Using anaerobic digesters to process food scraps and create energy is a well-seasoned concept used at scale throughout the world, especially in European countries, but it's still less common in the United States. Some of the sector's leading operators are betting that's about to change.
According to the latest U.S. EPA survey data, the country has an estimated 200 digesters specifically accepting food waste across dozens of states. This included standalone and farm-based sites as well as facilities codigesting food scraps at wastewater treatment plants. But the pace of development has been slow. Prior operational issues have led to multiple project closures and have created an opinion among some on the MSW side that the concept isn't financially viable. At the same time, a combination of policy drivers; corporate environmental, social and governance (ESG) pressures; rising disposal tip fees in some regions and other factors have created a strong tailwind for organics recycling.
“We look at organics as the next solid waste commodity," said Debra Darby, manager of organics sustainability solutions at Tetra Tech, during a recent WasteExpo session. “Organics management is a new thinking of solid waste as a resource."
While composting is still the more common path for traditional solid waste service providers looking to build their own organics infrastructure, and is also poised for notable expansion, anaerobic digestion (AD) is seeing a lot of new investment. After years of ups and downs for the sector, four companies frequently come up as among the top ones to follow at scale – Anaergia, Bioenergy DevCo (BDC), Generate Capital and Vanguard Renewables.
"The strongest have survived," said BDC CEO Shawn Kreloff in a recent interview.
Last week, Maryland-based BDC cut the ribbon on its first U.S. facility (also in Maryland). The company brings experience building an estimated 240 projects and running 140 digesters worldwide through the subsidiary BTS Biogas. According to Kreloff, BDC now has site control for at least seven potential projects in as many states, with a pipeline of 30 opportunities to follow.
Canada-based Anaergia — which also brings European credentials and is looking to grow — has a range of different technologies and services to process MSW, agricultural waste and sewage sludge. The company completed an initial public offering in Canada last month and recently opened its first U.S. digester, in California. Next up, Anaergia is eyeing East Coast expansion and sees the potential for dozens of new projects in multiple countries, including the U.S.
“I think there’s an inflection point, and now there’s serious players, like us, that are not small-time development companies with unprofessional infrastructure. There's world-class, top-level infrastructure and a wave across the country," said Anaergia Chief Operating Officer Yaniv Scherson. "We’re still in the early days. This is just the tip of the iceberg."
California-based Generate, which invests in, owns and operates sustainable infrastructure across multiple sectors, is among the AD sector's newer players. The company currently has food waste digesters and one organics transfer station across Michigan, New York and Ontario, Canada. Generate also recently brought former WCA Waste CEO Bill Caesar on as a member of its waste-to-value team.
Rounding out the list is Massachusetts-based Vanguard Renewables, which has multiple active farm-based digesters across its home state as well as in Vermont. The company recently touted an "aggressive expansion plan" that could see more than 100 facilities across 30 states.
The AD sector also has numerous smaller operators with active or pending facilities in certain markets, and leaders anticipate more to come.
"The key now is that our customers, both on the feedstock and the gas offtake, have recognized that this is vital, extremely helpful to them and practical," said John Hanselman, Vanguard's founder and chief corporate development officer. "So I think that’s where we’re going to see massive growth from those of us who are kind of the first-generation survivors, as well as new market entrants."
Even with this wave of new funding and projects, AD companies often still contend with a perception that their projects are either too small or financially unsustainable to merit focused attention from Wall Street. Based on the industry's track record, some market players say, that's not necessarily a surprise.
"[Some] of our U.S. facilities we bought out of bankruptcy or idleness. They were failed projects," said John Dannan, a principal leading Generate's waste-to-value team, citing a lack of operating expertise or digestate management plans as key downfalls for certain past projects. "That's the story of the industry in the last 15 years."
Dannan said that reality has since shifted and the sector is now more viable for many reasons. A core part of Generate's approach is the view that "every food waste AD is a mini business," dependent on local tip fees, feedstock and other factors. These unique factors will influence processing options, biogas pathways and sometimes even investment plans for a particular region.
For example, Generate has worked to create a network of facilities in the upstate New York and Ontario region to ensure service reliability, and it recently invested in an organics transfer station to maximize operations in the Toronto area. The company views this foundational work as part of proving out the broader AD sector's staying power.
