Northwest Natural Holding Co. is expanding its role in the growing renewable natural gas market with the formation of a subsidiary focused on supplying renewable fuels to utilities and commercial, industrial, and transportation sector customers across the U.S. The utility operator on Nov. 5 announced the new nonregulated business line, NW Natural Renewables, would provide fuels processed from existing waste streams and renewable energy sources. The company said it would lean into the insights and capabilities that it has developed through its energy transition initiatives.
Northwest Natural, which does business as NW Natural, has previously entered into deals to invest in renewable natural gas (RNG) facilities and purchase the fuel, leveraging a nation-leading RNG tariff, which the company helped develop alongside Oregon lawmakers and regulators. The company has also pioneered the use of voluntary carbon offsets and decoupling mechanisms to encourage energy efficiency, NW Natural President and CEO Dave Anderson told investors during a Nov. 5 conference call.
“All of that work has culminated in the firm belief that there’s a large and long-term need for renewable natural gas,” Anderson said. “In the midst of a historic energy transition, the demand for renewable fuels is only going to continue to grow.”
RNG business strategy
NW Natural forecast that low-cost RNG supply will outstrip demand in the near-term, as voluntary and compliance-driven targets among states and utilities stoke consumption.
Anderson said the company was not prepared to say what percentage of overall earnings it expects to generate from NW Natural Renewables. Utility operators typically aim to limit the earnings contribution from non-regulated businesses to defend their credit metrics.
The company will primarily seek to acquire or develop RNG projects once key permits and feedstock and lease agreements are in place, NW Natural Vice President for Strategy and Business Development Justin Palfreyman said. In doing so, the operator will aim to understand design and construction costs prior to making an investment and ensure that contracts minimize risk.
“When we’re talking about how big this business could get, it’s really a function of the risk profile and how we will be able to manage that going forward,” Palfreyman said. In order to ensure predictable cash flows, the company intends to build a diverse portfolio of projects with long-term, fixed-price contracts that have limited exposure to volatile federal and state renewable credit markets, Palfreyman added.
The company’s first partnership with Brisbane, Australia-based EDL Energy, which owns and operates a portfolio of landfill gas-powered stations, reflected that strategy. NW Natural said it had entered into agreements with EDL Energy to secure 20 years of RNG supply, which its renewable subsidiary plans to market under long-term contracts.