The Exchanges

Q natural gas, but as we'll talk about, it's, it's a lower price than probably we'll see for some other sources and that are taking account of, uh, of stuff like LCFS. So landfill gas, biggest market today, probably cheapest cost of production today. Um, sort of main challenge that it suffers is the life cycle emissions. What comes behind landfill gas? Like what's next In terms of largest sources today?

A So large, largest sources that are happening today probably would be in the dairy waste side of things. Uh, you've seen the large, uh, animal feeding operations that have digesters that are capturing their, their, their methane, and they're, uh, 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, uh, The utility market and the voluntary side, most of that's going into the LCFS and RIN markets, um, 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, um, because it's kind of a mono stream material that people can easily understand, and so there's been a lot of focus on, on driving anaerobic digestion of cattle manure to produce RNG.

AI assessment note: “largest sources that are happening today probably would be in the dairy waste side”

Q So we've talked about landfill gas, we've talked about dairy waste. Um, you talked a little bit about food waste at the beginning. I guess we can maybe dive into that again for another moment. Um, where, so, sort of what 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?

A Yeah, so at scale, uh, so the first bit is, is understanding the, the market and the waste shed that's there, and so the northeast, uh, up here in Canada, California, you've had where the population is where the food waste is going to be generated, both from the homes as well as from the, the industry, because the industry that makes the food that goes to market, uh, in most cases is near the population, and so it's understanding how to bring those materials together and de-link the processing costs For those materials from the landfill. And so, like, uh, the SB-Thirteen-Eighty-three along California says you can no longer send organics to the landfill by, say, twenty-twenty-five, which is incredibly aggressive, but what you're doing is you're saying you can't send it to that, uh, spot anymore. That home is not available to you. It, of course, corrects the market to be able to redirect that material to antibiotic digestion facilities, things that I've done in the past on that side of it. And so that's how we, we unlock the feedstocks. Uh, 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 talke…

AI assessment note: “in and around the population centers is where you need to be able to do this.”

Q big support mechanisms, one RINs, one LTFS, which we'll talk about in just a minute, both of which were built for transportation fuels and happen 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, uh, on, on RINs, like, how big an economic impact Does that have?

A It's enormous. Uh, so, where I talked to you earlier, where, uh, landfill RNG to the utility market may move for 10 to 20 dollars in MMBTU. They can be north of 50 dollars in MMBTU by the time they, uh, they take the RIN and the LCFS credit in consideration, so they get in a transportation setting, and, and so the same for dairy. Like dairy, you can move that gas for 70 to 90 dollars in MMBTU, which is frankly, uh, uh, a really high price, and so that's something that we're like, all right, let's try and understand the price points. The D-three or D-fives 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.

AI assessment note: “It's enormous. Uh, so, where I talked to you earlier”

Q Alright, final question. Um, always want to talk about sort of next generation technology. So, uh, you know, 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?

A So the, everybody, well, hydrogen has become, uh, white hot, no pun intended. Uh, the, 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 I, 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, 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.

AI assessment note: “take biogenic CO₂... and you Take the hydrogen and you turn it into methane.”

Q is the, currently the dominant source of RNG production. You're saying it's higher life cycle 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 life cycle emissions calculation of the, of the RNG, you end up with a higher number. Am I understanding that right?

A That's correct. Uh, and that's just not, sort of, how we feel about it. This has been, uh, 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, uh, a major emitter of methane. Uh, and so that's something that we're like, all right, we need to do more about, and that's why you see, uh, policies like California has to divert the organics from the landfill to mitigate those, all the methane emissions, because from a global warming potential, methane is terrible on a twenty-year timescale 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.

AI assessment note: “That's correct. Uh, and that's just not, sort of, how we feel about it.”

Q Yeah, no, I think those are, 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, what's the current level of penetration on these various feedstock production pathways?

A Yeah, so you're probably about two percent. You're, 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, you've captured most of the The projects are either, uh, signed up or in construction or operating on the larger farms, but there's still thousands of smaller farms, and I don't mean, like, a couple hundred head of cattle, but thousand to 5000 head dairies are still something we can be focused on. Everybody's focused on the 10 to 30,000 head dairies, and I'm like, ok, that's, like, if you think about it on sort of a, uh, pyramid basis, you're like, alright, 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, ah, and really the, the wastewater treatment side and the food waste side is largely untapped, ah, 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.

