BioCycle January 2008, Vol. 49, No. 1, p. 45
AgSTAR conference on anaerobic digestion for livestock waste draws a crowd of over 300 to discuss technology options, regulatory and electric utility challenges and industry potential.
Philip D. Lusk
IT WAS interesting to observe the difference that just a decade makes, when only 10 years ago a conference on the topic of farm-based manure digesters might have been attended by only 15 to 20 people. Several months ago, the U.S. Environmental Protection Agency’s AgSTAR National Conference on anaerobic digestion attracted a crowd of more than 300, including livestock producers, project developers, regulators, energy professionals, financiers and others interested in these types of energy projects.
The conference, Anaerobic Digestion for Livestock Waste Management and Energy Production, held November 27 to 28 in Sacramento, California, featured a range of technical, policy and financial presentations, poster sessions, networking opportunities, as well as around 35 exhibits of the latest technologies and services. Another feature was a half-day tour of two local farms to view one operating covered lagoon digester and one that is under construction.
During the past decade, use of farm-based manure digesters in the United States has increased from roughly 30 operating systems, to a reported 111 systems. It also was mentioned that another 50 to 100 farms have plans to install manure digestion systems. While this information is encouraging, especially since the total volume of manure being treated has increased due to the larger size of installed systems, a recurring question was, “When will the United States be able to reach the relative market penetration levels achieved by countries such as Denmark and Germany?”
The Electric Power Research Institute forecasted three years ago that, in its opinion, by 2010 the total domestic manure-based digestion potential could reach some 10,000 farms. Quite obviously, it does not seem likely that we will reach that lofty goal, even during the next decade. Why is that, and what is needed to take farm-based manure digesters to the next level?
ELECTRIC UTILITY CONTRACTS
More than one speaker at the AgSTAR conference observed the continuing difficulty of placing contracts with the electric utilities when farmers use biogas to self-generate electricity. Despite the efforts of some progressive utilities such as the Sacramento Municipal Utility District (SMUD), the two main issues relate to the net metering agreement for electric loads that are offset by self-generation, and the power purchase agreement for any surplus electricity not used on the farm.
SMUD recognizes the local benefits of turning problem wastes (resources) into renewable electricity. In 2005, the District instituted a Biomass Net Metering Rate for facilities having a generation capacity of less than 1 MW. SMUD will pay the farm its retail rate for the energy used at the entire facility, with all of the farm’s meters being added together. The net metering rate is currently set at 10 cents/kWh, and SMUD will provide assistance with a liberal power purchase agreement for any surplus electricity generated. Through its Dairy Digester Incentive Program, SMUD also funds local farms with up to 13 percent of the capital cost of installing manure digesters. As its reward, SMUD acquires all environmental attributes of the energy in exchange for the high compensation rate, including the Renewable Energy Certificates (RECs) and carbon offset credits.
This situation can be contrasted with the California dairy producer located just down the road from SMUD in the service territory of a large investor-owned utility. This farmer loses roughly 40 percent of the electricity value by having multiple power meters that cannot be aggregated as can be done in SMUD’s service territory. What is really happening is this particular electric utility is getting a free ride, since roughly $40,000/year worth of electricity is captured by them at the farmer’s expense.
While they may “talk-the-talk” of supporting renewable energy technologies, many utilities are still seemingly opposed to actual technology deployment. Consequently, they can make it difficult for any manure digestion project to achieve a positive economic return. This can be especially true in some Midwestern states where large amounts of electricity are generated at fully amortized coal-fired power plants located near a mine mouth; these power plants can have a marginal cost (the rate received by farmers) of around 2.5 to 3.0 cents/kWh. Since operating and maintaining an internal combustion engine used by a manure digester can average 2.0 cents/kWh, one does not have to be an economist to see that any investment in this technology will not be viewed as cost-effective.
Even worse, the recalcitrant utilities can actively undermine technology adoption by burdening farmers with excessive expenses, such as stand-by charges and endless paperwork, which can make it seemingly impossible to get a manure digester online in a timely fashion. Stand-by charges are especially odious, given that well-run manure digestion systems can have on-line availability factors equal to or better than most base-load power plants.
Farmers might be even more shocked when they find out they are responsible for all charges needed to upgrade infrastructure items such as utility lines, meters and transformers. For example, there may be situations where surplus power is fed back into the electric grid, and customer power lines may need upgrading from single-phase service to three-phase service. This may cost the farm on the order of $100,000 to accomplish, yet the title to the equipment remains with the electric utility as it did on one dairy in New York. This might break some projects, and when it happens in the service territory of an investor-owned utility, the shareholders get all of the upside benefit without assuming any of the downside project risk faced by the farmer.
The utility interface is not the only source of problems, as regulatory uncertainty can often be a deal breaker. For example, more than one speaker observed the conflicting overlap in California between state entities such as the California Air Resources Board, the California Integrated Waste Management Board, the California Water Resources Control Board, the California Public Utilities Commission and the California Energy Commission. Layered between these players is a myriad of local regulatory entities, such as regional and county air districts and regional water quality control boards.
Delay is often the result of this lack of policy integration, which adds unfavorably to a project’s risk profile. As an example, one project in SMUD’s service territory has been delayed almost three years as the farmer jumps through the various regulatory hoops imposed upon him. Regulations also are burdening project economics, especially in terms of codigestion of off-farm organic waste streams.
