Renewable natural gas (RNG), sometimes called biomethane, is a substitute for conventional natural gas in utilities’ gas distribution systems that, while considerably more expensive than natural gas, is sometimes considered a clean fuel.
The terms renewable natural gas and biomethane are usually used synonymously, although the BCUC drew a distinction between the two terms in its inquiry into renewable gas, held in part because the BC government had ordered the BCUC to allow utilities to purchase limited amounts of “renewable natural gas” without defining what the term meant.
According to the BCUC, biomethane refers to the physical gas that is produced from biogas and injected into the pipeline system. Renewable natural gas is the product sold by gas distribution companies that notionally represents biomethane.
The distinction matters in some contexts because gas that is delivered to customers who buy renewable natural gas may not actually contain any physical biomethane. Gas distribution utilities mix both conventional natural gas and biomethane in their pipelines that deliver gas to customers. It is not possible, or at least economic, to deliver the two types of gas separately; rather, the renewable natural gas is said to be “notionally delivered.” The biomethane purchased by a gas distribution utility may even be injected into a the pipeline system downstream of where the utility extracts its gas, so there is no chance of that biomethane actually being received by any of its customers.
In order to demonstrate that customers are buying renewable natural gas, the utilities account for the amounts of biomethane they purchase and the amount they sell to provide assurance that notional deliveries of biomethane are being made when renewable natural gas is purchased.
Cost and pricing
Renewable natural gas is considerably more expensive than conventional natural gas. In September 2022, FEI provided the following estimates of its cost to serve new customers with renewable and conventional natural gas:
In BC, customers of renewable natural gas are entitled to the biomethane credit, which exempts them from the carbon tax on natural gas. Even taking the biomethane credit into account, renewable natural gas is still considerably more expensive than natural gas.
The BC government directed in section 2.2 of the Greenhouse Gas Reduction Regulation that the BCUC must allow gas utilities to purchase up to 15 percent of their gas as renewable natural gas up to a price of $31 / GJ (in the 2021/2022 fiscal year). This effectively caps the purchase cost of renewable natural gas in BC, although the BCUC could approve purchases at a higher cost, independently of the Greenhouse Gas Reduction Regulation, if it chose to.
The price customers pay in BC for renewable natural gas is not always the same as the cost paid by the utilities. At present, Fortis Energy Inc. (FEI) and Pacific Northern Gas take different approaches to pricing.
FEI currently charges a $7 / GJ premium for renewable natural gas compared to the cost of conventional natural gas, or $6 / GJ for long-term contracts. This rate provides a discount for customers of renewable natural gas, based on the current costs of the two gases, and the difference is subsidized by other FEI customers. FEI had previously sold renewable natural gas for its full cost, but an insufficient number of customers were willing to pay that price and the utility was building up an inventory of unsold renewable natural gas.
Pacific Northern Gas has a rate to sell renewable natural gas, which it calls “low carbon energy”, at the price at which it purchases the biomethane, although if it is unable to sell or use its purchases, the cost of the unsold inventory will be recovered from all its customers.
Importance to BC utilities
Renewable natural gas is of great importance for the future of the gas utilities in BC. FEI, the largest gas utility in the province with over 1 million customers in 2021, filed its 20-year long-term resource plan in 2021. What it calls “renewable and low-carbon gas supply” in the figure below is by far the largest factor in its plan to achieve the BC government’s greenhouse gas emissions reduction target by 2040:
Renewable natural gas is likely to be the vast majority of the “renewable and low-carbon gas” used by FEI and others in the province, at least until 2030. Without it, these utilities will not be able to make significant reductions to their greenhouse gas emissions.
2024 will be an important year for the future of renewable natural gas in BC. FEI currently has an application with the BCUC to review its entire renewable natural gas program, including the prices it charges. The utility is also expecting a decision from the BCUC on its long-term resource plan, which will give an indication of how strongly the BCUC, and perhaps also the BC government, will support FEI’s use of renewable natural gas over the next twenty years.