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CMS Energy's (CMS) Arm Expands in Renewable Natural Gas

Zacks Equity Research
·4-min read

CMS Energy Corporation’s CMS subsidiary, Consumer Energy,recently inked an agreement with Swisslane Farms to build a biodigester facility in Michigan, which will produce renewable natural gas (RNG). The move will enable Consumer Energy to take a step toward its goal for achieving net zero methane emissions by 2030.

The project, valued at $17 million, is subject to regulatory approval. Once approved, the project will initiate production in late 2023. Moreover, the biodigester facility will have the capacity to produce sufficient RNG that could heat approximately 1,000 homes during winter.

Benefits of the Deal

Per the deal, Swisslane Farms will supply manures for the production of methane at the biodigester facility. Unlike conventional natural gas, a biodigester aids in producing RNG by capturing methane from manure. Additionally, the process involves cleaning and conditioning of the manures before they are finally placed in existing gas pipelinesfor use by consumers.

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Impressively the RNG produced from a biodigester can help reduce emissions equivalent to replacing about 4,000 gasoline vehicles each year. This, in turn,would help CMS Energy to achieve its methane gas target.

CMS Investment Goals

CMS Energy expects to make strategic investments to expand its renewable portfolio. It aims to spend $2.7 billion in renewable, which includes investments in wind, solar and hydroelectric generation resources during the 2021-2025 period.

Of late, modest growth in demand for electricity in Michigan is the result of growth in the state’s economy. Considering the increasing awareness in favor of clean energy across the globe, this growing demand is projected to boost the adoption of renewable energy in the state. This, in turn, is likely to provide an opportunity for CMS to grow in the renewable arena. The latest deal is a testament to that.

Importance of RNG &Growth Prospects

RNG is developed from renewable sources like organic waste. The decomposition process of these organic wastes creates methane, which is captured with the help of a biodigester and the production process decreases greenhouse gas emissions.

The American Gas Foundation (AGF) report suggests that 1,660 trillion Btu (tBtu) of RNG can be produced annually for the pipeline injection by 2040. This entails strong growth prospects for companies operating in the RNG space, thereby boosting investments.

Apart from Consumers Energy, another utility that has made considerable investments in the RNG energy spectrum is Dominion Energy D.

Dominion Energy co-founded the two largest RNG programs with partners like Smithfield Foods, Vanguard Renewables and Dairy Farmers of America. The company has a planned expenditure of $900 million for RNG in a vast pipeline of projectsin more than 10 states.

Dominion Energy has a long-term earnings target of 6.59%. Its shares have returned 4.1% in the last year.

Price Movement

In a year, shares of CMS Energy have rallied 9.4% compared with the industry’s rise of 6.7%.

Zacks Rank

CMS Energy currently carries a Zacks Rank #3 (Hold).Some better-ranked stocks from the same industry are Duke EnergyCorporation DUK and Otter Tail OTTR, each carrying a Zacks Rank #2(Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Duke Energy reported third-quarter 2021 adjusted earnings of $1.88 per share, which surpassed the Zacks Consensus Estimate by 3.9%.Total operating revenues came in at $6,951 million, which improved 3.4% yearoveryear.

Duke Energy’slong-term earnings growth rate is pegged at 5.3%. Shares of DUK have appreciated 14.5% in the last year.

Otter Tail reported quarterly earnings of $1.26 per share, beating the Zacks Consensus Estimate by 12.50%. It surpassed the Zacks Consensus Estimate in the last four quarters.

Otter Tail has a long-term earnings growth rate of 4.7%. Shares of OTTR have returned 59.6% in the last year.


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