Sizing-Up Anaerobic Digestion
Environmental Power Corp. aims to become a premier player in the biomass industry by developing large-scale anaerobic digestion systems. Biomass Magazine talks with company officials about their thriving business model and how it could become the standard for others who want to convert waste into energy.
EPC, and its single subsidiary Microgy Inc., is rapidly expanding its renewable energy portfolio by developing, owning and operating large-scale anaerobic digestion facilities that produce methane-rich biogas from agricultural livestock and organic wastes. EPC's ability to design anaerobic digestion systems and to provide ongoing operational maintenance on a large scale sets it apart from the small-scale, farmer-owned anaerobic digestion model, according to Kessel. "What really makes us unique is the size of our projects," he says. "We're really looking to sell-in the wholesale market-a natural gas product and that's what really differentiates us."
Acquired by EPC in 2001, Microgy holds the exclusive North American license for a proprietary Danish anaerobic digestion technology that has been proven to generate significantly more biogas than other digestion methods. Microgy designs thermophylic anaerobic digestion facilities that produce EPC's trademarked Renewable Natural Gas or methane.
Microgy's commercial anaerobic digestion facilities produce biogas that can be used for a variety of applications such as being combusted in a generator to create power, used to offset fossil fuels, cleaned to natural gas standards for pipeline interconnection or sold as RNG.
Volatile natural gas prices, the need to satisfy state renewable portfolio standards (RPS) to achieve carbon neutrality and EPC's aggressive business strategy have helped the company achieve its renewable energy goals, according to Mark Hall, vice president of external affairs for EPC. "What we lacked was the expertise to package [anaerobic digesters], manage them properly and professionally, get the right kinds of agreements in place and the right kinds of maintenance activities initiated to really allow the industry to take off," Hall says. "Of course you need a price structure that supports all of that, and the increase in natural gas prices is certainly an important step in that direction along with the demand for renewable energy resources that these projects can participate in."
A Plan of Action
Producing renewable energy isn't uncharted territory for EPC. Since 1982, the company has led or participated in the development and/or ownership of a dozen clean energy projects, including seven hydropower facilities, two municipal waste projects and three waste-coal-powered generating facilities. Currently, EPC owns and operates four commercial anaerobic digestion plants-three in Wisconsin and one in Texas. In addition to those facilities, EPC has 10 projects being developed across the United States, which will add 4.9 million British thermal units (MMBtus) per year of pipeline-quality biogas to the natural gas utility network.
EPC's flagship Huckabay Ridge project in Stephenville, Texas, was the impetus behind its becoming an exclusive RNG supplier in California. The facility came on line in January and generates 635,000 MMBtus of RNG (enough to produce 9 megawatts of electricity) per year using the manure produced by 10,000 dairy cows from local farms. The power produced by that facility is currently sold to the Lower Colorado River Authority. As of October, the gas will be pipelined to Pacific Gas & Electric in California under a 10-year purchase agreement for up to 8,000 MMBtus of RNG per year. EPC is also fully permitted to develop two projects in California involving six dairies. EPC will integrate the raw biogas produced from the dairies and transport it to a central location where it will be conditioned (cleaned) and then injected into the pipeline. The motive for PG&E to acquire the fuel from EPC reflects what utility providers in states like California are doing in order to fulfill RPS requirements, Hall says.
Other utilities across the country have also expressed interest in acquiring EPC's RNG output. "We're obviously going to sell our gas into the highest value market," Hall says. "We're looking for places that have high gas prices and where we're going to get a high value for the renewable attributes. They are going to use this gas in their most efficient generating resources so that they can maximize the production of renewable energy credits to help satisfy their RPS obligations."
Meanwhile, EPC has secured off-take agreements with various food processing companies such as JBS Swift & Co. and Cargill Inc. to use their agricultural and food industry waste as substrates to codigest with cow manure. Employing off-take strategies such as these makes EPC a value-added asset for other companies looking to cost-effectively dispose of their waste streams. Adding these waste streams to its process also benefits EPC. "Our model is to really maximize the production of biogas," Hall says. "The way to do that is to codigest manure using various agricultural and food wastes from the food processing industry. By adding other sources of fats, proteins and carbohydrates as food for the bacteria that are in the process we get significantly more biogas production."
Strategy for Future Growth
It goes without saying that to successfully scale-up projects, a company must have the physical and human capital necessary to support it. EPC is well-equipped to handle such a daunting task. As the scope of projects EPC has undertaken expands, its management and construction teams have had to adapt. Kessel credits much of the company's success to his management team. "In any development cycle, when you have your ups and downs you need to address them, and we believe we have the people in place to accomplish our goals," he says. "We've been out identifying construction partners that we'll work with to not only provide the technological specifications, but we look for people who are going to manage that construction process so that we can build a lot of these projects in parallel," Hall says.
EPC, which is publicly traded on the American Stock Exchange (NASDAQ: EPG), has managed to employ some unique financing mechanisms to develop its projects such as tax-exempt bonds. Tax-exempt bonds are issued by a municipal, county or state government. The interest payments are not subject to federal income tax and sometimes state or local income tax. EPC typically kicks in about 20 percent of its own equity. "In many instances a developer has to convince a farm or industry to buy a digester and use their precious capital," Kessel says. "We bring our own capital to bear, and let our project participants in and align the interests. Not only is the ability for us to develop these projects important, but our ability to still finance the projects is really critical to get to the scale we want to get to." The company also uses cross-collateralization and revenue pooling to create a diversified portfolio, which provides for attractive returns on payback periods and on capital.
In the future, EPC will explore opportunities to expand its RNG into other markets such as electricity, biofuels or other forms of renewable power generation. For now, however, EPC will concentrate on providing pipeline-quality biogas, Hall says.
"This management team has done an awful lot of electricity projects so there's no fear there," he says. "We have not taken a step back in trying to participate directly in the transportation fuel sector either. But, if we're cleaning [biogas] up to pipeline quality standards and somebody wanted to partner with us to provide a natural gas vehicle fueling type of facility, that's easy for us to bolt that on with a partner."
Bryan Sims is a Biomass Magazine staff writer. Reach him at email@example.com or (701) 738-4962.