Produce, pipelines, and pushback

About ten days ago, I kicked off some initial coverage of a new funding round that Divert, a wasted food diversion and processing business, secured, primarily from Enbridge, a large oil & gas co. 

Since then, I had the opportunity to connect with CEO Ryan Begin to get a deeper perspective on the business, its potential impact, and where it’s headed. 

Something I didn’t fully appreciate about Divert is that they’ve been turning wasted food into renewable natural gas since the beginning. Their recent financing, which will help them build more facilities to do just that, isn’t a new foray into a new market. 

Divert started working with Kroger’s Ralphs and Food 4 Less stores in California as early as 2010 and built their first full-scale digester facility in Compton shortly after. The team built a reverse logistics operation to backhaul fresh food that couldn’t be sold from 300+ grocery stores to their facility for processing. As a note, Divert does try to donate wasted food they take in. That is not always an option; however, when not possible to donate, the company turns wasted food into renewable natural gas if there’s no other home for it. 

Building out the reverse logistics operation helped them see the potential scale of what they could build, as well as the challenges that came with that scale. 300 grocery stores, each contributing even one bin of wasted food, is an incredible amount of food. And as Ryan noted, it also hit home some of the absurdity of the wasted food problem: 

At the first site, Ryan and the team also came to appreciate how their work was a win for grocery stores. In our conversation, Ryan noted how many grocery stores ‘only’ make $40k in net monthly profit (I guess, depending on where you sit, that doesn’t sound like that little). And they lose about the same amount of value due to wasted food in any given month. Helping them valorize wasted food thus represents an opportunity to double their net profit margin.

Ten years later, the plan is the same

Fast forward to today, and Divert’s fundamentally working on similar things. They want to scale their footprint to process more wasted food and to turn it into renewable natural gas when there’s no higher or better use for it. From that perspective, the $1B in project financing they recently secured from Enbridge to build more anaerobic digestion facilities across the U.S. doesn’t come as a surprise. They’ll soon open new facilities in places like Turlock, California, in the Central Valley, where much of the nation’s produce is produced. 

Over the years, they have also gotten into the business of doing more than just creating RNG. For instance, they work with many major food retailers across the U.S. (such as Kroger and Target) to reduce their wasted food, too. A lot of this came about because of the sophisticated tech operation they built to support the renewable natural gas production component of the business. They built out IoT tracking mechanisms for the bins that carried wasted food from stores to their digester facilities, which they then taught stores how to use to manage their inventory operations better. 

That’s just one example, but it’s a big part of the Divert story now. It’s not just about diverting wasted food; it’s about reducing the amount of it. 

Catching up to Europe

If you spend a lot of time in Europe, as I did growing up, you start to see mentions of biogas everywhere. In the U.S., it’s a bit more of an anomaly. You have to look. There are thousands of digester facilities–think ~20,000–where waste is turned into biogas in Europe. In the U.S., there are only a few thousand. Europe is ahead by a factor of ~10x. 

Of course, Divert hopes to change that. But I was curious to pick Ryan’s brain on why the U.S. is behind in the renewable biogas opportunity. Not that it’s an entirely bad thing for him and his business; it presents a big unmet market opportunity for them to fill. 

One thing Ryan landed on right away was landfill scarcity. America has way more space than Europe for landfilling. Europe is far denser than the U.S., a constraint that proved beneficial in that it forced them to figure out ways to use more of their waste. For perspective on that density, Germany has roughly twice the amount of people as California, although it’s only a third of the state’s size. 6x the population density!

There have also been many formal incentives (200+) for producing biogas in Europe. Ryan cited that incentives for biogas energy production have ranged as high as $0.40 per KwH.

Incentives are coming online in the U.S. now, too; the IRA will support the build-out of more anaerobic digestion facilities, though teams like Divert’s are still waiting on the final language to understand exactly how it might help them.  

Either way, trash is still “cheap” to deal with in the U.S. From where I sit in New York City, a lot of my wasted food gets sent to West Virginia or South Carolina by train. Ryan highlighted that up to 40% of train freight by volume on specific train routes is wasted food.

Ideally, a policy like the IRA starts shifting the calculus on systems like that. If we valued carbon emissions from diesel-powered trains moving wasted food and the environmental value of not landfilling, trash might not seem cheap at all. By making use of wasted food, Divert gets us one step closer to a system that’s more circular and harmonious.

Pipelines and pushback

In my first write-up on this deal two weeks ago, I noted that Divert might get pushback for partnering with one of the largest oil and gas firms on their expansion. Ryan said there hasn’t been much of that so far. Divert started discussions with Enbridge about a year ago; Enbridge had a pipeline they wanted to use for a project. That being the genesis of the relationship alone might tip you off to why some might look at a deal like this and say they see a wolf in sheep’s clothes: 

You could see it that way. When Ryan and I discussed the pragmatist vs. purist paradigm (my words), he said:

I’m with the guy who just raised $100M + $1B in project financing. 

That said, a full lifecycle of renewable natural gas is a complicated beast. On this front, Ryan noted that the push from folks in the ‘purist’ camp is healthy. Absent the push, you don’t get accountability. Divert wants folks to ask those lifecycle-type questions because it helps them improve their solutions as they build them out. 

It isn’t always easy to say precisely how many emissions Divert mitigates by diverting wasted food from landfills (and by alleviating stress on food production by reducing wasted food in general). And yes, burning renewable natural gas also still produces CO2 emissions. However, those emissions are from the embedded energy of wasted food, which would end up in the atmosphere regardless of whether the wasted food goes to a landfill, where it often turns into methane emissions.

The net-net

Regardless of what I write or what Divert does, some folks will be against natural gas, period. But, as I feel like I repeat once a month, if not more, there’s no getting around the role natural gas will play on power grids for decades. Natural gas provides ~40% of California’s power generation. And 45% of Texas’s. I chose those two states because they’re also the ones that have invested most vociferously in renewable energy development. And Texas will still be >25% in a decade (based on forecasts I put solid stock in).

Using natural grids produced renewably is preferable to natural gas produced by oil and gas companies in the ‘normal’ way. In fact, it’s great! Full stop. Even if the pipelines involved are the same.