Internalising Environmental Benefits
of Anaerobic Digestion of
Pig Slurry in Norfolk

Rachel Boyd

University of East Anglia

ENV 4

Supervisor: Julian Parfitt

Advisor: Chris Vincent

2000

Abstract

Hypothesis: The current financial climate works against the installation of anaerobic digesters on farms in the UK. However, if environmental benefits such as emissions of greenhouse gases are internalised, this technology may appear economically viable.

Project Design: The economics of establishing an anaerobic digester at a specific pig farm in Norfolk were investigated. A sensitivity analysis was undertaken by a series of cost benefit analyses, to study how the financial situation changes according to various factors. A monetary value was placed on the emissions reductions, and this was included in a new figure for ‘annual benefits’. Values were found by calculating the reduction of:

Carbon dioxide emissions from electricity generation, avoided by energy production from this carbon-neutral renewable resource.

1) Nitrous oxide emissions from the application of fertiliser, avoided by the increased availability of nitrogen for plants from digested slurry.

2) Carbon dioxide emissions from electricity generation, avoided by the decreased demand for the production of energy-intensive fertiliser.

3) Methane emissions from slurry storage, avoided by the containment of the slurry.

Nitrous oxide and methane were converted to carbon dioxide equivalents. The current market price of carbon dioxide emission reductions from BP Amoco’s internal market was used.

It was considered how internalising these external benefits would affect the financial viability of a digester at the farm, and also the economics of digesting the pig slurry from farms in Norfolk with more than 1000 pigs.

Main results: The digester was most likely to be profitable if there was a developed market for the fibre. Internalising the environmental benefits resulted in the net present value (NPV) of the farm digester increasing from £13351 to £475311. If the government paid 50% grants for 60 digesters in Norfolk, the environmental benefits would give this investment a NPV of over £3.5 million, although if the savings from avoided carbon dioxide from fertiliser production were not factored in, the NPV is negative.

Conclusion: The results found here support the hypothesis.

Contents Page

1 Hypothesis page 5

2 Introduction page 5

2.1 The Resource page 5

2.2 The Technology page 6

2.2.1 Types of Digester page 6

2.3 Feedstocks page 9

2.4 The Products page 10

2.4.1 Biogas page 10

2.4.2 Liquid Fertiliser page 11

2.4.3 Soil Conditioner page 11

2.5 Current Problems Involving Agricultural Pollution page 12

2.5.1 Air Pollution page 12

2.5.2 Water Pollution page 14

2.5.3 Heavy Metals page 14

2.5.4 Odour page 14

2.6 The Benefits of AD page 15

2.7 The Current State of the AD Industry page 17

2.7.1 World-Wide page 17

2.7.2 In Europe page 18

2.7.3 In Britain page 18

2.8 Legislation Affecting AD page 18

2.9 Farming Trends page 20

2.10 Objectives of the Study page 20

2.11 Terminology page 21

2.11.1 Pig Terms page 21

2.11.2 Financial Terms page 21

2.11.3 Energy Terms page 21

2.11.4 Other Terms page 22

Part 1: The Economic Viability of an Anaerobic Digester at a Specific Pig Farm

3 Aim page 23

4 Introduction page 23

5 Method page 24

5.1 Discount Rate page 25

5.2 Sensitivity Analysis page 26

5.3 Values for the CBA page 27

5.3.1 Capital Costs page 27

5.3.2 Operational Costs page 30

5.3.3 Annual Savings page 31

5.3.4 Annual Benefits page 35

5.3.5 Other Factors page 37

6 Results page 37

6.1 Baseline Scenario page 37

6.2 Digester Price page 39

6.3 Fibre Sales page 40

6.4 Operational Costs page 41

6.5 Variations in Slurry Disposal Costs page 42

6.6 Gate Fees page 43

6.7 Efficiency of Bacteria page 44

6.8 Electricity Price page 45

Part 2: The Environmental Benefits of Anaerobic Digestion of Pig Slurry Produced in Norfolk

7. Aim page 47

8. Method page 47

8.1 Emission Reduction from Electricity Generation: Method page 47

8.2 Emissions Savings from Reduced Fertiliser Use: Method page 48

8.3 Reductions in Methane Emission: Method page 49

8.4 Cost-Benefit Analysis with Internalised Environmental Benefits: Method

page 50

8.5 Cost Effectiveness of Digesting Norfolk’s Slurry: Method page 51

9 Results page 53

9.1 Quantity of Available Slurry: Results page 53

9.2 Emission Reduction from Electricity Generation: Results page 53

9.3 Emissions Savings from Reduced Fertiliser Use: Results page 54

9.4 Reductions in Methane Emissions: Results page 55

9.5 Cost-Benefit Analysis with Internalised Environmental Benefits: Results page 57

9.6 Cost Effectiveness of Digesting Norfolk’s Slurry: Results page 59

10. Discussion page 61

11 Conclusion page 64

12 Afterword page 65

13 Acknowlegements page 65

14 Glossary page 66

12. References page 67

Internalising Environmental Benefits of Anaerobic Digestion of Pig Slurry in Norfolk

1 Hypothesis

The current financial climate works against the installation of anaerobic digesters on farms in the UK. However, if environmental benefits such as emissions of greenhouse gases are internalised, this technology may appear more economically viable.

