Methane Digesters

[Stephen J. Vertin MAI]

Even though I am an MAI, MRICS I do a lot of agricultural appraisal work as explained in the past. One of the newest trends I am seeing is a crap load of methane digesters being built (nearly totally green energy). At first they were smaller operations enough to power the farm and throw some power back on the grids but now I have been getting request to appraise very large operations (proposed construction).

These things are so new there have been no sales so it is basically cost and income. Have done plenty of utility plants and understand cash flow operations. My question is how have people been handling the manure cost aspect?

If you are not familiar with these things but have an understanding of utility appraisals let me give you a thumb nail how they work. In short, live stock farms take the manure put it through a device that is reflective of a man made cows stomach and produce methane gas that powers generators.

The cash flow is pretty simple. The potential gross income is easy to estimate and is simply based on the energy generated and sold. Operating expense are similar to any other generating plant, RE Taxes, Maintenance, Insurance, Operation Personal, etc....

But the operations of other utility plants have the cost of energy used in fueling the generators, coal, natural gas, etc.... In these things the fuel is manure. Therefore, they are currently being built by a number of commercial live stock operations who produce manure for free. As you can see this is pretty benificial.

My question is what happens if the live stock operator sells the plant? Obviously manure is no longer free. Have you been taking out the cost of this fuel (manure) in your model to simulate market value? This really was not an issue in smaller operations but seems to me important in the larger facilities. Any input is appreciated.

 

[J L H]

Absolutely no experience on my side of this, but is it valid to consider the methane plant just another part of the livestock operation, basically just making better use of resources at hand? Is it likely that an investor would want to purchase the plant WITHOUT the livestock operation. For the very reasons you bring up, how viable could such a place be if they had to pay for cow-poo?

Other industries now capture what was once waste and now either reduce their operating costs or generate a new income source, but not in a capacity that would be independantly viable. We have a a local copper smelter (Kennecott, subsidary of Rio Tinto) that uses waste heat from smelting operations to run a small generator and to produce hot water for the complex. If they chose to sell electricity to the grid or steam heat to the local commnity, it would be tough to argue an independant income based appraisal of the generator under the hypothetical assumption that Kennecott might sell the generator alone.

Shipping, delivery, storage, disposal of leftover waste material all represent actual, administrative and possilbly regulated costs that the would be greatly reduced in an in-house operation. Would a collection of solar collectors on top of the barn producing power for the grid be considered a stand-alone item for an appraisal for any method other than just cost?

 

[AnonApprsr]

Wouldn't the Cows come with the power plant? I think they'd be included, as the manure seems pretty entwined with the powerplant. Sorry for commenting on this when I don't know anything!

 

[Michigan CG]

http://motherlode.sierraclub.org/MethaneDigestersSIERRACLUBGUIDANCE.htm

http://www.mnproject.org/e-altgeneration.html

http://www.auri.org/news/ainjul01/05page.htm

http://www.google.com/search?hl=en&suggon=0&q=methane+digesters+energy+fuel&start=0&sa=N

 

[Dennis J. Black ASA IFAS]

Stephen,

My thoughts are purely theoretical, but I am currently involved in an assignment which also contains "cross over" type issues.

Since the manure is the fuel I just see it as a variable expense to the operation of the plant. Thus, any data relating to the cost per "cow pie" leads you to the varaible cost per unit of production. I see it also as being akin to an owner managing his own property. You just apply what a non-owner supplier of that varible expense would pay.

Keep in mind "In the land iof the blind, the one eyed man is King" Sometimes you just have "sh**" data and have to go with the flow. Sorry could not resist.

 

[Kali the Boston Terrier]

My thought was, is it fair to assume that the the delineated market for this use exists beyond livestock operators.

Your point free is free, and just because someone else could buy it, does not mean it is a financially feasible user.

 

[Stephen J. Vertin MAI]

Both funny and interesting comments. I think you could consider this a stand alone operation and not part of the live stock operations. While I have handle methane digester this way in the past (when operations were smaller), this thing is positioned to gross $1.5 million a year in electricity. It cost $12 million to build and while there are some operating cost they are low; hey and when the sh*ts for free, these things are cash cows (now I could not resist).

I think you are right. Given you had no cows you would have to buy the manure and in theory this would be a cost of operation when determining value. So how do I find the market value of cow pie?

 

[JSmith43]

So how do I find the market value of cow pie?

Here are some simple thoughts off the top of my head. Thank God for the fake names Wayne permits us to use. Warning: I only worked on a farm a few times as a kid, baling hay, etc. I bet Tim is holding back & has special insight regarding cow pie futures, etc.

With the required supply of cow pie calculated, I would look toward potential suppliers that might fill the livestock operators shoes (so to speak).

Say, a 5 mile radius would include multiple potential suppliers of cow pie at hauling costs. Packing and hauling costs from within the potential supply area sets the floor cost.

Is there a huge economy of scale to consider with these generators or would the small ones also gross 12 cents on the dollar? If so, I'd say the price of cow pies will eventually rise to the point that the return per dollar will match other investment options.

But, I think the competing investments one should consider in predicting the future cost of cow pie, be limited to those opportunities with a similar amount of glamour associated with it.

 

[JSmith43]

Hold it. I thought of a better idea: Challenge the local market. Put an ad in the local paper offering to deliver a manure spreader full of fresh cow pie....do they have to be fresh? I thought the pioneers used buffalo chips for fire wood. They must have been dry...

Start out by asking for $100. delivered locally, with a mileage surcharge at going rate for extended deliveries. Just keep changing the price of the offer until it stabilizes at a rate of cow pie delivery required for the subject generator.

You will have established the actual MV for cow pies at the proper volume point and may make a $hit load of money in the process

 

[JT1974]

The main cost in obtaining the manure would be trucking. A small town 10 miles west of me has a "green" industrial park with a biodiesel plant and they were considering building a large commercial digester like you are describing. There are several very large factory dairy farms in the area (1,000+ cows) who were going to supply the manure. However, it would have to be trucked to the digester and when the locals "caught wind" that tanker trucks full of cow crap would be driving through town constantly, the project was halted.

The fact is, dairy farms typically spread their manure on their fields for fertilizer so there is in fact "value" in cow manure. However, I'm pretty sure that if a digester operator were to truck the fresh manure to the digester and return the processed manure back to the farm so they could use it for fertilizer, the farmer would probably not demand very much money for the cow poo. If on the other hand, the manure wasn't returned, the farmer would end up needing to buy additional fertilizer so they would charge more for the manure.

Ultimately, the largest expense would likely involve the trucking; especially with Diesel over $4 per gallon.

Sorry I didn't answer your question, but this should give you a few points to think about.