Renewable natural gas: greener energy, compelling investment potential

Think “natural gas,” and the first thing that comes to mind is probably the familiar nonrenewable fossil fuel, typically extracted from rock formations deep underground or via offshore drilling beneath the ocean floor. This type of natural gas currently represents more than 25% of U.S. energy consumption, according to the Energy Information Administration (EIA).

Less well-known is renewable natural gas (RNG), an energy source based on technologies that harvest and process methane from the degradation of biomass fuel sources such as landfill waste, manure, wastewater, or crop residues. Rather than being released to the atmosphere — where, as a greenhouse gas, it is 30 times more potent than carbon dioxide — the methane is used or sold as fuel in electric power generation or co-generation, or alternatively as heating or transportation fuel. If sufficiently cleaned and treated, the gas may also be sold into natural gas pipelines.

While RNG technologies are well-established and proven, new efficiencies have helped them become a bigger part of the overall renewable energy mix, which includes wind, hydroelectric, solar, and geothermal. Global investment in clean energy as a whole has grown substantially over the past decade, despite the prevailing low price environment for conventional fossil fuels in recent years.

The growth potential and investment opportunity in RNG remains high because of the considerable methane potential that remains untapped or underutilized. The National Renewable Energy Laboratory estimates that future U.S. consumption of RNG could displace about 46% of the natural gas consumption currently used to generate electric power, and all of the natural gas consumption used for transportation.

One segment of the RNG market — landfill gas (LFG) — offers particularly compelling benefits, both in terms of environmental impact and investment opportunity. Methane from LFG projects has been used for vehicle fuels and in schools, universities, and factories to generate steam, heat, and electricity. Harnessing instead of burning methane in these ways reduces emissions of carbon dioxide, sulfur dioxide, nitrogen oxides, and other pollutants. These reductions are equivalent to greenhouse gas output of over 215 million barrels of oil, or more than 18 million passenger vehicles. Because of this, LFG qualifies for EPA renewable energy credits and is therefore considered a socially responsible investment class.

Growth in U.S. landfill gas market

From a financial perspective, the positive backdrop for investing in the U.S. LFG market includes:

• Steady growth in LFG consumption (compound annual rate of nearly 5% since 1982)
• Lower acquisition and breakeven operating costs compared to natural gas 
• Closer proximity to end users, resulting in lower transportation costs and less dependence on additional infrastructure 
• A 24/7 producing reserve and long-lived assets, with commercially viable quantities potentially lasting 15+ years beyond landfill closure 
• Fragmented industry of relatively small players, ripe for consolidation

In collaboration with a private partner, TIAA has been an active investor in the RNG industry since 2011, with investments that include one of the largest high-output landfill gas processing plants in the U.S. We continue to target distributed RNG projects throughout North America, seeking competitive returns while also supporting green energy initiatives sponsored at both the state and federal levels.

More information about landfill gas as a source of energy is available from the Energy Information Institute, part of the U.S. Department of Energy. 
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Disclosures
This material is prepared by and represents the views of Heather Davis, and does not necessarily represent the views of TIAA-CREF, its affiliates, or other TIAA-CREF Asset Management staff. These views are presented for informational purposes only and may change in response to changing economic and market conditions. This material should not be regarded as financial advice, or as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons. Past performance is not indicative of future results. 
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