2 Introduction

Anaerobic digestion (AD) is the microbial decomposition of an organic matter in the absence of oxygen to produce ‘biogas’, consisting of methane (CH₄), carbon dioxide (CO₂) and water. The undecomposed solid matter (the ‘digestate’) can be separated into fibre and a liquor. The biogas can be used for heating water or to produce electricity. It is a renewable energy and therefore reduces CO₂ emissions. The fibre is a soil conditioner, and can be sold as an alternative to peat. The liquor is rich in nutrients and is used as a substitute to inorganic fertiliser. The use of this technology therefore has many benefits, and could play an important role in the move towards sustainable development.

2.1 The Resource

There are over 700 000 pigs in Norfolk, 10 % of the total for England (MAFF, 1998). This means a potential annual biogas yield of 9.5 million m³ and an electricity output of 12.8 GWh.

An increasing number of pigs are kept in outdoor accommodation where their waste is mostly left on the ground and decomposes aerobically. There are two basic management systems for pigs living indoors: straw-based and slurry-based. The manure that arises from straw-based systems is not often used as a feedstock for AD because the straw needs chopping and it may cause pipe blockages (Higham, pers comm). Slurry-based systems were more popular in the 1970s, but are now on the decline due to perceived welfare problems (Dunnings, pers comm). With this system, the muck and urine fall through slats in the floor and are collected in a lagoon below.

The storage conditions of this slurry favour anaerobic conditions, and this type of decomposition causes an odour nuisance for those living in the vicinity of the farm. The slurry has a high Biological Oxygen Demand (BOD) which can result in ground water pollution. AD can reduce the odour from slurry by up to 80% (Practically Green website), and creates an integrated management system which lessens the likelihood of pollution.

It has been estimated that the total accessible energy resource from wet livestock waste is around 3 TWh/year or 1-2% of UK electricity demand (ETSU, 1994, pp230-232 cited in Tipping, 1996).

2.2 The Technology

AD occurs in four stages:

1. the organic matter is hydrolysed to soluble compounds

2. the soluble compounds are fermented to volatile fatty acids

3. acetogenesis forms hydrogen, CO₂ and acetate

4. methanogenesis produces biogas.

This process is shown in Figure 1.

2.2.1 Types of digester

The most common on-farm digester in the UK is the continuously stirred tank reactor digester (CSTR). This involves an above-ground vessel that is usually circular to facilitate mixing. They are initially filled, and waste is removed and added regularly. They can be stirred with a rotating blade or by recirculation of the biogas. The latter type is becoming more popular due to its increased reliability. (Chesshire, pers comm).

In Europe the CSTR also predominates, making up 35% of digesters. The next biggest group are the plug flow digesters. These are not stirred. Waste is added regularly at one end and overflows at the other. 17% of the AD units in Europe are of this sort (AD-NETT website). Pig slurry is not deemed suitable for this type of digester, due to its lack of fibre. (AgStar, 1999, p1-3) In more temperate climates, a lower level of technology can be applied with an unheated covered lagoon digester.

Research and Development projects often point to the increased yields obtained from more advanced AD technologies, such as two-stage digesters. In one step digestion of solid wastes, problems may occur if the substrate is easily degradable. A population increase of the faster growing bacteria at the beginning of the process can lead to a build up of volatile fatty acids, a pH drop, and inhibition of the whole process. This is not a problem for substrates such as plant matter, where the presence of tough vegetable matter such as lignin means that hydrolysis is the rate limiting step. Mesophilic CSTR digestion of silage showed a slightly better performance than the two-stage process (Edelmann et al 1999).

Figure 1: The Stages of AD

The practical running of these new technologies remains unproven in the field. Two-stage digesters can become in effect two separate normal digesters (Chesshire, pers comm). In practice, low technology digesters can be more reliable and therefore more economical. Roger White, owner of a pig slurry digester in Britain, has taken out all the more technical parts of his digester as they have failed, and now measures the temperature with a thermometer tied to a stick.

Digestion can operate at three different temperature ranges, each with distinct types of bacteria. Figure 2 shows the proportions of digesters in Europe at different temperatures.