"We're trying to make new contract structures happen and trying to do this thing called the bridge to bankability to make projects more investable," said Marisa Sweeney, a director on Generate's investment team. "It's not just for ourselves."
Like other forms of renewable energy, the sector has also had collective learning experiences. Whereas the solar sector saw capital costs decrease notably as technology evolved, Generate noted that trend hasn't played out the same way for AD projects with costs that mainly center around concrete and steel. Vanguard's Hanselman, who got his start in solar, said AD may still be able to follow solar in other ways by finding more efficiencies in operations and construction.
Another question AD companies have worked through is how much to expect from state and local policy drivers. Not all organics diversion mandates are created equal, with many including substantial carve-outs or limited enforcement resources. Long permitting cycles can also make it hard to react policy implementation timelines with new infrastructure anyway.
While its initial projects were in states with organics diversion mandates, Vanguard is finding new success going directly to large generators that want to reduce organic waste as part of their ESG goals. To help scale up this concept, the company launched the Farm-Powered Strategic Alliance last year with companies including Starbucks and Unilever. Hanselman said the group has since "exceeded our wildest expectations," with 17 other companies now in talks to join.
In a related path, BDC acquired an organics recycling operation for Perdue's chicken waste in Delaware — a state with no organics diversion requirement — and it is building a new AD facility. At the same time, Maryland's new organics law is seen as well-timed for BDC's first U.S. facility, and the company appreciates the potential boost state or local policies can provide.
"They are helpful. What they do is to kind of focus the mindset of the feedstock providers," Kreloff said. "People then understand that the status quo is unacceptable."
As all of these factors coalesce, AD companies say they see a clear pathway to expand their industry's footprint across numerous U.S. states in the coming years — pending the usual lag of permitting cycles for new projects. Multiple executives believe that most of the near-term movement will mainly be driven by ESG goals and concerns around climate change.
"I think landfills and incinerators are facing an existential threat from a carbon and greenhouse gas standpoint," Kreloff said. "We really target the unsustainable ways of disposing of organic material, which are, as far as we're concerned, landfills, incinerators and land application."
BDC said the current level of food waste in the U.S. could support "at least 500" AD facilities in the years to come, with California alone needing a substantial number of AD or composting sites to meet upcoming SB 1383 requirements. While major waste companies and local jurisdictions are also preparing for these types of policies, sometimes with their own facilities, AD companies don't anticipate too much direct competition just yet.
“I see it as highly unlikely, at least any time in the near term or even middle term, that waste companies would vertically integrate and own and operate AD infrastructure. Simply because of the complexity and the specialization that’s required," said Anaergia's Scherson, whose company partners with multiple majors haulers to process food scraps in California. “Many have acquired compost sites, but the technology delta when going to a renewable fuel production plant is a big step function."
More waste companies are investing in preprocessing infrastructure, and some have begun commercial-scale composting, but none have built their own AD facilities yet. Scherson compared the arrangement to how companies may own or operate MRFs but not handle secondary processing after they've sorted the commodities.
As the sector evolves, it's still possible that public- or private-sector landfill operators may decide there's value in building their own digesters. Tom Bilgri, Tetra Tech's manager of biogas engineering, made the case during a WasteExpo session that landfills may be ideal location for AD facilities in many areas, given the existing infrastructure, and said waste operators should keep an open mind.
“If this new paradigm is coming down the road... we better figure out how to live with it," said Bilgri, adding that even though this will be a change, "there might be some revenue to be made here."
Multiple companies see the growing focus on climate change as a prime moment for AD, as projects can often tout benefits around transportation emissions, renewable energy and waste management. While the pending federal infrastructure package isn't known to have any specific funding for AD projects, observers are optimistic the Biden administration and Congress will be supportive. Hanselman pointed to U.S. Department of Agriculture Secretary Tom Vilsack and Department of Energy Loan Programs Office Director Jigar Shah (a Generate founder) as particularly promising AD allies.
"The opportunity is tremendous," Generate's Dannan said of the current landscape, before adding a note of caution. "There's very limited barriers to entry to this market, but there are very high barriers to success."