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HomeMy WebLinkAboutPP-RNG_MarketDynamicsUpdateRenewable Natural Gas market dynamics update Josh Newman June 14, 2019 1 Purpose of this agenda item Interconnection Agreement Equipment Purchase Agreement Off-Take Agreement Three important project milestones …separate from the design and construction project The three legs of the stool analogy We need the interconnection to distribute our product to end users We need the equipment to meet the pipeline specifications for RNG We need an off-taker to register our RNG with various agencies, to place our RNG in vehicles, and thereby monetizing the credits that are available to produce revenue for the MWMC. The purpose of this update is to: Fill the commission in on how our understanding of the terms of the off-take agreement has shifted, What those new terms are, Describe the projected financial impact, Recommend an approach moving forward, and Invite the commission’s input and direction. Animation box 2 Project context/overview Services to be provided by RNG off-taker New understanding of Trillium contract terms (changed since 2017) Revised financial projection Recommended off-take agreement approach Discussion/questions/direction Presentation topics 3 RNG project context Three pathways, status quo, upsized power, or RNG. Based on current assumptions, RNG is the only pathway that fully utilizes the biogas and optimizes return on investment and environmental benefits. It also provides flexibility on utilization in the future…because the pipeline connection allows use of the gas anywhere near NW Natural’s grid. Highest triple bottom line value 4 Revenue overview The three revenue components of RNG that MWMC could receive This slide relates to the off-taker agreement and is a reminder of the three main components of revenue available to the MWMC as an RNG producer. The RFS credits are called RINs The state credits are either the Low Carbon Fuel Standard credit for CA, or the Clean Fuel Standard Credit for OR. Hit on the sub bullets under each main bullet Animation box 5 What the off-taker does Registers the RNG facility with the US Environmental Protection Agency and with CA and OR programs Places the RNG in various fleets with whom they have contracts (location and production year both impact placement potential) Satisfies the annual reporting requirements for state and federal programs Next slide starts how the Trillium terms and conditions have changed. 6 Original Trillium proposal was in 2017 Per 2019 discussion, the MWMC’s portion of the RFS has declined Factors: Date for MWMC RNG is now early 2021, not early 2020 Expectation of higher competition with dairy and hog farm RNG producers Contract terms - RFS 2017 2019 This slide looks at the revenue split that is now possible for the federal RFS via the Trillium contract Original in 2017 A lot has changed since then regarding the marketplace we can see from the vantage point of 2019 Explain slide 7 No guarantee of placement Contract terms LCFS and OCFS Only OR and CA have state fuel program credits Now moving on to what Trillium can do for us regarding the state LCFS or CFS credits As time travels forward, more projects (some with low carbon intensity RNG) are coming on line. So it will be more crowded in 2021 than it was in 2020 and the offtaker needs to consider that Other states may follow OR and CA with similar legislation WA was almost there this legislative session but the bill didn’t make it out of committee. 8 Smaller pie Contract terms – LCFS/OCFS MWMC gets smaller portion of the smaller pie - = Incremental credit basis Credit basis for RNG Credit basis for CNG 2017 2019 As time goes on, the end users are demanding more of the pie. Brief description of why the smaller pie and the CNG credit going to the fleet. So what is the impact of all this on the risk assessment we reviewed in May 2018, and then I revised in a comm packet item in January 2019? 9 Financial risk plot shown January 2019 10 Revised fiscal projection per new Trillium contract terms Speak to the fact that the six leftmost are extremely low probability. 11 Wrap up Market factors: Delay to 2021 instead of 2020 Competition with dairy and hog farm gas Early offtake contracts are reaching end of duration and coming due for renegotiation Federal administrative policy impacts (USEPA): (SRE) waivers, etc. Reset and set provisions RVO annual process Emerging opportunities: More states could join OR and CA OR carbon cap and invest looks promising Interest from local fleets may be picking up Trillium and Blue Source recommend a new RFP for off-take agreement Discuss opportunities (include WA should be the next state, with lots of opportunity…and others may follow) Interest in local fleets, including LTD. Get to final bullet. 12 Recommendations New off-taker RFP will likely bring better contract terms Increase staff effort to identify new opportunities for end use in Oregon 13 Questions /Discussion/Direction 14 Click to add text Click to add text 15 16 Use and copy this slide as needed to add large images, graphs, or spreadsheets to your presentation. Please don’t use as a regular slide. Remove if not needed. 17 Click to add text Click to add text 18 Click to add text Click to add text 19 Click to add text Click to add text 20 Click to add text Click to add text 21 Click to add text Click to add text 22 Click to add text Click to add text 23 Click to add text Click to add text 24 Click to add text Click to add text 25 Click to add text Click to add text 26 Click to add text Click to add text 27 Click to add text Click to add text 28 Click to add text Click to add text 29