...And Whether Pigs Have Wings


With over 9 million hogs according to the 2012 USDA Census of Agriculture, North Carolina is the second largest pork producer in the US, accounting for almost $3 Billion in annual sales [1]. The majority of the hogs are concentrated in farms in the southeastern part of the state, in the counties of Duplin, Sampson, Bladen, and Robeson. A logical question that arises from an environmental standpoint is: what happens to all the waste from 9 million pigs?

The waste, 15.5 Million tons annually [2], makes its way to football-field sized open-pit lagoons. In the 1990s, after a series of storms made the lagoons flood into neighboring towns and drinking water supplies, the state imposed a moratorium on new hog sites. However the lagoons for existing sites remain until today posing the same hazards, including considerable methane emissions - a greenhouse gas that is 80 times more potent than carbon dioxide in the short term.

However, if the biogas (a combination of methane and carbon dioxide) that is released by anaerobic digestion in the lagoons, is captured and treated, it can be a great source of renewable energy. It can either undergo combustion in a Combined Heat and Power (CHP) unit to produce heat and electricity, or be refined to remove the carbon dioxide and create biomethane. The biomethane can be used the same way as natural gas, or be compressed and converted into vehicular fuel.

Recognizing the lagoons' potential as a renewable energy source, in 2007, North Carolina implemented a Renewable Energy and Energy Efficiency Portfolio Standard (REPS) [3] that mandated local utilities to source 0.20% of their electricity from hog farm effluent by 2018. To comply with the REPS, utilities would have to generate or obtain renewable energy certificates (RECs) amounting to 0.20% of their electricity sales. With potentially 80MW capacity that could be generated from all the hog farm effluent in the state, this seemed like a very good solution.

So why haven't biomass plants taken off all over North Carolina yet? The simple answer is the cost. With a CapEx requirement of anywhere between $1Million - $4Million per MW depending on the type of digester technology used and a relatively high lifetime operating cost of up to 20c per kWh generated [4], a lot depends on the price of RECs for investors to realize a positive IRR.

According to EPA guidelines, when any grid-tied renewable energy generator produces 1mWh of electricity, it is considered to produce two entities: 1) The actual electricity itself which can be sold to the utility and 2) One REC which can be sold separately from the electricity to a buyer.

What the EPA does not provide guidance on is how the price of REC is to be determined, and therein lies a key factor that is holding back waste-to-electricity from taking off. The process for determining the price of a REC is very opaque and the price itself varies depending on the deal and is seldom public domain information.

If we take a simple example in which the cost to generate 1kWh of electricity (also known as Levelized Cost of Electricity or LCOE) from the hog farm biomass is 20c and the electricity itself can be sold to the local utility at the market price of 5c per kWh, this would mean that at a bare minimum, the RECs would have to be priced at 20c minus 5c = 15c per kWh or $150 per mWh for the biomass plant to break even. It is unclear if there are any buyers who are willing to participate at this price. What is also unclear is how willing the state of North Carolina is to enforce the REPS mandate on the utility companies.

One solution would be for non-utility private players looking to mitigate their carbon footprint to purchase RECs in a transparent pricing process and give the hog waste-to-electricity space a much needed jumpstart. Some examples that come to mind are Google, Amazon and Apple that have significant carbon footprints because of their massive server farms; maybe it's time for them to step up to the plate and take up a worthy cause - which by the way is not without financial reward. They can even complete the feedback loop by participating as equity investors in the deal. That way, the IRR they earn can effectively decrease the REC price they are paying.

At that point, to paraphrase the Walrus speaking to the Carpenter from Lewis Carroll's Through the Looking Glass, the time would come, to talk of many things...

_________________________________________________________________________

References

[1] 2012 USDA Census of Agriculture

[2] GAO Report on Concentrated Animal Feeding Operations

[3] Renewable Energy and Energy Efficiency Portfolio Standard (REPS)

[4] Nicholas Institute Report on Swine-waste Derived Bio-gas

#NorthCarolina #wastetoenergy #RECs

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