March 23, 2010 | General

Understanding Viability Of Dairy Biogas Plants

BioCycle March 2010, Vol. 51, No. 3, p. 32
Multiple feasibility studies found digester systems based solely on manure do not produce attractive financial returns. Codigestion is required for project viability.
Dominic Vacca and Matt Coen
BioCycle West Coast Conference 2010 Related Session:
Permitting, Economics Of Anaerobic Digesters
Tuesday, April 13, 2010
Modeling Financial Viability Of Dairy Biogas Plants
Dean Foor, ECOregon

IN 2008, Northwest Dairy Association (NDA) – an integrated milk marketing and processing cooperative servicing farms in Washington, Oregon, Idaho, Northern California and Utah – identified a need to promote the development of anaerobic digestion throughout its 600-plus member producer network. NDA contracted with EC Oregon to conduct six separate studies to assess the technical and financial viability of on-farm digesters in Oregon. Each study included analysis of dairy manure degradability, compatibility of dairy practices, relevant literature review, identification of locally available codigestion feedstocks, technology recommendations, energy/coproduct output and system cost estimates and a 20-year pro forma financial analysis. This article summarizes the findings of the individual feasibility studies.
A feasibility study is a typical prerequisite for involvement by lending institutions and some federal and state incentive programs. Anaerobic digester (AD) systems do not lend themselves to uniform application. Operational parameters of the dairy determine manure quantity and quality, appropriate conversion technology, biogas production and energy utilization specifics. Other site-dependent characteristics include codigestion substrate availability, heat recovery options, permitting, utility interconnection scenarios and constructability.
Each digester system must be planned, designed, constructed and operated to meet the characteristics of the situation. Elements of the feasibility study are then further refined in the business plan, should the project move to the development stage. Furthermore, by identifying technology options, logistical challenges, market opportunities/limitations, funding incentives and other factors that influence technical and financial performance, a feasibility study provides the resource owner – dairies, in the case of the NDA studies – the knowledge to proceed with confidence.

Quite simply, technical challenges are not the primary hurdle to successful implementation of anaerobic digestion at Oregon dairies. Multiple technically viable AD solutions are available. Commercially proven digester designs are actively marketed from a multitude of vendors. Standard dairy practices in Oregon are generally compatible with the most common digester designs. Scrape manure collection and organic, nonwoody bedding types (compost, straw, hulls, etc.) are preferred for biogas development.
The modeling effort indicated that digester systems based on manure only – though technically sound – do not produce attractive financial returns. Manure is a previously digested feedstock (by the cow) and as such has low energy density. Boosting methane production via codigestion is required for project viability (Figure 1). For example, a covered lagoon scenario operating at ambient (psychrophilic) temperatures will produce a modicum of energy in western Oregon for only a portion of the year, greatly limiting revenue potential. While this approach is the lowest cost digester solution it will not currently produce attractive returns. Since revenue is overwhelmingly driven by energy sales, and capital expenditures are essentially subsidized by incentive structures, the incremental cost of construction to accommodate codigestion feedstock is a prudent investment.
To further illustrate the importance of codigestion feedstock for enhanced methane production, a regression analysis estimating electrical production for select feedstocks is provided (Figure 2). Dairy manure as the sole feedstock showed an elongated ellipse with a flat slope; as the quantity of manure increases, electrical potential does not increase significantly. However, regression analysis of codigestion blends failed to show a tight correlation, as indicated by the wide ellipse. This is due to differences in energy density of regionally available feedstocks. When the codigestion mixtures were broken into subgroups common to study participants, correlations were tighter and slopes were rather steep, indicating a large increase in energy as the amount of material increased.
Financial performance was more sensitive to increases in operational expense or decreases in revenue than capital expense. Efficient AD systems with the greatest net energy production financially outperformed those with lower energy yields and/or higher parasitic loads. Since electricity is currently the primary revenue stream for Oregon-based digesters, only when renewable energy sales are appealing can biogas plants be deployed on a large scale.
Likewise, as the primary controllable operational expense for a biogas plant, annual feedstock acquisition costs need to be minimized. As long as the net feedstock acquisition costs are managed and minimized, codigestion can boost energy production and result in net financial gain. However, just as accepting a low capital cost option does not guarantee a profitable digestion system, codigestion in and of itself is not a panacea for development. Careful management of all significant variables is required for successful biogas plant development. Most modeled scenarios in this study could absorb the increases in capital expenses required to accommodate codigestion feedstock.
When an attractive financial return and renewable energy are the primary objectives, complete mix digesters offer the best solution for codigestion with dairy manure. Although less expensive technologies exist, complete mix technology offers compatibility with codigestion feedstock and higher net energy generation potential.

