RNG Trends In Canada

Interest in production and utilization of renewable natural gas is growing in several provinces. The federal government is expected to implement carbon pricing, which could help accelerate RNG initiatives.

Peter Gorrie
BioCycle  September 2017, Vol. 58, No. 8, p. 30

BioCycle REFOR17, Wednesday, October 18, Track 3, 10:30: Biogas Market Incentives, RNG Supply

The Surrey Biofuel Facility in Surrey, BC (left) is expected to add 120,000 gigajoules of RNG to the FortisBC pipeline in Fall 2017. Biogas generated at the Salmon Arm Landfill in Salmon, BC is upgraded (above) for pipeline injection.

The Surrey Biofuel Facility in Surrey, BC (left) is expected to add 120,000 gigajoules of RNG to the FortisBC pipeline in Fall 2017. Biogas generated at the Salmon Arm Landfill in Salmon, BC is upgraded (above) for pipeline injection. Photos courtesy of FortisBC

We want as much green gas supply as possible,” notes Don Beverly, with Gaz Métro, the largest natural gas distributor in Canada’s province of Quebec. That’s the growing message from officials at utilities in three of the country’s 13 provinces and territories, where government policies on climate change and waste diversion have combined with public pressure to spike interest in renewable natural gas, also known as RNG or biomethane.

Almost everyone in the Canadian industry expresses similar enthusiasm. “We’ve been putting a lot of focus on opportunities with RNG,” explains Jennifer Green, executive director of the Canadian Biogas Association, the national lobbying group for biogas production. “Opportunities are very much prompted by a lot of policy developments converging. Momentum is growing nationally, and Canada has the opportunity to be a leader in RNG production.” Still, industry supporters acknowledge it’s early days for RNG and daunting challenges must be overcome.

RNG now accounts for a mere 0.016 percent of Canada’s natural gas consumption. To date, fewer than a dozen production facilities have been built, and, apart from one small pilot project, they’re all located in Ontario, Quebec and British Columbia, which, granted, contain nearly three-quarter’s of Canada’s population. The current low price of fossil fuels has weakened the economic case for RNG, underlying the need for policies that provide adequate, stable and long-term revenue streams.

Most prospective developments are on hold, awaiting transformation of supportive but vague government policy pronouncements into detailed regulations and programs. The federal government is looking at a plan to have carbon pricing — either through a direct price ($50/metric ton is being considered) or cap-and-trade system — in every part of the country as of next year. As a complement, it also promises to enact a national Clean Fuel Standard aimed at achieving a 30-megatonne reduction in greenhouse gas emissions from energy consumption in transportation, homes, businesses and industry. The standard is under discussion, promised for 2019 but with no indication of what it might look like.

Generation Potential

A study by the Canadian Gas Association (CGA) concluded that RNG from both anaerobic digestion of organic wastes, and gasification of forest industry and agriculture residues could, in theory, meet nearly half of Canada’s natural gas demand. A report for British Columbia’s Ministry of Energy, Mines and Petroleum Resources, released last March, came to a similar conclusion for that province.

But much of the feedstock that could produce RNG is too remote or widespread to be exploited. Moreover, gasification of forest and agricultural residues, which accounts for about 85 percent of the RNG potential in Canada, is by far the most expensive source, at about $25/gigajoule, compared to $10 for RNG from landfill gas and, currently, about $3.25 for conventional natural gas.

In addition, gasification is only in the early stages of technical development. And even if an economically viable process were developed, gasification would need to compete for forest residues with industries that want the waste to generate heat and power, and for agricultural residues with farm uses that include bedding, feed and soil amendment. More realistically, the CGA report recommends a national target of five percent RNG by 2025 and 10 percent by 2030.

In short, Canada’s RNG industry appears to be approaching a breakthrough, but will need considerable time before it has much impact. “Industry is eager to deliver and anxious to get going,” says Green. “But it will be a long time in development. Government is taking a calculated, careful approach, and even when policies and programs are in place it will take time to see the results.”

The biggest challenge with RNG, notes Bruce Winchester, executive director of the Canadian Natural Gas Vehicle Association (CNGVA), is “its cost relative to traditional natural gas, which is a very inexpensive fuel. Natural gas supplies and reserves are quite substantial in North America, which points to continued low prices. However, when all is said and done, RNG is still one of the least costly renewable energy sources.” “CNGVA supports a shift to all forms of natural gas as a transportation fuel.

Another challenge is natural gas pipeline infrastructure. Two provinces, Prince Edward Island and Newfoundland and Labrador, as well as the three northern territories, have no natural gas pipeline infrastructure for RNG to supply.