Figure 2: Temperature Range of Digesters in Europe (Source: AD-NETT website)

Mesophilic digestion tends to be more robust and tolerant than the thermophilic process, but gas production is less, larger digestion tanks are needed, and sanitation, if required, is a separate process. Residence time in thermophilic digesters is shorter, and they generally offer higher methane production, faster throughput and a higher level of pathogen and virus destruction. However, they do need more expensive technology, greater energy input and a greater degree of operation and monitoring (AD-NETT website).

A study by the University of Manchester found that thermophilic reactors generated similar amounts of biogas and methane per gram of total solids removed, but batch times were typically only 64% of those for a mesophilic reactor. The overall result of these differences was that the thermophilic process was 1.5-2.5 times more efficient than the mesophilic process. (University of Manchester,1987)

However, the extra energy needed to heat the digester is not always balanced by the increased yield. Because of this, another study found that thermophilic digesters were always less satisfactory than mesophilic digesters. (University College, Cardiff, 1986)

In particularly cold countries such as Canada, there has been some interest in psychrophilic anaerobic digestion. Experiments with conventional mesophilic and thermophilic digestion in Canada had not been successful due to high capital and operational costs. AD units were not energy efficient during sub-freezing winter temperature. Psychrophilic AD was found to be effective, reducing the pollution potential of pig slurry by removing 59-78% of the soluble chemical oxygen demand (Masse et al, 1999).

2.3 Feedstocks

It is possible to use a variety of feedstocks in a digester. These can come from agriculture, communities or industry. Agriculture accounts for the largest potential feedstocks and most current applications. Energy crops, algal biomass and harvest remains may be used as well as animal wastes. Biodegradable Municipal Waste (BMW) can come from communities near the digester, and can be treated there instead of landfilled. A large variety of wastes from industry can be used, including those from food processing, the sugar industry, the cosmetic industry and from slaughterhouses/ rendering plants. (Steffen et al, 1998, p3).

Municipal Solid Waste (MSW) as a whole can also be digested, however the main problems concern contaminants such as glass that may damage the digester and greatly decrease the value of the compost. Large capital costs lessen the attraction of this type of waste management system. The use of source-separated BMW decreases the likelihood of contamination, but perhaps not by enough to convince the consumer that the compost is a viable alternative to peat. One of the main concerns would be the effect of heavy metal contamination on plants.

Figure 3 shows the proportion of different types of the predominant feedstocks of digesters in Europe. Digesters are usually fed with more than one feedstock. The predominant feedstock was that defined as contributing more than 50% for each plant (AD-NETT website).

Figure 3: Feedstocks of Digesters in Europe

The database kept by Vicky Heslop shows that in Britain, the main feedstock is cow slurry. This may be because one of the main reasons for interest in digestion is worry over an odour problem and relations with neighbours. Family businesses are more concerned about this than commercial farms, and this type of small-scale business more commonly keeps cows than pigs (Murcott, pers comm).

Particular research attention has been given to pig slurries because these pose serious pollution problems but could be digested to give a gas yield of 0.3-0.45 m³/kg, compared to a lower rate for cattle waste at around 0.2m³/kg (Ader Associates, 1981). This higher yield is mainly due to the higher fat content. As a percentage of total solids, pig slurry has 7.0-12.3% fat, while cow slurry has 3.5-7.5% (Steffen et al, 1998, p21).

Different types of animal housing result in large variations of total solids (TS) content in slurry. If too much water is added from washing the lots, the feedstock may only have 2-5% TS. This is more likely to make the application of a digester system uneconomic, due to the need to heat the digester (Steffen et al, 1998, p10).

2.4 The products

2.4.1 Biogas

Biogas is a ‘sour gas’ in that it contains impurities which form acidic combustion products. Most digesters will produce a gas with 0.3-2% hydrogen sulphide (Practically Green website). If care is not taken, this gas can corrode the generator in which it is used. However, gas cleaning is expensive and so it is rarely used for on-farm units (BABA Ltd, 1987, Mees, pers comm). Another option is to add ferric chloride to the feedstock which inhibits the production on hydrogen sulphide. However, this is very expensive and causes other problems such as corrosion of pipework by chlorine and it can kill valuable micro-organisms in the downstream processes (Practically Green website).

If the gas is used intermittently in a generator, a supply of mains gas should be connected to the generator so that it can flush out the biogas at the end of the session. This prevents corrosive elements such as the hydrogen sulphide from condensing inside the generator. Specialised gas Combined Heat and Power (CHP) units are very expensive. In Germany and Denmark diesel generators are now used. Costs are lower because it is a more standard piece of equipment. Maintenance costs are lower than for the CHP units used in this country which are more prone to erode. The diesel generators use 10% diesel fuel which lubricates the system and protects it from erosion. (Heslop, pers comm)

2.4.2 Liquid fertiliser

This product of AD is more acceptable than raw pig slurry for a number of reasons. It is practically odour free, the lower viscosity means that it is easier to spread and does not coat the leaves of plants, and nutrients are more readily available to the crop.

