Methane Gas Used as Fuel: What Investors Test in RNG Projects

Methane gas used as fuel can provide energy for power generation, heating, industrial processes and transportation. But an important distinction comes first: methane can come from fossil natural gas or from biogas produced from organic waste, landfills, wastewater and agricultural sources. When biogas is appropriately treated and upgraded, it can become biomethane, often referred to as renewable natural gas (RNG).

For project developers and investors, the opportunity is broader than simply capturing methane. A credible methane-to-energy project needs secure feedstock or gas supply, proven technology, appropriate infrastructure, reliable offtake, realistic project economics and a financing structure that can withstand professional due diligence.

Methane gas used as fuel: How does it work?

Methane, or CH₄, is a combustible hydrocarbon and the principal component of conventional natural gas.

It can come from both fossil and biogenic sources. This distinction matters when evaluating environmental performance and whether a project can legitimately be considered renewable.

Biogenic methane can be generated from organic materials through processes including anaerobic digestion and the decomposition of organic waste in landfills. After collection and treatment, biogas can be used directly for certain applications or further upgraded into biomethane or renewable natural gas.

The U.S. Environmental Protection Agency describes renewable natural gas as biogas that has been upgraded for use in place of fossil natural gas.

Where does renewable methane come from?

Potential sources of biogas for renewable natural gas production include:

• Municipal solid waste landfills
• Livestock manure
• Food waste
• Wastewater treatment
• Agricultural residues
• Organic waste management operations
• Suitable industrial organic waste streams

Each source creates a different project profile.

A landfill gas project, for example, has different feedstock characteristics, collection infrastructure and operating risks from an agricultural anaerobic digestion project.

The economics therefore need to be assessed at project level rather than assuming that every methane source has the same commercial value.

How biogas becomes renewable natural gas

Raw biogas cannot automatically be treated as pipeline-quality natural gas.

Its composition depends on its source. Treatment and upgrading may need to remove:

• Moisture
• Carbon dioxide
• Hydrogen sulfide
• Siloxanes
• Volatile organic compounds
• Nitrogen
• Oxygen
• Other contaminants

According to the U.S. EPA, raw biogas generally contains approximately 45% to 65% methane depending on the feedstock. After upgrading, RNG generally contains at least 90% methane, while gas injected into a natural gas pipeline will typically need to satisfy significantly more demanding specifications.

Those requirements matter commercially because upgrading, compression and interconnection introduce additional CAPEX, OPEX and operating complexity.

The question for developers is therefore not simply whether methane can be produced.

It is whether the methane can be produced, treated, transported and sold economically.

Main uses of methane gas as fuel

Methane has several established energy applications.

Electricity generation

Methane can be combusted in engines or turbines to generate electricity.

For farms, wastewater facilities, landfills and industrial sites with suitable gas supply, onsite generation may create value through electricity production or avoided energy expenditure.

Combined heat and power systems can recover both electricity and useful heat where appropriate thermal demand exists.

Heating and thermal applications

Methane can produce heat for industrial processes, buildings, boilers and other thermal applications.

The commercial value depends on the cost of alternative fuels, equipment requirements, utilisation and the reliability of gas supply.

Transportation fuel

Renewable natural gas may be compressed or otherwise processed for transportation applications where vehicles and fueling infrastructure are compatible.

RNG used as a vehicle fuel competes not only with conventional natural gas but also with diesel, gasoline, electricity and other alternative fuels.

That means the investment case depends on local fuel economics, infrastructure and applicable regulation.

Industrial applications

Methane is used across industry for heat, steam and other process requirements.

Where biomethane can meet the necessary specifications, it may provide a route for substituting some fossil natural gas consumption without requiring every industrial process to be fully electrified.

Why capturing methane matters

Methane is not only an energy resource. It is also an important greenhouse gas.

The U.S. EPA reports that methane has a significantly greater heat-trapping effect than carbon dioxide over a 100-year timeframe.

Capturing methane that would otherwise be emitted can therefore be important from both waste-management and emissions-management perspectives.

However, a methane project should not automatically be described as environmentally beneficial simply because methane is being used as fuel.

The complete project boundary matters.

Developers should consider:

• Source of the methane
• Methane leakage
• Energy consumed during processing
• Transport requirements
• Upgrading requirements
• Final use
• Counterfactual waste-management scenario
• Applicable lifecycle-emissions methodology

This makes environmental claims more defensible and reduces the risk of overstating a project's climate benefits.

Renewable natural gas and the energy transition

Biogas and biomethane can play a useful role where direct electrification is difficult or where existing gas infrastructure can be used efficiently.

