Renewable Natural Gas and Hydrogen: A Check-In for Curious Customers

The race is on to decarbonize the economy. As energy advisors, we work daily with organizations looking to become more energy efficient and integrate renewable energy into their operations. Use less and produce what you do use from a renewable source – these are the two primary avenues to decarbonize electricity.

Not all energy consumed is electricity, though. Oil and natural gas are the dominant incumbent energy sources in transportation, space heating and industrial processes, and they play a large role in the energy picture for many of our clients. In this blog, we’ll look at two solutions that are garnering significant interest: renewable natural gas and hydrogen.

Renewable natural gas (RNG) is a broad term for biogas that can replace natural gas in most applications. This gas is typically sourced from organic waste matter, such as landfills or agricultural waste. Hydrogen, which can be extracted from natural gas or water, holds promise as carbon-free combustion fuel and as the fuel for fuel cell reactions.

Neither RNG nor hydrogen is quite ready for prime time, at-scale replacement of conventional sources. Niche applications are commercially viable, though, and can be worth exploring right now given an advantageous use case. Nationally and internationally, broad initiatives are underway to enable RNG and hydrogen in the future at scale.

If you are considering RNG and hydrogen for your business, there are three key areas for you to consider:

  • Your current use cases and if it makes sense to use RNG and hydrogen
  • Understanding how the ecosystems of RNG and hydrogen are developing
  • Other renewable energy options to consider

 Where do RNG and hydrogen currently make sense?

RNG is appealing because it can be used in the exact same way we currently use conventional natural gas. The innovation here is on the supply side. Organic matter decomposing, whether in landfills, agriculture, or sewage, generates biogas – largely methane, CO2 and low levels of other gases. This gas can be processed to reach a level that meets the standard to replace natural gas in engines and other process applications. This gas is considered renewable since it would otherwise simply be vented into the atmosphere.

Because of the source, RNG end-use applications are often co-located with agriculture, landfills, waste treatment plants or similar facilities. The cost of capturing, upgrading and using RNG in a closed system make sense when a single user is replacing an existing need to buy conventional natural gas. Similarly, neighboring facilities can set up an arrangement if one creates biogas and the other consumes natural gas. If you or a neighbor of yours have significant methane emissions, and you have a use for a combustion fuel, RNG could be worth a closer look.

The current use cases for hydrogen are a bit different since hydrogen cannot simply be used as a replacement fuel in existing natural gas equipment. The use of hydrogen as a replacement combustion fuel is possible, but not something that a single energy consumer can pursue on their own, since in most places it would mean equipment replacement and one-off fuel sourcing. Alternatively, hydrogen serves as the fuel for a chemical process, as opposed to combustion in fuel cells that are used to generate power or as a transportation fuel for hydrogen-powered cars, trucks and buses.

Hydrogen fuel cells are beginning to gain traction as a backup power solution in critical settings. While fuel cells will typically have a higher upfront cost than the batteries and generators they are being evaluated against, they have some enticing advantages. First, fuel cells will typically be able to act as a backup power source for much longer than a battery. Second, fuel cells have carbon emission, air permitting, noise pollution and maintenance advantages versus fossil-fuel generators. Finally, fuel cells are largely considered the most reliable backup power source and tend to have the smallest physical footprint compared to alternatives.

While RNG and hydrogen are not going to pencil out on economics alone for most energy users today, there are opportunities given the right application and need.

How are the ecosystems around RNG and hydrogen developing?

If your organization has an existing opportunity for RNG or hydrogen, it can be a fantastic solution for decarbonization. For most of the economy, however, these fuels are not yet solutions we can economically pursue on our own.

The RNG market is not new in the agriculture and waste sectors, but what is growing is the market for credits. Similar to Renewable Energy Certificates (see Customer Insights link here), RNG credits allow an end-user of natural gas to claim the rights to the sustainability attributes of RNG that is being injected into the system elsewhere. A simple example would be a business in the city who uses natural gas and enters into an arrangement with a gas supplier for RNG. A portion of the cost of gas in the contract would be paid to the owner of an RNG facility located out on a farm that is injecting grid quality gas into its local natural gas system. While the business user is not using the fuel directly from the production facility, its payment supports the RNG production, which replaces the fossil natural gas that would have been used.

Proponents of RNG estimate the potential for this offset-based system to grow into as much as 10 or 20% of the overall natural gas supply across the country, and also note that RNG facilities grew 42% from 2019 to 20201. Continued growth is expected to bring costs down for customers. To date there has not been sufficient RNG supply to support a visible, liquid market to allow consistent comparison to fossil natural gas, but costs in one-off instances have been at least two to three times higher. With utilities and suppliers making inroads into RNG, this market appears likely to grow and become an increasingly viable option.

Hydrogen has been grabbing a lot of headlines recently because of the promise for a carbon-free energy system at scale. These headlines are usually at the regional, national or even global scale, since there isn’t much that each individual energy user can do on their own to overhaul the system. The central idea behind the promise of the hydrogen economy is that hydrogen capture, through the process of electrolysis, requires only water and electricity as inputs. The vision is that cheap, excess solar and wind power generation drive electrolysis when it’s sunny and windy and the so-called green hydrogen is then used to generate electricity when it’s not sunny or windy. Similarly, hydrogen can be used as a transportation fuel.

Hydrogen’s technical promise is significant. It’s practical and economic promise at scale are decades away. There are pilot project and initiatives of various sort geared toward accelerating this shift to hydrogen. For an individual energy user, there may be opportunity to get involved in such a program as an early adopter and be part of the change, but the jury is still out on how pervasive the use of hydrogen will become. Hydrogen could very well be the dominant fuel of the mid twenty first century, but there will need to be coordinated policy action to get there.

What else should I be considering?

For most organizations looking to move beyond fossil fuel consumption quickly, the answer is not RNG or hydrogen, but rather electrification. Electrification – converting equipment to run on electricity instead of fossil fuels – is a popular path to carbon reduction. This is because once equipment is powered by electricity/batteries, it can be powered by a renewable source. As renewables continue to get cheaper, the calculus behind electrification becomes more compelling.

Switching to electric-powered equipment involves an upfront investment, and often an accompanying upgrade in other infrastructure. As opposed to RNG and hydrogen, though, electricity is technologically mature and transactions can be accurately valued over decades. Much as we all experience in our homes, there are many appliances and process where the choice of natural gas versus electric has traditionally been a matter of preference or familiarity. The cost of carbon for many organizations, whether formally recognized with a value or simply prioritized, can tip these decisions in favor of electrification.

Finally, if the goal is decarbonization, the best place to start is with the basics: a baseline, a goal and a strategy. With AEP Energy’s Decarbonization Roadmap, we can sort through the complexity and develop a comprehensive energy sustainability and decarbonization roadmap that uncovers and weighs all of your sustainability and decarbonization options fully, with 360 visibility and transparency and a thorough and systematic process. We’ll even help you keep an eye out for the latest and greatest with RNG and hydrogen.

1Biomass Magazine, December 21, 2020

AEP Energy does not guarantee the accuracy, timeliness, suitability, completeness, freedom from error, or value of any information herein. The information presented is provided “as is”, “as available”, and for informational purposes only, speaks only to events or circumstances on or before the date it is presented, and should not be construed as advice, a recommendation, or a guarantee of future results. AEP Energy disclaims any and all liabilities and warranties related hereto, including any obligation to update or correct the information herein. Summaries and website links included herein (collectively, “Links”) are not under AEP Energy’s control and are provided for reference only and not for commercial purposes. AEP Energy does not endorse or approve of the Links or related information and does not provide any warranty of any kind or nature related thereto.

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