Regulatory Considerations for Renewable Natural Gas Projects in Alberta

July 21, 2022

Written By Ashley White, Shawn Munro, Deirdre Sheehan and David Macaulay

As Alberta continues to diversify its economy, the province has seen significant growth and investment in recent years in the development of renewable projects. Renewable natural gas (RNG) is one such area gaining increased attention in Alberta.

In this blog, we provide an overview of the initial-stage regulatory considerations for RNG projects in Alberta. Please also see our related blogs in our New Energy Economy Series, and a prior blog with specific considerations for Land Leases for Renewable Energy Projects in Alberta.

Biogas and RNG Projects

Biogas refers to methane gas that is produced when organic waste (such as agricultural waste, including livestock manure and crop residue, landfills, wood waste and waste water from treatment facilities) decomposes in an oxygen-free environment. Known as the anaerobic digestion process, micro-organisms convert organic waste into biogas, which contains methane (~50 to 75 percent), carbon dioxide (~25 to 45 percent) and contaminants such as water vapour, hydrogen sulphide, nitrogen, hydrogen and oxygen. When biogas is captured and purified to remove those contaminants and the carbon dioxide, leaving only methane and a small amount of nitrogen, the resulting biomethane, or RNG, can then be transported by pipelines and used to supplement conventional natural gas for electricity or heat generation.

RNG is gaining increasing attention because it uses methane gas that otherwise escapes into the atmosphere contributing to global warming. In light of ambitious climate change commitments by governments and industries, and growing incentives to reduce greenhouse gas emissions, RNG is considered to have numerous benefits and market opportunities. According to the Canadian Biogas Association, there are over 270 biogas and RNG projects that exist in Canada, producing 196 MW of clean electricity and six million Gigajoules of RNG. However, in its 2020 Biogas Market Report, the Canadian Biogas Association estimates that Canada is still only using 13 percent of its accessible biogas potential. This untapped potential, combined with RNG projects increasingly being viewed by project proponents and offtakers as a cost-effective solution for decarbonization, presents a massive opportunity and potential for growth in the sector.

Government Funding and Incentives for RNG Projects

The combination of incentives and innovative government grant programs have helped to reduce the price gap between RNG and conventional natural gas, enabling companies to meet the demand for RNG and help secure RNG’s role in Canada’s energy transition.

On April 7, 2022, the federal government released the 2022 Federal Budget (Budget 2022). Although Budget 2022 does not specifically target funding for RNG, it proposes funding opportunities that could support RNG projects. For example, Budget 2022 proposes to provide $2.2 billion over seven years, starting in 2022-23, to Environment and Climate Change Canada to expand and extend the Low Carbon Economy Fund (LCEF). The LCEF provides funding to provinces and territories that have adopted the Pan-Canadian Framework on Clean Growth and Climate Challenge to reduce emissions. It also proposes $600 million over seven years, starting in 2022-2023, to Natural Resources Canada (NRCan) for the Smart Renewables and Electrification Pathways Program (SREPs). SREPs will provide direct financial support to eligible renewable energy and grid modernization projects during the construction phase. Eligible projects include biomass electricity generation. This is in addition to existing programs provided through NRCan federally, and provincially through programs such as Emissions Reduction Alberta (a recipient of funding through LCEF) and the B.C. Centre for Innovation and Clean Energy, to support biomass and RNG projects.

Key Regulatory Considerations for RNG Projects in Alberta

A key component to the success of any RNG project is ensuring there is a regulatory plan established at the outset.

Industrial Approval

While Alberta does not currently have a legislative framework that is specific to RNG projects, the relevant requirements of the applicable legislation for industrial facilities, environmental assessments and water use will apply to RNG projects. In particular, as RNG projects are highly integrated, using methane captured from agricultural and food waste digester, wastewater treatment facilities, or landfill sites, any one of these components may trigger the need for regulatory approvals and compliance with other regulatory procedures. An understanding of the regulatory regime that applies to each of these components is critical in the development of a comprehensive regulatory plan for your RNG project.

In Alberta, project owners must seek necessary approvals from Alberta Environment and Parks (AEP) under the provincial Environmental Protection and Enhancement Act (EPEA). The EPEA sets out different types of regulatory requirements, and under Part 3 of the EPEA, all activities listed under the Activities Designation Regulation (ADR) are subject to a notice, registration or an approval, depending on which schedule the activity falls under.

