Guest Commentator: Cheryl Martin, Senior Vice President, Regulatory and External Affairs, Chesapeake Utilities Corporation @CpkUtilities
Why are regional natural gas utilities embracing renewable natural gas (RNG) on the road to greater sustainability and decarbonization?
Over the past several years the global climate change conversation has increasingly focused on reducing greenhouse gas emissions from energy production, transmission, and usage. Investors are more closely reviewing and monitoring Environmental, Social, and Governance (ESG) accomplishments. Governmental bodies are setting emissions targets. The energy industry has responded and is actively working to transition to a lower-carbon future. Of course, the natural gas industry has led that transition for the past two decades. Natural gas now fuels over 40% of U.S. power generation, and millions of industrial, agricultural, commercial, and residential customers have displaced other higher carbon fuel types, significantly reducing greenhouse gas emissions. Largely as a result of the increased use of natural gas, U.S. greenhouse gas emissions are at the lowest level in decades.
Of course, no one is declaring victory. It is clear that the natural gas industry and its partners will continue their efforts to reduce greenhouse gas emissions across the supply chain. Natural gas companies are replacing aging pipelines and other facilities, working to capture gas from pipelines going out-of-service, converting vehicles to lower emission fuels, and making numerous other operational and process changes to continue to reduce emissions.
Interestingly, the majority of natural gas greenhouse gas emissions occur not in industrial facilities, but at customer sites where the gas is used. Regional natural gas distribution utilities are in a unique position to play a major role in supporting customer decarbonization efforts. Many utilities already offer energy conservation programs and technical assistance to help customers lower energy use and emissions. In addition, gas utilities are critical to the development of environmentally beneficial waste-to-energy production facilities. Capturing waste-produced methane, carbon dioxide, and nitrous oxide biogas, and converting it into pipeline-quality renewable natural gas (RNG) can be an environmentally sound and profitable opportunity for regional gas utilities while providing a more sustainable future for local communities.
Renewable natural gas produced from agricultural waste, food waste, landfills, municipal sewage treatment systems, or various industrial processes requires a cost-effective means of reaching low carbon fuel markets. Regional gas utilities (and transmission companies in some cases) purchase RNG. Transporting RNG from the production facility to a nearby utility, either through a pipeline or a Compressed Natural Gas (CNG) transport tanker, provides an economic pathway to access the various RNG markets that have developed.
The gas utility might elect to retain the RNG for its customers, where several state regulators have approved cost recovery for RNG. Or, the “green attributes” of the renewable gas could be separated from the physical gas molecules and the “green gas” sold into federal, California, or other fuel markets. The value of the green attributes varies depending on the type of waste product used to produce the RNG. The physical gas molecules, what the industry knows as “blue gas”, would remain with the utility and is typically priced at or close to typical gas index pricing. Without the regional gas utilities enabling economic pathways to market, RNG would be unnecessarily limited to small on-site power generators and other localized uses.
At Chesapeake Utilities, we made a strategic decision to actively support and expand the sustainability efforts of the communities we serve. Included in that commitment is an active engagement in environmental stewardship and the development of lower-carbon energy sources. We’ve actually revised our corporate Vison Statement to declare our intent to lead the way in delivering energy that contributes to a sustainable future.
Our strategy is not focused on RNG production. That may seem unusual at first pass. Rather than concentrate on the production of RNG, we aim to support projects that have significant regional environmental and economic benefits. For example, the poultry industry on the Delmarva Peninsula continues its efforts to manage the litter from chicken houses and the waste products from poultry processing. Assisting the poultry industry with more environmentally sustainable waste management by converting the waste to bio-gas and producing organic fertilizer or soil enhancements is a fundamental objective. Better waste management reduces environmental impacts, but it also helps sustain a local industry critical to the Delmarva economy, a local industry that is an important customer of our Company. RNG production is a beneficial output of the waste to energy facilities and the sale of the RNG green attributes is clearly important to the economic viability of the production facilities. However, we look for projects that generate community, regulatory and political support by addressing fundamental environmental and economic issues; it’s about more than RNG production.
Most regional gas utilities have waste to energy investment opportunities in their service territories. In our view, gas utilities can provide important financing for biogas facilities, especially now as the RNG market matures. We find that the projects in which we are engaged typically bring opportunities for our core businesses. For example, we are completing this month an approximately 30-mile pipeline in Ohio to connect a landfill RNG facility to our gathering system pipeline. Other projects are utilizing our Marlin Gas Services CNG transport unit to deliver the RNG to a pipeline system. We are also finding RNG projects that require conventional gas supplies to dry fertilizer; as well as opportunities to build solar PV power generation or a Combined Heat and Power plant for the RNG facility. Most RNG developers need help with local regulators, permit offices, and other governmental entities. We are finding opportunities to assist in financial evaluation, project management, educating key constituencies, permitting, electrical interconnection designs, gas processing, and a number of other technical and operational processes that most utilities perform every day.
At the end of the day, we try to answer three straightforward questions on waste to energy facilities. First, does the project solve a fundamental and locally supported environmental issue? Second, how can Chesapeake Utilities best support the development (financing, technical expertise, gas off-take, etc.) and how can we leverage our other business units (gas transmission, gas distribution, Marlin CNG transport, solar PV electric generation, etc.) to provide services to the project? Third, what is the risk associated with any project investment we might make? We are selective and disciplined in our evaluation and pursuit of projects based around RNG production. Many companies are looking for RNG investments across the country. We have focused our attention on potential investments on projects within or very close to our existing service areas; communities we know, with partners we know. We see a long runway ahead for sustainable energy investing, with growing regulatory support and expanding green attribute markets. Environmental benefits, investor, regulatory and community support, and solid investment opportunities await. That’s why regional gas distribution utilities like Chesapeake Utilities are embracing renewable natural gas.
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