Renewable natural gas, or RNG, is a clean and affordable fuel that can turn trash to treasure. This alternative fuel can power natural gas vehicles and light and heat homes and businesses. With the push on to find workable solutions to global warming, RNG could also power investors' portfolios.
What is RNG?
Renewable natural gas is a biogas that can be used interchangeably with natural gas, which is nonrenewable. Since biogas is a product of the natural decomposition of organic matter, RNG can be derived from landfills, livestock operations, anaerobic digestion, or thermochemical processes.
After the gas is collected, it’s processed to remove water, carbon dioxide, hydrogen sulfide and other trace elements, leaving pure methane. RNG can be converted into compressed natural gas (CNG) or liquified natural gas (LNG, Financial), both of which can be used as a transportation fuel.
Benefits of RNG
Alternative fuels such as RNG can help the world transition away from fossil fuels. That’s a huge benefit, but there are other pros that are specific to RNG:
- RNG is fuel derived from waste: Solid waste is predicted to increase by 70% by 2050 due to human activity. Not only does RNG benefit the climate by being a clean fuel, but it also addresses the growing problem of methane-producing solid waste by putting it to good use.
- RNG is reliable: RNG isn’t a finite resource, and it’s not dependent on dangerous mining or the world’s political climate. It’s a reliable fuel that can be supplied steadily and predictably. That means its price should hold steady and not be dependent upon the supply and demand of importing nonrenewable fuels.
- RNG is already in use: Renewable natural gas isn’t an unknown or experimental future fuel source. It’s in use now, and RNG fuels natural gas vehicles and lights and heats a growing number of homes and businesses.
- RNG is interchangeable with natural gas: RNG can be used just like natural gas, so there’s no need to make adjustments to natural gas vehicles for them to use RNG fuel. Ditto for electric plants that use natural gas.
- RNG has no greenhousse gas emissions: Renewable Natural Gas takes potential sources of greenhouse gases and turns them into a zero-emissions fuel that’s certified by the EPA and the California Air Resources Board.
RNG stocks
With these benefits, you may be tempted to invest in RNG because it is an important piece of the climate change puzzle. Plenty of investors like green investments such as RNG because they’re reducing carbon emissions and solving environmental problems. As with all investments, though, past performance does not predict the future, and not every RNG company will be a winner.
Alps Clean Energy ETF
The Alps Clean Energy ETF (ACES, Financial) is a clean energy ETF offers exposure to U.S. and Canadian companies with a biogas focus along with those working toward solutions using solar, hydropower, geothermal energy, and wind power as well as energy efficiency. The Alps Clean Energy ETF has rewarded its environmentally conscious investors with a three-year return of 38.95%. Its price has dropped recently, so The Alps Clean Energy ETF could offer a value opportunity.
Ameresco Corp
Ameresco Corp. (AMRC, Financial) Is one of the leading renewable energy companies in the U.S. With an eye toward energy efficiency, Ameresco is building renewable natural gas and landfill gas production facilities in America and the United Kingdom. Ameresco has more profit potential than financial strength.
Archaea Energy
One of the nation’s leading renewable natural gas companies, Archaea Energy (LFG, Financial) has a portfolio of sustainable RNG and landfill gas projects. Archaea isn’t turning a profit yet, which a concern for value investors.
Atlantica Sustainable Infrastructure
Atlantica Sustainable Infrastructure (AY, Financial) stands to gain as the U.S. and other countries turn to clean energy options. Putting a significant amount of money in this stock is a big risk since Atlantica hasn’t crossed into profitability yet. GuruFocus rates it as modestly overvalued.
BP
One of the world’s major oil producers, BP (BP, Financial) is expanding, through a partnership with Aria Energy, into the production of renewable natural gas from dairy farms. Value investors may see BP as a way to get RNG exposure along with a healthy 4.77% dividend yield for passive income.
Cheniere Energy
Cheniere Energy (LNG, Financial) is a leading producer of liquified natural gas. This Houston-based company isn’t turning a profit, though, so there are safer RNG options.
Chevron Corp
With a beta of 1.20, Chevron Corp. (CVX, Financial) is a hydrocarbon explorer and producer that also has renewable natural gas-related operations, making it an option for a value investor. Its price-earnings ratio of 22.45 is a little high, so there may be better options among traditional fossil fuel companies that are expanding into RNG.
Clean Energy Fuels Corp
Like many clean energy startups, Clean Energy Fuels Corp. (CLNE, Financial) isn't yet a profitable company. It produces and distributes renewable natural gas as well as compressed natural gas (CNG) and liquified natural gas in the U.S. and Canada. Clean Energy Fuels also designs, builds and operates vehicle fleet customer stations, which will be needed for RNG growth.
Dominion Energy
With a price-earnings ratio of 24.16 and a dividend yield of 3.28%, oil and natural gas provider Dominion Energy (D, Financial) has a beta of only 0.4, which might make it a match for investors who want to avoid volatility.
Enbridge
Canadian pipeline company Enbridge Partners (ENB, Financial) is a multinational pipeline company that’s expanding into the distribution of renewable natural gas. It’s been outperforming its sector and the market, with a price-earnings ratio of 16.45.
Invesco Global Clean Energy ETF
ETFs such as theInvesco Global Clean Energy ETF (PBD, Financial) can be good options for investing in clean energy technology since they provide a broader exposure to companies in the sector. TheInvesco Global Clean Energy ETFhas surpassed its three-, five- and 10-year benchmarks, but bears say this fund has a high expense ratio.
Vanguard ESG U.S. Stock ETF
For an investor who’s looking for broad exposure to Environmental, Social and Governance (ESG), the Vanguard ESG U.S. Stock ETF (ESGV, Financial) includes environmentally conscious stocks from U.S.-based companies, including ones that produce and market renewable natural gas. At the one-year level, this ETF is only slightly behind the S&P 500's performance.
Waste Management
Renewable natural gas, logically, is tied to solid waste, so it makes sense that Waste Management (WM, Financial) would have an interest in RNG production. Waste Management's price-earnings ratio is high, and GuruFocus’s earnings power value for it is low, so this might not be a stock for a value-focused investor.
A sustainable solution
Renewable natural gas is a solution to two of the largest problems facing the planet – the need for managing methane produced by solid waste and climate change. RNG can be derived from waste products and be used to power electric plants and fuel natural gas vehicles. This zero-emissions fuel is an important factor in the world’s transition away from fossil fuels that contribute to global warming.
Investing in the new clean energy technology of renewable natural gas doesn’t necessarily mean plowing money into a start-up. Mature and familiar companies in sectors including waste, utilities and fossil fuels are expanding into RNG projects. These companies are investment options that are less risky but still provide plenty of profit potential. Some also have significant dividend yields for passive income.
Investors can show support for renewable natural gas and sustainable energy initiatives by investing in companies key in the production or marketing of RNG or funds that provide exposure to RNG. They also stand to profit from a sector poised for growth in the next decade and beyond. I think the time to invest in RNG is now, just as it is growing as an energy option and climate change solution.
