Catalyst with Shayle Kann - Betting big on renewable natural gas

Episode Date: March 23, 2023

Landfills, dairy farms and wastewater plants all emit methane, the potent greenhouse gas produced when organic material decomposes in the absence of oxygen.  But instead of emitting that methane (often called biomethane or waste methane), it’s possible to capture and refine it, resulting in renewable natural gas, or RNG. Capturing methane that would have been emitted anyway (something that’s still up for debate) creates RNG that’s carbon neutral or carbon negative. And using that RNG to displace fossil-fuel derived natural gas can cut overall emissions. Big players in energy are betting big on RNG. Last fall BP acquired RNG producer Archaea for $4.1 billion, Shell bought Nature Energy for $2 billion and NextEra purchased $1.1 billion in RNG assets from Energy Power Partners. So what’s behind this recent flurry of activity? And to what extent could RNG actually offset carbon emissions?  In this episode, Shayle talks to Brandon Moffatt, cofounder of Stormfisher, an RNG and hydrogen producer. They cover topics like: RNG feedstocks like dairy farms, wastewater treatment plants, and landfills How much waste methane is available for RNG How different feedstocks determine RNG’s carbon intensity Government subsidies like the Low Carbon Fuel Standard (LCFS) and Renewable Identification Numbers (RINs) Recommended Resources:  Environmental Research Letters: At scale, renewable natural gas systems could be climate intensive: the influence of methane feedstock and leakage rates Bloomberg: The Gas Industry’s Survival Plan: Make Fuel From Cow Poop Vox: The false promise of “renewable natural gas” CBC: Renewable natural gas could help slow climate change, but by how much? Catalyst is a co-production of Post Script Media and Canary Media. Catalyst is supported by Antenna Group. For 25 years, Antenna has partnered with leading clean-economy innovators to build their brands and accelerate business growth. If you're a startup, investor, enterprise, or innovation ecosystem that's creating positive change, Antenna is ready to power your impact. Visit antennagroup.com to learn more. Catalyst is supported by EnergyHub. The company’s platform lets consumers turn their smart thermostats, EVs, batteries, water heaters, and other products into virtual power plants that keep the grid stable and enable higher penetration of solar and wind power. And they are hiring! Learn more and see open roles at energyhub.com/catalyst Catalyst is brought to you by Sealed: The experts in home weatherization and electrification upgrades. Sealed is leading the way, with over a decade of experience being accountable to homeowners because they only get paid based on actual energy reductions. Visit Sealed.com/measuredsavings to learn more.

from the studios of PostScript Media and Canary Media. I'm Shail Khan, and this is Catalyst. Cattle manure has already had a lot of energy extracted by the cow, and so the overall yield of gas per ton of material is much lower than, say, food waste, anaerobic digestion, or in a landfill. Well, I would make an anaerobic digestion joke, but I don't want to give it any oxygen.

When utilities need flexible capacity they can count on, they turn to energy hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility, built for the moments when utilities can't afford uncertainty. Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale. Predictive, verifiable, and designed to perform when it counts. Learn more at energyhub.com. Trillions of dollars are flowing into clean and critical infrastructure, but those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital, shaping policy and building the clean economy. Tune in as we unpack how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. Catalyst is supported by Fish Tank PR.

An award-winning PR firm focused on climate and energy tech, renewables, and sustainability. Fish Tank is known for generating prominent and effective media coverage for the brands they work with. If you want a PR partner that's thoughtful, shoots straight, and gets results, you'll like fish tank PR. To learn more about Fish Tank's approach, visit fish tankpr.com. That's F-I-S-C-H-Fish-Tankpr.com. I'm Shail Khan. I invest in revolutionary climate technologies and energy impact partners. Welcome. So I have this

Google finance page. I think I've talked about it at some point before, which tracks all the quote-unquote climate tech spacks or despaques rather over the past three years. I check it less often than I used to, but I do once in a while. This is all the companies that I deem climate tech companies that went public through reverse mergers during the brief but white-hot spack craze of yesterday. year. Anyway, as of today, out of the 40 companies that I track, only one is trading above its merger price, which is notable in and of itself. That one happens to be MP Materials, which is a rare earth mining company. That's actually a topic for another day. But the point is, very, very few have continued to trade up. The reason, though, that there aren't two rather than one, is that the other one that was trading way above its DeSPAC price was Archaea Energy, which was acquired a few months ago by BP for $4.1 billion, which is a share price that was more than double its public debut. So Archaea is a developer and owner of renewable natural gas facilities, and it's actually

not the only one who has seen a big exit in recent days. Nextera spent $1.1 billion on a different set of RNG assets in Europe, Shell acquired yet another RNG producer called Nature Energy Biogas for $2 billion, and the list goes on. So clearly something is happening in the world of renewable natural gas or RNG. It's also kind of a weird market, particularly in the U.S., with a lot of different inputs and uses, complex carbon accounting, regulatory and policy support that pushes particular end uses, and a kind of big long-term question on the role that it should play or could play in deep decarbonization. In other words, it's a Catalyst special, as I think about it. So let's dig in.

