Anaerobic digestion (AD) is a biological process where microorganisms break down organic matter in the absence of oxygen, producing methane-rich biogas as a byproduct. The biogas can be burned directly for heat or electricity, or upgraded to renewable natural gas (RNG) that can be injected into the natural gas pipeline network.
The feedstock landscape
AD works on many organic feedstocks, but economics vary significantly:
- Dairy manure: The classic AD feedstock. Biogas yield of 20–30 m³ per ton. Projects often also solve manure-management compliance issues, adding value.
- Food waste: High biogas yield (80–150 m³/ton) but collection logistics are harder. Works well for large single-source hosts (food processors, commissaries).
- Agricultural residues: Corn stover, rice straw, other crop residues. Moderate yields, seasonal availability.
- Municipal wastewater sludge: Many wastewater treatment plants already operate AD. Upgrading existing digesters to produce RNG is often attractive.
- Source-separated organics (SSO): Municipal food waste collection programs. Growing as more cities implement commercial organic waste diversion mandates.
Biogas vs RNG: the upgrade question
Raw biogas is 55–70% methane, remainder mostly CO2 with traces of hydrogen sulfide and moisture. Burned directly for heat or electricity at the project site, efficiency is 30–40%.
Renewable natural gas is biogas upgraded to 95%+ methane — effectively pipeline-quality natural gas. The upgrade (membrane separation, pressure swing adsorption, or water scrubbing) adds roughly $1–3/MMBtu to production cost.
The revenue story for RNG is dramatically better than for on-site power generation because of environmental credits (RINs under the federal RFS, LCFS credits in California, WA, OR, NM). Combined credit values of $20–40/MMBtu are not uncommon, compared to $3–5/MMBtu for natural gas itself.
The RFS and LCFS
The federal Renewable Fuel Standard (RFS) awards Renewable Identification Numbers (RINs) to biogas that's used as transportation fuel. Cellulosic RINs (D3 category), which most dairy and food-waste biogas qualifies for, have traded at $2–4/gallon-equivalent over the last several years.
California's Low-Carbon Fuel Standard (LCFS) assigns carbon intensity scores to fuels and creates a market for credits. Dairy-derived RNG has especially valuable LCFS scores because avoided methane emissions count as a credit — often producing negative carbon intensity scores.
The combination of RINs and LCFS credits makes certain AD projects (particularly large dairy operations in California) extremely attractive economically.
The Axis view
AD is a mature technology with robust project-finance structures. The variability is in feedstock supply reliability and environmental credit market dynamics. Projects with 10+ year feedstock supply agreements with investment-grade counterparties close easily. Projects with feedstock aggregation from small farms or municipalities take longer but often work. Speculative projects without feedstock certainty rarely reach FID.
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