FortisBC Energy Inc. (FEI) just announced that, as of July 1, 2024, it will be the “first energy utility in North America to automatically designate Renewable Natural Gas for customers.”
What does this mean, and what will it cost? Is there a cheaper alternative?
Introduction
FEI is by far the largest natural gas distributor in BC. In 2023, it had 1.1 million customers and delivered 213.4 petajoules (PJ) of energy (Pacific Northern Gas, BC’s second largest distributor, delivered around 10 PJ).
The natural gas provided by FEI is essential for providing building heat and hot water, in addition to its use in commercial and industrial applications. On January 12, 2024, during the cold snap in which BC Hydro saw record peak demand, FEI delivered twice as much energy as BC Hydro.
However, burning natural gas creates greenhouse gas (GHG) emissions, and Canada has signed up to achieve “net zero” GHG emissions by 2050, a target shared by the BC provincial government. As one way to achieve the net zero target, the BC government announced in the 2021 CleanBC Roadmap that it will cap gas utilities’ GHG emissions at 6 megatons of carbon dioxide equivalent (MtCO2e) by 2030, 47 percent lower than the 2007 level.
FEI’s approach to reducing its GHG emissions is set out in its 2022 long-term gas resource plan, which was largely accepted by the BCUC. The plan includes reductions in demand through efficiency programs, and specific strategies to address the transportation and marine fueling markets. But FEI’s number one strategy for reducing GHG emissions is switching from conventional natural gas to renewable natural gas (and other low-carbon gases).
What is renewable natural gas?
Renewable natural gas (RNG) is a low-emission substitute for conventional natural gas that can be delivered through the existing gas distribution system and used by existing gas appliances, such as water heaters and furnaces, with no modification. RNG is created by capturing the escaping gas from decomposing natural organic waste, for example from farms and landfills, and preventing it being released into the atmosphere.
FEI was the first gas utility in BC to launch an RNG service, starting with a pilot project approved by the BCUC in 2010, with full approval following in 2013 (Pacific Northern Gas had its first RNG service approved in 2022). FEI’s customers could voluntarily opt to purchase a proportion of their total gas as RNG, up to 100 percent.
In its December 2021 application for the new RNG rate, FEI’s forecast is that by 2030 it will have secured supply of approximately 20 PJ of RNG (and 10 PJ of other low-carbon gases).
The good news is that FEI is well on the way to finding the 45 to 65 PJs of renewable and low-carbon gases it needs by 2030 to meet the government’s proposed GHG emissions cap. It still has six years to find the rest, whether from other sources of low-carbon gases or through energy efficiency savings.
The sales problem
The bad news is that, despite having sourced plenty of RNG, FEI’s sales to voluntary customers have only reached about 320 TJ per year, less than one percent of the 45 PJ target for 2030.
This reluctance to purchase RNG voluntarily is not entirely surprising – the commodity price is over four times that of conventional natural gas ($9.23 versus $2.23 per GJ as of July 1, 2024). And it could have been worse – the true cost of FEI’s RNG is between $23 and $26 per GJ, over ten times today’s cost of conventional natural gas. The price of RNG for today’s voluntary customers is subsidized by all FEI’s gas customers.
Change of plan – volunteering is no longer an option
Instead of relying solely on voluntary RNG customers, the BCUC has now approved FEI’s request for an involuntary arrangement whereby all its gas customers are supplied with one percent of RNG in their total gas purchases. Customers can still voluntarily increase this percentage up to 100 percent RNG.
To cover the cost of the one percent RNG, all FEI’s gas customers will pay a new “storage and transport renewable natural gas” rate rider, set initially to $0.181 per GJ on top of what they pay for conventional natural gas. For an average FEI residential customer, who uses 90 GJ of natural gas per year, this rate rider amounts to $16.29 per year.