Digestion transforms the organic bound nutrients in the slurry to a mineral form. This is most significant for the nitrogen, where the organic form is metabolised to ammonium (NH₄⁺). Ammonium is directly available for the crops when it is applied to the fields. The rest of the organic nitrogen must be mineralised by soil bacteria before it is available for the crops, which is the reason why organic fertilisers have a lower efficiency than mineral fertilisers (Klinger, 1999).

2.4.3 Soil Conditioner

After the digestate is separated, the fibre can be marketed as an alternative to peat. Its market acceptance will depend on the feedstock used. Pig slurry fibre will be free of many of the contaminants that might be found in MSW, but it does have a high zinc and copper concentration (see under 2.5.3 Heavy Metals).

The value of this fibre depends greatly on the development of its market. A greater number of AD units on farms may increase awareness and the acceptability of this product.

2.5 Current problems involving agricultural pollution

The traditional mixed farm is a closed system which produces few external impacts. However, today’s economic climate favours specialisation and intensification (Conway and Pretty , 1991, p275). To compete with imports from countries with lower costs, farms need to produce their commodities in the most efficient way. This has led to an increase in intensive farming. Animals are concentrated in certain areas of the country, producing manure in large quantities, away from arable land which could potentially make use of it. The high nutrient load in this waste means that there is a very large national pollution load from livestock. In the UK, this is equivalent to the waste generated by 150 million people (Conway and Pretty , 1991, p276).

2.5.1 Air Pollution

Agriculture contributes to climate change through the production of certain greenhouse gases such as methane and nitrous oxide (N₂O). In Ireland, agriculture accounts for one third of greenhouse gas emissions and therefore it is under political pressure to reduce its impact (Heslop, pers comm). Livestock production is also one of the main sources of ammonia to the atmosphere.

Methane

Methane has a global warming potential (GWP) 21 times that of CO₂ (IPCC, 1995). In agriculture, the predominant source of methane emissions is bacterial activity in the guts of cattle. This accounts for 85.1 kilotonnes of methane per year. The pig industry’s annual release is 22.5 kilotonnes. This is mainly because of the anaerobic decomposition which can occur during slurry storage. (Meeks et al 1999, p 39-40)

The Intergovernmental Panel on Climate Change (IPCC) reports that to stabilise atmospheric methane concentration at 1990 levels, global emissions need to be reduced by 15-20% (Houghton et al, 1990). AD contains methane emissions from animal wastes, and converts it into CO₂ which has a lower GWP and which can be absorbed by plants and kept within the terrestrial carbon cycle.

Nitrous Oxide (N₂O)

This gas is a potent greenhouse gas and depletes ozone. It has a high GWP 310 times that of CO₂. Annual agricultural emissions of N₂O are currently estimated to be about 100,000 tonnes. Denitrification in soils is the principal source (Houghton et al, 1990, p26) and this process is increased by fertiliser application. Fertilisers also contribute to emissions through nitrate leaching and ammonia deposition. Around 45% of agricultural emissions are caused directly or indirectly by the use of synthetic nitrogen fertilisers. However this is an area of active scientific investigation and considerable uncertainty still surrounds these numbers (Wilkins, pers comm).

The atmospheric concentration is now 8% greater than in the pre-industrial era, and is increasing at a rate of about 0.2-0.3% per year. The major sink for N₂O is photolysis in the stratosphere, resulting in a relatively long atmospheric lifetime of about 150 years. To stabilise concentration at today’s levels, an immediate reduction of 70-80% of the post-industrial additional flux is needed (Houghton et al, 1990, p27).

There is a suggestion that anaerobically treated slurries produce less N₂O than equivalent raw slurry, although this is unproven (Tipping, 1996, p122). The main contribution of AD to this problem is through the increased efficiency of the slurry as fertiliser. This could reduce inorganic fertiliser use. Each tonne of applied inorganic nitrogen results in the emission of 0.0297 tonnes of N₂O, and this can be averted through the increased use of organic manure and slurry (Wilkins, pers comm).

Ammonia

Ammonia releases to the atmosphere have local and regional effects. At a local level, ammonia can cause health problems at high concentrations (e.g. within animal housing buildings), and can cause odour nuisance. On a global or regional basis, ammonia deposition from the atmosphere can cause damage to natural vegetation and soil by nitrogen enrichment and acidification. This in turn may alter the nature of the vegetation, and so damage the ecosystem (Tipping, 1996, p129).

Ammonia is released directly from buildings where animals are housed, from slurry or manure storage systems and from fields after spreading. Agreement was recently reached concerning a Europe-wide protocol to curb ammonia emissions (ENDS, September 1999, p44). AD can contain emissions while the slurry is in the digester rather than in open storage. However, digestion lowers the pH which can result in a higher ammonia loss when it is land-spread, although research shows that ammonia volatilisation depends more on the time that the slurry remains on the surface before incorporation in the soil, than it does on whether the slurry has been digested (Tipping, 1996, p132).