For this one, I brought on Brandon Moffat. He's the co-founder of Stormfisher, which is an RNG and hydrogen producer, and he's deep in the RNG market. So here's Brandon. Brandon, welcome to Catalyst. Thanks, Shell. A pleasure to be here today. I look forward to our conversation. As do I. Let's talk about renewable natural gas. And I want to start with some definitions, I guess. How do you think about, like what constitutes renewable natural gases you think about it? That's a good question. Renewable natural gas is a very broad category of, frankly, renewable gases. That can consist from landfill gas. It can cover dairy or agricultural waste biogas. It can be food waste. You can even get into synthetic natural gas from electricity-derived fuels, or you can get into sin gases from wood waste and other materials.

So it's a broad acronym for a broad range of fuels that all have different carbon intensities and costs on how they produce them. Is what distinguishes all these, I mean, we'll talk more about each of those categories, I think, but is the fundamental thing that distinguishes all of them as a group from natural gas that is not, quote-unquote, renewable? Is that all of those other sources are renewable in the sense that they're not extracting fossil fuels from underground, that will eventually be depleted, and hence it's like anything that isn't fossil fuel extraction is counted as renewable natural gas? Yeah, so it's around carbon intensity. So fossil natural gas has a carbon intensity over 60 grams of CO2 per unit, whereas renewable

gas is typically lower carbon, landfill gas probably being the closest to fossil natural gas, anywhere from 20 to 40 grams of CO2. whereas a dairy project could be like negative 500 grams of CO2. And so those are carbon-negative fuels. You've got carbon-neutral and carbon-positive fuels, but they're all from non-fossil-derived sources is what I would put in the category for renewable natural gas. Yeah, okay.

So the way you're describing it is it's a lifecycle emissions-based thing. But as you said, the lifecycle emissions, and we'll talk more about this, of different methods of production of renewable natural gas, very pretty widely. So I guess one key point, maybe at least for me at the start, is, you know, fossil natural gas is pretty clear and pretty monolithic. Renewable natural gas is multifaceted, multiple production pathways. They have very different life cycle emissions, probably different cost structures, I assume, which we'll talk about as well. So it's really a blanket term for,

it's an umbrella term for a whole bunch of categories of ways to produce CH4, which is natural gas, without drilling for fossil fuels. That's 100% correct. Okay, so let's talk about those different production pathways then and sort of break down and categorize the market. You've already described a few of them, but maybe we can go into a bit more detail, starting with just how do you turn each of these things into natural gas that can be used in a pipeline or natural gas that can be used to generate electricity or whatever. So pick which category you want to start with and then just kind of walk us through

what it takes to turn it into RNG. Sure. So I'll focus right now, at least on food waste, which is the area that I spend most of my time in. And then I'll also talk about hydrogen and how that can play a role in this as well. And then I'll try to tie it together. Food waste, where we spend a considerable amount of our career, we take food waste from restaurants, grocery stores, food processors, also from single home residential. We usually get that through communities. We collect those materials and we bring them to a centralized facility where we can anaerobically digest those

materials to be able to produce biogas. That biogas will be around 60-ish percent methane. The majority of it will be CO2 and then you'll have some other minor constituents of hydrogen sulfide and volatile organic compounds and so on. When we then clean that biogamous, gas up and refine it to be able to make renewable natural gas. Okay, so that's food waste. As it stands today, like what portion of the RNG we produce comes from food waste? So I'll answer that two ways. Very little comes from the anaerobic digestion of food waste because that infrastructure is a higher

cost structure than sticking the organics in the landfill typically. However, as you count for carbon intensity, then that fuel is worth more if you're able to or be digested. Where a majority of the RNG comes from today is from landfill gas. This is where our waste is collected at our homes and our businesses and is aggregated and sent to the landfill where they will, in a linear model, be able to dispose of that, they will cap that landfill, and they are collecting the gas off that landfill. The gas they collect is from the organic waste that was put in the landfill, and so that is how that gas is then collected and refined to make renewable and natural gas. The problem is those landfills aren't the most effective from an emissions perspective,

