The Lucrative Rise of Renewable Natural Gas on Dairy Farms
Listen to the Uplevel Dairy Podcast interview featuring Ty on this subject.
Renewable natural gas (RNG), also known as biomethane, has become a hot topic in the dairy industry in recent years. In its most basic form, RNG is mainly composed of methane gas, carbon dioxide and trace elements. The methane component garners significant attention because studies have shown it is 28 times more potent than carbon dioxide in trapping heat in the atmosphere. RNG projects have blossomed across the country, providing an enticing opportunity for dairy farmers to further diversify their income streams while enhancing their sustainability efforts.
Dairy farms are uniquely positioned to produce RNG efficiently, thanks to the readily available resource – methane from their cattle. The key lies in capturing this gas, refining it and injecting it into the pipeline or transporting it via trailers. Geographically, regions like the northeast, Wisconsin and California have seen a boom in RNG projects due to dairy density and state incentives.
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Evaluating Contracts and Developers
While the attractiveness of this investment is clear, it’s important to consider the long-term commitments associated with RNG projects and leverage independent advice from attorneys, lenders and other experts. Compeer’s specialists have consulted on nearly 40 digesters currently operational on farms, providing neutral assessments of projects and their potential impact to operations.
Key Factors to Consider
- A developer’s experience in establishing renewable natural gas technology and capital capacity to complete the project
- Easements across property and to connect to pipelines
- Lease agreements around manure supply
- Responsibilities and consequences outlined in the contract
It will also be important for dairy farms to assess the long-term viability of the project. Consider your potential for future growth and expansion, as well as the possibility of the project changing hands when signing a contract. Understanding the fine print is crucial to ensure a successful and sustainable partnership.
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Not Just a Passing Fad
In the rapidly evolving RNG industry, the future looks promising for dairy farms of all sizes. These projects are typically expensive, consisting of three main components: collection or storage methods (upright tanks or covered lagoons), gas cleanup equipment and compression equipment for loading trailers or injecting into nearby gas pipelines. Depending on the dairy’s size, these projects can exceed $50 million. Dairies with existing infrastructure benefit from lower costs, as upgrades often involve transitioning from electricity generation to gas production.
The economics would favor larger dairies as there is an economies of scale component and one of the more expensive components can be the pipeline interconnect. The cost of may become more prohibitive the smaller the dairy is. That’s not to say smaller dairies can’t participate. While there are a lot of exceptions the number of animal units that seems to resonate is around 2,500 and above where the economics can make sense to site an RNG project on.
Technology exists for dairies with 100 animal units, though costs can be prohibitive. A hub-and-spoke model, where multiple dairies contribute to a single site, could make projects feasible. Manure can be pumped or trucked to a single site. As the technology matures and becomes more affordable, smaller dairies may more easily participate in the RNG market, contributing to sustainability and diversity on all dairy farms.
RNG has the potential to go beyond simply generating gas for transportation, including generating electricity or producing green methane and hydrogen. This opens up additional avenues for revenue generation and further enhances the sustainability of dairy operations.
It's clear that RNG offers a lucrative opportunity for dairy farms. However, due diligence is required to navigate the complexities of contracts and developers before signing long-term commitments.
As the dairy industry continues to evolve, RNG projects offer a promising path towards profitability, sustainability, and excellence. By carefully evaluating opportunities and working with trusted advisors, dairy producers can navigate the world of RNG and position themselves for long-term success.
Reach out to a Compeer dairy specialist today for our perspective on how renewable natural gas can fit into your dairy.