While the federal government has expressed support for RNG, and promises the Clean Fuel Standard — which Winchester says, “could be a game-changer” — RNG developments for now are largely determined by circumstances within each province.

British Columbia

In British Columbia (B.C.), Canada’s westernmost province, the major utility company is FortisBC, a subsidiary of Fortis Inc., Canada’s largest investor-owned distribution utility. FortisBC buys 200,000 gigajoules of RNG annually from four producers, two on-farm anaerobic digesters and two at landfills. This fall, it will add 120,000 gigajoules when a new municipal organics recycling plant in the City of Surrey connects to the pipeline. The company is also planning a project with the City of Vancouver to purchase RNG generated at a landfill in Delta, a Vancouver suburb. It is expected to produce between 200,000 and 250,000 gigajoules annually.

The RNG is injected into FortisBC’s pipeline grid. Residential and business customers can then purchase it, on a voluntary basis, at a premium price, paying the higher charge on from five to 100 percent of the natural gas they consume. Those participating are not buying actual molecules of RNG. Instead, they are paying for a portion of the RNG that FortisBC has purchased. The company is not allowed to sell more than it buys. So far, the RNG supply has far outstripped demand, mainly because of the price premium.

When the program began as a two-year pilot in 2010, the B.C. Utilities Commission ruled that the RNG price to customers must cover all of FortisBC’s cost of buying and marketing it. The aim was to ensure that the program didn’t increase the cost of gas to customers who didn’t participate in the program. The price differential began at about $4/gigajoule. At that rate, the number of buyers grew slowly but steadily, to a peak, late in 2014, of 6,874 of FortisBC’s one million customers. But as the Utilities Commission calculated ever-higher costs for the program and the premium rose to nearly $11, sales stalled, then dropped.

Hoping to reboot the program, FortisBC last winter won Commission approval for a new pricing system, calculated as a set $7/gigajoule premium over the market value of conventional natural gas, including all taxes and fees applied to gas sales. For larger commercial customers on long-term contracts, the premium would be lowered by $1/gigajoule. As before, participants get a small financial benefit — they do not pay B.C.’s $30/metric ton carbon tax on the RNG they purchase. Since then, the program has grown to 8,300 customers, including about 190 businesses, and is nearly fully subscribed.

Quebec

Quebec municipalities, spurred by a provincial ban on organics set to take effect in 2022, and aggressive targets for renewable energy, are building or planning six anaerobic digesters with equipment to upgrade the biogas to RNG. The first, in the city of Saint-Hyacinthe (see sidebar), was scheduled to come online this fall. The others, including two in Montreal, are proposed or in various stages of planning. All will be able to sell their RNG to Gaz Métro.

While the projects are in the works, the provincial energy regulator, the Régie de L’énergie, is still considering how the RNG market will work and what prices to set. Last spring, the Régie indicated that it supported, in principle, a guaranteed purchase price for RNG and the ability of distributors to sell it to customers at a premium price. It also proposed a target of one percent RNG in the natural gas supply by 2020. Then, it asked for proposals on specific policies to put the principles into action.

In July, Gaz Métro responded that the price paid to RNG producers should vary according to the size of the project, since larger facilities can produce the gas at a lower cost than smaller sources. It proposed that the price range from $7 to $22/gigajoule. Gaz Métro would offer the RNG to its 205,000 customers, mostly commercial and industrial, at the average price it pays from all sources. That price would likely amount to a substantial premium above the cost of conventional gas, now about $5.25/gigajoule, including transportation and the carbon price from Quebec’s participation in the cap-and-trade program. Quebec’s cap-and-trade system is part of the Western Climate Initiative, which also includes California, Manitoba, Ontario and British Columbia.

While RNG won’t produce additional profits for Gaz Métro, the company will buy all that is available, explains Beverly, the senior advisor for development and renewable energy: “We recognize there’s an energy transition going on. You’ve got to be involved and be a leader in it.”

It could take a year or more for the Régie to decide on RNG pricing, as well as other rules, such as whether customers will be able, as in B.C., to pay the RNG premium on only a portion of their natural gas purchases. Adding to the uncertainty, and potential, the Quebec government has set a target of five percent RNG by 2020 as part of its plan to combat climate change. “There is a growing interest in the market, and we expect our customers will want RNG to reduce their carbon footprint,” adds Beverly, noting that the big challenge for RNG is economics, and getting a fair price.

