BlackRock’s acquisition of Vanguard Resources is an important milestone for the US renewable natural gas market, which continues to be propelled by rapid change among public utilities and food companies, says Vision Ridge Partners’ George Polk.
Vanguard operates a network of anaerobic digesters that produce RNG and other organic outputs such as fertilizer and cow bedding from dairy and food waste. The company operates distinct units called Vanguard Organics and Vanguard Ag.
Polk, a partner at Vision Ridge, told Agri Investor the deal was the kind of exit envisioned by Vision Ridge when the firm made its initial investment to create the Wellesley, Massachusetts-headquartered company in 2014. Financial details were undisclosed but the deal has been reported to be worth $700 million.
Polk, a London-based partner at Boulder, Colorado-headquartered Vision Ridge, explained that some RNG-producing projects in Vanguard’s Massachusetts pilot were kept from supply networks for as long as a year, in part due to the complexity of their connections through individual farms. By contrast, over the past three years, a shift among US lawmakers has increased demand among utility companies for RNG.
“Essentially, they went from thinking these renewables projects were kind of irritating things they wished might go away and flipped overnight because of the policy requirement – in lots of states, sometimes formally, sometimes informally – that gas utilities figure out how to get renewable gas onto their networks,” he explained. “Public utilities commissions across the country made it clear to their gas utilities that those gas utilities better become more renewable, or they were going to find their lives more difficult.”
That informal push by the public utilities commissions, said Polk, has meant that every gas utility in the country is now very cooperative when it comes to connecting renewable gas into their pipelines networks.
Although the technology used in anaerobic digestion has been well-established for years, Polk said, the complexity of developing individual $25 million and $50 million projects across varied regulatory and climatic conditions has kept the US market largely populated by specialist investors and has been better developed in Europe.
“The large institutional investor and large, less specialized ones – the energy transitions funds, the mega-funds – what has kept them away has been the complexity of developing these projects in the early phases,” said Polk. “They are relatively small individual capital tickets and each one is determined by a relationship with a specific farmer, a specific technical solution and every state has its own environmental regulatory regime and permitting regime.”
Similarly for large food companies, Polk said, questions about food waste that had been answered at an operational or regional level as recently as three years ago have again been elevated to strategic decision-makers amid corporates’ push to express net-zero goals.
Vanguard secured food waste supply commitments across the country that will guide its expansion largely through a partnership with Unilever called the Farm Powered Strategic Alliance, he explained. “Because we were able to be national, we were interesting to national food companies. Because they were willing to have a national conversation with us, we could justify building a national platform,” he said.
BlackRock’s plans for Vanguard include financing construction of up to 100 anaerobic digesters across the US. The Wall Street Journal cited a person familiar with the matter as saying the firm could devote more than $1 billion to the company’s expansion.
“Every commercially viable dairy project in the country will be built in the next five years. That is the gold rush,” said Polk. “Most of those farms are only commercially viable if they have a large enough herd that they had enough manure to justify a manure-only project, because those are the projects that have the significant carbon/methane impact.”
Vanguard attracted interest from a variety of institutional investors, according to Polk, who described debate within Vision Ridge as to whether to keep the business.
“If this were a Fund III business, we would find a way to provide that capital ourselves – through a continuation vehicle or co-investment vehicle – it just wasn’t practical for us to do that with a Fund I investment,” he said. “Today, we are trying to structure ourselves to be the source of continuation capital for businesses we have that scale.”
Vision Ridge exceeded a $1 billion target to close its third fund on $1.25 billion in April 2021 and managed $2.7 billion as of December, according to a March filing.