The true barrier to widespread U.S. development of dairy-based biogas plants is apparent in the marginal returns on investment. At this time, power purchase options are less than optimal despite growing interest in renewable energy sources, the nascent status of the industry results in higher capital expenditures and markets for fertilizer coproducts are not adequately developed.
Additionally, the currently available major state and federal incentives, while well intentioned, are primarily tax credit based and/or realized upon commissioning, requiring tax liability and construction bridge funding. In most cases, tax credit driven attributes do not typically financially empower a dairy. Thus, other sources of funding will likely be necessary to develop biogas plants. Given their unfamiliarity with the technology and current credit/market conditions, lenders will likely require that biogas plants be fully collateralized with assets beyond the project.
Hurdles are to be expected in any development of this scale and can be mitigated on a case-by-case basis with proper management and expertise. The collective effort of individual dairies, cooperatives, technology providers, consultants and developers will be required to influence legislators, government agencies, utilities and lenders of the environmental and economic value of biogas technologies on dairy farms.


Lessons learned from the feasibility studies performed at the six dairies, along with ongoing project development, help identify and mitigate risks for future on-farm development of biogas plants not just in Oregon, but throughout the U.S. These lessons include:
Substantial Environmental and Economic Benefits: Anaerobic digestion can be a financially viable business option for dairies when all factors are considered and managed optimally. Biogas plants can generate diversified revenue by producing renewable electrical and thermal energy and fertilizer coproducts while reducing greenhouse gas emissions, mitigating odor issues and providing nutrient management flexibility to dairies. In order for this technology to be a win-win for dairies and their communities, state permitting laws and local land use regulations need to reflect this reality.
Proven Technology Exists: Anaerobic digestion of dairy manure is a proven technology, immediately available for commercial applications from a number of qualified vendors. Technical assessment of digester designs, including front- and back-end solutions, is required to ensure compatibility with project goals. Feasibility studies are crucial to identify project potential and possible risks.
Planning And Management Expertise is Necessary: Since dairy manure is not a particularly energy dense feedstock, and biogas plant revenue is overwhelmingly driven by energy sales, manure-only digesters lack the profitability to attract investment interest. Codigestion of energy dense feedstock is required for project success; contracting appropriate and available sources for codigestion is an important step in project development. Adding value to coproducts and controlling operating expenses are both important to project viability. The significant time, effort and cost of total system design, permitting, business planning and other development tasks – in addition to actual construction and ongoing operations – should not be underestimated.
Government Incentives, Lending Practices and Power Purchase Agreements Need Improvement: Government grant and loan guarantee programs are intermittent and not conducive to timely development. Tax credit driven incentives are difficult to monetize; sunset provisions add further uncertainty. Many incentives are not made available until after plant commissioning, requiring additional financing. Given the current state of the U.S. dairy industry, the level of capital investment required for a biogas plant may necessitate third party investment. Even if equity requirements can be met by other means (i.e., grants), overcollateralization is still required by conventional lenders. Realizing attractive power purchase agreements, either through negotiation with utilities or state mandate (e.g., feed-in tariff) is crucial.
To expedite broad scale deployment of biogas plants, the obstacles must be removed. A concerted effort by the dairy and biogas industries, working with government agencies, legislators, utilities and lenders, is required. Recommendations in the report for NDA are intended to facilitate conversation and action. The current climate is well-suited for substantial progress.

Dominic Vacca and Matt Coen are Biogas Analyst and Project Engineer respectively with Essential Consulting (EC Oregon) in Eugene, Oregon. The full report can be found online at

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