Q&A - Waga Energy: Biomethane - the secure renewables investment

Biogas – the asset class institutional investors flock to as a gateway to renewable energy investments. This "clean energy" source has various iterations and can be both manufactured and/or simply captured. French developer Waga Energy seemingly mastered the process of capturing methane from landfills and processing it to produce "biomethane" or Renewable Natural Gas (RNG), which can be used as a direct substitute to LNG.

Having established its presence in Europe, the relative newcomer to the market, has raised a considerable sum to

replicate its success in the Unites States.

Inspiratia sat down with Waga Energy's Chief Financial Officer and Deputy General Manager, Jean-Michel Thibaud (pictured right), to discuss all things biomethane. Thibaud touches on the future of this asset class, the growth potential and the company's plans for the US.

What is RNG and how does Waga Energy produce it?

RNG stands for Renewable Natural Gas, also known as "biomethane". We produce this using our patented WagaBox technology.

Our units are installed on landfills which produce methane. But this methane, in its raw form, is not usable as it is full of other gases such as carbon-dioxide and nitrogen. The Wagabox technology purifies the raw product to extract pure biomethane which can be injected into the grid.

It can be classified as renewable because it reuses methane that is already present in the landfill. Without the Waga Energy's technology, this CO2 infused methane would be allowed to escape into the atmosphere and further contribute to global warming, whereas using this gas displaces the need for fossil fuels such as LNG.

Given the nature of your production process, can you always control the quality of output?

Yes, we can, in fact, to a very high degree, and that's exactly what gives us the competitive advantage.

Our patented technology allows us to produce biomethane at a consistent standard and quality. We are able to convert 90% of raw gas into grid compliant methane gas. In comparison, the industry conversion standard is currently at around 60%.

What about the quantity of output, are you able to control that?

The landfill gas is very predictable. We have our own inhouse analysts who will assess a site and predict output which will dictate where we install our Wagabox units. We also have these projections assessed by independent analysts, so we have a fairly accurate idea of the quantity of output at any given site.

What does your operational portfolio currently look like?

So far, we have 26 operational units located across Europe and North America. Most of them are on the continent, but we have four in North America and three of those are in Canada. Right now, we just have one unit in the US but we recently raised €100 million in debt to help expand our presence there.

On top of the 26 units that are up and running, we also have 13 units in development. Eight of the pipeline projects are in US, all signed within the last two – there years.

Our first unit in the US proved to the local offtakers that we can deliver on what we promised, and it really helped us accelerate our expansion in the country.

What is the average cost of instillation per unit?

We do not tend to finance these units at a project level as the individual CapEx would be too small to justify a project finance structure. So far, we have used portfolio financing and from now on we will also use company level financing, that's where the recent debt raise comes in.

Corporate facilities, like the one we put in place in July, give us flexibility to progress projects as they secure permits and advance them to construction phase.

We also use portfolio financing, where we structure a project finance package for a cluster of projects which are roughly at a similar development stage.

When we talk about the cost of individual projects, it will depend on the size of the landfill and a couple of other metrics, but on average it is between €5-€10 million in Europe.

In the US, landfills tend to be bigger and there, we are also responsible for the financing of the balance of plant, which we don't do in Europe, and because of this the average project costs between $15-$20 million.

What about the construction timelines?

This also is dependent on various factors but, on average, it takes between 18-24 months. This is from signing the project contract to delivery.

What does the permitting process look like?

We need a construction permit, access to grid and the usual paperwork but our projects are much more secure when you compare this to the consenting process for traditional renewables such as wind or solar farms.

For us, there is no real uncertainty over the outcome of the planning application. Our units are installed on existing landfills which don't tend to be surrounded by residential or commercial neighbourhoods. In fact, we are capturing the gas and injecting it into the grid which is generally seen to have a positive impact on the surrounding area.

Not to mention, the process for us usually involves amending existing landfill permits which is not complicated, just takes some time.

What is the rationale behind the company's push into the US?

The US currently has 2,700 landfills, there is a lot of untapped opportunity there. To date, there are only a few dozen units such as these that are operational across the country, so, a lot of untapped potential.

This is why we made a big commercial push into the country. We now have a team of 30 dedicated to that market and another 30 in Canada.

In the US most of our planned units are in the East Coast but we are also expanding into the southern states. We have one unit in works in Texas.

Are there any differences in lender attitudes towards this technology in Europe VS the US?

The lending market in the US is structured in a different manner. Commercial banks in Europe have the capacity to offer drawdowns for the construction period and then provide door-to-door unit financing for the next 15 years or so post completion. Both construction and operational phases can be financed under one facility.

In the US, however, most lenders tend to come in only for the construction phase, mostly a mini-perm structure with incentives to refinance once the projects become operational. This leads borrowers like Waga Energy to consider a refinance with institutional investors or private placements for the long term.

We are comfortable with both structures and more than happy to play by financing rules in the US. We will raise portfolio level project finance debt for our pipeline projects in the US and for that we will mostly go to the American banks. We are currently in the preparation phase and will probably launch the process in Q4 [2024].

Finally, does Waga Energy's expansion plans extend beyond North America?

We have a list of few countries, outside our current remit, which are of interest to us. Mostly in LatAm. We are yet to establish a base in that region but it's definitely something we are looking into. We see a lot of opportunity in Brazil and Mexico but it's all early stage.

The company is also looking at further penetration into Europe with potential teams in countries such as Spain and Italy.