Meanwhile, Gaz Métro hopes to soon offer RNG to drivers participating in its Blue Road program, which offers natural gas fuelling along the heavily traveled highway corridor between Toronto, Ontario and Rivière-de-Loup, east of Quebec City. That system now includes 10 fueling stations open to the public and 18 private facilities for truckers.

EBI Énergie continues to produce RNG from the Depot Rive Nord landfill near Montreal — Canada’s original large producer — to fuel its waste collection trucks. EBI also sells some of the RNG to Bullfrog Power, which, in turn, offers the gas to customers across Canada at a premium price. Bullfrog was founded in 2005, selling electricity generated by wind and other renewable sources. Its “green gas” program, launched in 2011, now sells RNG to 2,800 homes and 150 businesses, says CEO Ron Seftel. Bullfrog’s green natural gas customers are purchasing the environmental attributes related to the displacement of conventional natural gas in Canada.

Ontario

Interest in RNG has spiked since Canada’s most populous province ended its Feed-in Tariff program, which offered premium rates on 20-year contracts for electricity generated by renewable energy. At present, the province has only one facility producing RNG — the Woodward Ave. Wastewater Treatment Plant operated by the City of Hamilton. That facility upgrades some of the biogas generated by the digestion of biosolids and food waste to create RNG that is injected into the pipeline network operated by Union Gas Ltd., one of Ontario’s two major gas distribution companies. Several other projects are under consideration, but they are on hold, awaiting policy and regulatory announcements from the provincial government.

Among the major potential projects is the City of Toronto, which says it is looking into installing equipment to upgrade biogas at its two large anaerobic digesters that process source separated organics (SSO) from its residential green bin program (see “Residential Organics Diversion In Toronto,” August 2017). The Region of Peel, a fast-growing suburban area just west of Toronto, is also examining the potential for RNG production at a planned facility for processing its SSO, with an annual feedstock capacity of 132,000 tons and scheduled to open in 2022. With elimination of renewable electricity opportunities, “the only viable energy market” is RNG, notes Norman Lee, the Region of Peel’s Director of Waste Management, said in a recent presentation.

The provincial government does not offer specific support for RNG, although the Ontario Ministry of Environment and Climate Change has been discussing a goal of two percent RNG in transportation fuel by 2020, and 10 percent by 2030. And it has proposed RNG-related initiatives under its Climate Change Action Plan, unveiled last year, and a policy called the “Strategy for a Waste-Free Ontario: Building the Circular Economy,” released in February.

The climate change plan has already earmarked money for RNG projects. One fund, worth up to $20 million, is seeking proposals for projects to demonstrate the environmental and financial potential for RNG derived from anaerobic digestion of food and agriculture wastes as a transportation fuel. The second promises up to $100 million over four years “to support the implementation of a renewable content requirement for natural gas and … encourage the use of cleaner, renewable natural gas in the industrial, transportation and buildings sectors.”

Both are to be funded by proceeds from Ontario’s new greenhouse gas cap-and-trade system. While that revenue is not guaranteed, the government has declared the first two auctions of carbon credits a success. Ontario’s cap-and-trade system is also part of the Western Climate Initiative. The province says it is working with the Initiative partners on a system that would allow trading in carbon credits for organics diversion, creating a financial incentive to invest in composting and biogas facilities.

The RNG market would get a major boost if the body that regulates utilities, the Ontario Energy Board, approves an application by the province’s main natural gas distributor, Enbridge Natural Gas Distribution Inc., to allow it to buy RNG, inject it into the pipeline grid and offer it for sale at a premium price. The Energy Board rejected a similar application by Enbridge and its former competitor, Union Gas Ltd., in 2012. However, Enbridge, which has since purchased Union Gas, plans to try again, says Malini Giridhar, the company’s vice president of market development and public and government affairs. “RNG is a very important initiative for us. We’re anxious to get going.”

The price gap between RNG and conventional gas, including the $1/gigajoule carbon price resulting from the cap-and-trade system, is too large, Giridhar adds. Even the $50/metric ton national carbon tax proposed by the federal government, which would amount to as much as $2.50/gigajoule, wouldn’t narrow the spread enough. Enbridge wants the Board to approve a price premium that, in contrast to the B.C. plan, would be a small amount spread among all its residential customers. Commercial, industrial and other large-volume customers would be able to buy portions of their gas as RNG.

Larger government subsidies are also required, Giridhar notes. The province’s current spending, of up to $100 million, might boost RNG to 0.2 percent of Ontario’s gas supply, from the current 0.1 percent.

Peter Gorrie is a Contributing Editor to BioCycle.

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