In December 2004, the US Department of Agriculture (USDA) announced a partnership with the EPA to support agricultural- and business-based renewable energy systems. The 2002 Farm Bill had directed USDA to encourage the development of renewable energy, and in 2003 and 2004, USDA's Rural Development, a venture capital entity, invested $16.9 million in 67 anaerobic digester projects. According to the USDA, these projects will serve 11,300 rural households, generate 127 GWh, and create 120 jobs.

But this is in part a buyer beware story, depending on which utility service territory the buyer resides in, especially in California. Following the energy crisis, state legislation in 2001 set aside $10 million at the California Energy Commission (CEC) to fund the Dairy Power Production Program and diversify generation resources.

Fourteen new projects funded by the CEC under the best of intentions have come crashing into the slow-moving bureaucracies of investor-owned utilities and ever-changing interconnection rules. And dairymen have been left angry and frustrated. Finally, as part of its budget deficit reduction effort, the state took back the portion of the CEC's funding not yet spent because of delays in the program. There are no plans or funds left to award additional grants.

If the California experience is an indication, dairy power production is a continuing experiment on a steep learning curve, despite the CEC's desire to see the industry contribute 100 MW to the state's effort to diversify its power production fuel mix.

In Oregon, the Small Scale Energy Loan Program was created after voters approved an amendment to the Oregon Constitution in 1981 authorizing bond sales to finance small scale, local energy projects. However, only a handful of dairy farmers have taken advantage of it. Now, a company seeking to expand its distributed generation business is encouraging farmers to borrow from the fund to develop onsite power systems fired by methane.

In Colorado, the state Office of Energy Management and Conservation (OEMC) is using federal funds to underwrite a demonstration project in hopes of encouraging farmers to invest their own money in digester and power production systems.

State Programs
The availability of grants in California made it the most proactive state west of the Rockies to promote power production at dairies. The CEC selected Western United Resource Development Inc. (WURD) to run its Dairy Power Production Program. Out of the 56 applications received in the 2001 solicitation, 14 projects were awarded a total of $5.8 million in spring 2002. They have an estimated generating capacity of 3.5 MW. Six are now operating, while eight are under construction.

The program offered two types of assistance for qualifying dairy biogas projects. Buy-down grants cover a maximum of up to 50% of the capital costs of the proposed system based on estimated power production but not to exceed $2,000 per kW installed, whichever is less. If the CEC felt some projects were at risk of getting built, they awarded incentive payments, based on $0.057 per kWh of electricity generated by the dairy's biogas system, paid out over a maximum of five years. Of 14 grants awarded, four were given incentive payments instead of buydown grants.

However, before the awards were made in late 2001, milk prices plummeted and dairies had a difficult time getting their share of project costs financed once they were awarded contracts. After milk prices recovered—some 20 months later—the projects proceeded.

But a second obstacle emerged. All the projects seeking to generate power in parallel with the main grid experienced great difficulty in obtaining interconnection permits from the investor-owned utilities. The rule governing interconnections between utilities and distributed generators was developed over the previous five years through a stakeholder process at the California Public Utilities Commission and with the help of the CEC. Known as Rule 21, the interconnection rule continues to be updated.

Michael Marsh, WURD CEO, said the dairymen became frustrated dealing with the investor-owned utilities, which continued to make modifications to the interconnection agreements as Rule 21 changed. These difficulties were a large contributor to delays in the projects.

In Oregon and Colorado, manure management to reduce greenhouse gases and other pollutants takes on more importance than power production, and there are very few projects in either state. The Colorado Office of Energy Management and Conservation is recruiting ranchers to install anaerobic digesters and electric generators, to demonstrate and improve the technology. However, its funding is limited to demonstration projects and relies on education to spark interest in private investment.

Ed Lewis, a program manager in OEMC, recruited Gary Teague of Teague Diversified Inc. to install a demonstration project in his feed yard, where between 15,000 and 20,000 cattle are fed. But this project is unique, Lewis says. Most ranches are much smaller than Teague's, making community digesters located in a central area much more feasible where manure can be cost-effectively delivered from a number of ranches.

