February 13, 2018

Biogas Utilization from Anaerobic Digestion and Value in the RIN Market:

An Industry Insider’s PerspectiveDrury Whitlock, PE

Today’s discussion will focus on

What are RINs and how do they work?

How can facilities generate and sell RINs?

What technologies can bring your biogas up to

renewable fuel standards? BRIEFLY

What is the outlook for the RINs market?

Biogas BasicsBiogas Basics

Facilities That Generate Biogas

Wastewater

Facilities/

POTWs

CAFOs; Dairy;

Food &

Beverage

Solid Waste

Facilities

Biogas Beneficial Reuse

5

Moisture & particulate Removal

Conversion and Transfer of Energy

Biogas from High Rate Anaerobic

Processes and Landfills Siloxanes and H2S

removal

Combined Heat and Power (CHP)

CO2

Removal

Compression

CNG FueledVehicles (RINs)

Natural GasPipeline Injection

IC Engines Gas Turbines

Electric Vehicle (eRINS)

Heat

AD

Emergency Flare

RINsRINs

History of Renewable Identification Numbers (RINs)

The Energy Policy Act (2005) required EPA to implement a renewable fuels

standard program

First program was called “RFS1” - 2007 Renewable Fuels volumetric goals:

9 Billion gallons by 2008

22 billion gallons by 2022

Imposed obligations on gasoline refiners and importers (RVOs)

Created “Renewable Identification Numbers” or “RINs”:

Generated by producers of renewable fuels

Used by gasoline refiners and importers to prove compliance

Represented by a 38-digit code

First program was called “RFS2” – 2010

RIN construct continues

Feedstock focus switched to renewable biomass

Implemented biodiesel, cellulosic and advanced biofuels

Cellulosic RIN Pathway Developed and Approve by EPA – 2014

RIN Buyers: Obligated Parties (e.g., BP, Shell,

Exon Mobil, Phillips, Chevron) Companies who produce or import petroleum

gasoline or diesel fuel in a given calendar year

Do not have to blend physical renewable fuel

Must satisfy their renewable volume obligations (RVO) using RINs and/or cellulosic waiver credits

Can use prior-year RINs for up to 20% of the applicable RVO

Acquire RINs through the purchase of physical fuel with RINs or through RIN-only transactions

5 RIN Categories

10

D3Cellulosic

Biofuel

D4Biodiesel

D5Advanced

Biofuel

D6Corn-Based

Ethanol

D7Cellulosic

Diesel

Renewable Fuel Mandates have GHG reduction

criteria (established under EISA) Cellulosic Biofuel: [ Represented by D codes 3, 7 ]

Must achieve 60% reduction vs. gasoline or diesel baseline

Cellulosic RIN production increasing due to new plants and biogas/CNG reclassification

Biomass-Based Diesel: [ D codes 4, 7 ]

Must achieve 50% reduction vs. diesel baseline

Includes Biodiesel and Renewable Diesel

Advanced Biofuel: [ D code 5 ]

Must achieve 50% reduction vs. gasoline or diesel baseline

Includes cellulosic, sugarcane ethanol and any other qualifying renewable fuel other than corn starch ethanol

Total Renewable Fuel: [ D code 6 ]

Must achieve 20% reduction vs. gasoline or diesel baseline; except:

Existing (2007) facilities are “grandfathered”, i.e., exempt to its 2007 baseline

Includes corn ethanol primarily

Lifecycle emissions are evaluated by EPA as part of a “well to wheels” analysis, which supports various fuel pathways

Example RFS Approved PathwaysFuel Type Feedstock

Production Process

RequirementsD Code

Ethanol Corn Starch Drymill process 6

Ethanol Sugarcane Fermentation 5

Ethanol Cellulosic feedstock Any cellulosic production process 3

Biodiesel Soybean oil, used cooking oil, tallow, NFG corn oil Transesterification 4

Cellulosic Diesel, Jet, Heating Oil Cellulosic biomass Any cellulosic production process 7

Renew. CNG/LNG Biogas from Landfills Any 3

Renewable Jet, Heating Oil,

EthanolAny separated food wastes process Separated food wastes 5

Renewable Compressed

Natural Gas, Renewable

Liquefied Natural Gas,

Renewable Electricity

Biogas from landfills, municipal wastewater

treatment facility digesters, Agricultural digesters,

and separated MSW digesters; and biogas from the

cellulosic components of biomass processed in

other waste digesters.