Codigestion has long been touted as a way to boost biogas yields, especially on dairy farms where relative biogas production is low due to the ruminant already acting as a four-chambered digester. Driven by this desire for higher biogas yields and the potential for greater electricity generation is the possibility of the farmer receiving a tipping fee for handling relatively innocuous materials such as cheese whey, and various fats, oils and greases.
In the words of one system developer, state regulations can make codigestion “illegal.” Currently, codigestion projects in California are at a standstill because there are no standards providing guidance for using the manurial salts contained in the solid digestate and liquid filtrate coproducts. As is reasonable in any arid climate, water boards are increasingly concerned about salinity and are seeking to improve overall salt management practices. The absence of standards creates regulatory uncertainty, which is another element of risk that potential owners, developers and financiers seek to avoid. Other states have similar codigestion regulatory issues, and a number have begun to issue permits for facilities seeking to codigest.
PROJECT FINANCING, CARBON OFFSETS
In terms of project financing, many producers look to the federal government’s Farm Security and Rural Investment Act of 2002 (the Farm Bill), under which Title IX, Section 9006 can provide a grant of 25 percent of system costs up to $500,000. It was somewhat disturbing to hear that, despite this program funding a total of 91 manure digesters since its inception, only 19 have been completed and are fully operational, with another six systems being very near start-up.
One observation is that the Section 9006 program only offsets capital cost and is not by design a performance-based program. As a result, it provides no true incentive for system developers to pursue more cost-effective technologies. While some of the reasons for the increases in system costs can be placed on the global demand for key materials, there are a staggering number of zeros attached to the project cost of some of the manure digestion systems now being deployed.
And the one federal program that does reward performance, the Renewable Electricity Production Credit that provides a per kilowatt-hour tax credit for electricity generated by qualified energy resources, is not available to manure digesters having a rated capacity of less than 150 kW. Yet, with more than 70 percent of the federal R&D and tax incentives going to fossil and nuclear fuels, it is seemingly a moot point to try to interest the federal government in expanding the pie for all renewable energy technologies on a more equitable basis.
With respect to carbon offset credits, there is increasing emphasis on using this “coproduct” as a revenue source. As might be surmised, there are a number of outfits actively engaged in the emerging carbon offset market. Many of these companies offer incentives ranging from doing free feasibility studies to actually installing covered lagoon systems at no charge to the farmer.
What is critical for this market’s credibility is establishing a circle of trust between carbon credit vendors and the farmer. Specifically, what is really being offered, and is it being offered on a transparent basis? For instance, when a developer does a feasibility study, an obvious component is an estimate of the biogas yield. How this number is converted into the physical carbon offset credit should be patently obvious, as well as how that carbon offset credit is monetized. It seems that the circle of trust could be easily violated if this information is presented to a potential client on a “smoke-and-mirrors” basis.
The primary issue is there are several different protocols with potentially different outcomes for what qualifies and what the ultimate monetary value is to the individual manure digestion system. The premise of each protocol is basically the same; emission reductions are framed on lowering emissions below a projected reference case or “baseline.” Also key is the concept of additionality, meaning the emissions reductions must be beyond – or in addition to – what would have happened in the absence of the project.
My takeaway is that, despite the appearance of some of the friction noted above, the farm-based manure digestion market is well positioned for a rapid expansion. Federal programs such as AgSTAR should be credited for their efforts in ensuring there are meaningful standards and specifications for manure-based digestion systems. Certainly the colleges and universities have become hotbeds for doing the necessary R&D, as well as training the next generation of manure digestion scientists and technicians.
States such as Wisconsin and Vermont have taken an activist approach in deploying manure digesters, and should also be applauded since their hard work has given them a market penetration rate that far exceeds what is happening on the national level. In these states and others, there are progressive electric and natural gas utilities that are embracing manure digesters as a way for their customers to benefit from its energy, environmental and economic development aspects. In some states, state-level Renewable Portfolio Standards with carve-outs for farm digester electricity are emerging. These carve-outs will help ensure a guaranteed market for the renewable power generated by on-farm manure digesters, and may offer the potential for more equitable electricity rates for net metering and surplus power purchases. Also under investigation in California is the idea of enabling “feed-in” tariffs, similar to those received by European power producers who are paid a high fixed-price for feeding their renewable electricity into the grid.
Lastly, the farmers who have built upon the experiences of the past in their use of manure-based digestion systems deserve the most credit. They are the ones who, in the end, have to pay the bills and have to make these biological systems work. However, more cost-effective and more easily managed systems are needed to encourage other potential users that manure digesters can successfully make energy, as well as recover valuable nutrients and other valuable coproducts on the farm. That is the challenge and opportunity we all face in this emerging industry.
Phil Lusk is a bioenergy and anaerobic digestion consultant based in Salt Lake City, Utah. During his professional career, he has organized, directed and coordinated more than 90 research and demonstration projects and has worked for a public utilities commission and a state energy agency. He can be reached at email@example.com.
January 24, 2008 | General
Farm-Based Digester Conference Highlights
BioCycle January 2008, Vol. 49, No. 1, p. 45