The infrastructure arm of investment giant BlackRock Inc. will buy a private New England-based company in a deal that could serve as an endorsement of renewable gas business models that depend as much on customers' environmental goals as on any profit and loss statement.
Vanguard Renewables LLC, which builds and operates anaerobic digesters in two segments — cow manure to gas and food waste to gas — said July 20 that BlackRock will buy the company. According to people familiar with the deal, BlackRock will pay $700 million for Vanguard and plans to invest at least $1 billion more to build out Vanguard's digestor network, which produces renewable natural gas, fertilizer and animal bedding.
"BlackRock does a lot of things for us," Vanguard CEO Neil Smith said in an interview.
In addition to providing growth capital, BlackRock's backing will open doors for the 8-year-old company. "They have $10 trillion under management, and getting our story in front of large food waste manufacturers and showing them how we can make the world better by doing good things with their waste is going to be super helpful," Smith said.
Renewable gas market
Raymond James & Associates oil, gas and renewables analyst Pavel Molchanov appraised the deal against the market for cleaner forms of energy. "Renewable natural gas is a small but rapidly growing source of renewable energy in the U.S. market," Molchanov said in an email. "It is particularly popular in the context of that handful of states — California being the largest — that have low-carbon fuel standards. It is worth noting that [renewable natural gas] is a larger, more established market in Europe, particularly the agricultural areas of Italy and Germany."
The deal, which will place Vanguard in the $9 billion diversified infrastructure segment of BlackRock's real assets group, is the second-largest renewable gas deal made in the past two years, behind a $1.75 billion December 2021 deal to take Opal Fuels LLC public through a reverse merger into a special purpose acquisition company, Raymond James said.
Search for 'good corporate citizens'
Vanguard does more than manufacture natural gas, Smith said. It is part of a circular recycling story that keeps methane, a potent greenhouse gas, out of the atmosphere and moves it into fuel and fertilizer. Vanguard plans to build 70 digestors on rural dairy farms digesting manure and another 60-70 waste food digestors in metropolitan areas to reuse waste from supermarkets and restaurants.
Vanguard sells the renewable gas at a premium price to utilities that are looking to cut their carbon footprint or are subject to state requirements that call for renewable gas as part of a utility's fuel mix, such as those in California.
The company is building 13 manure digestors as a partner of Dominion Energy Inc. and has several more under construction as part of a partnership with One Gas Inc.
Vanguard has been giving farmers the material left over after manure digestion, known as digestate, to use as fertilizer. Smith sees that as another business opportunity, though, as fertilizer prices have skyrocketed since Russia invaded Ukraine in February.
Dealing with food waste is Vanguard's second line of business, Smith said. The company designed a process that removes the packaging from food thrown away by retailers. The packaging is recycled, and the food is converted to methane.
The economics of food-to-methane is not as straightforward as manure-for-power, Smith said. But the food side is growing quickly as more companies such as partners Unilever PLC, Starbucks Corp. and Smithfield Foods Inc. seek to hit low-carbon targets.
"I always thought in the U.S. this was going to be your regulatory-driven structure, and it wasn't until subsidies and other things showed up that it made economic sense," Smith said. "What's happened, much to our delight and surprise, is that there is a very large and growing voluntary market of what I would call good corporate citizens, willing to pay the premium."
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