AI assessment note: “Yeah, so you're probably about two percent. You're, you're pretty far along”

Q these two different policy mechanisms that I think, uh, 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 start Move down to LCFS. Can you just describe what RINs, well, first of all, what does it stand for, and, and what is it?

A 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 fuels, so ethanol and biodiesel play a role, and then they've allocated gaseous sort of products, so RNG, and there is a D-three RIN, And there, which is a cellulosic RIN, and there's a D-five RIN, which is an advanced biofuel RIN. Now, this whole thing has become highly politicized and frankly doesn't make a whole lot of sense. Uh, a farm and a landfill can create a D-three RIN, but a food waste digester makes a D-five 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, and we've tried to fight to sort 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 D-five and the D-three RIN have different price points and volume allocations and other things that will wildly swing what those RINs are worth.

AI assessment note: “under the renewable fuel standard, there are renewable identification numbers”

Q Okay, so that's food waste. Um, as it stands today, like what portion of the RNG we produce comes from food waste?

A So, I'll answer that two ways. Very little comes from the, uh, anaerobic digestion of, of food waste, um, because that infrastructure is a higher cost structure than sticking the organics in the landfill typically. Uh, however, as you count for carbon intensity, then that fuel is worth more if you're able to anaerbically digest it. Where a majority of the RNG comes from today is from landfill gas. This is where our waste, uh, is collected at our homes and our businesses, and is aggregated and sent to the landfill where they will, uh, 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, uh, And so that is how that gas is then collected and refined to make renewable natural gas. The problem is, is 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, uh, those landfills are such an emitter of methane, regardless of whether they have cap, uh, landfill gas capture or not.

AI assessment note: “Very little comes from the, uh, anaerobic digestion of, of food waste”

Q is for renewable natural gas that with low carbon intensity that is delivered into the transportation sector. So what has that done to the market? Like what, you know, is the vast majority of non-landfill renewable natural gas now being used in transportation? Is it creating a disincentive to use RNG in other sectors? Is that a bottleneck on the market's growth at all, or is it just an aside?

A So, it's been where the market has been in the past, but you've seen a, 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, um, the natural gas utilities have to respond, because they've got billions, if not trillions of dollars of infrastructure on 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, uh, 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, uh, fuel, and, but they're never going to touch what the LCFS and the RINs would 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 gonna buy your gas day in, day out for those facilities. And so, yes, you can be able to yield higher prices in those markets, but if you're not, ah, you're not gonna lock that in long term. And so some people are willing to gamble and, and play that spot market and be able to do quite we…

AI assessment note: “it's been where the market has been in the past, but you've seen a movement”

Q Could you separate that out? Like how much is RINs? How much is LCFS? And we haven't talked about LCFS yet, so I want to spend another minute on that, but.

A Yeah, it's, I, I don't have a good sense on the exact numbers. I'd probably say it's, it flip-flops. So where we've seen a depression on the LCFS in the past Year two, well, the RIN markets picked up, and so what I'd tell you today probably would be sort of 70% RIN, 30% LCFS. 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.

AI assessment note: “what I'd tell you today probably would be sort of 70% RIN, 30% LCFS.”

Q M&A 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, um, 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, what is driving all of this M&A activity?

A Yeah, so the first bit is on the policy side. So you're seeing, ah, governments and, 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, or like it to be 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, 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, uh, 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 this, 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 w…

AI assessment note: “Yeah, so the first bit is on the policy side.”

Q 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, um, already turning their waste into renewable natural gas or something else, right? Like, are we at high level penetration? Are we just getting started? How much growth is there still to be had?

A So that's a good question. There's a lot to unpack in what you're asking there. Uh, 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, uh, 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, and other forms of, 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 it 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 like, or I'm sorry, an MMBTU 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, 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, a, a sizing of the market in Canada where I live as a reference point. I think the north, or the Canadian electricity grid on a total energy basis is like two…

AI assessment note: “10 or 15%, say, by volume... that's probably the right number on a volume basis”

Q Before we move on from the landfill side, because again, landfills are Currently the largest source of production. You just talked about the cost side. I mean, we should compare costs as well. What is it cost to produce RNG out of a landfill?

A So that, that's not an area I spend a lot of time in, but what I can tell you is, uh, what we've seen from the revenue side or what that gas sells for, it will be anywhere from 10 dollars to 20 dollars a MMBTU, uh, is what that gas sells for in the non Uh, 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 dollars per MMBTU 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 how, 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.

AI assessment note: “that's not an area I spend a lot of time in, but what I can tell you”