2.5.2 Water Pollution

A National Rivers Authority report stated that pollution incidents caused by pig slurry accounted for approximately 10% of reported agricultural pollution incidents. They were principally due to “inadequate storage capacity, structural collapse, poor management and over-application to the land (NRA, 1992, cited in Tipping, 1996, p135).

Animal waste can contribute both phosphates and nitrates to water sources. Both are needed for algal population growth, but phosphorus is usually the limiting factor in freshwater systems. Animal farms are responsible for 17% of the phosphate loading to water courses in the UK This is the same proportion as from arable agriculture (Conway and Pretty , 1991, p200).

The price of inorganic fertilisers are low, they are easier to apply than livestock waste, and nutrients contained in them are readily available to growing plants. Farmers therefore prefer to apply these mineral fertilisers, and dispose of the livestock waste in other ways (Conway and Pretty , 1991, p275).

When organic manure is used, it is very difficult for farmers to adjust their fertiliser use accurately. As previously discussed, much of the nutrients in slurry and manure are locked up in their organic form. This can be slowly released over some years, so the farmer may overcompensate by applying too much mineral fertiliser. This can result in an overloading of nutrients such as nitrates, which may be leached into water systems.

2.5.3 Heavy Metals

Copper is added to feed to accelerate growth by increasing food conversion rates. Zinc is added for the same purpose, and to counteract the toxicity which might be caused by high copper concentrations. The majority of these additives are excreted. Pig slurry is therefore high in copper and zinc, and these can accumulate in the topsoil and part of the crops. No serious effects of this have been observed in the UK, although care must be taken with grazing sheep due to their particular susceptibility to copper toxicity (Conway and Pretty , 1991, p309).

2.5.4 Odour

The smell of farmyard manure is not normally perceived as offensive, but the odours from modern, intensive livestock systems are far removed from what is considered a traditional “good country smell”. (RCEP, 1979, cited in Conway and Pretty , 1991, p291). The difference is due to the uncontrolled anaerobic decomposition of the slurry in storage, which gives off over 77 compounds. These include volatile fatty acids, organic acids, phenols and organo-sulphide compounds. When the slurry is spread, it gradually oxidises and the smell disappears. If the slurry could be spread every few days, the odour problem would not occur. However, storage is necessary because spreading is not allowed under certain conditions which may result in water pollution.

2.6 The Benefits of AD

(Adapted from the AD-NETT website)

Energy balance

A properly designed and operated AD plant can achieve a better energy balance (taking emissions from transport into account) than many other types of energy production. This means that it consumes less energy per delivered unit of electricity.

Reducing greenhouse gases and fossil fuel use

CO₂ produced from AD is from ‘short cycle’ carbon, i.e. the carbon in the organic matter was recently sequestered from the atmosphere. Therefore energy produced from this process is not considered to contribute to climate change.

AD aims to contain methane emissions.

The use of the liquid fertiliser and fibre as a contribution to fertiliser regimes can reduce fossil fuel consumption in the production of synthetic fertiliser.

The decreased fertiliser use also reduces N₂O emissions

Reducing demand for peat

Peat extraction damages rare peatland ecosystems. The fibre produced by the AD process can be used as a soil conditioner, in some instances as an alternative to peat. However, they are not strictly comparable because peat is nutrient free.

Reducing odour

AD can reduce the odour from farm slurries by up to 80%.

Efficient electricity distribution

Nationally, transmission losses are 7% of electricity generated (ETSU, 1997, p50). Power production near to where it is consumed will reduce these losses.

Improving farm waste management

Establishing an AD project does not eliminate wastes, but it does make them easier to manage.

Even after digestion, slurry still has twenty times the pollution potential of raw domestic sewage (DTI, 1993a). However, a reduction in BOD and dry matter minimises the chance of creating soil anaerobic conditions and reduces the pollution of drainage water after field application of digested slurry. This reduction in BOD can be as high as 90% (SEPA, 1999).

Volatile fatty acids (VFA) in pig slurry can damage crops, which makes it unpopular with farmers. Digestion reduces the concentration of VFAs from thousands of parts per million, to about 250 ppm (Gornall, 1999).

The AD process stabilises slurries so that they do not putrefy or create odour. This allows them to be stored much easier and for longer.

Slurry handling costs are reduced because the liquid fertiliser is easier to spread than slurry. It can be pumped through existing irrigation equipment pipes, instead of tankered on to the land. Lightweight equipment which is more likely to be owed by the farm can be used, which can avoid contracting costs. This also reduces crop damage.

