21 Aug 2018
Does AD stack up financially?
Sponsored by Shawbrook BankBuilding an AD plant is a big investment, and there have been many changes to renewable energy incentive schemes. So does it still make economic sense? David Kinnersley, head of agribusiness at Fisher German, gives his view.
The short and honest answer to this question is it is a lot tougher than three years ago. Having said that, with the right farming system, building your own AD plant still offers opportunities.
Support
The level of Government support and the types of support have reduced, so income is lower and less accessible than before.
The Renewables Obligation Certificate scheme has closed, Feed-in Tariffs closed in March to new entrants and the Renewable Heat Incentive will end in 2021, although this still gives a small window for applicants.
A new ‘Smart Export Guarantee’ will guarantee payments to renewable energy generators, which are generating up to 5MW annually. From 2020, all energy companies will have to offer export tariffs, so this is a small uplift for the sector.
There is potentially more change coming: Government is generally supportive 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 finances and select reliable technologies and providers. A solid business plan is essential.
Farming systems
Systems which consume a lot of electricity and generate a lot of waste are most beneficial, because the cost of producing electricity or biogas just for export means with lower incentives it does not pay to rely on just exporting energy. 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 broiler house which produce waste and needs a lot of heating, a fresh produce business with an energy- intensive packhouse, or a dairy farm which uses lots of electricity to process cheese.
It is important these energy needs are continuous, rather than just one-offs during the year, such as grain drying.
What does not work is something like a 200-head dairy business where cows are out all-year-round. It is too low-input for AD to be useful.
Does scale matter?
The relative cost of building a small AD plant will not 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 waste collection charges. Do your numbers though.
Below 124kW it is very difficult, but it depends on circumstances such as volumes of waste, energy density and digestibility.
Is AD right for you?
- Will it integrate into your existing farming system?
- Have you researched technology, construction firms and how to run the plant?
- Do you understand the numbers? Have you sense- checked with others that they are achievable? There are usually hiccups along the way and they should be factored in.
- What is your level of risk? AD plants are complex and returns of more than 10% are difficult to achieve with the current incentives. I would like to see a return on investment of more than 15%, but it depends on your attitude to risk.
- Have you talked to other farmers who have successfully built and now run an AD plant?
- Have you employed a specialist consultant to advise you through the complexities?
Common pitfalls of AD
- Not picking the right technology for your feedstock.
- Overshooting on the costs of construction.
- Cutting corners or employing non-specialist contractors during construction; lower standards can be expensive mistakes.
- Being too ambitious with the build time and missing incentive scheme deadlines, which can lead to lower income and extended debt repayment.
- Not running the plant properly; AD is a complex biological, electrical and mechanical process, so ensure you learn about it or employ someone who lives it.
Farmers Guardian and FarmersGuardian.com are trademarks of Farmers Guardian Ltd, a subsidiary of AgriBriefing Ltd.
All material published on FGInsight.com and FarmersGuardian.com is copyrighted © 2020 by AgriBriefing Limited. All rights reserved.