A RNG project may require various authorizations under EPEA. Where RNG projects have multiple components, project owners should be aware that each of the components may have differing approval, registration or notification requirements. Schedule 1 of the ADR lists activities where approval from AEP is mandatory. An approval is reserved for activities that are most likely to have a significant impact on the environment. Although Schedule 1 does not explicitly list RNG projects, it includes large-scale waste management plants such as large-scale landfills, wastewater treatment plants and power plants. Schedule 2 includes small-scale waste management facilities and only requires registration with AEP as distinct from an approval, and in turn, under Schedule 3, the project only requires notification to AEP. Activities requiring notification under Schedule 3 include, among others, waste management facilities that decompose vegetative matter or manure through a controlled bio‑oxidation process.

Environmental Impact Assessment

The EPEA requires an Environmental Impact Assessment (EIA) for mandatory activities listed under Schedule 1 of the Environmental Assessment (Mandatory and Exempted Activities) Regulation. As noted above, RNG projects are not expressly listed as mandatory activities requiring an EIA, however, integrated RNG projects may have components that fall under the mandatory activities. Even when RNG projects do not have components that require an EIA, AEP has the discretion to require that one be completed.

Other Considerations

The development of RNG projects may involve additional project-specific regulatory exemptions or requirements. While a specific proposal must be assessed on its facts, a project developer may be exempt from some or all requirements to obtain certain regulatory approvals having regard to factors such as whether a project will (1) use existing manure storage from a developer's own livestock to make biogas for its sole consumption; (2) sell generated electricity to the grid; and (3) modify existing manure storage or require the construction of new manure storage.

Additional considerations when developing RNG projects include the following:

• Where the RNG project includes a power plant, approvals may be required under the Hydro and Electric Energy Act and an application to the Alberta Utilities Commission (AUC) may be required. If the generating capacity is minimal, the project may qualify for micro-generation.
• Construction or modification of existing manure storage: an application to the Natural Resources Conservation Board (NRCB) may be required.
• Water diversion: a water license from AEP may be required for water diversion or use of recycled water.
• Municipal permits: project owners may need to obtain permits from local municipalities.

Bill 22

Developers should also be aware that there is currently an application by the Independent System Operator (ISO) to amend its Bulk and Regional Rate Design being considered by the AUC with an oral hearing scheduled in June 2022. The decision by the AUC will likely have a significant impact on how transmission costs are collected from customers, and may have resulting implications for RNG project economics in Alberta. In its application, the AESO proposes a significant shift in how transmission costs are recovered by, among other things, proposing lower monthly coincident peak and billing capacity charges and higher energy use charges as compared to the ISO's current rate design. The ISO's application, and the resulting AUC decision, which is expected to be issued in Q4 2022.

In addition, Bill 22, the Electricity Statutes (Modernizing Alberta’s Electricity Grid) Amendment Act, 2022, SA 2022 c 8, received royal assent on May 31, 2022. The individual sections amending the Alberta Utilities Commission Act, Electric Utilities Act and Hydro and Electric Energy Act each come into force on proclamation. Among other things, Bill 22 introduces amendments intended to permit generators to engage in self-supply and export of excess electeicity to the grid, which is restricted under current legislation. Bill 22 also amends section 122 of the Electric Utilities Act to expressly state that the ISO tariff can recover the just and reasonable transmission system costs from grid-connected self-suppliers (except in respect of electricity consumed by customers who are industrial systems). The ISO has indicated that it does not intend to amend its current application in light of Bill 22; however, the ISO has stated that it "will consider incremental changes to [its proposed rate design] in the future if it identifies persistent inappropriate cost-shifting related to self-supply (i.e., such that [its proposed rate design] no longer reflects a thorough cost-causation analysis) and consult with affected stakeholders in accordance with its Stakeholder Engagement Framework" (Exhibit 26911-X1066).

Key Take-Away

RNG projects can use different feedstock to produce RNG, so careful attention is needed to assess the regulatory requirements for each project component. Depending on the project, various regulators such as the AEP, AUC and NRCB may be involved. Identification of these regulatory requirements early on and engagement with the appropriate regulators to determine the requirements and timeline of the regulatory process will contribute to the successful implementation of a project execution plan.

Bennett Jones has unparalleled experience in the assessment of EPEA approval and EIA requirements, with respect to all manner of complex industrial developments, including regulatory authorizations, including biogas and RNG facilities and working with project developers and regulators in that regard. The Bennett Jones Power & Renewables and Regulatory groups are actively engaged in the structuring, development and project execution of renewable projects in Alberta and across Canada. If you have any questions about RNG or other renewable projects, or seek assistance with regulatory plan and approvals, please contact us.

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