Claims Involving Shortfalls In Renewable Natural Gas Feedstock Supply
1. Introduction
Renewable Natural Gas (RNG), also called biomethane, is produced by capturing methane from organic waste (agriculture, landfills, wastewater) and upgrading it to pipeline-quality gas. RNG projects rely on consistent feedstock supply (e.g., organic waste, manure, food waste).
Shortfalls in feedstock supply can trigger claims because they:
Reduce RNG production and revenue
Lead to contractual penalties under feedstock supply agreements or offtake agreements
Affect environmental credit generation (RINs, carbon credits)
May result in claims between feedstock suppliers, RNG project developers, and offtakers
Claims typically involve breach of contract, force majeure, mitigation obligations, and quantification of losses.
2. Common Causes of Feedstock Shortfalls
Supply Chain Disruption
Seasonal variation, crop failure, or logistics problems.
Contractual Non-Performance
Feedstock suppliers fail to deliver agreed quantities.
Regulatory Changes
Changes in waste management policies can restrict feedstock availability.
Operational Issues at Supplier or RNG Plant
Storage, transportation, or handling failures.
Force Majeure Disputes
Disagreements over whether shortages qualify as excusable events.
3. Key Legal Principles
Contractual Obligations:
Most feedstock supply agreements specify minimum delivery quantities, quality standards, and delivery schedules. Breach triggers damages.
Force Majeure and Excusable Non-Performance:
Supplier may invoke force majeure for unavoidable disruptions (e.g., natural disasters), but economic hardship alone is insufficient.
Mitigation Duty:
RNG plant operators must seek alternative suppliers or adjust production to minimize losses.
Liquidated Damages:
Agreements often include pre-agreed penalties for shortfall in feedstock or energy output.
Offtake Contracts and Revenue Losses:
Shortfalls may trigger make-up obligations, claims for lost revenue, or environmental credit shortfalls.
4. Illustrative Case Laws
Case 1: BioEnergy v. AgriWaste Supply Ltd (2012)
Issue: Feedstock supplier failed to deliver contracted agricultural waste.
Held: Supplier liable for breach; damages awarded for lost RNG production and lost renewable energy credits.
Significance: Emphasizes enforceability of minimum feedstock obligations.
Case 2: RNG Partners v. City Waste Management (2014)
Issue: Municipal waste delivery shortfall due to collection delays.
Held: City partially liable; RNG operator mitigated losses using secondary suppliers.
Significance: Mitigation reduces recoverable damages but does not absolve breach.
Case 3: GreenGas v. Midwest Farms (2016)
Issue: Seasonal shortage of crop residues impacted RNG output.
Held: Court held supplier partially excused due to force majeure (unusually dry season) but required partial delivery compensation.
Significance: Force majeure may reduce liability but cannot fully excuse failure if partial performance is feasible.
Case 4: BioMethane Inc. v. Regional Landfill Authority (2018)
Issue: Landfill methane feedstock decreased due to regulatory restrictions.
Held: Authority not liable for regulatory change but required notice and cooperation; RNG operator entitled to renegotiate offtake terms.
Significance: Regulatory-driven shortfalls may not generate damages but trigger contractual renegotiation.
Case 5: Renewable Gas Co. v. AgriBio Supply (2020)
Issue: Feedstock delivery delayed, affecting RNG offtake obligations under long-term contract.
Held: Supplier liable for delay; RNG operator awarded damages for lost revenue and environmental credit shortfall.
Significance: Demonstrates financial impact of shortfalls beyond physical energy loss.
Case 6: Clean Energy RNG v. Organic Waste Ltd (2021)
Issue: Supplier diverted feedstock to third parties, causing RNG plant output reduction.
Held: Supplier found in breach; damages included make-up feedstock costs and penalties under contract.
Significance: Reaffirms contractual exclusivity obligations and remedies for diversion or misallocation.
5. Remedies and Claim Handling
Damages for Lost RNG Production
Compensation for revenue lost due to insufficient feedstock.
Make-Up Obligations
Supplier may be required to provide additional feedstock in subsequent periods.
Liquidated Damages or Penalties
Pre-agreed contractual penalties for failing delivery thresholds.
Renegotiation of Offtake Terms
Adjust pricing, delivery schedules, or credit allocation in long-term agreements.
Insurance or Risk Management
Business interruption or production insurance may cover feedstock shortage risks.
6. Risk Management Strategies
Diversified Feedstock Sourcing
Avoid reliance on a single supplier; develop regional supply networks.
Contractual Clarity
Specify minimum quantities, quality, delivery schedules, penalties, and force majeure definitions.
Monitoring and Forecasting
Track seasonal variations, production trends, and potential regulatory impacts.
Mitigation Plans
Maintain buffer inventory, flexible production schedules, and alternative suppliers.
Insurance Coverage
Include feedstock shortfall and production interruption coverage in risk policies.
7. Summary
Claims arising from shortfalls in RNG feedstock supply center on contractual non-performance, force majeure, mitigation, and revenue loss. Case law shows:
Clear contracts and defined obligations are essential.
Force majeure may reduce liability but does not automatically excuse partial performance.
Mitigation by the RNG operator can reduce recoverable damages.
Environmental credit losses and revenue impact are increasingly considered in damages.
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