AD Investment Checklist

This investment checklist is reproduced courtesy of the CLA.   It is taken from chapter 12 of the CLA biogas handbook, available from CLA publications on 0207 235 0511, price £35 inc P&P (£29 for CLA members).  The CLA does not accept any liability for loss or damage to the subscriber or any other third party through the use of this advisory handbook. In all cases members should seek the appropriate professional advice before acting.

Overall costs will include: 

• capital costs (consultancy fees, purchase and construction of plant, grid connection etc);
• ongoing maintenance and replacement costs;
• obtaining planning permission and regulatory consents (e.g. Environment Agency);
• training for operators.

The overall investment analysis should consider two questions:

• Do the benefits from the process and the opportunities for income streams warrant the investment?
• Do I have the time, inclination and necessary skills to consider it as a viable option?

In order to specify what size of plant is required, and to seek quotations, consideration must be given to the following questions.

      Sizing the plant:

• What feedstock do I have access to?
• Does this include food processing residues or other waste with a gate fee?
• How much land do I have access to for making best use of the biodigestate fertiliser?
• Might I be able to sell bio-fertiliser locally?
• What capacity plant suits the available feedstock and land?
• Are electricity connections available for the output?

     Addressing the finances:

• Can I use the energy produced within my farm business? What is the value of this to me?
• What price can I get for the electricity generated (including ROCs and the Feed in Tariff [FIT])?
• Is there a market for heat locally? At what price, and what cost to connect a heat pipe or site the engine remote from the gas plant?
• Is biogas for transport a viable prospect?
• What is the value of the bio-fertiliser to my business or for sale?
• What grant aid or other supports might I get?
• Can I get Enhanced Capital Allowances for the equipment?

     Capital costs

The equipment has to be manufactured to a high standard to prevent corrosion, and the resulting high capital costs may only be justified if the equipment has a long active life. In this respect, a digester may be regarded more as a mortgageable infrastructural project, such as a steel frame building, than a piece of equipment, such as a tractor.

Construction of the plant and associated site works, including any landscaping required under planning permission, will also incur costs.

The capital costs will be very site specific, particularly over the question of the cost of electricity connections.

The seven project developers who were asked by Renewables East to provide indicative capital expenditure costs for a plant similar to BiogenGreenfinch’s plant near Bedford gave a range of figures between £2 million and £4.4 million, depending on their assumptions: for details see the case study at Section 13.5.

Clearly a farm-scale “clean” biogas plant may be built for considerably less, but will have a lower income.

    Project development costs

These can be very significant and may include:

• technical, legal and planning consultants’ fees, and the farmer or developer’s own time, in negotiations with legal and statutory bodies (e.g. in obtaining planning permission and consulting the Environment Agency);
• financing and legal costs, including the costs of arranging finance;
• electrical connection costs;
• costs of licences (e.g. if imported food processing residues are used, the Environmental Permit will need to include a Waste Management Licence, which will involve an initial charge and an annual fee).

     Running costs

The running costs vary enormously depending on variations in design and operating circumstances. They are likely to be of the order of £7,000– £10,000 per year for an on-farm project, or up to £100,000 per year for a larger project. Consultants with experience suggest an allowance of 20 percent of income should be sufficient to cover repairs and maintenance.

Running costs over and above repairs and maintenance will include:

• Staff costs: management of an on-farm digester with power generating equipment is likely to require a total of two days per week. This involves a couple of hours every day and longer when something needs fixing. The Danish plant described in Section 13.3 and which uses imported feedstocks has one full-time employee who looks after both the biogas plant and a CHP biomass energy plant, as well as being the farm’s mechanic. It is estimated he spends a couple of hours a day on the biogas element of his work.
• Insurance.
• Transport costs.
• Annual fees for licences and pollution control measures.
• Other maintenance and operating costs.

    Training costs

The people who run anaerobic digestion projects, of whatever size, need to be fully trained in the management of the digester, to ensure it remains fully productive, as well as in the safety, financial and environmental implications of the project. These skills will need to be updated as technology and knowledge develop.

      Income

The largest revenue streams from anaerobic digestion under current support are likely to be from electricity and fertiliser production (including avoided costs). Markets for all the products will need to be developed and balanced. The plant design depends on the priority product for the developer (i.e. energy, fibre or liquor).

Generally, budgets for electricity production assume that a gas engine might be available for roughly 8,000 hours per year, allowing for stoppages, repairs and maintenance etc.

In summary, income streams are likely to include:

• electricity sales (or displaced purchases);
• Renewables Obligation and Climate Change Levy exemption certificates (or Feed in Tariff after April 2010);
• heat sales (or displaced purchases);
• digestate sales (or displaced fertiliser costs);
• fibre sales if the digestate is separated (or displaced fertiliser costs);
• gate fees: charges made for processing wastes (this mainly applies to larger projects using food processing wastes; gate fees are increasing as charges for alternative waste management methods, such as landfill taxes, also increase);
• savings on slurry handling and other waste management costs.