The $3 million Teague project will include a 95-kW generator of which 10 kW—the maximum allowed by Xcel, the Colorado utility—will be sold under a net metering contract. The remainder of the power will be used to serve the electrical needs of the feed yard. OEMC provided $125,000 for the first of 370 digester tanks.

Lewis is holding workshops and virtual tours (via the Internet) of a digester operation installed in 1999 at a hog farm where OEMC has also funded the installation of a 65-kW windmill and microturbine at a cost of $80,000 and $65,000 respectively. OEMC will contribute another $80,000 for the installation of a Stirling Engine. All generated electricity is being used on the farm.

Jeff Keto, a loan manager in Oregon's Small Scale Energy Loan Program, says in the 24-year history of the loan program, just four dairy digester-to-energy projects have used it or are just now borrowing funds to build projects.

Oregon's farms are typically small, Keto says, and most don't produce enough manure to economically justify a digester and generator to produce energy. Digesters would have to run 24 hours per day to justify the project cost, and the loads just aren't big enough, he explains. Furthermore, electricity rates are very low, providing little or no incentive to produce power onsite. There is no net-metering law in Oregon, so power purchase agreements with local utilities are required if the power is to be sold.

So a digester of any type becomes a pollution management tool, rather than a fuel manufacturer, Keto says. For this, the farmer needs a manure manager. Power sales may cover some expenses but the money maker is designer compost bagged in 20-pound bags and sold to nurseries and others, he says.

An alternative Keto proposes is selling the methane produced by the digester or lagoon directly to a nearby customer such as a nursery or mushroom grower, or for wood drying. But that has not been tried yet, because most dairies do not have those types of neighbors.

The Technology
There are about 40 digester/generation systems operating on dairy farms in the US, although they are much more popular in Europe, where the technology is well developed, according to Garrett Smith, an engineer with Renewable Energy Works (REW), headquartered in Portland, OR. Smith explained that the technology hasn't been embraced here in the US largely because the projects are too small for the power industry. REW is trying to bridge that gap.

"We think the market need is very high in the west," Smith says, and he expects to see systems throughout the region in the next decade.

REW is using the model of large independent power producers and is signing contracts with farmers to develop, build, own, operate, and manage projects onsite at dairies—with no financial outlay by the dairy owner. REW has two products to sell—compost and power. "We're trying to optimize the value of both, Smith says. The company can sell power either to the farmer or through a power purchase agreement to the local utility, but the compost—sold to nurseries and wineries—is the higher revenue producer.

REW is developing two projects in Oregon. The $4 million, 1-MW project at a Rickreal dairy in the central Willamette Valley will start construction by May. A $1.8 million, 350-kW project in Turner is awaiting a land lease agreement. REW obtained financing for these projects from Oregon's Small Scale Loan Program. The company is also negotiating two potential joint-venture projects in Bakersfield, CA.

REW has done its due diligence on the six manufacturers of digester systems in operation in the US and two or three others in Europe. It formed a relationship with GHD, a Chilton, WI—based company that has 10 systems operating across the country. GHD's patented technology, says Smith, is a blend of European and US designs built on proven digester technologies.

Smith said REW has determined that a generator set designed to run on biogas is much better in terms of long-term investment, a better life span, longer periods between overhauls, and good life-cycle costs. He said Europeans have already worked this out. GE Jenbacher's natural gas and biogas engines under 5 MW are the world's leaders and REW's preferred system, he says.

Smith explained the difference between digester systems. The active enclosed anaerobic digester operates continuously, digesting fiber and producing methane for energy generation. The fiber is separated out to create a pathogen-free end-product that can be marketed as designer compost or soil amendment. This system produces more methane than lagoon or pond digesters because of the controlled conditions.

The alternative static covered lagoon, or pond digester is less expensive than an enclosed digester. It is installed to help the farmer or rancher manage manure and control smells, usually without capturing the methane. Manure is poured in and solids, if not screened out initially, settle to the bottom, requiring the pond to be dredged. Less methane is produced than in the active digester but it can be captured and piped to the generator. The fiber is not marketable as compost.