and so you still have a significant methane release coming off the caps of those landfills, and that's why it's a lower cost structure and been the dominant source of RNG today. But as people start to account for the carbon, then you're going to see more diversion policies to get the materials out of the landfills because those landfills are such an emitter of methane, regardless of whether they have landfill gas capture or not. Can we just double-click on that for a moment? Okay, so landfill gas is currently the dominant source of RNG production. You're saying it's higher lifecycle emissions

because no matter whether you are capturing that landfill gas to produce RNG or not, there will still be other methane emitted from the landfill. And so when you incorporate that into the lifecycle emissions calculation of the RNG, you end up with a higher number. Am I understanding that right? That's correct. And that's just not sort of how we feel about it. This has been validated by various academics as well as NASA. The Jet Propulsion Lab did, flew the landfills in California as an example. And even though they had landfill gas capture, they still were a major emitter of methane.

And so that's something that we're like, all right, we need to do more about. And that's why you see policies like California has to divert the organics from the landfill to mitigate those methane emissions because from a global warming potential, methane is terrible on a 20-year time scale compared to CO2. And so we really need to get these organics out of landfills to allow us to create RNG in a more sustainable way.

Before we move on from the landfill side, because again, landfills are currently the largest source of production, you just talk about the cost side. I mean, we should compare costs as well. What is it cost to produce RNG out of a landfill? So that's not an area I spend a lot of time in, but what I can tell you is what we've seen from the revenue side or what that gas sells for. It will be anywhere from $10 to $20 a MMBTU is what that gas sells for in the non-LCFS RIN markets.

So if this is going to utilities or voluntary buyers, typically you're seeing those large volumes of gas moving at kind of a $10 to $20 per M&BTO as the price it sells for. The cost to produce it, well, it was going to get produced anyway. and so really it's about the cost of capital and how these guys build these facilities and what it costs to interconnect them to the grid. And so that number I can't necessarily nail down for you, but it's good just kind of set what the top line revenue would look like for that type of asset.

Right, yes, you're saying in an unsubsidized market because we'll talk more about LCFS and RINs, but without accounting for other subsidies, $10 to $20 per MBTU, that's a premium on fossil natural gas, but as we'll talk about, it's a lower price than probably we'll see for some other sources that are taking account of stuff like LCFS. So landfill gas, biggest market

today, probably cheapest cost of production today. The sort of main challenge that it suffers is the lifecycle emissions. What comes behind landfill gas? Like what's next in terms of largest sources today? So largest sources that are happening today probably would be in the dairy waste side of things. You've seen the large animal feeding operations that have digesters that are capturing their methane and they're putting that in the market. Because of the existing practices, they can be able to drive a very low carbon intensity. So we see very little of that gas going into the utility market and the voluntary side. Most of that's going into the LCFS and RIN markets because the economics just makes so much sense when you take the carbon intensity into consideration.

And so that space is maturing very, very quickly because it's kind of a monostream material that people can easily understand. And so there's been a lot of focus on driving anaeric digestion of cattle manure to produce R&G. Okay, so maybe dialing into that a little bit more on the dairy waste side, sort of two questions. One, why, you know, talk a little bit more about why the monolithic waste stream. is important and beneficial. And two, maybe just walk us through that emissions, the LCA calculation, and what makes it so much better, for example, than landfill gas.

Sure. Good question. So the first on the monostream side of dairy manure, because that's been the main focus within the ag space, is manure from the dairy side is usually around 12% total solids. It's well understood. And people can be able to easily build and the digesters be able to, handle that material. And so that's well understood, which makes it easy to do from a risk perspective and from a financing. And so that's pretty straightforward. And if you know what the

gas production should be off of those types of facilities. And so that just makes it really easy to understand and straightforward. The other bit is the historic manure management practices on large dairies is to move the stuff out of the barn fresh every single day and put that in the long-term storage where you store that material and you land apply it when the cropping season allows you to be able to do that. The problem with that does is that you're having the methane release coming off of those manure storages. And so if you stick in the digesters and you extract that energy and you stabilize that material, well, now all of a sudden you're abating an otherwise large methane source that would have occurred at those large dairy farms. And so because of that, you're able to drive a very

ultra-low CI or carbon intensity of that gas. And so it's really, really valuable. However, cattle manure has already had a lot of energy extracted by the cow. And so the overall yield of gas per ton of material is much lower than, say, food waste, anaerobic digestion, or in a landfill. And so that's something on why the cost structure for a dairy waste project is much different than the other assets we've talked about so far. Okay, so is it accurate to say that dairy waste, sort of number two largest source of production today, much lower carbon intensity, potentially negative carbon intensity, so sort of much better

