Everyone is Asking About Renewable Natural Gas

By Peter Draper | Industry Update

(Unless you’re in Europe, then it’s biomethane.)

Gas generated from the breakdown of organic matter, such as food waste, manure, wastewater sludge, household waste and energy crops, is known as biogas. Biogas is typically used to produce electricity and heat in combined heat and power plants. When purified, biogas is then known as biomethane (or, renewable natural gas (RNG) in the U.S.) and is interchangeable with natural gas.

It is not only a proven technology, but through using existing gas infrastructure, biomethane has the potential to reduce carbon emissions in hard-to-abate sectors, like high temperature processing and heavy industry, as well as for power and, uniquely to the U.S., transport. These benefits are pushing policymakers to provide greater support for the sector, particularly in the U.S.  Whereas in Europe, domestic biomethane production is an avenue to diversify from natural gas imports and insulate against future supply shocks, like that after Russia invaded the Ukraine.

One of the drivers of transport demand in the U.S. is the nationwide renewable fuels standard that mandates a volume of renewable natural gas, via renewable volume obligations, that suppliers must mix with gasoline and diesel. California, Oregon and Washington provide additional state-level support. Renewed momentum in the U.S. is likely to be focused on animal waste and waste from agriculture, as opposed to diverting waste for landfill.

On the supply side, RNG is mentioned alongside solar, wind and battery energy storage in the U.S.’s latest energy transition support package: the Inflation Reduction Act (IRA). The IRA includes provisions to support new and upgrade RNG projects nationwide with tax credits to support project finance. Construction activity is set to accelerate to the end of the decade, compared to the steady activity of the last five years.

From our experience, not all insurers have the authority to underwrite biogas projects. Those that can have built up deep, technical expertise in what was a niche opportunity. For energy transition teams eyeing this sector, biogas projects vary more so than wind and solar with associated advantages and disadvantages.

For a start, there is the feedstock. Handling, storing and digesting feedstock is not an underwriting consideration for weather-linked wind and solar. Is it a continual or batch feed? Then there is the handling of the left-over product – the digestate. Both waste in and waste out also presents a pollution risk.

Biogas projects are desirable for insurers as they are not wedded to windy and solar sites so are more likely to be spread across the land, reducing natural catastrophe aggregation concerns.

Then there’s the casualty risk. Wind and solar do not present an explosion risk, biogas does. It is normally mitigated by condition monitoring to continually assess pressure levels, appropriate gas detectors and stringent 24/7 safety protocols. Sound familiar? Insurers of  battery energy storage projects grappled and settled with a similar risk profile.

At the fundamental level, biogas deal with molecules, and sometimes, electrons. And it deals with a messy feedstock. It involves more cleaning and maintenance than wind and solar projects and is more akin to a traditional power plant. Again, insurers can call on existing expertise from their in-house power teams.

An opportunity and challenge for biomethane production is leakage. Methane traps around 27 times more heat in the atmosphere than CO2. Capturing methane at point sources, such as large concentrations of waste – landfill, animal waste, reduces emissions. But, biomethane production must be in tandem with robust maintenance and asset management strategies to reduce captured methane from leaking – known as fugitive emissions. Fugitive emissions possibly lends itself to a non-physical damage insurance product. Noticing both the challenge and opportunity is the global methane pledge. Launched at COP26, 155 countries signed-up to reduce methane emissions by at least 30% from 2020 levels by 2030.

We are here to help our retail partners capture the forecasted growth in renewable natural gas (RNG). Please get in-touch if you’d like to hear more about structuring and placing covers for RNG assets.

Sources:

https://iea.blob.core.windows.net/assets/96d66a8b-d502-476b-ba94-54ffda84cf72/Renewables_2023.pdf

https://www.imperial.ac.uk/news/237376/biogas-biomethane-supply-chains-contribute-much/

https://www.cell.com/one-earth/fulltext/S2590-3322(22)00267-6?_returnURL=https%3A%2F%2Flinkinghub.elsevier.com%2Fretrieve%2Fpii%2FS2590332222002676%3Fshowall%3Dtrue

https://www.globalmethanepledge.org/

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