to take advantage of “the next big opportunity.” Unfortunately, this included a number of less sophisticated players who lacked the institutional knowledge, engineering capacity, diverse RNG feedstock development experience, and local support networks that are required for authentic, lasting RNG success. Not surprisingly, that initial chapter of RNG growth produced underwhelming results for many companies, their partners, and their investors.
However, as the energy transition has matured, a select group of industry players has emerged and is demonstrating how this new era for the industry – what Viridi Energy calls “RNG 2.0” – is very different.
These new RNG leaders are showing that there is no substitute for proven experience and demonstrated results. In contrast to the industry’s Wild West days, its modern leaders tend to be operators who showcase a commitment to safety, reliability, a low cost of capital, and ability to produce consistent volumes at scale.
This maturation has been complemented by new renewable fuel standards and favorable regulation such as the Inflation Reduction Act. This legislative and regulatory support is helping promote the viability and profitability of RNG projects across the U.S.
With more sophisticated players at the helm, new projects are coming online that aren’t just good for local communities and the planet – but good for investors, as well. This is demonstrated by the attractive, reliable, and quantifiable returns on investment that strategically operated projects can bring.
In an era where speculative alternative energy replacements are still grabbing headlines, the next generation of RNG offers a validated pathway for energy producers to transition to less carbon-intensive fuel – benefitting their businesses today, while unlocking the opportunities of tomorrow.
Chet Benham is the President and COO of Viridi Energy and can be reached at [email protected].
Viridi Energy is a full-service renewable natural gas investor, operator, and partner founded by a veteran RNG management team. With the backing of Warburg Pincus and Green Rock Energy Partners, the firm’s platform builds, owns, and operates RNG assets with landfill, dairy, wastewater, and food waste feedstocks across North America. For more information, please visit www.viridirng.com and follow Viridi Energy on LinkedIn.
