As a dairy farmer, you are no stranger to innovation and efficiency on the farm. So when approached by developers interested in building an anaerobic digester on your property, it is essential to consider the big picture. Here's what you need to know as you navigate this opportunity.

Exploring on-farm anaerobic digester ventures

Anaerobic digesters offer a compelling solution for managing waste and generating renewable energy on dairy farms. When considering these projects, it is crucial to understand the potential business structures and revenue sources available to you.

Dairy farmers have a range of options when structuring their anaerobic digester ventures. You can try to develop, own and operate the digester yourself. You can work with a developer who will do most of the work for you. Most developers will want to own and operate the digester themselves. Some developers will ask the dairies if they want to have some ownership in the digester, while others will offer a lease for the land where the digester sits and some sort of manure supply agreement for the manure.

As an owner, the dairy will share in any profits of the anaerobic digester company but will likely have to contribute money to build, and maybe even operate, the digester. Digesters can be expensive to build, costing tens of millions of dollars, depending on the size. Even with bank financing, the equity required to build a digester can be millions of dollars.

If you do not want that much responsibility, or the developer doesn’t offer that option, you will get paid for the use of the land in a lease and for your manure in a manure supply agreement. In most cases, your real value comes from the manure, and you are often paid based on the renewable natural gas (RNG), digestate (often sold as a fertilizer), and any state and federal tax credits or production credits. The formulas used to determine how much you get paid can be complex, so it would be wise to ask for real-life examples of how they work.

If you want to develop, own and operate a digester yourself, when you explore financing options for these projects, you should consider a combination of grants, loans and tax incentives available at the federal, state and local levels. Programs such as the USDA Rural Energy for America Program (REAP) offer grants and loan guarantees to help offset the costs of renewable energy projects, including anaerobic digesters. These programs can reduce the amount of equity required and make getting loans easier.

Mitigating risks

While anaerobic digester systems offer numerous benefits, they also come with risks. These may include technical issues, market fluctuations, regulatory changes and financial liabilities. Conducting due diligence and risk assessments is essential.

For dairy farmers, it is important to carefully evaluate the track record and financial stability of potential developers. Requesting references, conducting site visits and reviewing past project performance can help mitigate the risk of working with unreliable or inexperienced developers. Plus, once the digester is built, you are going to have it on your property for a long time, so it is best to know the developer.

In addition, dairy farmers should consider the potential impact of market fluctuations and regulatory changes on the long-term viability of anaerobic digesters. Diversifying revenue streams, securing long-term gas purchase agreements and implementing robust risk management strategies can help mitigate these risks and ensure the financial stability of anaerobic digester operations. These are usually the responsibilities of the developer, but you should ask about their experience and plans in these areas.

Moreover, dairy farmers should explore insurance options to protect against unforeseen events and liabilities associated with digester operations. Working with an experienced insurance broker familiar with the unique risks and challenges of these projects can help farmers identify appropriate coverage options and ensure adequate protection against potential losses. Developers usually take the lead, but again, ask these questions and ask your own insurance broker to make sure you are covered.

Seizing the power of anaerobic digesters: A sustainable future for dairy farms

It is evident that anaerobic digesters offer more than just a technological upgrade – they represent a transformative opportunity. Anaerobic digester systems can play an important role in the sustainable future of dairy farming, where waste becomes a resource and renewable energy becomes a revenue stream.

Imagine your dairy farm not only producing milk but also generating RNG, reducing greenhouse gas emissions and contributing to the circular economy. With anaerobic digester systems, this vision becomes a reality. By harnessing the power of organic waste, dairy farmers can significantly reduce their environmental footprint while simultaneously boosting their bottom line.

However, embracing this technology requires careful consideration and collaboration. It is not just about installing a piece of equipment – it is about forging partnerships, navigating complex regulations and managing risks. That is why it is crucial for dairy farmers to leverage the expertise of legal, financial and technical advisers who understand the nuances of anaerobic digesters.

By working together with experienced professionals, dairy farmers can navigate the challenges and capitalize on the opportunities presented by anaerobic digester systems. Whether you are exploring ownership structures, negotiating contracts or mitigating risks, the support and guidance of knowledgeable advisers can make all the difference.

So as you contemplate the future of your dairy farm, consider the possibilities that anaerobic digesters offer. Embrace innovation, seize opportunities and embark on a journey toward sustainability and prosperity. With anaerobic digester systems by your side, the future of dairy farming is bright, green and filled with potential.