Developing a biogas digester on a commercial farm is like launching a new business. It is exciting and can offer the promise of substantial profits to the farm owner. There is often a desire to move quickly so as to not miss out on a great opportunity. However, in all that excitement, it is easy to make small mistakes that could have a sizable impact later on. Here are the TOP 5 MISTAKES to avoid in your farm digester project.
1. Negotiating the Wrong Financial Terms
When it comes to partnering with a digester developer, there are dozens financial models to consider. Some developers offer fixed ground lease payments while others agree to share profits on the overall digester operation, including the sale of LCFS and RINs. Still others will guarantee payments for manure based on volume or heard count. Some developers will offer incentive payments to the farm before the digester is operational, while others will not. Deals may be negotiated on any combination of these terms as well as others, with each deal offering a unique balance of risk and reward for the farm owner. It is essential that the farmer carefully assess their risk tolerance and their personal short-term and long-term financial goals and negotiate terms that meet or exceed them.
2. Selecting the Wrong Development Partner
Most large-scale farm digester projects are a joint-venture between the farm owner and a developer. After all, the farmer already has more than enough on his plate with managing his farm day-to-day operations, so it makes sense to partner with a developer capable of raising the capital and supplying the design and construction services needed for a successful project. This is a long-term, working relationship typically lasting 20 years or more. It is important that the farmer carefully select a development partner whose business objectives, management and communication style align with his. As with any business venture, challenges are bound to arise, and when they do it is important to have the right partner on your side.
3. Ignoring Expansion Opportunities
Often farmers make the mistake of measuring the potential of their biogas digester on the manure production capacity of their farm alone. In some locations, however, it is possible to transport manure from nearby farms as additional feedstock. In these cases, manure is either transported by truck or pipeline, with a fee to be paid to the supplying farm. Where this is feasible, it may greatly expand the biogas production capacity at the digester and enable to project to achieve substantially higher revenues.
4. Improperly Estimating the CI Score
A farm's CI Score (or "Carbon Intensity" Score) is an essential factor in determining the value of tax credits available under California's Low Carbon Fuel Standard, and in turn the overall revenue potential for a biogas digester project. The CI Score is determined by a representative of the California Air Resource Board in consideration of several factors relevant to the farm's operations, herd management and manure handling practices. For planning purposes, it is common for a farm owner to make its own estimation of the CI Score its farm will receive. However, faulty assumptions or careless application of the precise CI scoring methodology can lead to an incorrect CI Score estimate and improper expectations for revenue generation.
5. Underestimating the Construction Timeline
Finally, farm owners should keep in mind that construction of a large-scale biogas digester is a significant undertaking that will likely require many months to complete. The project will progress through several stages, including design and engineering, permitting, procurement, construction, and testing and calibration. Farmers should assess the impact of this process and timeline on their other farm operations. In the end, however, having an efficient, profitable digester up and running can make the investment of time and effort exceedingly worthwhile.
For more information about farm digesters or to findout more about how CEI can add value to your project, visit our website.
Comments