than landfill gas from that perspective, but sort of main flaw is cost structure, which as a result of how much sort of work it takes to get the same amount of gas is significantly higher than landfills. So I have all that about, right? Yep, that's correct. Okay. So, and let me ask you this, I guess, additional question on both landfills and dairy before we move on. You know, I guess one one of the things people talk about with RNG a lot at the high level is just ultimately how big is feedstock availability and how much of our sort of current natural gas consumption could we theoretically replace with RNG. This is one of the arguments that people make at the high level against RNG, which is that even if it is great and it is low carbon intensity,

then what we're doing is we're sort of ultimately able to replace what 10 or 15% of our current natural gas consumption with it. And so, you know, we're just furthering the infrastructure that at some point is going to need to get replaced anyway. Where are we in terms of penetration of current landfills and dairies already turning their waste into renewable natural gas or something else, right? Are we at high-level penetration? Are we just getting started? How much growth is there still to be had? So that's a good question. There's a lot to unpack in what you're asking there. Let's try to break that into a few different pieces. So the first on where the market can go. And so you talked about 10 or 15% say by volume in terms of the gas that's consumed. So that's probably

the right number on a volume basis, but on a carbon intensity basis, 10 or 15%, depending on the mix of landfills and food waste and other forms of RNG could be much more meaningful from a carbon reduction perspective. So you might be able to drive 40, 50% carbon reduction from the natural gas sector just by using 10 or 15%. So you're getting into a carbon accounting basis of looking at rather than just a volumetric basis. And so that's something to take into consideration, which doesn't always get a lot of consideration. People are like, I just want a GJ as a GJ.

And I'm sorry, an MNBT is the same kind of unit. I'm switching back and forth between Canada and the U.S. And so that's something to understand. Now, there's a complete underappreciation for the size of the natural gas system and the role it plays in North America. And I'm all for RNG and hydrogen and those types of things. But I'm going to use a sizing of the

market in Canada where I live as a reference point. I think the Canadian electricity grid on a total energy basis is like 2,000 to 3,000 petidules of energy. The natural gas system for both home heating and industrial use is like 8,000 petidules. And so you're not going to be able to get away from gas anytime soon because you need to be able to figure out how you're going to handle that from an electricity, electrification, side, as well as from just decarbonizing the gas side, he is a transitionary measure. And so I'm not here to debate whether we should electrify or gas. I'm just like, we need to do everything all at once to be able to meet the targets that

we've set as a society. And so in doing that, 8,000 petidules just in Canada alone, which is a tenth of the size of the United States, gives you a size of how big the natural gas industry is. And therefore, all of the tools. And so I'm not saying landfill gas is bad or you shouldn't do dairy gas. We need all of it. And that on a volumetric basis will be 10 or 15%, but could be much more meaningful on a carbon intensity basis

or our overall carbon reduction perspective. So I'll pause there to see if you want to follow on and then I can continue to answer your question. Yeah, no, I think those are good points. So let's just posit that that's true that you can get 10 to 15% on a volume basis higher from a carbon intensity perspective basis. Where are we today relative to that? In other words, again, like, what's the current level of penetration on these various feedstock

production pathways? Yeah, so you're probably about 2%. You're pretty far along on the landfill gas side, at least on the larger landfills, but there's still a lot of small to medium-sized ones that are out there that can be captured on. You're also, in the dairy side, you've captured most of the projects are either signed up or in construction or operating on the larger fire. farms, but there's still thousands of smaller farms. And I don't mean like a couple hundred

head of cattle, but thousand to five thousand head dairies are still something that can be focused on. Everybody's focused on the 10 to 30,000 head dairies. And I'm like, okay, that's like a if you think about it on sort of a pyramid basis, you're like, all right, I just touched the top of that. And so I think you're probably two-ish percent penetration of the 10 to 15 we talked about. And really, the wastewater treatment side and the food waste side is largely untapped right now. And we just need more consistent supply to meet the market from all of these sources to be able to support everybody in the decarbonization. Okay, so that's a good segue into finishing our list of feedstock. So we've talked about landfill gas. We've talked about dairy waste.

