Utility RNG Markets Developing With Limited Policy Guidance, Speakers Note

FOSTER REPORT No 3328 | WEEK ENDING DECEMBER 11, 2020

December 9, 2020

The push for renewable natural gas (RNG) outside of the transportation market is hindered by limited policy directives, but still showing progress in certain states and utility areas due to decarbonization plans, panelists said during a December 8 conference on utility efforts.

Gas utilities are trying to meet state directives for decarbonization goals and RNG is one of the tools to lower their carbon intensity. The progress being made in California, Oregon and some other states could lead the way for more states to adopt legislation that provides policy guidance for regulators as they consider utility RNG plans, speakers said during the Biogas Americas online forum.

The December 8 session, which was part of the Biogas Americas series held by the American Biogas Council, focused on utility and regulatory efforts around the country, with representatives noting the lack of policy push at the federal level or from Congress.

The panel of utility representatives was moderated by Emily O’Connell of the American Gas Association, who said the dearth of federal policy has resulted in a patchwork of state policies and local gas distribution company (LDC) efforts to develop RNG plans as part of their effort to reduce greenhouse gas emissions. A few progressive states have developed frameworks for regulators or passed legislation for regulators to address RNG plans or call for increasing amounts or RNG in the gas supply stream.

But utilities outside of those progressive states are at a disadvantage, because RNG is competing against more developed technologies and LDCs have a mandate to provide service with least-cost gas supplies, said Heather Dziedzic, lead senior environmental analyst at Consumers Energy in Michigan. That least-cost gas supply mandate creates a barrier for RNG, which carries a higher price, so utilities are limited to voluntary tariffs for RNG at a premium price, Dziedzic said. “That’s a huge hurdle to overcome if we want to have a level playing field,” she said.

A policy change to reframe the cost element from a cost per unit of gas to a cost per ton of carbon abated would help, Dziedzic said.

Others agreed, and noted that utility customers are clamoring for RNG and RNG suppliers are hoping LDCs provide additional markets for their product, which captures methane, converts it to pipeline-quality natural gas and delivers it to LDCs. In states where utility RNG plans are minimal, RNG producers sell into the California market, which has a low carbon fuel standard.

The cost per ton of carbon abated should be the metric against which RNG and other fuels are judged, said Tanya Peacock, public policy and planning manager at Southern California Gas.

SoCal Gas has aggressive RNG goals and state regulators are considering policy directives to guide utility efforts, Peacock noted. Voluntary tariffs are an important option in areas where legislation and regulation have not evolved, but to really gain scale and grow the RNG market more is needed, said Peacock. A renewable gas standard, where utilities are authorized to buy increasing percentages of RNG to mix into their gas supply stream is what’s needed to gain scale and lower costs, she said.

That concept has proven successful with renewable portfolio standards for electric utilities, and there are transferable concepts for RNG to realize the environmental benefits and economic gain for states with RNG facilities, said Robin Lanier, director of RNG at Southern Company Gas. Unfortunately, many states have rules that do not fully contemplate RNG or allow utilities to show the value of RNG to consumers that want to have their gas supplies be more sustainable, Lanier said.

Southern Company Gas is seeking interconnection rules in Virginia and Illinois, which can help RNG developers so they do not have to go through a new process each time, Lanier said. A similar approach is being taken by CenterPoint Energy in Minnesota, after CenterPoint’s voluntary RNG tariff was rejected by regulators in 2019.

“We’re doing a make-it-up-as-you-go approach” with RNG in Minnesota, said Amber Lee, director of regulatory affairs at CenterPoint in the state. Following the tariff rejection, CenterPoint pivoted to RNG interconnection rules that were recently approved, with limitations and conditions for local RNG supplies and the type of RNG production facilities that can be used, Lee explained.

CenterPoint intends to file an amended tariff plan in 2021, and it is looking for policy direction from state lawmakers to help, Lee said.