While some might feel aggrieved at being told to pay for something they didn’t ask for, and perhaps don’t even want to buy, the situation hasn’t actually changed that much. In 2017 the BC government added RNG as a “prescribed undertaking” in the Greenhouse Gas Reduction Regulation (GGRR), which means that the BCUC must allow FEI (or any other public utility) to recover from customers the cost of any RNG it purchases, up to certain limits, whether or not any of the RNG is sold.
In practice, the GGRR means that all FEI’s customers would be on the hook anyway for the cost of the utility’s ever-increasing purchases of RNG, which it needs to buy to reach the government’s proposed GHG emissions cap. At least by making the one percent blend official, FEI’s customers will now avoid paying the carbon tax on the one percent RNG they are being allocated.
The net zero cost problem
FEI has solved its RNG sales problem, for now. But as it strives to meet the government’s proposed GHG emissions cap, the cost of gas to customers will rise.
The one percent RNG that FEI now blends into the gas supply is just the beginning. As I noted above, FEI estimates it needs to be using 45 to 65 PJs of renewable and low-carbon gases by 2030 to achieve the BC government’s proposed GHG emissions cap. Taking the mid-point of 55 PJs, this would be about 25 percent of FEI’s total gas deliveries.
Helpfully, FEI’s website tells us the cost of a 25 percent blend of RNG today – an additional $151.20 per year on top of an average residential customer’s annual bill of $979.81, an increase of around 15.4 percent. This is a reasonable estimate of the cost of RNG as a GHG emission reduction strategy by 2030.
For anyone considering the 100 percent RNG blend, which may be where FEI ends up sometime after 2030, its website calculates the cost for the average residential customer to be an additional $623.76 per year, an increase of 63.7 percent over today’s average bill.
RNG benefits
Achieving net zero, which Canada has signed up to do by 2050, obviously requires addressing the GHG emissions produced when natural gas is burned.
Switching to RNG (and other low-carbon gases) is a sensible strategy not just for FEI, but for the province – it reduces GHG emissions immediately, before we get around to replacing our existing gas appliances, and reduces the burden on BC Hydro, which is projecting an electricity deficit starting as early as fall 2028.
Using RNG will also allow the use of gas after the government’s proposed high efficiency standards for building space and water heating equipment come into effect in 2030. This may reduce the political risk experienced elsewhere; The Economist reports that the EU recently decided to postpone publication of its heat-pump action plan until after the June European elections, and Germany watered down a proposed law to ban new oil and gas boilers.
The BC government seems to be aware of this. Its most recent energy strategy acknowledges that maintaining BC’s existing gas infrastructure is “necessary to ensure BC can deliver clean fuels as production ramps up in the years ahead.”
Offsetting the problem
The more we can abate the GHG emissions in the natural gas system the easier it’s going to be to achieve our net zero targets. But RNG is going to be expensive. Is there another way?
All provincial public sector organizations are able to achieve carbon neutrality by purchasing carbon offsets. And ever since FEI’s first RNG pilot program in 2010, the BCUC has approved the use of carbon offsets in place of RNG should FEI not be able to acquire sufficient RNG to meet voluntary customer demand.
Carbon offsets are cheaper than RNG. FEI’s 2015 application to the BCUC to revise its RNG program contained a letter of support from the University of BC (UBC), an FEI customer. UBC stated that it could reduce its GHG emissions from using natural gas either by switching to RNG or by buying carbon offsets. Its analysis was that the cost of buying offsets was 50 percent cheaper than the cost of buying the equivalent amount of RNG, evidence noted by the BCUC in approving FEI’s application.
However, in its 2023 inquiry into RNG, the BCUC concluded that it did not have the legal jurisdiction to include carbon offsets in the definition of RNG, although it did conclude that the use of carbon offsets would help us achieve net zero. All the BCUC could do was recommend that the BC government “consider legislative changes” that would allow public utilities such as FEI to treat carbon offsets in the same way as RNG.
If the BC government uses offsets itself to be carbon neutral, why can’t FEI?