You talked a little bit about food waste at the beginning. I guess we can maybe dive into that again for another moment. So sort of what you You said consistent availability. One of the things I think about with pure food waste is where do you get it at scale? How do you think about that? Yeah, so at scale, so the first bit is understanding the market and the waste shed that's there. And so the northeast up here in Canada, California, where the population is where the food waste is going to be generated, both from the homes as well as from the industry, because the industry that makes the food that goes to market in most cases is near the population. And so it's understanding how to bring those materials together and delink the processing costs for those materials from the landfill. And so like the SB 1383 along California says you can no longer send organics to landfill by 2025, which is incredibly aggressive. But what you're doing is you're saying you can't send it to that spot anymore.

That home is not available to you. It course corrects the market to be able to redirect that material to Antiburg Digestion facilities, things that I've done in the past, on that side of it. And so that's how we unlock the feedstocks to be able to drive this. But where you don't have population, so I'm just going to pick the middle of Kansas somewhere, it doesn't make sense for us to be doing food waste digestion in the middle of Kansas. But in the Northeast, California, Chicago population centers is where that makes sense for us to be able to do that. Now, we've not talked about hydrogen and power to X, and that's sort of another whole kettle of fish we can be able to dive into. But on the food waste side, it's

in and around the population centers is where you need to be able to do this. But you need the diversion policies to be able to delink it from the landfill. Otherwise, the status quo will prevail. Virtual power plants are becoming a reliable way for utilities to manage capacity. But enrolling devices is just the start. What really matters is confidence, knowing those resources will perform when dispatched and being able to prove it from the control room to the living room. Energy Hub's platform handles the full picture, from near real-time forecasting,

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but the future of energy isn't shaped by technology alone. It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, the capital platform for the clean economy. Join me for my brand new show, Critical Capital, as I talk with people deploying capital, shaping policy and building projects. Together, we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. Are you tired of overpaying for big-name PR firms, but not really knowing what they're delivering? Is your comms team wasting time reviewing lengthy messaging briefs and decks, instead of engaging

journalists or producing content? Are you wondering why your competitors are getting press and you aren't? Fishtink PR is an award-winning climate and energy tech, renewables, and sustainability focus PR firm dedicated to elevating the work of both early stage and established companies. Whether you need to position yourself as a thought leader in between project announcements or translate complex ideas and technologies into tangible, compelling stories that resonate with the media, Fish Tank Can Help. Check out Fish Tankpr.com. That's F-I-S-C-H-Fish-Tankpr.com. Okay, and then let's orient food waste. Assume you have access to it, assume there is sufficient feedstock. Let's orient that relative to landfills and dairy, both in terms of

carbon intensity and in terms of cost of production. So cost to production, I would say the market on that is ranging from anywhere from low teens to low 30s in terms of price per MMBTU. And that's where the market is for that. And that's because that carbon intensity of that gas will move kind of from, oh, call it zero to negative 100. And so that's because you're abating that methane from the landfills we spoke about and you're also displacing the fossil fuels depending on how you use that RNG. And so that is interesting. It's not as ultra low as, say, a dairy digester, but you also get much larger quantities of gas. Because you're using materials that haven't been consumed by a human or an animal, there's more energy per ton in those materials. And so you can

yield greater gas volumes than he otherwise could at a farm. And you're probably in the range of what you could do on a landfill on a per ton basis. Okay. And then finishing our list of production pathways, you also mentioned wastewater treatment. I mean, what else do you think is important besides landfills, dairies, and food waste? Yeah, so then you get into wastewater. These are the existing wastewater treatment plants that are in the communities handling biosolids and other materials. And most of them have digesters so they can are producing biogas, but it's frankly underutilized. There's many wastewater treatment plants in the United States that just flare that gas. And you're like, what are you doing?

Like, let's look to see what we can do to be able to refine that and utilize that, whether it's in truck fleets or just injecting it into the grid. It doesn't make sense at really low flow rates, but there are many, many plants that are underutilizing that gas. At the top of the discussion, I did talk about sort of syn gases from biomass and other things, as well as in sort of the hydrogen P to G side. Those are other pathways that could require some further discussion, but at least on the wastewater side, there's a biosolids production pathway that exists today that is just underutilized. Okay, so we've talked a little bit about the different ways to make renewable natural gas to produce it. I want to switch to talking about the market a little bit. So you've alluded a few times to these two

different policy mechanisms that I think, at least in the U.S., are really central to understanding how this market plays out, which is the LCFS, which is California policy, and RINS, which is national policy. Let's start with RINs and then move down to LCS. Can you just describe what RINs, well, first of all, what does it stand for? And what is it? Yeah, so under the renewable fuel standard, there are renewable identification numbers. And there's different categories that the federal government has allocated for the use in transportation fuel. So ethanol and biodiesel play a role. And then they've allocated gaseous sort of product, so RNG, and there is a D3 RIN, which is a cellulosic RIN, and there's a D5 RIN, which is advanced biofuel

