In this month’s edition of Activity Report, we look at the recent and more intense attention given to methane gas as a potent greenhouse gas (GHG) and the growing interest and investment in renewable natural gas (RNG).
Intensification of the concentration of methane gas
In recent months, methane gas, as a component of greenhouse gases (GHGs) and a contributor to climate change, has come under increased scrutiny. A number of leading media outlets – CNN, NPR, and Vox, among others – have started talking about methane, as a lesser-known but more powerful contributor to climate change, noting that it is between 25x and 80 + x (depending on the period) more efficient at trapping heat than carbon dioxide (CO2) emissions. And, although much lower in total amount than CO2 emissions, controlling methane emissions is increasingly seen as a faster way to make a difference and slow climate change – in essence the most button. fast and most effective in the fight against global warming. This culminated in a United Nations (UN) 2021 climate change report calling for cuts in methane emissions, and more recently, the US and EU commitment to cut methane emissions by 30 % by 2030, which should be highlighted at the next international conference. climate talks in Scotland in November.
Although not primary, landfills are known to be a significant source of methane
The EPA cited municipal solid waste landfills as accounting for 15% of US methane emissions, while the UN report from May 2021 noted that landfills and waste together account for about 20% of emissions. of methane in North America, which ranks third among “human activities”. The source. Organic waste going into landfill is the engine – it is estimated that 40-50% of food is wasted and food waste accounts for about 20% of total waste. As a result, organic waste sent to landfills is estimated to account for around 5% of global GHG emissions. A study based on data from NASA in California also indicated that landfills were a significant contributor to methane emissions based on individual sites in that state. The solid waste industry has recognized this and has stepped up efforts to more accurately measure landfill gas – this is currently a subject of controversy and debate – as EREF believes that EPA’s current measurement methodologies may overestimate methane emissions from landfills. The EPA is now poised to move forward with stricter emissions standards for landfills and lower the threshold for which gas collection systems must be put in place after a delay during l Trump administration. According to various estimates, this encompasses approximately 1,600 to 1,900 sites and is expected to reduce methane emissions from landfills by 7%. NSWMA and SWANA subsequently supported the regulations, primarily to ensure consistency and certainty.
But this is also where the opportunity lies
Currently, virtually all large surface landfills have a gas capture system, and given that a relatively smaller number of large landfills process the majority of MSDs going to landfill in the United States, it is estimated that 92% of DSMs landfilled in the United States are covered by some sort of gas capture, although the EPA only places this capture at 75% efficiency. Looking at the sites individually and by the numbers, however, tells a different story. According to Resource recovery magazine, 229 of the 751 sites receiving up to 500,000 tonnes per year DO NOT have a gas recovery system. Overall, facility by facility, only just over half of active US landfills have gas recovery systems. And, according to EPA data, less than a quarter of the roughly 2,600 open and closed landfills have gas collection systems in place. While it is evident that a number of small sites may not justify an investment, overall this still presents a significant opportunity for GHG reduction.
Going further in gas collection offers an even greater return opportunity, both environmental and financial. Landfill gas-to-energy (LFGTE) installations, whether they convert landfill gas to electricity (considered low BTU) or RNG (considered high BTU) offer two environmental benefits: they reduce the need for fossil fuel, and when RNG is used to fuel fleets, they reduce CO2 emissions, in addition to channeling the methane to more productive uses than just flaring it. It is estimated that only 500 landfills across the country capture the methane and convert it into energy. The EPA estimates that nearly 500 more could profitably transform their methane into an energy resource.
Archaea Energy (symbol LFG), a company that develops projects to generate RNG from landfills and digesters, serves as a barometer for the interest, demand and capital that should be deployed in LFGTE in general and in the RNG specifically. The company intends to focus on high BTU RNG plants and converting landfill gas plants to electricity in RNG. In its proxy, the company notes that the landfill sector remains relatively fragmented and offers long-term visibility and opportunities. It is estimated that there will be a 60% increase in landfill waste by 2050, and a 44% increase in landfill gas production. Archaea estimates that only 13% of global landfill gas volumes are converted to RNG. The proxy notes that more than 450 landfills are currently flaring, venting or transforming landfill gas into electricity, representing over 70% of the landfill gas industry. The company further notes that many of these sites are owned by municipalities or individuals and often need partners for expertise or capital, especially since many are single site operations. Strong Renewable Energy (RIN) pricing and California Low Carbon Fuels (LCFS) incentives have increased the return on investment of RNG facilities in landfills, and the payback period has currently been set at two years, but more generally at three. Changing RIN and LCFS prices and credits can certainly increase earnings volatility and to some extent political risk, but a number of longer-term factors have set in. Other companies outside of the waste sector are also looking to source RNG as part of their sustainability goals, adding voluntary markets as another driver. Various utilities have also announced targets of 10-20% GNR.
Company specific plans in the solid waste industry
As we discussed in our Q2 earnings article, solid waste industry analysts were very focused on all of the companies’ LFGTE and RNG plans on all of the follow-up conference calls. And, the valuations of standalone RNG games and the increasingly positive returns and financial potential of LFGTE have not been lost on publicly traded solid waste companies. Added to the financial incentives is the fact that landfills account for around 90% of the Scope 1 GHG emissions of major waste management companies, which provides additional impetus given the sustainability and reduction goals. issues of all major companies. GFL Environmental (GFL) has perhaps made the most noise so far, as management has talked about forming a renewable energy platform with 18 landfills targeted as potential project opportunities. GFL estimated the potential opportunity at $ 175 million in total (with very high levels of profitability) and likely closer to $ 75-100 million net for the company if it partners. Waste Management (WM) has 16 operational facilities, with a potential for 15-20 future projects. Waste Connections (WCN) is targeting 3 to 5 projects over the next five years and has assessed the likely financial investment opportunity between $ 100 million and $ 150 million. Casella Waste (CWST) also targeted 2 to 5 projects, with a preference for the use of third parties. Republic Services (RSG) is looking at 15 projects, with maybe 5-7 per year, and the company has labeled the opportunity as roughly $ 200 million in revenue. Management has also expressed interest in partnering to leverage someone else’s expertise and capital, as again there doesn’t seem to be a shortage of companies outside of the industry interested in invest in the region. RNG installations / projects cost between $ 7.5 million and $ 30 million, depending on their size, and as previously stated, currently have a return on investment of less than three years.