Legal Perspectives: Renewable Biogas and Reliability
Natural gas is a mission-critical fuel for our nation. It generates electricity, produces heat for many purposes, powers vehicles, and serves as a feedstock for manufacturing products such as fertilizer. It also produces less greenhouse gas and other pollutants than other fossil fuels. Natural gas can readily be transported long distances in compressed form or as liquefied natural gas. These advantages have led to the widespread adoption of natural gas. Renewable biogas also has these positive attributes, but so far the nation has not made an extensive parallel development this source. The question is why not?
Biogases are readily available from landfills, municipal waste treatment facilities, and farms. Without treatment, these facilities emit greenhouse gases that must be destroyed. All too often, operators of these facilities flare (burn) the greenhouse gases without capturing its energy.
In order for us to make use of its energy potential, among other things, biogas collected in landfills can be treated and piped to off-takers who use it to provide fuel for boilers; it can also power electric generators and, as compressed gas, be used as vehicle fuel. Dairy cow manure can be collected and processed in anaerobic digesters that produce biogas and other useful products. Biogas derived from farm manure can be treated and, like landfill gas, be used as boiler, generator, and vehicle fuel. Biogas of a sufficient Btu level can also be treated to meet gas transmission pipeline standards and be directly injected into utility gas pipelines.
In addition, biogas promotes end-user risk management by providing long-term reliability and commodity cost control. Landfills and dairy farms can predict biogas production fairly accurately, and the costs of development are also well known. Governmental incentives and tax benefits are often available, as is the ability to sell certified emission reduction credits or renewable energy credits related to verified emission reductions (VERs) of greenhouse gases (GHG) in the carbon-credit markets. (GHG includes any of the atmospheric gases such as carbon dioxide (CO2) and methane (CH4) that are believed to trap solar radiation and warm the earth’s surface.) These voluntary carbon markets can provide funding, even advance funding, on a contractual basis for biogas projects. These factors provide a basis for including biogas as part of a number of mission-critical projects.
For example, one landfill gas developer arranged an off-take agreement with an international film manufacturer to deliver a supply of treated landfill biogas (LFG) from a nearby municipal landfill to provide medium Btu gas as boiler fuel at a delivered cost below the NYMEX Medium Btu Gas closing rate. The developer arranged for an engineering report confirming the existence of a reliable LFG supply and obtained a municipal to permit to install a LFG extraction and beneficiation system consisting of a network of gas collection wells, interconnecting pipes, valves, probes, sensors, monitoring equipment, necessary blower stations, vacuum pumps, and a skid for treating the LFG so that treated LFG can be piped to the film manufacturing plant and used for boiler gas. Such a biogas supply confers benefits on everyone in the supply chain from the municipality, which receives income from the sale of gas, to the developer, which receives a return on its investment, to the film manufacturer, which receives a reliable supply of biogas at a competitive price. This developer also develops LFG-fueled generator systems that provide distributed generation fueled by local sources.
In another example, a manure-to-biomethane company creates biogas from dairy manure with anaerobic digesters and then treats it to meet pipeline gas standards. This gas is injected directly to the local gas transmission system of a gas utility and also compressed and sold to off-takers that use it for boiler fuel at competitive prices.
From a larger perspective, since biogas is typically produced close to the place of use, it “strengthens” the gas transmission system by reducing the amount of natural gas that is transported long distances. For that reason, local gas production helps alleviate congestion in the natural gas transmission system, which can lead to gas shortages for commercial, industrial, and residential uses at times throughout the country, such as in the Northeast during winter months. Reduced congestion may also defer the need for constructing new facilities, which reduces energy costs to end users.
The development potential of biogas is substantial. Robust development of LFG and dairy-farm manure digesters and landfill gas in the U.S. would produce an amount of biogas greater than we currently import from Canada. Given that the U.S. must import much of its natural gas, supplementing out of country supply with homeland production is a sensible step. The fragility of Europe’s dependence upon imported natural gas was highlighted by Russia’s recent dispute with The Ukraine. Nations that depend on imported gas should regard this incident as a red flag.
In light of these factors, one would imagine that the U.S. would have implemented a widespread program to develop biogas projects, but the progress has been disappointing to date. What are the barriers?
My experience advising potential developers leads me to conclude that the historic convenience, availability, and reliability of natural gas offer a formidable barrier to the implementation of renewable biogas resources that our nation vitally needs.
Examples serve to highlight the problems of historic convenience, which has created a high comfort level with existing procurement systems and a general lack of comfort with renewable processes. Within the past year, a representative of a large energy company that declined to fully invest in a biogas project told me that natural gas has been a very reliable source and that his company did not want to get involved in the in the project, in large part because there is no national commodity market for fiber and other products of anaerobic digestion.
There are some national and state tax credits and renewable portfolio standard requirements relating to the production of electricity, but the providers of biogas do not necessarily qualify for the credits, posing an additional barrier to project development. In contrast, the electrical generation facility fueled by biogas may meet the requirements.
We have also found that, all too often, it has proved difficult to obtain funding for renewable gas projects in light of their scale. On an individual basis, these biogas projects are each much smaller than, say, an electric power plant. For that reason, a biogas project may struggle to gain attention from the financial industry.
We have also found the financial industry in general to be less familiar with renewable gas projects than other types of energy projects. One solution would be to take a “cookie cutter” approach to such projects and aggregate them in a financial program that would then benefit from the “economies of scale.” The solution of developing projects on a cookie-cutter basis would also help to address concerns related to any single projects since whatever risks may exist with respect to it would be mitigated in a “mutual fund” of similar projects.
Programs such as the Regional Greenhouse Gas Initiative, (RGGI) which involves several Northeast states, and which requires the operators of electric generators to purchase credits produced by renewable gas producers promise to provide some stimulus to biogas. There are many ways to generate electricity and few ways to produce biogas. Given its competitive cost and the many desirable elements of biogas, it appears to me that demand by end users could be a major driving force in making biogas widely available.