Cows give us milk, meat and…methane. Traditionally a mainstay of every pastoral landscape, more and more people these days consider cattle an environmental hazard due to the ‘natural gas’ they emit directly into the atmosphere. Methane, after all, is a much more dangerous greenhouse gas than carbon dioxide (CO2): some 25 times as potent at trapping solar heat over a 100-year period, according to the US Environmental Protection Agency, though it also dissipates much more quickly.
However, the ‘emissions’ from their manure can more than make up for this by turning it into a reliable source of renewable natural gas (RNG) to heat homes and fuel transportation and factories. It is this RNG business that ORIX Corporation USA (ORIX USA), the U.S. arm of ORIX Group, has started to invest in as part of its global commitment to promoting clean and renewable energy. And its flagship project, BC Organics, is currently under construction in Brown County, Wisconsin, the heart of America’s dairy industry.
The hows and whys of biogas
The ‘technology’ that converts manure into gas is a biological process known as anaerobic digestion, where bacteria break down organic materials in the absence of oxygen, producing biogas. This is exactly what happens in a cow’s stomach, except that at BC Organics it will take place in a giant 1.25m gallon stainless steel circular tank that is heated, sealed, and equipped with mixers.
Sixteen such tanks, in fact, once the facility is completed in late 2022, with a total capacity of 20m gallons. That will allow BC Organics to receive 900,000 gallons of manure a day, which is piped or trucked in from surrounding farms and then spends 20-30 days in the tanks turning slowly into gas at a constant temperature of around 100 degrees Fahrenheit. The biogas that emerges is around 50-70% methane (with the rest being mostly CO2) and is then upgraded to the 90-97% methane content of standard natural gas, before being fed into the US national pipeline system as reliable, safe and efficient RNG.
Meanwhile, the anaerobic digestion process also produces several useful byproducts: organic fertilizer sludge; clean water; and a solid fibre that can be used for potting soil and bedding. These are then largely directed back to the farms supplying the manure, using the very same trucks and local pipelines.
“The environmental benefits are considerable”, says Neil Winward, Managing Director, Head of Strategic Solutions, which is part of the Special Opportunities group at ORIX USA and the unit behind the BC Organics investment. Nationally, the RNG, which can be piped as far as California, will contribute to a cleaner energy mix by displacing more carbon-intensive fuels like coal. Locally in Wisconsin, instead of just spreading the manure over their fields, the farmers will now use the concentrated organic fertilizer. That will not only remove 650,000 million thermal units (MMBtu) of methane from the atmosphere every year, improving the air quality; it will also prevent 3.5m pounds of phosphorus, as well as nitrates, from entering the water table as run-off, as it previously did – helping preserve habitats in northeast Wisconsin and the Lake Michigan watershed.
Large but local
The many advantages of making biogas, as well as the fact that it is a safe and proven process, explain why there are over 260 such projects currently underway in the U.S. And there is the potential for many more: an analysis from the Royal Bank of Canada estimates that commercial quantities of RNG could be produced from around 8,000 U.S. farms and over 2,500 landfills (where the landfill itself functions as the container for anaerobic digestion).
Most of these, however, are much smaller, generally serving only single farms and supplied by the waste of less than 3,000 cows on average. By contrast, the BC Organics facility is being served by 20,000-30,000 head of cattle from multiple farms, allowing it to process 360m gallons of manure a year. One of the key ingredients of the project, notes Mr. Winward, is its developer, Dynamic Renewables. This Wisconsin-based firm has been in the biofuels business since 2011, has extensive engineering experience and, critically, an ability to recruit farmers to its projects: “Farmers want to speak to engineers and farmers who understand their business and can explain the details to them”, he adds, “not necessarily bankers from New York.”
Just last month, ORIX USA announced its investment into three more RNG projects, located in Iowa and South Dakota and expected to process almost 200m gallons of manure and removing 690,000 MMBtu annually. All are being developed by Dynamic Renewables.
Dynamic Renewables is not the only local company involved at BC Organics. Construction will be carried out by Miron Construction, another Wisconsin firm, which specializes in industrial projects – though it has also renovated the famous Lambeau Field, home of the Green Bay Packers football team. In total, Dynamic Renewables estimates that the project will generate $25m in work for local sub-contractors and create over 700 jobs during the construction phase. Thereafter, there will be 20 permanent positions at the site; almost $200,000 in yearly property taxes for the municipality; the local farms will become more sustainable and hence ‘future-proof’.
Credit where it’s due
As noted, BC Organics will sell its RNG into the national pipeline system and some of it can be used as far away as the West Coast to power homes, businesses and bus fleets that run on natural gas.
In addition, the entire biogas process will be audited by the California Air Resources Board, which will assign it a carbon intensity rating that translates into low-carbon fuel credits with a dollar value. “This allows California to incentivize methane capture, while creating valuable fuel credits for BC Organics”, says Greg Raykher, a Managing Director at ORIX USA’s Special Opportunities Group. Sale of those credits is expected to contribute the majority of BC Organics’ revenue.
Such a steady source of income allows the project to carry a fair degree of financial leverage. Of the total cost of $143m for the facility, $115m will come from senior and mezzanine debt, $15m from a grant by the state of Wisconsin and the rest from preferred and common equity.
And there is another layer to the financing -- It is the first time that tax equity financing has been used in a biofuel project, Mr. Raykher points out: “which is a testament to how creative and nimble our team was in structuring this”.
The $20 billion US tax equity market is something of a specialization for the Strategic Solutions group – an area where it has developed considerable expertise in mid-sized transactions. Since 2018, it has financed projects in solar power and clean coal as well as the biogas investments; and it is hoping to expand into financing wind farms and waste-to-energy plants: “We are able to use the specific financial advantages ORIX USA has in the market to produce a lower cost of capital and get these desirable projects built,” says Mr. Winward.
This is a perfect definition of the team’s overall mission: Strategic Solutions pursues investable transactions that facilitate energy transition in a responsible and sustainable way within the overall Sustainability Policy of ORIX Group. Specific transactions that the group reviews include more established technologies such as wind, solar, RNG and various storage solutions, as well as promising developing technologies such as fuel cells and green hydrogen.
In this way, Strategic Solutions contributes to ORIX Group’s global renewables platform, which is continually expanding. Globally, the company has, for instance, invested in Elawan Energy, a Spanish wind and solar farm developer that operates worldwide; and Greenko, an Indian renewables firm that is working on massive hydropower, solar and wind projects in that country. Closer to home, ORIX has also invested in biogas-related businesses in Japan. In 2018, the group acquired CORNES AG, an importer and distributor of agricultural and dairy equipment (including milking robots), which also plans, constructs and maintains biogas plants. And earlier this year, ORIX Environmental Resources Management Corporation completed the construction of a biomass power generation facility in Saitama prefecture (see our recent ORIX IN ACTION story). This plant processes household waste like food and paper rather than dairy manure – but then there seems to be an endless supply of that as well.