Reducing spread of weeds and disease

AD destroys virtually all weed seeds, so digested slurry can be spread with minimal risk of weed spread, reducing the need for costly herbicide and other weed control measures.

Financial benefits

Indicated above, there are many potential savings to be made from an AD project. Also, residues can be converted into saleable products such as electricity and soil conditioner.

Local economic development

AD can contribute to rural regeneration by creating or maintaining jobs on farms and in local support businesses. It can stimulate new industries, for example fish farms or local greenhouses may be able to use local heat produced by AD projects.

2.7 The Current State of the AD Industry

2.7.1 World-wide

AD plants are mostly concentrated in the Majority World, where simple systems bring direct benefits to the owners. The biogas can be used directly for cooking, which can have a direct environment impact by decreasing the demand for other fuels such as firewood, and reducing deforestation.(Fulford, 1988)

India and China have the most developed biogas industries. In China in 1989, there were 4.5 million on-farm digesters. Both countries have large populations of stabled animals; China with pigs, and India with cattle. They both now have extensive government programmes to co-ordinate the uptake of this technology after earlier failures due to unreliable digester plants being built (de Groot, 1989).

In the developed world, rising oil prices in the 1970s triggered an interest in AD. A minority of the digesters built at this time are still working, but many failed early, often due to poor system design (AgStar, 1999, p1-5)

Digesters fit into three categories:

1) small scale, on-farm digesters,

2) community digesters, shared between 20-30 farms,

3) large scale ‘centralised anaerobic digesters’ (CADs), which can digest a whole range of feedstocks, including industrial wastes, municipal solids wastes and agricultural wastes.

The first two types are more common in the Majority World. Community digesters in particular are popular in India and Nepal, where each household may have only one or two cows. Although costs are lower, due to less automated equipment and simpler designs, digesters are still often only marginally economic (Fulford, 1988).

The high capital costs involved in building a CAD mean that they are far more likely to be found in the developed world.

2.7.2 In Europe

AD-NETT is a European network of interested parties which exchanges information about AD. Its website has a database with information about Europe’s AD units. This shows that 50% of AD plants are small, on-farm schemes. The remainder are roughly split between medium and large facilities. (AD-NETT website)

AD technology in other European countries has benefited much from government support. For example, subsidies in Denmark are 20-40% of investment costs (van Hauwaert, 1999). Other European governments have invested in this technology to a greater extent in line with their general encouragement of renewables, or due to the nature of their denser populated countries where water pollution control is more of a priority (Heslop, pers comm)

Germany has the largest number of digesters in Europe, with over 900 farm plants. Denmark has 19 centralised and 20 on-farm plants. Other countries with AD experience include Britain, Austria, Switzerland, Italy, Sweden and Finland (Heslop, 1999).

2.7.3 In Britain

On a large scale, AD is widely used in the UK for waste water treatment (Ader Associates, 1981). There is less development of AD in the agricultural sector. England has 25 on-farm plants (Higham,1997).

Apart from a few recent exceptions of digesters built with government research grants or with a NFFO contract, no on-farm digesters have been built since MAFF stopped their grant scheme in 1994 (Murcott, pers comm).

Seven contracts for electricity have been awarded to AD projects under the Non-Fossil Fuel Obligation (NFFO). Electricity prices agreed range between £0.0513 and £0.07 per kWh (Heslop 1999, p14). None has actually been built yet, but one CAD project in Devon has received 50% grant assistance from the Government and the EU, and it is expected to come on-line this year (Heslop 1999).

2.8 Legislation Affecting AD

A range of new and forthcoming environmental legislation may encourage the technology of AD. These include the climate change levy, the Integrated Pollution Prevention and Control (IPPC) and the Landfill Directive. Government targets, such as its political commitment to reduce its CO₂ emissions to 20% of 1990 levels by 2010, and to increase its proportion of electricity from renewable sources to 10% by the same date, may mean an increased interest in AD as a way of meeting these targets.

The current momentum of renewable electricity coming on line suggests that the target of 10% by 2010 is unlikely to be met. It would require 500MW of net capacity to come on stream every year, but just 90MW were added in 1997 (ENDS, February 1999). To achieve the target set, the Government will need to give a greater encouragement to renewables. However, some accuse it of threatening the renewable industry with a change in electricity trading arrangements. It is now unlikely that there will be another round of the Non-Fossil Fuel Obligation (NFFO) which have given renewable energies a guaranteed price for their energy. However, the proposals for a new electricity trading arrangement (NETA) have been heavily criticised for their potential adverse affect on the renewable industry. Someone from the British Wind Energy Association renamed this arrangement “Never Expected Ten per cent Anyway” (ENDS, August 1999).