RIN. Now, this whole thing has become highly politicized and frankly doesn't make a whole lot of sense. The farm and in a landfill can create a D3 RIN, but a food waste digester makes a D5 RIN. And there is really no difference from a landfill in terms of the organics that's in the landfill versus a food waste digester. And so it's been very much a politicized piece around kind of the qualification of this. And we've tried to fight to start this out, but it really has not prevailed over multiple administrations. And so it's just something right now that we continue to dialogue about to try to make some sense of it. But the D5 and the D3 RIN have different price points and volume allocations and other things that will wildly swing what those RINs are worth.

Yeah, can you just give us, throw some numbers out? Like, what is the, what's the economic impact of RIN qualification if you're producing RNG? One, and two, I mean, we should be clear on this because this applies both to RINs and L-CFS. This is specifically for transportation fuels, right? Which is one of the things that's weird about our RNG policy landscape here is that natural gas, generally, not primarily used as a transportation fuel, right? primarily used for heating and industrial purposes and so on. But our policy landscape has these two big support mechanisms, one RINs, one LSA, which we'll talk

about in just a minute, both of which were built for transportation fuels and happened to allow RNG to qualify. And so it creates a driver to use natural gas, in this case renewable natural gas, as transportation fuel rather than in all these other contexts. But on RINs, like how big an economic impact does that have? It's enormous. So where I talked to earlier where landfill RNG to the utility market may move for $10 to $20 in M&BTO, they can be north of $50 in M&BTU by the time they take the RIN and the LCFS credit consideration,

so they get into transportation setting. And so the same for Dairy. Like Dairy, you can move that gas for $70 to $90. in M&BTU, which is frankly a really high price. And so that's something that we're like, all right, let's try and understand the price points. The D3 or D5s really have nothing to do with carbon intensity, which is probably where they should,

but there's no way that's going to get sorted out anytime soon. And so, but the stacking of the LCFS and RINs puts them in those kind of price points of kind of 50 to 90 to Pucks, depending on how you stack and carbon intensity for the dairy and the landfill gas. Can you separate that out? Like how much is Rins, how much is L CFS? And we haven't talked about LCS yet. so I want to spend another minute on that.

Yeah, I don't have a good sense on the exact numbers. I'd probably say it's flip-flops. So where we've seen a depression on the LCFS in the past year or two, well, the RIN market's picked up. And so what I'd tell you today probably would be sort of 70% RIN, 30% L-CFS. Well, depending on which source of gas and where the market goes, all of a sudden that seems to swing back around. So they seem to stabilize each other.

So the average range of 50 to 90, depending on which gas we're talking about, is pretty consistent. But three years ago, where most of your money would have come from your LCFS and less from your RINs is now flipped. Okay. And so I guess then we should explain what LCS is, since we've explained what RIN is, and then we could just stack them together and talk about the economics. So what is LCS? So LCFS, at least in California, is a tool to be able to decrease the emissions from the transportation sector. So whether it be heavy-duty vehicles and other things like that, it's looking to change or bend the curve on the emissions in that space. And so different fuels can go into different vehicles. And so a CNG truck, which is what you mentioned earlier, there might be buses or other things that are in California that you can be able to generate an LCFS credit.

if you can show you can get it into that vehicle. That allows the obligated parties, the refiners and other groups like that in California to be able to buy an LCFS credit to comply. And so you can be able to stack a RIN and an LCFS credit because you're getting it into a vehicle. But it's got to be in California. And so that's where you've seen over time where landfill gas used to play a very prominent role in California because of the carbon intensity of dairy gas and because they're trying to bend the curve on those carbon emissions,

you're seeing dairy gas displace landfill gas, at least in California. Now, I talked specifically about California. There are other LCFS programs that are continuing to be developed. Canada has the clean fuel regulation. Oregon's been active. Washington state's been active. New York's working on it. And so you have these state-by-state or sometimes federal policies around LCFS,

which starts to take the carbon intensity into consideration, which it really should. And so these are things that we're monitoring very closely to figure out which markets makes the most sense for our gas into those markets that are willing to pay the appropriate price for that gas. Okay, so stepping back for a second here, you have these incredibly rich incentives in the form of RINS and LCSS that, as you said, can stack up such that the price that customers are willing to pay for renewable natural gas that qualifies can be up to, I think you said, $50. Sprem MBTU, which is incredibly high, right? Much higher than landfill gas is going for, not to mention much, you know, like close to an order of magnitude higher than what traditional fossil gas sells for. But that sort of rich price point is for renewable natural gas that with low-carbon

