OMAHA (DTN) -- Methane digesters are the new growth wave in renewable energy for agriculture.
The stick and the carrot are both at work here. As livestock operations work on ways to manage manure, the changing landscape of environmental regulations and legal challenges -- along with state and federal grants and energy credits -- are combining to start an uptick in methane digesters to produce renewable natural gas (RNG).
Calgren Renewable Fuels, an ethanol plant in Pixley, California, held a grand opening Oct. 25 for a methane digester that will cluster livestock waste ultimately from 12 local dairies. Some of the RNG will be used to help power the ethanol plant, but most of the RNG is also expected to go into a pipeline to be used for a transportation fuel.
Smithfield Foods also announced plans Thursday to build methane digesters across most of its operations over the next decade in North Carolina, Missouri and Utah to produce renewable natural gas. The company highlighted its "manure-to-energy" project that would create renewable natural gas on more than 90% of its finishing-hog barns in those three states.
Smithfield is combating nuisance litigation in North Carolina over waste at a hog farm that led to a single jury award of $473.5 million against the company last summer. Smithfield is appealing the verdict. Hog operations were also rocked in North Carolina during Hurricane Florence, leading to dozens of hog lagoons being compromised.
Dairy digesters in California are being sparked partially by an impending rule calling on the state to reduce by 40% the total emissions from dairies by 2025. At the same time, California's carbon standards are making it harder on nonrenewable natural gas to remain affordable. California is likely to phase out nonrenewable natural gas in the future to achieve those same greenhouse-gas emission standards.
"To the degree you can get renewable gas into the pipeline, the utilities are all for it, because they see a hugely declining market for conventional natural gas going forward," said Michael Boccadoro, executive director of Dairy Cares, a California sustainability group for the industry. "So they (utilities) are very supportive of it, almost too supportive, because they want to fill the pipeline with renewable natural gas."
That's great if you can build a gas digester, but not so great if you buy natural gas in California. "The renewable natural gases are really expensive," Boccadoro said, noting a lot of dairies in the state rely on natural gas for energy.
California has come up with several incentives to offset the costs of digesters for livestock operations. Over the summer, the California Department of Food and Agriculture awarded $69.9 million to fund 40 dairy digesters across the state. Now at least 58 dairies are putting in digester projects, getting state grant funding and incentives from the public utilities commission to help offset interconnection costs with utilities as well, up to $3 million for an individual dairy and $5 million for a cluster project.
California could have well over 80 methane digesters on dairy operations within the next few years, Boccadoro said. Another round of grants is expected in December to fund as many as 40 more digesters.
Along with the state incentives, EPA and California also started offering livestock projects renewable energy credits just about the time Congress ended a 30% federal tax credit for methane digester construction.
EPA's ruling that livestock waste can be converted into renewable natural gas scores livestock digesters as cellulosic, qualifying them for D-3 renewable identification number (RIN) credits. Cellulosic RINs are currently priced at $1.97 each, more than six times the value of a standard D-5 ethanol RIN. That creates a nice revenue stream for renewable natural gas. Then, if a natural gas plant has a seller or market in California, they can get a Low-Carbon Fuel Standard credit.
PRODUCING NATURAL GAS VS. ELECTRICITY
The EPA cellulosic RIN credits and California Low-Carbon Fuel Standard credits also gave digesters an option to generate renewable natural gas as an energy source rather than electricity.
"That started changing the economics for a lot of projects, making biogas for transportation fuel," said Patrick Serfass, executive director of the American Biogas Council.
The key for livestock operations is that they have to find a pathway to sell and deliver the natural gas to a vehicle in California to qualify for California Low-Carbon Fuel Standard (LCFS) credits.
Earlier this month, Renewable Dairy Fuels, a subsidiary of compressed natural gas company Amp Americas, opened the country's largest renewable natural gas project from dairy waste in Jasper County, Indiana, that will take 945 tons of manure daily and convert it to biogas for transportation fuel. The digester is 50% bigger than the Amp Americas digester operation with Fair Oaks Farms, also in Indiana. Fair Oaks was the first dairy project certified for renewable fuel credits by EPA and the California Air Resources Board last year, and its carbon intensity score was the lowest ever issued by the air resources board, meaning its energy is cleaner than other fuels.