The climate change levy is an energy tax, which will be applied to certain groups of high energy user from April 2001. In response, the Confederation of British Industry has published proposals for the UK’s first emissions trading scheme (ENDS, October 1999). This could theorectically benefit owners fo digesters, if they could be paid for the reduction in emissions which result from their project.

The forthcoming implementation of the EC Directive 96/61 on Integrated Pollution Prevention and Control (IPPC) will mean that farmers will have to look more seriously at their waste management practices. This may facilitate a spread of AD technology, although other waste management options involve far less capital and are simpler to run. It will affect pig units with more than 2000 pigs over 30kg or 750 sows. They will be required to reduce emissions to air, land and water, based on the following general principles:

1. Prevent pollution using Best Available Technique (BAT)

2. Minimise waste

3. Conserve energy

4. Prevent accidents and limit their environmental consequence

5. Clean-up of site when activities cease

A range of BATs will be recommended, and AD may be on this list, although this is unlikely to be the cheapest option for many farmers (Larkmann, pers comm).

The Landfill Directive adopted by the EC in April 1999 sets targets for reducing the amount of BMW which is landfilled. Under this directive, by 2010 the UK must reduce the total weight of BMW going to landfills to 75% of the 1995 total. One option to meet this target is the anaerobic digestion of BMW. Farms with digesters could be paid a ‘gate fee’ to accept and treat this waste.

2.9 Farming trends

Over recent years, farming has moved away from traditional, mixed systems to more intensive practices. Intensified crop production requires more fertiliser than is available from traditional sources. Livestock production is often on small areas of land, so disposal of the associated wastes is becoming increasingly difficult.

The pig industry is currently in crisis, losing £2.5 million a week on a national scale. Small businesses are less likely to be able to break even during this time, and are going out of business at a greater rate than the larger farms (Farm manager, pers comm). This is quickening the current trend towards larger farms. Between 1993 and 1998 the average size of pig herds increased from 398 to 504. However, total numbers of pigs are gradually declining. The total number of pigs in England declined by 10.6% between June 1998 and June 1999.

2.10 Objectives of the Study

There are a number of scientific papers concerning experimental biogas yields under various conditions, in different types of digesters, and with a variety of feedstocks. In the UK there have been some governmental studies about the practicalities and the economics of AD, but none have internalised the environmental benefits as this study attempts to do. Neither did an extensive search of scientific journals find any research attempting to put a monetary value on the environmental benefits of AD.

The main study on this subject to be commissioned by MAFF, is about Centralised AD. A fact sheet from the DTI states, “In general, suitable farm waste occurs in too small quantities on individual farms for it to be exploited as a source of energy” (DTI, 1993b). However, although there was a large degree of uncertainty, a report by AEA Technology found that under the best scenarios, on-farm digestion could be more of a cost effective measure to reduce methane emissions than CADs (Meeks et al, 1999).

This project focuses on the small-scale digestion of farm waste. This is primarily because there is evidence that the pollution from transport involved in CADs outweighs the environmental benefits (Tipping, 1996). Furthermore, on-farm digesters follow the government’s proximity principle of dealing with waste near to source. (DETR, 1999), and are therefore more in line with sustainable development.

2.11 Terminology

2.11.1 Pig Terms

On a slurry-based system, such as the farm in question, sows stay on straw in the ‘dry sow house’ until one week before farrowing. They then give birth in the farrowing house, which has slats in the floor and is over a lagoon of slurry. The piglets, in danger of being squashed, are encouraged to stay away from their mother when not feeding. This is done with an infrared farrowing lamp, to keep the temperature inside their hutch warmer. The piglets stay there until they are 5.5 kg in weight. They are then termed ‘weaners’, and move to the ‘flat decks’, which is also a slurry-based system. The flat decks are heated, and each week the rooms decrease by 2°C, until just above ambient temperature. The weaners stay there for 4-5 weeks. After this, they are ‘store pigs’, and move to the rearing shed, which is on straw and is not heated. At 12 weeks old they become finishers and move to the finishing house - another slurry based system. There they grow from 35 kg to 105 kg.

2.11.2 Financial Terms

Businesses have both internal and external costs. Internal costs, such as paying wages and buying equipment, are borne by the company. External costs, such as polluting the atmosphere or a river, may be paid for by society, for example by adverse health effects or through higher water bills. The Polluter Pays Principle, attempts to ensure that those responsible for environmental damage pay to mitigate its consequences. Economic theory states, that if this were always possible, it would result in a ‘socially optimal’ level of pollution. Market failure exists when a company uses and degrades an unpriced environmental resource, which imposes no internal cost on the firm, but does create an external cost for society (Turner et al, 1994, p75).

2.11.3 Energy terms

One kilowatt hour (kWh) equals 1 kilojoule per second for an hour, i.e. 3600 kJ, or 3.6 MJ.

