Economic Feasibility Info
Once you have determined that anaerobic digestion is technically feasible and have estimated the methane generation potential at your facility (click here to enter feasibility tool), it is important to consider whether the project would be economically feasible.
On-farm anaerobic digestion units typically cost at least $1.5 million. Some of the cost can be offset by federal or state grants or loans. Costs could also increase, depending upon the size of the unit, design, and features. Annual operation and maintenance costs (like maintenance, repairs, parts, labor, and insurance), must also be recovered.
You should determine whether you would be able to offset costs by generating revenues or reducing expenditures on energy over the life of the digester. The typical life of a digester is estimated to be 10-15 years. Most digesters are semi-customized by the technology provider, so the capital outlay and operating/maintenance costs will vary. The U.S. Department of Agriculture AgSTAR website provides a good overview of expected costs and revenues: http://www.epa.gov/agstar/index.html. The website is frequently updated with information about federal and state funding opportunities for anaerobic digestion projects.
Producers should be wary of relying on anaerobic digestion to generate revenues from utility energy buy-back. Some states have net metering policies, where small energy generators (like those with an anaerobic digester), can provide surplus energy to the utility, in order to offset their energy consumption. For example, Colorado recently implemented a net metering policy in 2009. However, the price per kWh received for net metering is relatively low. While this varies according to utility company, operators should expect a buy-back price of approximately $0.02 per kWh. In order to increase profitability, producers should focus on reducing operation and maintenance costs, as well as offsetting energy usage with the anaerobic digester system.
While you are in the process of selecting a technology provider to build your digester, you should outline some of your expected costs and revenues over the life of the digester. Once you contact a technology provider, you can obtain the more detailed information necessary to compute costs.
Although it is important to actually crunch the numbers, there are five indicators that an anaerobic digester might be economically feasible at your operation. These indicators can help determine whether you should pursue a comprehensive feasibility study of your operation. These criteria have been selected based upon studies conducted in the intermountain west by Keske (2009) and Sharvelle and Keske (2011). If your operation meets at least two of the criteria, you should conduct a more detailed spreadsheet analysis of your situation. The indicators are as follows:
Co-digestion has shown to be economically viable in other states. When agricultural producers and related industries (eg. food manufacturers) are located nearby, there are typically efficiencies in feedstock availability and transport, as well as the energy end product. The economic efficiency improves when the biogas can be used onsite or nearby.
Feasibility studies have shown that co-digestion projects might be economically viable in Colorado (Stewart Environmental, 2008; Keske, 2009; City of Greeley and Symbios, 2009). However, at this writing, there is not a co-digestion project currently operating in Colorado. In summary, while there have been national efforts to compile information about AD and co-digestion, Colorado and the Intermountain West possess unique environmental characteristics that affect the economic feasibility of these systems. Low humidity, scarce water resources, western farm management practices, and regional policies are examples of such unique issues. If you or your community has an interest in a co-digestion project, it is suggested that you review one of the attached reports, and contact the corresponding author to learn more information.
If you incur at least $5,000 per month in electricity or natural gas expenses, anaerobic digestion might be economically feasible for your operation. Digesters are very expensive and will last about 15 years. At this time, they are most economically feasible for operations with large energy needs. Even then, it will require considerable effort to investigate whether a digester is feasible for your operation since there are many variables to consider. A 2009 study by Keske found that minimizing anaerobic digestion production costs (eg. maintenance/repairs, and labor) and boosting energy production showed the greatest impact on net income from an anaerobic digester. A 1% change in production costs changed net income by 14.54%. A 1% change in energy production (a function of billing capacity and methane production) changed income by 11.14%. Generator downtime and inefficient feedstock conversion both affected energy production. It is important to recognize that many variables can affect the economic feasibility of anaerobic digestion projects. Other financial considerations include: Net metering that returns electricity to the grid Payments through a carbon market to offset carbon dioxide emissions or to sequester carbon Availability of bank, and loan terms/conditions. The specific financial aspects should be analyzed for every project. Industry partners also can provide insight into other revenue streams or cost offsets.
Anaerobic digestion may be an economically feasible solution for odor control, particularly when an agricultural producer is susceptible to a nuisance lawsuit. Producers who receive persistent or harsh complaints about farm odor should evaluate the feasibility of an anaerobic digester as a cost offset to a lawsuit. Poultry and swine producers, in particular, should strongly consider an anaerobic digestion system. Legal research shows that poultry and swine producers are particularly vulnerable to odor-related lawsuits. During interviews conducted by Keske (2009), both technology providers and agricultural operators affirmed that AD units effectively reduce agricultural odors that often prompt nuisance lawsuits. Work by Martin (2003) also notes that AD units can provide a measurable reduction in odor, in addition to playing a role in the management air emissions, water quality, and waste management. A summary of recent nuisance lawsuit awards and settlements are shown, below. The cases are ordered by year. Also listed are the states where the lawsuit was filed, case or plaintiff as available, and type of operation. The settlement and damage values (which include punitive damages) have not been corrected for inflation. The type of agricultural operation appears in the right hand column. It should be noted that the majority of cases are settled out of court and the financial data are not readily available.
The awards ranged from $12,100-$50,000,000. Seven of the ten reported cases involved swine operations. Two cases involving large awards were against the same owner of two Ohio egg production facilities. There was one example of a settlement to a Kansas cattle feedlot. Six of the documented cases occurred west of the Mississippi. In summary, a lawsuit could result in more millions in damages (including punitive damages). Off setting legal costs can make an anaerobic digestion project pay for itself. Poultry and swine operations should strongly consider anaerobic digestion systems as their operations appear vulnerable to lawsuits.
|Claims Awarded in Nuisance Suits|
|1991||NE||$375,600||Kopecky v. National Farms, Inc.||Swine|
|1996||KS||$12,100||Settlement-plaintiff/respondent both undisclosed in news article.||Swine|
|1998||KS||$15,000||Twietmeyer v. Blocker.||Beef feedlot|
|1999||MO||$5,200,000||Vernon Hanes et al. v. Continental Grain Company||Swine|
|12001||OH||$19,182,483||Seelke et al. v. Buckeye Egg Farm, LLC and Pohlman||Egg/Poultry|
|2001||OH||$19,182,483||Seelke et al. v. Buckeye Egg Farm, LLC and Pohlman||Egg/Poultry|
|2002||IA||$33,065,000||Blass, McKnight, Henrickson, and langbein v. Iowa Select Farms||Swine|
|2004||OH||$50,000,000||Bear et al. v. Buckeye Egg Farm, Anton Pohlman and Croton Farms, LLC||Egg/Poultry|
|2006||AL||$100,000||Sierra Club, Jones, and Ivey v. Whitaker and Sons LLC||Swine|
|2006||MO||$4,500,000||Turner v. Premium Standard Farms Inc.; Contigroup Co., Inc.||Swine|
|2007||IL||$27,000||State of Illinois (Plaintiff). Respondent undisclosed.||Swine|
For questions or more information, contact Dr. Sybil Sharvelle at Sybil.Sharvelle@Colostate.edu