Any 3

Renewable Compressed

Natural Gas, Renewable

Liquefied Natural Gas,

Renewable Electricity

Biogas from waste

digestersAny 5

EPA 40 CFR part 80 subpart M

EPA’s Renewable Fuel Standard

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Congressional Volume Target for Renewable Fuel

Fuel

Cellulosic

Fuels

Biomass

Based

Advanced

Biofuels

Renewable

Fuel Total

Code D3/D7 D4 D5 D6

2014 0.033 1.63 2.67 13.61 16.28

2015 0.123 1.73 2.88 14.05 16.93

2016 0.230 1.9 3.61 14.5 18.11

2017 0.311 2 4.28 15 19.28

2018 0.288 2.1 4.29 15 19.29

2019 tbd tbd 13 15 28

2020 tbd tbd 15 15 30

2021 tbd tbd 18 15 33

2022 tbd tbd 21 15 36

2023 tbd tbd tbd tbd tbd

Cellulosic Material

14

Included Not Included

Wastewater

residualsLandfill

Anaerobic

Digester

Feedstocks

Food Waste

RIN Value Chain

Producers of renewable fuels – generate RINs

Brokers manage RINs

Third parties audit program and RINs

Blenders of renewable fuels – separate RINs

Obligated Parties – use RINs for compliance

RIN ValuationRIN Valuation

Only for biogas vehicle fuel

Covers RNG and LRNG used directly or converted to electricity or hydrogen

Two RIN types (for biogas)

• D3 cellulosic advanced

• D5 advanced

Must register w/ EPA

Renewable Fuel Standard

RIN Values

D3 advanced cellulosic | D5 advanced biofuel

http://progressivefuelslimited.com/web_data/PFL_RIN_Recap.pdf

11.7 RIN/MMBtu

$2.90/D3 RIN

$2.90/D3 RIN * 11.7 RIN/MMBtu = $34/MMBtu

CA LCFS = $6.5/MMBtu

Fossil NG value is approximately = $3/MMBtu

Renewable Fuel Standard-D3 RINs

Electric

Driverless

Vehicle sharing

The Future of Vehicle Transportation

Technologies: How Does

Biogas Become RNG?

Technologies: How Does

Biogas Become RNG?

22

Biogas Renewable Natural Gas (RNG)

CH4

CO2

CH4

Treatment Process:

Pressure- Swing

Adsorption

Water Scrubbing

Membrane Treatment

~ 600

BTU/cf

~ 980

BTU/cf

What is the outlook for

the RINs market?

What is the outlook for

the RINs market?

4 Problems:

Biomethane → Gas Pipeline

1. Some utilities won’t allow interconnection

Not testing for fossil gas, so allowing RNG and

requiring RNG quality testing will increase costs for ALL injection points

2. Cost prohibitive gas quality and/or testing requirements

3. Utilities mistakenly but universally charge extra 30% for interconnection

Overall costs range from $100,000 - $11 million (so 30% quickly turns into a HUGE cost)

4. Different gas quality requirements for EVERY pipeline network

More than 210 pipeline systems.

305,000 miles of interstate/ intrastate

transmission

1,400+ compressor stations

1,400 interconnection points

400 underground storage facilities

49 import/export locations

8 LNG import facilities

US NG Pipelines

Renewable Fuel Standard: Value of RINs

when POTW is co-digesting food waste

If average cellulosic content is ≥75% dry weight, the RIN category for the entire volume of fuel is D3 (highest value)

If average cellulosic content is <75%, the RINs are apportioned based on the cellulosic content of each feedstock

Test methods are available to determine the cellulosic content of the feedstock – these tests will be required at a reasonable rate of frequency dependent on the volume of fuel produced

Renewable Fuel Standard: Value of RINs

when POTW is co-digesting food waste

Under David Babson (author/former lead)

Biogas from digestion of ww residuals = D3 (highest value)

Biogas from digestion of food waste = D3

D3 = cellulosic, highest RINvalue

D5 = advanced fuel, lower RIN value

Under Madison Le (new lead)

Biogas from digestion of

solids = D3

Biogas from digestion of

food waste = D5

Other Important Considerations

The Pathway from producer to user must be approved by EPA

RIN buyers require extensive documentation and credit support

RIN pricing can be volatile

Uncertain future of regulation Important to consider temporal aspects of economics

Important to consider “fall back” position

Deciding if RINs Are

Right For You

Deciding if RINs Are

Right For You

Building a Partnership

This is a new experience for utilities too

You’re now the provider, not the consumer

Expect plenty of negotiation

30

Renewable Fuel Standard Uncertainty

RFS approved through 2022

If left unchanged, annual required renewable fuel production

increases will level off

Likely scenario: market values decrease but RIN trading

continues

31

Final ThoughtsFinal Thoughts

Conclusions RFS is a robust program that has expanded since inception –

Except in 2018

RFS has bipartisan congressional support

D3 RIN value is currently very attractive, but will likely decrease

D3/D5 combined production complicates valuation … and feedstock to biogas derivation methodology has yet to be approved

eRINs could be valuable, but pathways and mechanisms are awaiting EPA approval

Thank You

February 13, 2018

RINs Basics:From and Industry Insider’s Perspective

Drury Whitlock, PE

801.244.4074

whitlockd@cdmsmith.com