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Essential Energy Insights - October 2021


Chesapeake Utilities, a small utility operator, has big renewable gas plans

When asked how big he wants his company to be in the renewable gas market, Chesapeake Utilities Corp. President and CEO Jeff Householder offered an observation: "You're the 95th person that's asked me that question in the last two days."

It makes sense that Householder fielded the inquiry during the American Gas Association's Financial Forum in May. The company began entering a string of renewable natural gas, or RNG, investments and tie-ups last year. In November 2020, executives outlined a strategy to integrate RNG into their businesses transporting gas in pipelines and tube trailers. In February, they announced plans for a hydrogen pilot project, and by early May, they were updating investors about additional RNG investment opportunities.

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In a pair of interviews with S&P Global Market Intelligence, Chesapeake Utilities executives discussed the RNG opportunityone of five key strategic initiatives through 2025and their plans to establish a foothold in the emerging hydrogen economy. They expect that the plans could help Chesapeake grow and decarbonize its business and see the company expand its geographic footprint. However, when evaluating RNG opportunities, the company will continue to think locally, Householder said.

"Fundamentally, we like to think of the projects that we would be engaged in as solving a local problem or a local issue, addressing ... an environmental concern locally," Householder said.

Finding opportunity in chicken farms

On the Delmarva Peninsula — in the heart of Chesapeake's businessthe local problem that needed attention was waste from poultry farms. Nearly 1,300 chicken growers raised 540 million chickens in 2020 on the peninsula, which comprises much of Delaware and parts of Maryland and Virginia.

Initially, Chesapeake Utilities was not pursuing RNG initiatives, according to Householder. The company was instead looking at opportunities to address chicken waste to help avoid methane pollution and mitigate the well-documented problem of runoff from poultry farms into the Chesapeake Bay. Around that time, Bioenergy DevCo and CleanBay Renewables LLC were seeking to deploy anaerobic digesters to process methane waste from chicken litter into biofuel.

Chesapeake has since invested in two RNG facilities under development by the companies. It struck deals to transport the supplies through its Eastern Shore Natural Gas Co. transmission subsidiary and Marlin Gas Transport Inc. virtual pipeline business, which offers gas transport in tube trailers. Its Delmarva gas utility is exploring regulatory options to distribute the RNG to customers and will additionally supply CleanBay with natural gas for organic fertilizer production. In Ohio, Chesapeake is leveraging its Aspire Energy of Ohio LLC gas gathering subsidiary to offtake supplies from an landfill RNG project.

The plan on Delmarva reflects Chesapeake's overarching corporate strategy of trying to build synergies between its regulated utilities, which generate stable revenues, and its unregulated units, which can be higher-growth avenues. "We look to bring multiple business units to bear on virtually any project that we're engaged in," Householder said.

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Chesapeake Utilities Corp. President and CEO Jeff Householder

Source: Chesapeake Utilities Corp.

To date, RNG producers have more often processed the fuel from methane waste at dairy and hog farms, but Householder likes the chicken litter opportunity. "There's a lot of chickens in this country," he said. "And not many people are looking at those."

Resource potential exists in many parts of the U.S., including Arkansas, Ohio and California, Houesholder said. While Chesapeake may not expand to all those areas, Householder sees potential to build out pipelines and stand up RNG-fired combined heat and power plants around RNG production facilities.

Chesapeake is examining resource potential in Georgia, the nation's biggest producer of chickens raised for meat, and Florida, Chesapeake's second major gas utility and pipeline operating area. Regional RNG production would align with Chesapeake's role developing a large compressed natural gas station at a new vehicle fueling center near the Port of Savannah in Georgia. The company is looking into several projects that could direct RNG to the CNG station, which would drive down the carbon intensity of the fuel. Chesapeake is also working with the port and several truck fleets to convert their tractor cabs to CNG.

Hydrogen on the horizon

About 130 miles south of Savannah down the Interstate 95, Chesapeake is planning its first green hydrogen pilot project. The company plans to inject a 4% blend of green hydrogen a zero-carbon form of the fuel produced using renewable electric power into the gas stream that feeds the turbine at its Eight Flags Energy LLC combined heat and power plant on Amelia Island, Fla.

The company is supporting an application to participate in a U.S. Energy Department demonstration project by its turbine provider, Solar Turbines Inc., but plans to pilot hydrogen blending at the combined heat and power plant even if the application is not successful, according to Kevin Webber, Chesapeake's senior vice president for unregulated energy delivery and business development.

Through the demonstration project, Chesapeake aims to assess how the hydrogen reacts with piping and the turbine, determine if the blend creates any operational issues and measure emissions improvements, Webber said. The plant cycles out turbines every three years, so Chesapeake could install a replacement capable of running on a higher blend, he noted.

The company is also working with Quantum Fuel Systems LLC to design trailers capable of hauling both compressed natural gas and hydrogen, Webber said. The trailers would have a tighter weave to account for the smaller hydrogen molecules and would initially transport hydrogen from suppliers to Eight Flags. Those early shipments could plant the seed for a new revenue stream at Marlin, according to Householder.

"I think there's an opportunity for us to do that in a lot of places around the country as the hydrogen market begins to expand," he said. While pipeline operators continue to assess hydrogen's impact on their infrastructure, tube trailers are likely to carry much of the hydrogen consumed in pilot projects and early commercial applications.

Chesapeake has identified local industrial customers who are interested in using a hydrogen blend to decarbonize their operations, executives said. As the company scales up its understanding, it aims to position itself to distribute hydrogen to those customers in Florida and elsewhere.

"We think there will be some nice demonstration projects in several places in our system where we can do exactly that," Householder said. "We can isolate a line, we can find or identify the industrial customer that's interested in testing a hydrogen blend in their plant and begin to go down that path."