Course: Farm and renewable energy | Last Updates: 12th October 2015
What is AD?
AD is a closed-loop, sustainable system whereby natural bacteria break down biodegradable products such as food wastes, manures, slurries and energy crops inside an AD plant (in the absence of oxygen) to produce biogas. The remaining product (digestate) is nutrient-rich and so can be returned to the ground to displace synthetic fertilisers to grow more crops. The biogas can either be converted by a combined heat and power unit (CHP) to produce renewable electricity and heat, or it can be "cleaned" to produce biomethane, which can be exported directly to the gas grid or used as a transport fuel.
Why is it suitable for a farm business?
There are many reasons why AD fits well into an agricultural enterprise. It can make use of the farm’s waste products such as cow slurry/manure, chicken litter, pig slurry or vegetable outgrades, as well as offering a guaranteed return for a diverse range of crops grown as part of an effective arable rotation.
Farms with a high on-site electricity or heat demand can also use the energy generated to reduce the cost of importing energy to run the farm operation.
After the biogas has been created, the AD plant leaves behind a digestate which is a nutrient-rich fertiliser that can be spread on fields, displacing fossil-based fertilisers. This digestate provides an opportunity to reduce fertiliser costs.
Digestate can reduce fertiliser costs.
What about subsidy payments?
Feed-in Tariffs (Fits) offer a subsidy payment for every kilowatt hour (kWh) of electricity generated from an AD plant. There are three bands; up to 250kW, 250kW-500kW and 500kW-5MW. Depending on the size of the plant, a different p/kWh payment applies.
The Renewable Heat Incentive (RHI) payment is a payment for each kWh of renewable heat generated and used and is also available to AD plant operators who inject biomethane into the grid or for the heat generated by a CHP unit or biogas boiler, if the heat is used.
What are the options in terms of scale?
AD plants tend to be discussed on their electrical equivalent. A 100kW plant is usually classed as "small-scale" while the largest operational sites in the UK are about 3MW. To assess the most appropriate scale of plant for a farm, a number of factors should be considered, such as the available feedstocks, the farm’s location (and any site constraints such as grid connection), its energy demand and the budget available. Most farmers will opt for a CHP setup to access the heat and electricity because biomethane injection requires a large capital outlay to clean up the gas and inject it into the gas grid.
While many larger-scale projects are being planned or are in construction in the UK, farm-scale plants tend to be about 500kW.
There are about 215 CHP plants now operational in the UK and about 25 biomethane injection plants.
What are the key things to consider from the outset?
Digestate is a very important element. The majority of the product that enters the AD plant will remain at the end as a digestate containing nutrients at fairly low concentrations. Digestate can be a valuable asset if there is sufficient land close to the plant to spread it on, but it can become a major cost if it needs to be transported long distances.
Farmers don’t always have a large electricity demand on site. Exporting the electricity straight to the National Grid may earn about 5p/kWh, whereas the cost to import electricity from the grid can be 10p/kWh or higher. A neighbour with a high demand may be willing to pay 8p/kWh, for ecample, which provides a higher return for the plant operator and is cheaper than mains electricity for the neighbour. Using as much of the electricity generated on-site is often where farm-scale AD excels.
The heat created is often a wasted asset because there is no grid system to transport it to and so it needs to be used on-site/nearby. Due to the capital costs, RHI payments can be a huge benefit for those who can find a use for the heat, so it is worth considering locating a plant next to a heat user.
Operating the plant
Operation and maintenance is very important because an AD plant doesn’t run itself, it needs to be fed, monitored and maintained. There is a lot that can go wrong, so having a good operator that understands the process is crucial. An AD plant is often compared to a cow’s stomach – what you put in affects the output and if the bacteria doesn’t like the diet, you might kill them, so you need to feed it accordingly.
AD provides an opportunity to add an additional break crop in an arable rotation and can also use by-products such as chicken litter, slurry or vegetable outgrades.
Security of supply is a key area of concern for banks when deciding if they are willing to lend money for an AD plant. Buying in some vegetable outgrades from a neighbour, for example, might not be viewed as a secure supply as it relies on the neighbour to continue to grow vegetables. The most effective closed-loop systems are self-sustaining, for instance using waste products from the farm’s livestock operation, mixed with a break crop grown on farm or those on long-term supply contracts.
It is crucial to have sufficient feedstocks such as maize to feed the AD plant.
You need to establish whether there is capacity to connect to the gas or electricity grid early on as capacity is becoming an increasing issue. Talk to your District Network Operator about alternative connection options, as the costs to upgrade the grid can run into hundreds of thousands of pounds, and sometimes make the project unviable.
Some farmers planning AD projects have been held to ransom because they need to go across third party land to connect to the grid and so establishing the connection route early is also essential.
Connecting to the gas grid can often be a substantial investment. An early assessment should be undertaken to confirm what pressure the local grid is and to check the nearest connection point to understand likely costs. It is rare for plants under 1.5MWe equivalent to justify the costs (of upgrading and injection) for gas to grid.
Planning – what makes for a good site?
There can be issues with local residents who are uninformed and so there is a definite benefit to early engagement and explaining what AD is to dispel myths. There’s a fear of the unknown with AD – people often think that there’s a risk of an explosion or pollution.
The key issues with planning tend to be highways; how much material is coming in and how much is going out? With the on-farm system it could be argued that farmers are displacing existing movements so AD has a benefit.
Odour also tends to be a major concern, which can be mitigated by explaining that digestate has a reduced odour compared to feedstocks entering the plant. Visual impact is sometimes a worry for some residents so sinking the tanks into the ground or screening them with trees can mitigate that impact.
Explaining that the process is naturally occurring and that it is a closed-loop circle with the digestate going back to the ground to grow more crops can be beneficial. It’s often an education for planners too as they don’t tend deal with many AD applications.
What about third parties developing on your land?
Unlike solar panels or wind turbines which are installed and then left to run with minimal maintenance for 20-25 years, an AD plant needs to be fed and maintained and is therefore classified as a riskier investment.
Given the cost of investment and operational requirements, as an alternative to self-investment developers might be interested in renting a site, whereby the farmer supplies some/all of the feedstock and takes some/all of the digestate. This limits risk and operational requirement and provides a guaranteed rental return as well as an income for feedstock.
However, it is essential to find a reputable business with a good history in AD development that will understand the project and run it effectively. Make sure the terms are appropriate, the rent is commercial and that there are no unreasonable obligations placed within the agreements.
Some lease agreements propose terms where much of the risk is on the farmer, not the operator, in first draft and so it is essential to get good-quality advice on those terms. Typically a developer will contribute to agent and legal fees. It is important that the farmer is sure they can deliver sufficient feedstocks to meet any minimum tonnages (do not assume you can achieve yields quoted by the developer if you have never grown a crop before )and qualities specified in any feedstock agreement.
Financing your own plant
Banks are becoming more supportive of AD, now there is more experience, but there is still a nervousness. They expect long-term feedstocks contracts and it is rare for them to lend against the AD plant itself; they will usually secure the loan against other assets. Most banks require a detailed due-diligence of the AD project to check assumptions and ensure that all elements have been considered, even if the interest payments might be coming from other incomes on the estate. This is not necessarily a bad thing as it can also reassure the farmer that they are making a sound investment.
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