intensity that is delivered into the transportation sector. So what is that done to the market? Like what, you know, is the vast majority of non-landfell renewable natural gas, gas now being used in transportation? Is it creating a disincentive to use R&G in other sectors? Is that a bottleneck on the market's growth at all, or is it just an aside? So it's been where the market has been in the past, but you've seen a movement now by the natural gas utilities that are looking to decarbonize, because you're seeing cities or states look to electrify. And when they do that, they are, the natural gas utilities have to respond because they've got billions, if not trillion,

of dollars of infrastructure in the ground to be able to move natural gas, which is a useful fuel for heating and a variety of other things, and they have to respond and they need to decarbonize. And so they can either do conservation or they can buy RNG. So you have seen a increase in price over time from the natural gas utilities because they become buyers of that fuel, but they're never going to touch what the LCFS and the RINZ will be able to do. But I actually am totally fine with moving gas to a utility at a lower price because they're usually willing to sign terms, so 10 or 20 years. And so that just makes lots of logical sense versus a highly volatile LCFS and RIN market. I talked to you about that pricing, but that doesn't mean someone's going to buy your gas day and day out for those facilities.

And so, yes, you can be able to yield higher prices of those markets, but if you're not going to lock that in long term. And so some people are willing to gamble and play that spot market and be able to do quite well. And other people are a little more cautious or conservative, and they will sell to the natural gas utilities as one customer or large multinationals that are trying to decarbonize. And those are good customers as well. Okay. So I guess my other question at high level on the market is it feels like from the outside that something has turned and made the market more bullish on our market. RNG in over the past, I don't know, year or so than it had been historically. And just evidenced by the MNA that we've seen, where a bunch of really big players ranging

from Nextera to BP to others have made big acquisitions of either RNG developers or portfolios of RNG assets or something like that. At what feel like pretty lucrative prices for the sellers, is it true? Do you think that something has been changing in that market? what is driving all of this M&A activity? Yeah, so the first bit is on the policy side. So you're seeing governments and large corporations that are willing to put a price on carbon and look to decarbonize.

Is it widespread? Probably not, not where everybody would like it to be a promised, but there is interest in these fuels as a new source that's there. And so what that's done is, if you're willing to put the blood, sweat, and tears into building that infrastructure, you are able to monetize those assets and your hard work. And that's why you're seeing the transactions that are going on.

And so both in the landfill gas space, the food waste, and the dairy space, there have been recent transactions that have been significant to be there. Now, it's not like a fossil natural gas. Well, you don't just turn it on and off. This is infrastructure that you need to own and operate longer term. And so some of the buyers we've seen in the market make total logical sense that they'd be able to pick this up. other ones is going to be an entirely new kettle of fish that's going to be really hard for them to be able to figure out because you've got to go manage these facilities and there are smaller volumes and they require more attention and so i would say we're going to see some attrition in the space or some collateral damage on this i don't know exactly where it's going to be quite yet but we've seen this industry uh pick up and then drop off pick up and drop off over the past kind of 20 years that i've been in it but it's hotter now than it's ever been and that's because people are paying more attention to decarbonization and truly sort of investing in that.

And so that's exciting. But we also need to understand that there's going to be a lot of more lessons learned in our industry. Just one through line that I think I've been hearing a little bit through the conversation so far is, given that RNG has, different sources of RNG have highly variable carbon intensity, some of the markets do account for that, the incentives account for that. And it kind of sounds like the market is sort of baking. that in, which strikes me as a good thing. Is it true that if you're, you know, if you're trying to build a portfolio of assets or sell a portfolio of assets, that you will command a premium based on lower carbon intensity, all else equal? Yes, absolutely. Lower carbon intensity will yield higher pricing because people are valuing the carbon. And so that is important. That did not

exist even five years ago. It was a pretty much foreign concept. And so that, the markets become much smarter both on the buy side as well as the sell side of the gas. And so that's been a good thing that we've seen develop. What do you think is the main bottleneck to this market? What's going to be the limiting factor on growth over the next few years? Is it access to feedstock, you know, signing up all the smaller dairies or whatever it might be? Is it demand where you're going to tap out the LCFS market and then need to figure out how to sell enough otherwise? Is it financing? What's the hardest thing to solve for? Honestly, it's probably the know-how and the sort of the brain power and the teams to be able to do it as first bit with enough knowledge.