The International Energy Agency's Outlook for Biogas and Biomethane identifies biogas and biomethane as increasingly relevant to energy security, waste management, emissions reduction and agricultural development.

The IEA also highlights substantial differences in feedstock availability, project costs, geography and infrastructure.

That distinction is particularly important for investors.

A large global market opportunity does not make an individual methane project financeable.

The relevant question is:

Can this particular project secure its feedstock, produce gas reliably, meet the required specification, access infrastructure and sell its output at economics that justify the investment?

What determines methane project economics?

The economics of a methane-to-energy or RNG project depend on a combination of technical and commercial variables.

These may include:

• Feedstock availability
• Feedstock cost or tipping fees
• Methane concentration
• Gas production volume
• Collection efficiency
• Gas upgrading requirements
• Plant availability
• Electricity consumption
• CAPEX
• OPEX
• Compression
• Pipeline interconnection
• Transport
• Offtake pricing
• Contract duration
• Financing costs
• Tax
• Applicable incentives
• Environmental attributes

No single revenue assumption should carry an investment case without supporting evidence.

Professional investors will normally want to understand what happens if gas production declines, upgrading costs increase, commissioning is delayed or expected market prices change.

Feedstock and gas supply come first

For many biogas and RNG projects, feedstock is the foundation of the investment case.

Developers should be able to explain:

• What produces the gas?
• Who controls the feedstock?
• How much is available?
• How consistent is its composition?
• Is supply contracted?
• For how long?
• What are the logistics costs?
• Who competes for the feedstock?
• What happens if volume decreases?

A project with excellent upgrading technology but uncertain gas supply may remain difficult to finance.

This is why Biogas Project Investment Opportunities: What Investors Test places feedstock, technology, location, offtake and financial assumptions at the center of the investment case.

Offtake determines revenue visibility

Producing renewable gas is not the same as selling it profitably.

The project needs a credible route to market.

Depending on the project, that may involve:

• Onsite energy use
• Electricity generation
• Industrial users
• Vehicle fuel
• Dedicated gas pipelines
• Gas distribution systems
• Pipeline injection
• Long-term offtake agreements

Investors will examine not only the expected price but also who is buying the output, contract duration, volumes, indexation, credit quality and termination provisions.

Revenue certainty can materially influence both valuation and debt capacity.

Methane project finance and investor readiness

A technically viable methane project is not automatically ready for institutional capital.

Professional capital providers need a project they can evaluate.

For methane, biogas and RNG projects, that typically requires evidence supporting:

• Feedstock or methane supply
• Technology
• Site control
• Development status
• Permitting
• Gas specification
• Infrastructure
• CAPEX
• OPEX
• Construction schedule
• Offtake
• Revenue assumptions
• Operating strategy
• Financial model
• Funding requirement
• Management capability
• Material risks

This is the distinction between an interesting renewable energy concept and an investment-ready project.

For a broader explanation, read Investor Readiness: What Investors Test Before They Commit.

Learn more about the current project preparation framework on Projects RH Services.

Building the financial model

The financial model should connect technical performance directly to financial outcomes.

For a methane or RNG project, the model may need to incorporate:

• Feedstock throughput
• Raw biogas production
• Methane concentration
• Gas recovery
• Upgrading efficiency
• Internal energy consumption
• RNG output
• Product pricing
• Tipping-fee revenue where applicable
• CAPEX
• OPEX
• Construction timetable
• Working capital
• Debt and equity
• Interest expense
• Tax
• Cash flow
• Debt service
• IRR and NPV
• Base, downside and upside scenarios

The financial model should act as the numerical foundation for the investment case.

A change in gas production, project cost or offtake pricing should flow consistently through the model and the investor documentation.

Financing methane and RNG projects

Funding requirements change as the project progresses through development.

Early-stage capital may support:

• Feasibility studies
• Feedstock analysis
• Engineering
• Environmental work
• Site development
• Permitting
• Gas studies
• Commercial agreements
• Financial modeling

Construction capital requires much stronger evidence because considerably more money is at risk.

Depending on project structure and stage, capital may potentially include:

• Sponsor equity
• External equity
• Project debt
• Strategic investors
• Development finance
• Grants or incentives where applicable

For a wider explanation of how institutional capital assesses renewable assets, read Renewable Energy Project Finance: How Projects Raise Capital.

Investor documentation for methane projects

Professional investors should not have to reconstruct a project from disconnected spreadsheets, presentations and emails.

Once the project fundamentals can withstand review, investor documentation may include:

• Financial model
• Information Memorandum
• Investor deck
• Teaser
• Data room

The financial model should provide the numerical foundation.