The Dairymen Talk
The first of the 14 California projects to become operational was built by the Straus Family Creamery in Marshall, CA. The farm was founded in 1941 and converted in 1980 to an organic dairy with the philosophy that all operations should be designed to be sustainable and protect the environment. So the idea of installing a digester and power production project was a natural for the family-run dairy and creamery.

While manure had traditionally been composted on the farm and reused as fertilizer, in 2000, owner Albert Straus decided to convert his two existing lagoons to a covered anaerobic digester pond and capture the methane. The CEC's $67,900 grant in 2002 allowed him to add a generator, piping, the electrical connections, and a heat exchanger, and to expand the hot water distribution system. The total project cost, including the conversion, was $336,000. All dairy and creamery waste are hauled to the covered digester pond.

Straus says the generator, which operates about 11 hours per day, is now producing up to 600,000 kWh on an annual basis. It offsets almost all electricity used by the creamery and the dairy, reducing monthly energy costs between $3,500 and $4,000.

Straus applied for an interconnection permit with PG&E in February 2003 but the effort to reach final agreement in April 2004 was cumbersome and time-consuming, and happened only after the generator went through a pre-parallel test supervised by PG&E. He attributed the lengthy process to the fact that his was the first net-metering interconnection agreement for PG&E and the huge learning curve produced delays as PG&E processed the application using the new rules. Five meters at his farm and creamery are now included in his net metering pact with PG&E.

The Joseph Gallo Farm installed a 300-kW Marathon generator, Caterpillar engine, a new covered lagoon digester, and ancillary facilities at its Cottonwood Dairy in Atwater, CA, at a cost of over $2 million. It received $600,000 from the CEC and will also receive incentive payments of $1.50 per watt from the CPUC's Self-Generation Incentive Program for internal combustion engines burning a renewable resource.

Gallo's chief operating officer, Carl Morris, says the project, which took two years to complete, is a huge environmental benefit and a big plus for business at the 5,000-cow dairy. Although the investment was significant, he says, it also helped to improve dairy infrastructure and meet new environmental rules.

The biogas is piped almost a mile from the lagoon to the generator—located at the company's cheese plant - and burned to produce almost 25% of the cheese factory's electricity needs. The onsite power production and the waste heat from the generator plug-flow save the farm about $1,000 per day - 75% of that from onsite power alone. The captured waste heat used in the cheese plant is reducing propane use by 149,000 gallons a year.

The farm has an interconnection agreement with PG&E but is using all the power generated onsite. In fact, the digester is producing more methane than the engine can burn, so it's being flared, he said. He would like to install another engine to increase power production.

PG&E produced some unusual requirements to interconnect with its system and a number of its engineers gave contradictory advice. Interconnecting with PG&E, said Morris, was one of the major challenges of the project.

The Meadowbrook Dairy in El Mirage, CA, which milks about 2,000 cows, obtained a $262,500 grant from the CEC to install a enclosed digester, a 180-kW generator, and a Caterpillar engine. Owner Eddie Imsand, a former aerospace engineer, installed the $800,000 project himself with the help of an electrician and dairy employee.

The project has been operating since June 2004 when the interconnection agreement was signed with Southern California Edison. All electricity generated is being used at the dairy. According to Imsand, the dairy had been on a TOU interruptible rate and typically used 85,000 kWh per month during summer months and 60,000 kWh per month during winter months.

But Imsand does not know how much he is saving because of a major billing problem, which emerged when the dairy's metered electrical usage decreased after the system became operational. Huge demand charges in the amount of $8,500 appeared on his electric bill in September 2004. After Imsand protested, SCE put a hold on the account and, as of March 2005, he had not received a bill.

