The economic impact of methane generation on dairy farms. A micro-analytic model

Abstract

The object of this paper is to perform an analysis of the economic efficiency of methane generation on a typical 65-cow dairy farm, juxtaposed against prices and costs of auxiliary energy supplied by rural electrification. The most efficiently sized methane generation option examined is the use of methane to fuel a 30 kW generator with sales of surplus energy fed back to the utility. Whereas this option is still more expensive than present prices for electricity, this would not be the case under assumptions of escalations in relative fuel prices. On an individual farm basis, the economy is made better off by methane generation under this option by $195 per year, assuming electricity is priced at its marginal opportunity costs. The utility would incur $734 in revenue losses, but this figure represents the commensurate decrease in utility capacity and fuel. The merits of setting electricity tariffs equal to marginal costs are evidently part of the incentive for farmers to install this option. Given several scenarios of differently sized methane generators, the utility would promote the smallest facility for the farm, which in turn may be the least efficacious for the economy as a whole. This may conflict with national efficiency criteria so, therefore, regulation at the interface between the farmer and utility would have to be exercised.