The Information Memorandum should explain the project, development plan, commercial structure, economics, capital requirement and material risks.

The deck and teaser should then summarise the same investment case without changing the underlying figures.

For further guidance, read Information Memorandum Development: Built to Be Tested.

Key risks investors will test

Feedstock risk

Changes in feedstock availability, composition, ownership or transportation costs can directly affect gas production and project economics.

Technology risk

Collection, cleaning, upgrading, compression and supporting equipment need to perform at the levels assumed in the financial model.

Construction and commissioning risk

Cost overruns or delayed commissioning can increase capital requirements and postpone revenue.

Infrastructure risk

Pipeline access, electrical connection, roads, compression and transportation can become critical constraints depending on the project.

Offtake risk

The project needs a credible customer and pricing structure for its gas, electricity, heat or other output.

Regulatory risk

Gas specifications, environmental permits, waste regulations, transportation requirements and renewable-fuel programs vary between jurisdictions.

Methane leakage

Uncontrolled methane emissions can undermine the environmental case for a renewable gas project.

Environmental performance should therefore be treated as an operating issue as well as a sustainability claim.

Future outlook for methane, biogas and RNG

The outlook for biogas and biomethane remains significant.

The International Energy Agency expects combined global biogas and biomethane production to expand through 2030, driven particularly by biomethane and its ability to use existing gas infrastructure and equipment in suitable markets.

But sector growth should not be confused with project bankability.

The projects most likely to attract serious capital will be those that can demonstrate secure feedstock, appropriate technology, reliable infrastructure, defensible economics and credible revenue.

That is why preparation matters before investor outreach begins.

FAQ: Methane gas used as fuel

Can methane gas be used as fuel?

Yes. Methane can be used for electricity generation, heating, industrial processes and transportation. The source and treatment of the methane determine whether it is fossil natural gas, biogas or upgraded renewable natural gas.

Is methane a renewable fuel?

Not automatically. Fossil natural gas is primarily methane but is not renewable. Methane derived from renewable organic feedstocks can form part of biogas and, after appropriate upgrading, can become biomethane or renewable natural gas.

What is the difference between biogas and renewable natural gas?

Biogas is produced from sources such as anaerobic digesters and landfills and contains methane together with carbon dioxide and other components. Renewable natural gas is upgraded biogas that has been treated to increase methane concentration and meet the requirements of its intended use.

What can renewable natural gas be used for?

Depending on specifications and infrastructure, RNG can be used for thermal applications, electricity generation, vehicle fuel and other applications that would otherwise use conventional natural gas.

What makes a methane project investment-ready?

An investment-ready project should provide credible evidence supporting feedstock or gas supply, technology, site, permits, CAPEX, OPEX, infrastructure, offtake, financial assumptions, funding requirements, management and material project risks.

How can Projects RH support a methane or RNG project?

Projects RH prepares capital-intensive projects for institutional review through investor readiness, financial modeling and investment documentation. Capital raising and project finance are handled separately when an appropriate mandate is accepted.

Sources and further reading

• U.S. EPA: Renewable Natural Gas
• U.S. EPA: Methane Emissions
• International Energy Agency: Outlook for Biogas and Biomethane
• International Energy Agency: Renewables 2025 - Biogases

Related Projects RH insights

• Biogas Project Investment Opportunities: What Investors Test https://projectsrh.com/insights/biogas-project-investment-opportunities-what-investors-test
• Investor Readiness: What Investors Test Before They Commit https://projectsrh.com/insights/investor-readiness-what-investors-test-before-they-commit
• Renewable Energy Project Finance: How Projects Raise Capital https://projectsrh.com/insights/renewable-energy-project-finance-how-projects-raise-capital
• Information Memorandum Development: Built to Be Tested https://projectsrh.com/insights/information-memorandum-development-built-to-be-tested

Is your methane, biogas or RNG project ready for institutional capital?

A promising methane resource or renewable gas technology is only the starting point. Capital providers need defensible feedstock assumptions, proven technology, credible offtake, realistic economics and investment documentation that agrees with the financial model.

Is your methane, biogas or RNG project ready for institutional capital?

A promising methane resource or renewable gas technology is only the starting point. Investors and lenders need defensible feedstock assumptions, proven technology, credible offtake, realistic economics and investment documentation that aligns with the financial model.

Projects RH helps project sponsors strengthen investor readiness, build or test financial models and prepare institutional-quality investment documentation before capital raising begins.

Developing a methane, biogas or renewable natural gas project? Book a FREE 20-Minute Discovery Call with Projects RH to discuss your project's readiness and next steps.