If anyone is supposed to profit from Cayuga County’s proposed biogas pipeline, it’s the seven farmers to whose farms it would attach.
They have money: more than $5.4 million in public funds already committed to their individual digesters, with more expected.
They have cows: a combined 29,691 of them, according to state Department of Environmental Conservation records, which means a lot of raw material from which to create cheap natural gas and a powerful economy of scale.
They have political backing: a fat packet of letters of support from state and federal lawmakers and key regulatory figures, and the winds of green energy enthusiasm at their backs.
So despite the environmental, technical or economic questions that remain, the dairy farmers at least should be confident.
“I don’t agree with that whole thing,” said Greg Rejman of Sunnyside Farms, a presumed pipeline contributor, according to project plans. “It’s way too much taxpayer money just for a little bit of gas.”
Sunnyside Farms has been in operation in Scipio Center since 1939, when Rejman’s grandfather started milking 13 cows by hand. Seventy years later, Rejman, the farm’s current co-owner, spent $3 million to build a digester to process manure from his 6,100 cattle and received another $1 million from the New York State Energy Research and Development Agency.
After two years in operation, he hasn’t come close to recouping that investment. A series of technical, legal and economic obstacles have made it so the farmers’ private digesters struggle to make back the money invested in them, even with generous subsidies, and the pipeline is unlikely to change matters, multiple farmers say.
“It’s definitely not a money-making deal,” Rejman said.
The idea behind anaerobic digesters is simple and alluring.
Farmers plop cow manure into a specialized airtight tank and let it simmer. Burrowing bugs feast on it there for several weeks until three outputs remain: nutrient-rich liquid fertilizer, dry waste and methane gas.
The fertilizer is applied directly to the field -- much easier and much less smelly than spreading cow manure, farmers said. The dry waste is used as animal bedding, a cheaper alternative to buying shredded paper.
The methane gas can be either used on-site for heating or run through a generator, producing electricity to power the farm. Excess electricity is sold to a power company -- in southern Cayuga County, NYSEG -- for, in theory, a tidy profit.
“Digestion has been utilized in Europe for 300 years,” said Timothy Lattimore, the chairman of the Cayuga County Power and Utility Service Agency. “They’re the thing to do for the environment and for power.”
Several problems interfere with this vision. First, building and running a digester is tremendously expensive.
Steve McGlynn is a project manager for Tad Young Construction, which builds and installs digesters. He estimated the cost at about $1,600 per cow.
For concentrated animal feeding operations, or CAFOs, with thousands of cows, that drives the price into the millions very quickly.
With 6,100 cows, Sunnyside is the second-biggest dairy farm in the county. Rejman said his digester and generator cost a little more than $4 million.
John Patterson, of Patterson Farms, said his digester cost $1.6 million. Thomas Roach of Roach Farms said he spent around $2 million.
Even after installation is complete, there are still plenty of costs associated with running the machines; Patterson said his labor and repair costs have increased substantially since getting the digester in 2005.
“It’s anywhere from an hour a day to 30 hours a day,” Rejman said of the added labor required for the digester and associated equipment. “Most of the time it’s fine, unless the pumps go down.”
With costs so high, small farms are excluded from the market, and even large farms must rely on government subsidies to help shoulder the cost. Each of the four farms that now has a digester in Cayuga County has received more than a million dollars in public grants, loans and loan guarantees.
For instance, Aurora Ridge Dairy, the fourth county farm with a digester, received $1,421,939 from state and federal programs, according to records obtained by The Citizen.
All told, taxpayers have put $5,424,839 into the county’s seven private digester projects, according to state and federal records. That includes $505,847 committed to three farms with digesters in the planning stages; all three expect to receive more before they break ground.
“There’s not much of any payback on it without the grants,” Patterson said.
With such high startup and operating costs, it’s important for the farmers to get a good price for electricity they generate. So far, they haven’t.
McGlynn estimated that a farmer would need to sell electricity for between 10 and 12 cents per kilowatt hour in order to turn a profit. Currently, NYSEG pays much less than that.
Rejman, Roach and Patterson all said they get credits of three cents per kilowatt hour from NYSEG. A company spokesman, however, said the rate has been between five and six cents per kilowatt hour for the last 12 months.
“It doesn’t seem to be very even-handed as far as them buying our power back,” Roach said. “The power company isn’t a real big supporter of this, but we’re their competition so I guess you can’t blame them.”
Electricity producers in other states get much more favorable rates.
A spokesman for Pennsylvania energy company Penelec said their current rate is eight cents per kilowatt hour.
In Vermont, the state Legislature set a 20-year fixed rate of about 14.5 cents per kilowatt hour for alternative energy producers after farmers complained in 2009 that low rates were sinking them into debt and making digesters unfeasible.
Nine Vermont farms currently take part and another 10 or so plan to build digesters, according to John Spencer, executive director of Vermont Electric Power Producers, a state purchasing agency.
“In Vermont, our Legislature loves farmers,” he said.
NYSEG spokesman Clayton Ellis said those rates reflect politics, not economics.
“For whatever reason, those states said, ‘We’re going to pay these folks a premium for this excess power they generate,’” he said. “In New York what we’re paying ... is the supply price in the marketplace.”
One bright spot for digester operators is a new net metering law that will let a farm receive credits against all the electricity it uses, even if it’s on several meters. But that only works if NYSEG collector lines are connected to the farm.
For Rejman, that’s not the case. As a result, though he could be producing about 1,000 kilowatts per hour, he’s currently only producing 500.
The other half of the methane gas gets flared off into the atmosphere.
“If we were able to use all our gas and sell the electricity ... it would have been a five or seven-year payback,” he said.