1 MWh equals 3.6 GJ.

1 GWh equals 3.6 TJ.

2.11.4 Other Terms

The terms synthetic fertiliser, mineral fertiliser and inorganic fertiliser are used interchangeably in this text.

Part 1: The economic viability of an Anaerobic Digester at a specific pig farm

3 Aim

To investigate the sensitivity of the project’s economic viability to a range of situations.

4 Introduction

The economic viability of a digester at a pig farm near Swaffham was investigated. This farm has 8500 pigs (piglets through to finishers) on just 3.5 acres. It is owned by a feed company. It has no arable land, and has to pay contractors to remove the slurry and spread it on nearby farms. The farm is situated in a Nitrate Vulnerable Zone (NVZ). At certain times of the year and especially when conditions are wet, the slurry has to be transported outside of the zone at considerable expense. It has no gas supply, and relies upon electrical heating.

Figure 4: Options for anaerobic digestion

As shown in the Figure 4, the basic components of AD are the digester itself and a boiler.

An electricity generator adds significantly to the capital costs, but may be a more suitable use of the energy if there is not a sufficient heat sink for the hot water. A CHP unit is a more efficient use of the energy. One m³ of biogas would typically give 2.5 kWh of heat from a boiler, 1.7 kWh of electricity from a generator with 30% efficiency, or 1.7 kWh of electricity and 2 kWh of heat with a CHP unit.

A separator allows the fibre to be marketed, and reduces the volume of the liquor that needs to be disposed of. A mixed farm would benefit from the extra ease of handling of the nutrient-rich liquor which can be pumped instead of spread, and which is a more effective fertiliser than the undigested slurry. This benefit to the arable farmer is unlikely to be translated into an economic profit for a pig farm disposing of its slurry. It is possible that other farms would be more willing to accept the waste in this form, but this is difficult to quantify.

The financial success of a digester is likely to depend on whether full use can be made of its products (British Biogen website). The marketing of the fibre by-product has great potential, and failure to realise this will have a large influence on the economics of the plant. However, a significant investment is needed for the infrastructure required to compost the digested fibre to a high quality with a good market price, and there is great uncertainty about the money that can be made from this better quality fibre in a largely undeveloped market.

If the farm is to accept other organic waste, it may need a pasteuriser for health and safety reasons.

5 Method

A farm visit and follow up research provided the necessary information to input into a cost-benefit analysis (CBA) spreadsheet. The CBA calculates the Present Value of the costs and benefits for each year of the project by applying a certain discount rate. This discount rate reflects the depreciation of the value of money. The year in which payback occurs is that in which the cumulative Net Present Value (NPV) becomes positive. The Internal Rate of Return (IRR) is the discount rate at which the NPV is zero.

The data required were:

Capital costs:

· Anaerobic digester with boiler

· CHP unit

· Fibre separator

· Composting equipment

· A change in the infrastructure of some of the heating system

Operational costs:

· Electrical needs of the digester

· Repairs and maintenance

Annual savings

· Heating of the flat decks

· Heating of residential houses

· Electricity purchases

· Disposal of slurry

Annual benefits

· Fibre

· Gate fees for accepting other waste

5.1 Discount Rate

Two discount rates of 6% and 15% per year have been adopted in this study. This follows the rationale used in ‘Cost Effectiveness of Options to Reduce UK Methane Emissions’ (Meeks et al, 1999, p14). The first reflects the nominal risk-free yield on government bonds, which is often used to indicate an appropriate discount rate. Across the EU, yields are typically between 5.4% and 7.3%. The DETR generally adopt a discount rate of 6% per year, following the recommendations of the 1997 HM Treasury Guide.

However, this investment has quite a high risk, with many uncertainties regarding operational costs and annual benefits. If this capital were used for an alternative high-risk investment, it would expect a higher potential rate of return. The second discount rate of 15% reflects the opportunity cost. This is the return an investor would expect from an equivalent investment of this capital with the same level of risk.

5.2 Sensitivity analysis

The baseline scenario for this study used the most realistic values and chose the options that maximised the profit for the farm. To calculate whether an individual factor increased or decreased the economic viability of the project, the baseline CBA was altered three times. Firstly this excluded the CHP unit and electricity savings, then the separator and fibre sales, and lastly the cost of installing hot water pipes in the flat decks, and the savings from this were included.

A variety of scenarios were then compared to investigate the sensitivity of changes in various situations. These were the following:

1. More expensive cost of the digester

2. Longer project lifetime

3. Pessimistic value of the fibre with no investment in a separator, to extremely optimistic fibre sales with separator and composting equipment.

4. No reduction in slurry disposal costs, to no negative value for the slurry

5. Cheaper to more expensive operational costs

6. Gate fees for accepted waste

7. More efficient bacteria

8. Higher electricity price

5.3 Values for the CBA

Table 1: Values used in the scenarios