In a comment echoed by the other utility representatives, Lee said consumers are asking for RNG and RNG suppliers are seeking to sell their greener gas commodity, but laws and regulatory rules have not kept pace with the developments, and LDCs are caught in the middle. “We’re up against that wall,” said Dziedzic. “We’re making headway,” but it is slow, and not as simple as a utility saying it wants RNG supplies and dedicating $5 million toward interconnections, she said, adding that Michigan is one of the states with limited policy direction on RNG.

The production of RNG involves capturing and converting methane from organic waste streams that include landfills, municipal wastewater treatment plants, livestock/poultry manure and commercial food waste through anaerobic digestion facilities. The captured biogas is converted into RNG that can be made compatible with conventional natural gas pipeline and distribution systems to be used by utility customers or compressed as a transportation fuel. The captured methane is a significant benefit given the climate change effects of the molecule compared with carbon dioxide.

The way biogas is captured as RNG can differ in the environmental benefit it provides compared with the fossil fuel natural gas, the Environmental Defense Fund and similar groups have said. During the CenterPoint Energy proceeding in Minnesota, Fresh Energy, Sierra Club and others have said the amount of fossil fuel gas to be displaced by RNG sources will be minimal, and state and local agencies should be careful not to overestimate the environmental benefits of RNG. They often seek electrification as a faster way to a cleaner economy.

In New England, “we have a tough time making sure everyone understands what RNG is,” said Nikki Bruno, director of clean technologies at Eversource. Utilities, RNG developers and others are educating policymakers on the benefits of RNG, while some groups want to abandon combustible fuels altogether and get straight to electrification of everything, she said.

A roadmap for carbon neutrality by 2050 is set to be unveiled in New England, and sometimes it feels like gas is being eliminated from the future, when the feasibility of executing carbon reduction goals rests with utilities, Bruno said.

O’Connell pointed out that the American Gas Foundation published a report on RNG last year addressing the costs and market potential for RNG because there was a lack of information or understanding on RNG’s role in a decarbonization push.

The RNG interconnection plans of Southern Company Gas are designed to have a process that’s repeatable for RNG producers and eliminate ambiguity, Lanier noted. The LDC intends to pay for interconnections in Illinois as a means to grow locally sourced RNG and “put our infrastructure to work in a more sustainable way,” she said.

California has a financial incentive for RNG connections, with $80 million available statewide to have RNG connection equipment included in utility rate base, Peacock noted. It has not been used yet, but it is an option available to grow the RNG market, she said.

In Minnesota, CenterPoint has supported the Natural Gas Innovation Act, which would allow utilities to invest in alternative fuels such as RNG, renewable hydrogen and other technologies to lower or avoid GHG emissions. The Minnesota Senate passed the measure, but the state House of Representatives did not take action before adjourning for the year. The legislation will be pursued in 2021.

A similar development shaped up in Colorado, where an RNG standard passed the state Senate and was not addressed by the House when the COVID-19 pandemic interrupted the legislative session. The bill (SB20-150) calls for large utilities to obtain small amounts of their gas supplies from RNG by 2025, growing to 15% by 2035. State lawmakers intend to introduce the bill again in the 2021 session, which starts January 13, they’ve told media outlets in Colorado.

SoCal Gas is working toward meeting the 20% RNG goal by 2030, and a standard interconnection tariff is set to be addressed by state regulators this month, Peacock said. She hopes to grow the customer base for RNG, and noted that some commercial and industrial customers may be hard to decarbonize through electrification or other means.

To say RNG developments are coming at a breakneck pace is not an exaggeration, said Dziedzic. Consumers Energy is wrapping up a request for proposals and intends to develop regulatory filings in 2021, she said.

At the outset of the session, Patrick Serfass, executive director of the American Biogas Council, said RNG is a quickly changing market and the utility space is keenly eyed by RNG producers. The 2,200 biogas systems operating today pales in comparison to the 15,000 that could be built at different facilities to capture methane waste, he said.

“More and more companies are asking to get their hands on RNG,” and utilities have been listening to their customers, Serfass said.

By Tom Tiernan ttiernan@fosterreport.com