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Late last month, Michigan’s largest investor-owned utility announced long-term agreements to purchase renewable energy from anaerobic digesters on four farms across the state.
While the agreements will equal a collective 2.6 megawatts of renewable capacity, biogas experts and advocates say the announcement is not indicative of a burgeoning industry here. Indeed, since Michigan’s first digester launched in 2006, only six are in operation today, according to the state.
And Michigan, which is well-positioned to produce energy from anaerobic digesters due to its robust agricultural sector, lags behind other Midwest states because it is difficult to make the systems financially viable, experts say.
Bernie Sheff, Michigan-based advocate for the American Biogas Council said that the price Consumers Energy has set for electricity under the new agreement is barely enough for farms to break even in their cost recovery.
“It wasn’t like it drove a group of people to invest and put in digesters here,” Sheff said of the Consumers announcement. “On the other hand, it’s something. You’ve got to start somewhere.”
Anaerobic digesters extract methane from organic waste that can then be turned into heat and electricity. They can also separate nutrients like phosphorus from that waste to be used in fertilizer.
Brian Wheeler, a Consumers Energy spokesman, said all four farms that applied — Beaver Creek Farms in Coopersville; Brook View Dairy in Freeport; Green Meadow Farms Inc. in Elsie; and Scenic View Dairy in Fennville — were selected. Determining electricity prices and capacity began at a forum among stakeholders in November, he said.
Three of the contracts are for 20 years and one is for 10 years. Consumers does not provide financial assistance to build or maintain the systems.
“Setting the price point was a major consideration in the sense that we wanted to offer something that would encourage development of anaerobic digesters, but we wanted to be sensitive to the fact that we didn’t set too high of a price to affect ratepayers,” he said. “We want to be very careful not to subsidize any form of energy if we can help it.”
But recovering the upfront investment on systems, which can cost several million dollars, is perhaps the main factor prohibiting the growth of anaerobic digestion in Michigan.
“Generally, the industry has been stagnant in Michigan for the past five years,” said Dana Kirk, manager of the Michigan State University Anaerobic Digester Research and Education Center. The largest anaerobic digester on a U.S. college campus started operating nearly a year ago at MSU.
“We haven’t seen any kind of major growth in the state and, really, nationally. A lot of that is due to the financial end of a project. That has been the toughest part of the industry. The technology has not changed a lot.”
A value for biogas
According to the Michigan Public Service Commission, 107 of Michigan’s 2,647 dairy farms are “considered feasible for a digester system.”
Consumers worked with MSU and the agricultural community to develop the latest program. Three of the four farms selected already have active digester systems on site, Wheeler said. In a press release, Consumers said the electricity capacity is enough to power roughly 2,800 homes.
Kirk said the latest agreement pays farmers 8.6 cents per kilowatt-hour (kWh).
Wheeler declined to comment on the price. “We don’t provide information about customer contracts,” he wrote in an email.
According to a 2012 report by the Michigan Public Service Commission, the average levelized renewable energy contract price Consumers paid for anaerobic digesters was about 12 cents per kWh between 2009 and 2011.
Kirk said the prices paid out to farmers have reached extremes on both the high and low end.
“Over the last seven years, we’ve seen prices literally from 4.8 cents per kWh to 16 cents per kWh in Michigan,” he said.
Kirk said it’s “very likely” that the varying prices paid to farmers is playing in a role in the lack of development here.
“If you don’t know the energy rate, it’s hard to create a pro forma. If you don’t have a contract, banks are very leery of committing money to a project,” he said.
In Wisconsin, bioenergy advocates say growth in that state’s industry will be halted if Milwaukee-based We Energies is successful in getting a new buyback rate of 4.24 cents per kilowatt-hour, down from 9.2 cents. The utility has filed the rate change, which is subject to approval by the Wisconsin Public Service Commission.
Wisconsin reportedly has the most anaerobic digesters in the country, at 34, with two more set to operate starting next year.
“This rate is guaranteed to stifle new bioenergy development in We Energies’ territory,” Tyler Huebner, executive director of RENEW Wisconsin, told the Madison Capital Times last week.
In May, Midwest Energy News profiled a biogas project in Wisconsin that raised questions about the state’s third-party ownership policy.
What can be done?
Kirk and Sheff both said there is progress being made in the Northeast, where states like Massachusetts and Connecticut have passed bans on organic waste in landfills. Kirk said that then leaves three options: compost it, burn it or send it to a digester for energy production.
“That has prompted a fair amount of development in New England states by putting a premium on organic waste management,” Kirk said.
However, results of that in Michigan may be a little more complex, as it could require longer hauling distances than in the Northeast.
“Are we hauling material farther to a digester, just changing the location of the problem?” Kirk wondered.
Rather than contracts being done with utilities on a case-by-case basis, the Michigan Public Service Commission could step in with set rates for electricity from anaerobic digesters, Sheff said.
“There has got to be something longer term where investors, banks and people are going to put money behind (projects) and provide debt financing to happen,” he said.
Kirk agrees. “Given the nature of where we’re at and what has happened and hasn’t happened in the past 10 years, regulators or the Legislature will probably have to get involved to really drive the growth of the industry. We’ve tried the status quo for the past 10 years.”
Earlier this month, the Obama Administration released a “Biogas Opportunities Roadmap,” which encourages voluntary biogas development to reach renewable energy goals and reduce methane emissions.
The plan calls for $10 million in research funding and broadening financing options to get projects off the ground.
Meanwhile, for utilities like Consumers, purchasing power from digesters adds at least some diversity to the utility’s renewable portfolio, along with wind and solar.
“It’s important we learn and see how well these different approaches work and employ them as we see fit,” Wheeler said.
Kirk, of MSU, does foresee anaerobic digesters contributing to renewable energy portfolios on a commercial scale, perhaps as a way to balance grid loads.
“It’s just a patchwork at this point,” he said. “All of the environmental benefits that come along with what anaerobic digestion does are far more valuable than just the energy itself.”
Sheff, of the Biogas Council, just wants to see growth encouraged in the industry.
“It’s a start,” he said of the Consumers plan, “but we need to get further. We need to work harder.”