Building an anaerobic digestion plant is a major investment, and there have been many changes to the renewable energy incentive schemes. So, does it still make economic sense for new entrants? David Kinnersley, head of agribusiness at Fisher German, gives his view.
The short and honest answer to this question is that it is a lot tougher than three years ago. Having said that, with the right farming system, building your own AD plant does still offer opportunities.
The level and variety of support from Government has reduced, so income is lower and less accessible than before. The Renewable Obligation Certificate (ROC) scheme closed in 2018, Feed In Tariffs (FITs) closed in March to new entrants, and the Renewable Heat Incentive (RHI) will end in 2021 – although this does give a small window still for applicants.
The Government has just announced a new ‘Smart Export Guarantee’, which guarantees payments to renewable energy generators. These generate up to 5MW annually. And from 2020, all energy companies will have to offer export tariffs, so this has given the sector a bit of a lift.
There is also a potential change coming – the Government is supportive generally of biomethane and there is definite interest in AD, particularly with recent announcements to decarbonise the UK by 2050, as well as plans to collect more household food waste.
However, it is more important than ever to be rigorous with financials, and select reliable technologies and providers. A solid business plan is essential.
Lower incentives mean it doesn’t pay to rely on just exporting the energy produced by AD, especially for those that consume a lot of electricity and generate a lot of waste.
AD works best when it is part of a circular farming system - for example, it could be integrated into a pig unit with farrowing houses, or into broiler houses that produce waste and need a lot of heating, a fresh produce business with an energy-intensive pack-house, or a dairy farm that uses lots of electricity to process cheese. It’s important that these energy needs are continuous, rather than just one-offs during the year, such as grain drying.
What doesn’t work, is something, for example, such as a 200-head dairy business where the cows are out all year. It’s too low-input for AD to be useful.
The relative cost of building a small AD plant won’t make financial sense if your only plan is to generate energy to sell to the Grid. Although, this could be financially viable if you also use it to deal with waste and therefore reduce collection charges. Make sure you crunch the numbers before making a decision.
The key things to ask as to whether AD is right for you are:
1. Will it integrate into your existing farming system – ie high waste producer, high energy consumer?
2. Have you researched technology, construction firms, and how to run the plant?
3. Do you understand the numbers and have checked with others that they are achievable?
4. Are you happy with your level of risk?
5. Have you talked to other farmers who’ve successfully built, and now run, an AD plant?
6. Have you employed a specialist consultant to advise you through the complexities?
And the most common pitfalls of starting an AD plant are:
1. Not picking the appropriate technology for your feedstock
2. Cutting corners or employing non-specialist contractors during construction - your build may not be done to the right standards, leading to expensive problems later
3. Overshooting on the costs of construction
4. Being too ambitious with the build time and missing incentive scheme deadlines which can lead to lower income and extended debt repayment
5. Not running the plant properly. AD is a complex biological, electrical and mechanical process - ensure you learn about it, or employ someone who lives it
For further information contact David Kinnersley here or find out more about our sustainable energy services here