Imsand says SCE has not yet interconnected the system to its distribution lines even though the interconnection agreement was signed when the system became operational. SCE engineers, concerned about the safety of their people, insisted that a ground bank fault system be installed to guarantee that the generator shuts off if SCE power drops out. He was required to pay SCE $27,500 for the fault system last August, and it had not yet been installed by early March. Once the interconnection is completed his power will be net-metered.

Eden-Vale Dairy in Lemoore, CA, is in the process of installing its plug-flow digester and 150-kW generator set, according to owner Jake de Raadt. The dairy milks 700 cows. He received a $300,000 CEC grant, which will cover almost half of the $662,000 project cost. The project will also qualify for self-generation incentive funds from the CPUC.

Serving the dairy's 100-kW to 175-kW load onsite would be difficult, explained de Raadt, because it would be tremendously expensive to build a distribution system and connect all the electrical loads,. There are 13 time-of-use meters on the 150 acres, including one for a 60-horsepower pump at a deep well used for irrigation water at the other end of the farm.

De Raadt said the power produced by his generator will be net metered but the PG&E interconnection agreement has not yet been signed. Furthermore, a utility program manager has told him there would be a 22-week lead time to install the transformer, adding another delay. Once the digester starts operating, it has 25 days in which to heat the manure before the first methane is produced and routed to the generator. The generator has been delivered, but he doesn't know when he can turn on his digester.

The Utilities Respond
Kim Whistel, manager of generation interconnection services at PG&E, explains that dairy farms are unique by nature of their location in rural areas and at the end of distribution lines. The lines were originally designed for one-way traffic to the farm, and none from the customer to the line. Installing interconnection equipment on these lines creates locational problems and triggers many requirements for fault detection, including the installation of ground fault support systems, Whistel says. Or lines may need reconducting to handle capacity, she adds.

Utilities are not allowed to pay for equipment being installed, which will be used only by the one customer who must pay for it. On the other hand, when changes are required due to Rule 21 updates, PG&E picks up the cost, she says.

The expectations of developers working on the biodigester side may not take into account utility requirements, and the dairy owners are not aware or prepared for the time and work involved, she suggests. This holds for interconnections where power is going to be used onsite, as well, Whistel acknowledged. Moreover, she added, developers and contractors have changed configurations and/or designs causing PG&E engineers to revise their work, adding delays to interconnection completion. She admitted personnel turnover may have contributed to some delays.

Additional state legislation caused more headaches for the utilities. The state net metering law in 2002 added biogas plants to the public utility code allowing solar and wind projects to send power not used onsite into the utility system and to be credited for that power on their utility bills. It also expanded the size of the projects that could net meter to 1 MW.

As explained by Susan Buller, a senior regulatory analyst at PG&E, farmers can aggregate the usage on all their meters, even if the generation interconnection is not located where the meters are. Power sent to the utility is then deducted from power the farmer buys from the utility in the billing process. "Writing the tariff and the program for the billing process was a real challenge," said Buller, and resulted in billing errors.

Jerry Torribio is a project manager in the customer service area at SCE. Dairies in SCE's service territory, like PG&E's, tend to be in rural areas, Torribio says. Their loads are served by single distribution lines that are not as robust and redundant as those in metropolitan areas.

The existing utility distribution system serving industrial areas was designed to handle heavier system demand, so the cogeneration systems installed in industrial sites didn't have major impacts on the system—as do the generation systems being installed at the dairies. "Our intention is to support them and get them online as quickly as we can," he says.

Torribio explains that organizational changes and/or personnel transfers may have accounted for why multiple distribution engineers were assigned to the Meadowbrook project, thereby delaying the project.

Michael Marsh, with WURD, the administrator of the CEC grant program, explains, "Dairy power makes sense for the environment, the dairy farmers, communities, and the state. But in California the future is tenuous at best," he says. Dairy power projects will never get going absent a legislative mandate that the IOUs buy the energy at a reasonable rate of return, he argues. Western United Dairymen, which created WURD as a separate nonprofit organization, is now working on new legislation to expand the net metering law to do just that.

California-based LYN CORUM is a technical writer specializing in energy topics.

DE - September/October 2005