NYSEG is investing $3 million to install more collector lines to farms like Sunnyside so farmers will have an easier time selling back electricity, Ellis said. Utilities are required by law to give credits for excess power that consumers produce.
“We hope anytime someone is looking to build a system like that, they’ll contact us long in advance,” Ellis said.
In theory, the biogas pipeline in Cayuga County would solve the problem of low electricity prices. Farmers could forego the generation step and simply divert their natural gas into the pipeline, which would come right up to the digester door.
The county would then run the gas through its own generator and sell the electricity to tenants it hopes to attract to the now-vacant Cayuga County Industrial Development Agency industrial park in Aurelius.
Doug Young, owner of Spruce Haven Farm and Research Center and a major proponent of the project, estimated the county could generate $8 million worth of electricity each year.
“Intuitively, this could pay for itself in two or three years, certainly in 10,” he said in April. The pipeline is estimated to cost between $3 and $7 million to install.
The economics of that transaction, however, are tricky. It could be difficult to come up with figures that satisfy the farmer, the county and potential electricity customers.
If farmers sell all their gas to the county, they would then need to buy electricity to run the farm instead of generating it themselves. That means the gas purchase price needs to be high enough to convince them to switch from the current set-up and buy electricity from NYSEG.
The cost savings from not buying electricity is one of the biggest selling points for installing a digester. The farmers were skeptical that the county could make a better deal for the gas, though they welcomed the offer.
“I certainly would like to have it there as an option,” Roach said. “But I don’t know.”
Roach, whose farm in Scipio Center is about 14 miles from the industrial park, pointed out that the cost of building miles of infrastructure would inevitably cut into the gas price.
“There’s probably going to be a lot of digesters right up there by Auburn where it would be financially feasible,” he said. “Down by us, I don’t know.”
For farmers who use the methane from the digesters to heat their own buildings, the trade-off is less appealing.
Rejman heats his buildings with gas and Patterson captures the waste heat from the generator to help heat the digester, which needs to be kept at around 100 degrees.
“There’s really not a whole lot of extra gas,” Rejman said. “In the winter when everyone else needs it the most is when we need it the most.”
If the county cannot procure the gas cheaply from the farms, it in turn cannot offer a cut-rate on electricity to potential manufacturers, dulling the economic appeal of building a factory in Aurelius.
So far, the only company to publicly announce its interest in the industrial park is the Saratoga Cheese Corp., which is currently trying to line up funding for its proposed factory.
That startup company has a startup sister company, Saratoga Biogas, that aims to build and run digesters. According to the Saratoga Biogas web site, the company also plans to build a power plant that would provide heat and energy to Saratoga Cheese.
County planning director Stephen Lynch said the gas and electricity purchase prices will depend on market rates, and the county is going to have a technical analysis done to explore that issue.
“Clearly, the project anticipates there’s a margin between what we can buy the gas from the farm for and what we can sell it to industry for,” he said. “What that price point is, is what the technical analysis will go to great lengths to identify.”
That technical analysis of the project, commissioned by the county, will have two phases. The first phase will check for fatal flaws in the concept, including economic questions.
The second phase, if undertaken, would produce a design plan for construction.
The county Legislature’s Planning and Economic Development Committee voted Tuesday to award the analysis contract to California-based SCS Engineers. That company will receive $25,000 for the first phase and, if necessary, $125,000 for the second phase.
County officials said they’re confident SCS won’t approve the first phase of the analysis simply to collect on the second, more lucrative phase.
The county also intends to hire the law firm Harris Beach to handle legal concerns with the analysis. That contract will cost $84,000.
Of the combined $234,000, the county is contributing $49,922. State and federal grants make up $170,000 and “participating Cayuga County dairy farmers” will add $14,078.
Lynch declined to provide more details about which farms are paying; Rejman said Thursday he hadn’t heard from the county about that.
The only vote against the resolution on the planning committee came from George Fearon, through whose district the pipeline would run.
“Even if (the pipeline’s financial impact) is projected positive, if it ends up not being positive at some time then county property tax payers will end up covering it, and I don’t think it’s appropriate for the county to take on that obligation,” he said. “You’ve got these large businesses. It seems to me it would be more appropriate to be done under their umbrella than ours.”
Fearon also expressed concern over SCS deciding whether the study should go on, since it has money at stake.
“Who knows? We know businesses do whatever they can do to get a contract,” he said. “The concept (of a two-phase analysis) is good, but it is like a fox in the chicken house with the company saying yea or nay to proceed.”
SCS would also be eligible to bid for the construction contract after completing the analysis. The full Legislature still needs to approve the resolution.
The economic aspect of the project is not all that matters, Lynch said, and the farmers agree.
Roach, Rejman and Patterson all said that spreading fertilizer has become a much less offensive process as far as neighbors are concerned now that they’re using the liquid by-product instead of raw manure. It’s also easier to pump into the fields.
The environmental benefits are also substantial, as the farms don’t require coal-powered electricity and run a lesser risk of losing manure into waterways.
In the short term, though, energy industry pioneers are still trying to find a way to make the technology profitable.
“I tell people these digesters are probably like the Model A,” Roach said. “I’m sure they’ll come out with new ones that do it better and are cheaper, but you’ve got to start somewhere.”
Whether the pipeline will make sense on the bottom line is a question the technical analysis is supposed to answer. The farmers said they welcome having the pipeline as an option, but as far as participating, Rejman said it’s simple: “It all depends on the price.”
Staff writer Justin Murphy can be reached at 282-2237 or firstname.lastname@example.org. Follow him on Twitter at CitizenMurphy.