South Jersey Industries Inc.'s strategy for aligning its business with state and regional clean energy goals will focus on decarbonizing the natural gas grid.
The company first telegraphed a new emphasis on greenhouse gas emissions reductions and energy efficiency a year ago, shortly after the state of New Jersey released its Energy Master Plan. At the time, executives described a corporate focus on solar energy, but in the following months they began to shift investor expectations toward investments in renewable natural gas, or RNG, a fuel processed from methane waste sources such as farms and landfills.
South Jersey Industries President and CEO Mike Renna emphasized that pivot after the gas utility operator announced it had purchased a minority interest in RNG project developer REV LNG LLC on Feb. 24. The announcement came after the company announced a green hydrogen pilot project and formed a joint venture that made its first investment in natural gas-powered fuel cells.
"I think our place in the future — in the energy future — is decarbonization," Renna said during a Feb. 25 quarterly earnings conference call. "It felt for a long time like electrification was kind of the only pathway forward. And I think now, when you look at our infrastructure and the hardened nature of our infrastructure, you just see what's happening when you've had these periods of extreme cold. You need our infrastructure, and you need our energy to be able to get through those periods of time."
The position reflected the gas industry's growing focus on preserving distribution systems by securing RNG supplies and adapting them for hydrogen use. RNG is considered "carbon negative" by some in the gas industry who say production and use of the fuel prevents more potential greenhouse gases from entering the atmosphere than it produces. Renna said the RNG investments would directly serve its South Jersey Gas Co. and Elizabethtown Gas Co. utilities and accelerate its path to decarbonization.
REV LNG chiefly provides liquefied natural gas and compressed natural gas services to the maritime industry and utilities through virtual pipeline and peak day supply solutions, Renna said. In recent years, the company has become a leading developer of RNG projects to capture biogas from dairy farms and convert it into pipeline-quality biomethane, he added. Through its investment in REV LNG, South Jersey Industries is focused on advancing RNG opportunities, he said.
This would entail siting REV LNG's $10 million to $15 million anaerobic digesters, typically deployed in pods of four or five units, with a focus on achieving geographic economies and efficiencies, Renna said. The RNG would be transported and connected to a utility's gas distribution system or interstate pipeline, he said. RNG facilities tend to be more cost-efficient when located near off-takers.
REV LNG and South Jersey Industries are developing anaerobic digesters at dairy farms for two large utilities under a fee-based structure, which includes a long-term trucking contract, Renna said. Executives said the equity investment in REV LNG fits with their clean energy strategy of investing in projects that provide unlevered returns, enhance the company's credit profile, and minimize risk.
South Jersey Industries on Feb. 24 posted fourth-quarter economic earnings of $63.0 million, up from $43.4 million in the prior-year period. EPS of 62 cents topped both the 47 cents per share of a year ago and Wall Street estimates for 54 cents per share.
