This post is a part of BioBiz’s Bio-CNG Perspectives.
BioBiz, a division of EAI, is a leading market intelligence & strategic consulting firm for the Indian bio-based sectors.
This blog post uses the terms bio-CNG and renewable natural gas (RNG) interchangeably.
Bio-CNG or bio-compressed natural gas, also known as sustainable natural gas or biomethane, is a biogas which has been upgraded to a quality similar to fossil natural gas and having a methane concentration of 90% or greater. As the gas is derived from natural and renewable sources, it is also termed renewable natural gas (RNG).
Introduction
Project revenues play a major role in determining the success of a business. For RNG, as it is a new segment, it is important for an entrepreneur to do a detailed analysis of the existing project economics and returns and identify potential avenues for enhancing the returns to establish a viable, long-term business. This blog post provides highlights on the major avenues for enhancing RNG project returns.
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Avenues to enhance project returns
The following are some of the key avenues to enhance RNG project returns
- Reduce the landed cost of feedstock
- Reduce the cost of production
- Maximize yields of RNG and by-products
- Maximize the returns from the sale of RNG and by-products
1. Reduce the landed cost of feedstock
Landed cost of feedstock depends on the choice of feedstock, choice of location of the plant and choice of inbound transport. None of these choices is easy as it has an influence on the other two. For instance, if we consider commercial waste as a feedstock, the source is available mostly within the city limits at almost free of cost. However, a large scale RNG plant cannot be set up inside the city as per the industry norms. It should be located at a minimum radius of 30 kms from the city. Thus the distant plant location increases the landed cost of feedstock. Similarly,the choice of inbound transport which comprises several models in itself – owned or outsourced, size of vehicle etc, significantly affects the landed cost of feedstock.
On the other hand, if we consider agro waste, while the source is available in distant locations from the city which would mostly be ideal locations for setting up RNG plants, higher cost of feedstock affects the landed cost of the same.
In addition, some of these could have impact on the rest of the avenues for enhancing returns (choice of feedstock has a significant impact on the RNG yields, for instance). This could be the case where RNG yield from food waste is comparatively lesser to that from agro waste.
2. Reduce the cost of production
Cost of production can be reduced through selection of high quality technology for each of the three stages.
- Production of biogas
- Conversion of biogas to natural gas
- Compression of natural gas to compressed natural gas
For instance, in the case of production of biogas, several plug and play digester models have entered the market which, although expensive, could automate the process and enhance the yield significantly, while also reducing the maintenance requirements. Similarly, in the case of conversion of biogas to natural gas, novel scrubbing and upgradation techniques such as hollow fibre membrane technologies enhance the yield and also reduce the challenges such as frequent maintenance associated with conventional ones. However, it is to be noted that this technology is expensive compared to others.
Thus, while high quality could cost a bit higher on the upfront cost, it is recommended to invest this upfront to get the benefits of both higher yield and lower production cost over the equipment’s 20 year lifetime.
3. Maximize the yield of RNG and by-products
This can be done through optimized design of the digester for the feedstock, fine-tuning the operations and maintenance procedures and using optimal enzymes and bacteria for the generation of biogas. For instance, use of novel plug and play digester models are likely to enhance the yield of RNG, while reducing the need for frequent maintenance.
4. Maximize returns through sale of RNG and by-products
Returns can be maximized predominantly through two avenues:
- Choose the right end user segment – For instance, private end user segments such as commercial and small-medium industrial segments are expected to offer a higher price for RNG compared to transport segment.
- Offer a differentiated product (both RNG and fertilizer) that can fetch a premium – For instance, phosphate enriched fertilizers are likely to fetch a premium price compared to normal fertilizer produced from the process
It could be observed that at each segment of the RNG value chain, avenues exist for enhancing the project returns. It is essential for an investor to explore such opportunities through business partnerships and benefit from the same for a successful business.
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