The renewing Power of Progress in renewable Power: Shell acquires Nature Energy in $2B RNG deal

November 29, 2022 | Jim Lane

News arrives from Europe that Shell plc has agreed to acquire 100% of Nature Energy for nearly USD $2 billion (€ 1.9 billion) from Davidson Kempner Capital Management LP, Pioneer Point Partners and Sampension. The acquisition will be absorbed within Shell’s current capital range, which remains unchanged.

The transaction is subject to regulatory approvals and is expected to close in Q1 2023. Nature Energy is cash generative, and the acquisition is expected to be both accretive to Shell’s earnings from completion and deliver double digit returns.

The Nature Energy backstory

Based in Denmark, Nature Energy was founded in 1979 as a natural gas distributor. The company established its first biogas plant in Denmark in 2015 and now has 14 operating plants with associated infrastructure, feedstock arrangements, and current 2022 production of around 6.5 mln MMBtu/yr (3,000 boe/d1).

The company also has a pipeline of around 30 new plant projects in Europe and North America. More than a third of these projects are in medium to late development stage in Denmark, the Netherlands and France and could deliver up to 9.2 mln MMBtu/yr (4,400 boe/d) by 2030, subject to future final investment decisions and relevant regulatory approvals.

Nature Energy and its 420 employees located in Europe and North America will operate as a wholly owned subsidiary of Shell, initially under its existing brand.

The Shell RNG backstory

Shell has an existing RNG production business in North America, with one operational site and four under construction. Shell is a trader of RNG and has a wide range of RNG and bioLNG customers, including large corporate, road haulers and marine customers.

A profile of Nature Energy

We profiled Nature Energy and its (then) newly minted US head Alexis Glick here.

The Nature Energy competitive edge

First of all, scale and experience. In addition to the upcoming US projects (Roberts, Wisconsin; Wilson, Minnesota; and Benson, Minnesota), the company owns and operates 12 biogas plants in Denmark and one in each of the Netherlands and France. The company has acquired land to build biogas plants at three sites in Quebec: Farnham, Louisville, and Saint-Joseph de Beauce, Quebec.

Second, mature technology. As Alexis Glick told The Digest, “We talk so often about the Circular economy. Here’s a company that has figured out the products. Things like eliminating the odors, producing food-grade CO2 for beverages and other solutions, getting methane yields that are 66% better. Here’s a company ready to be the leader in biogas 2.0.”

The Shell rationale

Shell will acquire the largest RNG producer in Europe, its portfolio of cash generative operating plants, associated feedstock supply and infrastructure, its pipeline of growth projects and its in-house expertise in the design, construction, and operation of innovative and differentiated RNG plant technology.

Shell has a target to be a net-zero emissions energy business by 2050. This means net-zero carbon emissions from operations (Scope 1 and 2 emissions) and also net zero from the end use if its energy products (Scope 3 emissions). In October 2021, Shell set an additional target to reduce Scope 1 and 2 absolute emissions on a net basis under operational control by 50% by 2030, compared to 2016 levels. This complements existing Shell existing targets to reduce the carbon intensity of its energy products by 3-4% by 2022, by 6-8% by 2023, by 9-12% by 2024, by 20% by 2030, by 45% by 2035, and by 100% by 2050.

The company also noted that the acquisition will further increase Shell’s ability to work with its established customer base across multiple sectors to accelerate its transition to net-zero emissions. It will also support Shell’s ambition to profitably grow its low carbon fuels production and customer offering.

The Bottom Line

The biomethane business — referred to as biogas when used on-farm and renewable natural gas when cleaned up and injected into the US gas pipeline system — has been the rock-star of the renewables industry and movement if we measure by progress on tough objectives. Decarbonizing transport and agriculture is the Omaha Beach of climate change — the must-have objective, the toughest struggle, yards count, inches matter.

Life would be easier if every company had the expertise and efficiencies that come from a big project portfolio, mature technology and a focus on the H2Ds — the hard-to-decarbonize sectors like ag and transport.

Truth said, it is not a case of all of the companies having all of the characteristics, it is that some of the companies have some of these characteristics. So, combinations confer advantage — Nature needs capital and distribution to invigorate its expansion, and Shell needs technology and project flow to realize its Net Zero ambitions. In Hollywood, producers join with studios for the same reason — to bring together product, capital, distribution. Sometimes, combinations have a synergistic as well as a financial motive. Here’s one of those. Renewable power can renew the power of progress.

Companion to the Spring Energy acquisition

Back in April, Shell acquired 100% of Solenergi Power Private Limited for $1.55 billion and with it, the Spring Energy group of companies. Sprng Energy supplies solar and wind power to electricity distribution companies in India. Its portfolio consists of 2.9 gigawatts-peak of assets (2.1 GWp operating and 0.8 GWp contracted) with a further 7.5 GWp of renewable energy projects in the pipeline. The solar and wind assets Shell acquired through the deal tripled Shell’s present renewable capacity in operation and help deliver its Powering Progress strategy.

Shell is investing in building our generation capacity, with 1 GW of renewable generation capacity in operation prior to the Spring deal, and a total of 4.7 GW in operation, under construction and/or committed for sale. They have a further 38 GW of renewable generation capacity in our pipeline of future projects. Acquisitions of interest include Savion, a US-based solar and energy storage specialist; Solar-Konzept Italia, an Italian solar specialist; and WestWind, a wind specialist based in Australia

Reaction from the stakeholders

“Shell’s competitiveness in low carbon fuels derives from capabilities across the value chain, combining a world-class Trading and Supply organization with access to differentiated technology and production assets,” said Huibert Vigeveno, Shell’s Downstream Director. “Acquiring Nature Energy will add a European production platform and growth pipeline to Shell’s existing RNG projects in the United States. We will use this acquisition to build an integrated RNG value chain at global scale, at a time when energy transition policies and customer preferences are signaling strong growth in demand in the years ahead.”