Economic assessment of anaerobic digestion systems for dairy waste disposal and energy recovery: Effect of selected institutional and technological chances

Abstract

The technical and economic feasibilities of on-farm anaerobic digestion for a 100-head dairy are evaluated with special attention to efficient biogas utilization. A mixed-integer programming model is used which incorporates time-of-day on-farm energy use and options for: electricity load management, conventional waste disposal, sales of electricity to the utility by the farmer, installation of a heat exchanger in conjunction with the digester, and biogas storage. A second aspect analyzes the effect of some of the institutional and technological changes affecting adoption of anaerobic digestion systems. The few institutional arrangements considered are marginal cost pricing versus average cost pricing by the utility and the impact of allowing the farmer to sell electricity to the utility. The technological changes considered are a 20% increase in digester efficiency and a 20% decrease in digester fixed cost. The 20% decrease in digester fixed cost could also be attained through an institutional arrangement such as capital tax credits. However, no particular tax policy is analyzed in this paper. It was found that under baseline marginal cost prices of $3.69/GJ for natural gas, $0.036/kWh (off peak), $0.061/kWh (peak) and $0.04/kWh (partial peak), a 100-head dairy should not install an anaerobic digester. Under marginal cost pricing, breakeven prices are $7.64/GJ, $0.78/kWh (off peak), $0.115/kWh (peak) and $0.082/kWh (partial peak) for a system which incorporates a plug flow digester with a heat exchanger, a 32 kW generator and sale of electricity to the utility. Optimal management implies sale of electricity in peak and partial peak periods, purchase of electricity in off peak and partial peak periods and that all thermal demands are met by waste heat from the 32 kW generator. Without the option of selling to the utility, the breakeven prices are significantly higher. Comparing average cost pricing to marginal cost pricing by the utility indicates that average cost pricing acts as a greater incentive to the adoption of anaerobic digestion. Load management has significant returns under marginal cost pricing. A 20% increase in digester efficiency or decrease in digester fixed cost will result in similar reductions in breakeven prices by 6 to 9% if sales of electricity to the utility can take place. When sales cannot occur, increasing efficiency is no stimulus to adoption, because excess biogas is flared. However, decreasing digester fixed cost still has a strong effect.