For the first time, Barclays covers and strongly values it! What exactly does Archaea Energy do?

Barclays Bank believes that Archaea Energy, a pure renewable natural gas supplier, has great growth potential in a favorable macro environment. Compared with other renewable energy sources, RNG(Renewable Natural Gas) provides an attractive cost for carbon emission reduction. Barclays gave an overweight rating with a target price of $26.

Archaea's 88 projects include 10 optimization projects and 78 RNG power and green space projects. Of the 78 new buildings, 11 include converting landfill gas into renewable electricity (LFGTE) facilities into RNG production plants after the completion of the INGENCO acquisition. It is worth noting that Archaea's natural gas rights agreement usually requires the company to realize the commercial operation of the project on a specified date.

Archaea recently completed the acquisition of INGENCO's joint venture with lightning renewable energy. On April 28th, Archaea announced the acquisition of INGENCO for $215 million in cash. It is expected that the transaction will be completed on July 1st and 22nd. The acquisition will add 14 landfill gas power plants to Archaea's asset base, and obtain relevant gas rights in high-quality landfills that allow waste reception for more than 40 years on average. On May 5th, Archaea and Republic Services announced the establishment of Lightning Renewable Energy Joint Venture, which is the largest development project of landfill gas to RNG so far.

In the long run, LFG's goal is that 70% of RNG sales will be sold under a 10-20 year long-term fixed-price contract. In 2022, about 50% of the company's 11.1-11.7mm MMBtu production guidance is expected to be sold on a contract basis.

Barclays believes that the stability of cash flow is a differentiating factor in this field. Archaea's strong ability in obtaining contracts and creativity in building agreements are reflected in its 20-year fixed-price contract with FortisBC and its 21-year fixed-price RNG purchase and sales agreement with NW Natural. Both agreements begin in 2022 and end in 2025. In addition, most of the existing long-term contracts of Archaea Energy have an inflation guarantee mechanism.

The municipal solid waste industry is the third-largest source of methane emissions related to human beings in the United States. The landfill gas-to-energy project is very important for the decarbonization of this industry. Archaea's landfill gas is converted into RNG facilities to capture naturally occurring waste emissions and process them into low-carbon fuel, which is chemically the same as traditional natural gas.

Barclays believes that compared with other renewable energy sources, Archaea has a convincing cost of carbon reduction.

According to the government directive and the voluntary decarbonization target of enterprises, by 2030, the supply of RNG must increase by 2.4 times to meet the demand. Many of Archaea's current customers have RNG targets between 5-20% of their supply. The current targets of Fortis, Northwest Natural Gas, and Nergir alone are equivalent to the potential demand of about 55 billion cubic feet per year.

Barclays believes that Archaea's diversified end uses and products in RNG, such as bio-methanol, sustainable aviation fuel and hydrogen, may drive demand growth.

Based on the long-term and visibility of raw material sources, the owners of landfills, including major garbage disposal companies, independent owners and municipal authorities, granted Archaea the exclusive right to utilize landfill gas and build and operate RNG facilities at these sites. At present, there are about 1000 potential RNG project sites in the market.