Amp Americas now has partnered with four Indiana farms. The company also hired a new vice president who will be dedicated to growing the company's dairy RNG business.
Smithfield also stated to DTN that the pork producer plans to market its renewable natural gas through California's market where possible, so the company could claim both D-3 RIN credits and LCFS credits. Smithfield expects there will be other markets for its RNG as well. Smithfield's move comes with another bonus: praise from the Environmental Defense Fund for taking "a major step forward for the hog industry."
Read more about it here: http://blogs.edf.org/…
The digester process takes a high-potency greenhouse gas -- methane -- and converts it into a lower emissions renewable natural gas. Gasoline has a carbon intensity score of 98.47, while renewable natural gas from dairies has a minus 255 score under California's LCFS.
The current demand for renewable natural gas in California, an EPA RIN value around $24 per MMBtu (1,000 cubic feet of Btu) and California credit for a dairy depending on the carbon-intensity score, might generate total value for renewable natural gas ranging from $42 to $70 per MMBtu. Combined, the EPA and California credits are generating roughly $95 per MMBtu. An MMBtu has the same energy content as roughly nine gallons of gasoline, or 11 gallons of corn ethanol, according to the Department of Energy. The credits now for renewable natural gas are significantly more attractive than the spot price for natural gas, which was $3.12 per MMBtu early Monday.
MASSIVE MARGIN CURRENTLY
"There's a massive margin right now, so that has driven some similar projects nationally," said Dana Kirk, an assistant professor in Biosystems at Michigan State University and manager of the University's anaerobic digester research. "The whole low-carbon fuel thing has shifted this whole philosophy."
A dairy digester can inject gas into a pipeline anywhere in the country as long as the company can diagram a line to California and contract with someone who sells natural gas in California to the transportation industry.
"Then you can create a RIN, and you can get the California Low-Carbon Fuel Standard," said Mark Stoermann, chief operating officer for the company Newtrient. "Then you can get a tremendous price for your Btu."
While this is great for new digesters coming online, most dairy digesters in the past have been built to produce electricity. The problem is those digesters may have originally been under contract with electric companies to produce power during the past decade, but electricity prices have fallen dramatically since then. They have to consider if they can convert to renewable natural gas and make it profitable. Some farms are looking to switch power production, but natural-gas companies aren't making interconnections easy.
"If you look at the science, there's no issue actually with the gas quality," Serfass said. "It's just a fear of the unknown, which comes from a lack of education."
Serfass said there are utilities in certain states looking to work with dairies, such as in Vermont, but that's not the case everywhere.
"That's creating a difficult situation for the dairies in Wisconsin," Serfass said. The digester technology works great, and they need it for manure management and odor control, but they need to be able to sell their energy at a higher price or be able to sell the digestate as a great soil product to be able to keep their digesters running."
LOOKING FOR OPTIONS TO DEAL WITH COMPOST
Ultimately, the renewable natural gas might not end up as valuable as what the digester can do to help reduce nitrogen and phosphorus runoff and waste. Livestock operations will be looking for more ways to convert the leftover compost from digestion into a viable fertilizer byproduct. That will be a long-term key to the sustainability of digesters, said Bruce Knight, a former USDA undersecretary of regulatory affairs and now a conservation consultant.
"If you had a digester and generate electricity, you have engaged in methane destruction for greenhouse gases, but you really haven't done anything for the nitrogen and phosphorus footprint of a large, modern dairy," Knight said.
Michigan State's Kirk agrees that renewable natural gas production might be the incentive for now to create more digesters, but the long-term benefit may be a strategy for nutrient management that converts the phosphorus and nitrogen cycle from livestock back to crops.
"There are definite benefits to manure management and recycling the phosphorus and the nitrogen," Kirk said. "We're going to have more phosphorus and more nitrogen available to crops in the soil, allowing the plants to better suck up than in raw manure," Kirk said.
Chris Clayton can be reached at Chris.Clayton@dtn.com
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