And the second bit's going to be the development capital. A lot of financiers in the space, they're like, this project looks great. Bring it back to me when it's ready to go for investment. And you're like, no, this is going to take a half million dollars to a couple million dollars to develop that project and move that forward. Now, with the transition of new entrance into space that have acquired sort of the existing developers, you may see a change in that, but development capital and knowledgeable developers and operators are crucially important. 15 years ago, we were a developer and we were like, I think this might be there the numbers

are. We're now much more of an operator. We know what it takes to operate this infrastructure, make sure it's reliable, and what it cost to make those products. And some people is like, well, just make it cheaper in terms of the capital cost to build the infrastructure. It's actually not that relevant. What's important is making sure you can reliably produce

your RNG day and day out for the customers, and that's how you'll actually be more successful. But I would say the know-how and the labor, and the other one is the development capital to be able to put these projects together are probably the two gating items to move in this industry forward even faster. All right, final question.

Always want to talk about outside of next generation technology. So in RNG world, whether methods of RNG production, using existing feedstock or different ways to produce RNG, What do you see coming down the pipe that could be, you know, transformative from a technology perspective? So the, everybody, well, hydrogen has become white hot, no pun intended.

The issue with hydrogen is how are you going to be able to move those molecules around? And so where RNG is physically the same as natural gas in the pipeline, so you can be able to book it in one location and pull it up somewhere else, which works quite well. hydrogen, you cannot stick this in the distribution lines or the transmission lines at any significant scale. So that is a challenge. Now, if you take, call it biogenic CO2, so a non-fossil-derived CO2 source, and you take the hydrogen and you turn it into methane, well, now you can get it in the pipeline and be able to also be able to do that, so you can drive a new form of RNG and scale that up. Now, people say, why in the world do I want to take green hydrogen and make it into methane?

I'm like, because I can move it around today, and people are willing to buy it. Down the road, as utilities figure out how to be able to accept hydrogen in, well, then all of a sudden I turn the methanation side of those reactors off, and I can be able to put hydrogen directly in and not lose the efficiencies on doing that. And so this is something that we see as the new tech and the approach going forward, that we're going to need to do that to be able to support the decarbonization movement and the development of hydrogen infrastructure. So what you're talking about is synthetic method,

So you basically, just to walk through that for one second, you get clean hydrogen, however, you get that clean hydrogen, various ways to do that. Then you need a source of CO2 that is biogenic or direct air captured. So you either need to take like biomass or something like that or you got to take CO2 directly out of the atmosphere. And then you combine your CO2 and hydrogen to get CH4, which is natural gas, and then now it's transportable. You know, I think in some ways it's a super elegant solution to a lot of the problems with hydrogen.

On the other hand, it comes at an inherent cost. It's clearly going to be more expensive than the hydrogen is on its own, and it's certainly going to come in a premium relative to fossil natural gas. What are you seeing in terms of the cost of production of synthetic methane relative to other sources of RNG, which I think is a more apt comparison? Yeah, so a good question on the cost structure. It is going to be more money. So you're going to be in over $30 in MMBT to be able to sell it,

and your carbon intensity is. not going to be negative. It's going to be hovering around zero or a little higher, depending on your renewable mix that produces the hydrogen from the renewable electricity. And so you have a disconnect between the value and the carbon intensity. But what you have is you have scale. You're competing at the scale of landfill gas in terms of on a site-by-site basis. And so we see the market continuing to move around this. Now, I am taking into consideration the Inflation Reduction Act and some of the policies that are there around hydrogen production and using that hydrogen when I give those economics to you. But there is a bit of a disconnect that's there. But it's something that we

see as a means to be able to move the molecules and transitioning the market until the direct use of hydrogen market develops further because right now it just is non-existent. All right, Brandon, thank you for the whirlwind tour through the world of renewable natural gas. It appears to be moving quickly. So I think we will have another opportunity to chat about it again soon. That's good. Thank you, Shell. It is moving quite quick. It's been very exciting and look forward to engaging with you in the future. Brandon Moffitt is the co-founder and VP of Development at Storm Fisher, which is an RNG and hydrogen producer. This show is co-production of PostScript Media and Canary Media.

You can head over at Canarymedia.com for links to today's topics. And as always, PostScript is supported by Prelude Ventures, a venture capital firm that partners with entrepreneurs to address climate change across a range of sectors, including advanced energy, food and ag, transportation and logistics, advanced materials and manufacturing and advanced computing. This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Sean Marquand, theme song by Sean Marquand. I'm Shail Khan, and this is Catalyst.