TERU Focus Report - Renewable Energy from Organic Residuals

Interview: Neil Black, President of California Bioenergy
August 25, 2012 -- Michael Theroux

Introduction

At the request of the US Environmental Protection Agency (EPA) Region 9 and in preparation for the 7th Annual Bioresources Alliance Symposium September 11-12, 2012, Teru Talk interviewed Mr. Neil Black, President of California Bioenergy LLC (CalBio). Neil will be a key speaker in the Symposium, a member of the Session 2 panel addressing Digester Economics to be moderated by Michael Boccadoro, President of the Dolphin Group. The symposium's topic this year is "Renewable Energy from Organic Residuals"; the agenda focuses on best ways to evaluate where biogas and other organic residuals energy projects do and don’t work, and what works well where. CalBio develops, owns, and operates projects that capture and destroy methane produced from dairy cow waste, and creating greenhouse gas emissions reductions and renewable electricity in the process. CalBio's process consists of four main steps: Waste Collection, Greenhouse Gas Capture, Carbon Offset Creation, and Green Energy Production. 

The Interview

Q.1: In California alone there are more than 1.7 million cows producing manure. Add this to over 6 million tons of food waste reaching landfills each year, and to the many other digestible materials that could be used to produce biogas, it equates to significant potential for biogas production. How significant a role do you think biogas can play in California to generate renewable energy, reduce greenhouse gas emissions (mainly methane), reduce waste reaching landfills, and create jobs? 

We believe biogas can be an important contributor to California’s renewable energy strategy.  We estimate that biogas in aggregate could generate 2 to 4 gigawatts (GW) of electrical power.

Our company, California Bioenergy, focuses on dairy biogas and the potential production of energy, pipeline gas, and fuel from this resource. If the state’s dairy biogas was captured and converted to electricity, we estimate the potential at roughly 1 GW of nameplate.  

In addition, biogas is a non-intermittent resource and thus a valuable complement to solar and wind. It is recognized as an important renewable base load source. What is not well known is that many dairy projects have the potential to store the biogas for 1 to 3 days under the dairy lagoon cover. These projects will be able to shape energy delivery according to the peak demand times. (Hence, if the biogas was burned on a 24/7 basis, the nameplate potential is only roughly 350 MW. Extra engine capacity makes financial sense and enables projects to burn the stored gas when it is needed, based on the utilities’ Time of Delivery (TOD) schedules.)

One of the four approved California Air Resources Board (CARB) carbon-offset protocols is for livestock methane. It is a particularly valued offset source, since the methane is immediately and permanently destroyed in the generation of electricity, use as a fuel, or simply by flaring. (This is in contrast to forest sequestration, which faces the risk of fire.) There is a potential for approximately 5 to 6 million tonnes per year of California dairy-project-generated  equivalent carbon dioxide (CO2e) offsets. This is a potentially significant and needed contribution to the total allowed offset market.   

Biogas projects create California based jobs. For dairy and agricultural related projects these are often in economically needy areas of California’s Central Valley. Significant components of projects are local construction jobs; this is in contrast to other renewable sources, where a greater percentage of project costs are spent on foreign-sourced technologies. In addition to generating a high-valued renewable energy source (think solar plus storage), destroying a potent greenhouse gas, and generating California jobs, there are other benefits including a reduction of odors in livestock projects, an additional source of income for dairy farmers, and in the case of food processing and organic waste diversion, a decreased use of landfills.

Q.2: California Bioenergy currently has two anaerobic manure digesters near Bakersfield, California. Can you tell us a little more about this project? 

CalBio is involved in two projects in the Bakersfield area. One is nearing completion and we expect commercial operation early this fall. It is on an approximate 1,500 milking cow dairy, which is the average size of a California dairy. The project replaces an open-air lagoon with a covered lagoon. It is interesting to note that dairy lagoons, which capture the flushed manure waste, provide valuable irrigation and fertilizer to the adjacent farmland, where crops are grown to feed the cows.

Q.3: What do you see as the biggest challenge to the expansion of the biogas industry in California?  

Long-term contracts are essential – to buy the electricity, gas, or fuel at an economically viable price.  It is critical to understand that this price initially needs to be higher; and that this near-term requirement is common for emerging industries.  

·      The biogas industry is in its infancy and as a result initial projects are more expensive to build and operate. Because of limited experience, banks and investors demand higher returns (and place other restrictions); capital expenditures are higher because of lack of local suppliers, limited order size and limited developer knowledge; and O&M (operation and maintenance) costs are higher because of lack of scale (maintaining one project is much more expensive than a team managing 50). 

·       In addition, the carbon market, which will provide an important additional source of revenue, has not yet matured, and currently does not provide a bankable, ten-year revenue source (this should change over the next few years).  

Interconnection issues are significant for both electricity and pipeline gas. There are a handful of critical interconnection barriers. For example, on the electricity side, the cost of initial interconnection studies has gone up significantly, creating a speculative investment burden on the early-stage project developers. Also, dairy and agricultural projects connect in rural areas, and the local substations were not built for electricity generating projects. Coordination across multiple projects needs to be addressed to amortize the capital investment costs.   

Fuel projects are constrained by the lack of long-term (10 plus year) contracts from entities as credit worthy as the utilities, such as government agencies and universities.

Debt providers. The old adage that banks will only lend money to those who don’t need it seems to be the case more than ever. The financial crisis has greatly reduced debt sourced from banks, critically important lenders.  We need to help develop programs to address this market problem. Some of the leading vendors have developed innovative programs but more help is important.

Q.4: Many people say that digesters in California will not work economically. How can a private company interested in investing in California make them work economically? Are there California-specific hurdles that make it difficult for the economics to work out? 

The economic issues I have addressed elsewhere. There are greater regulatory requirements in California than elsewhere. There have been significant strides in decreasing the paperwork yet more needs to be done. Further, providing initial financial support through Senate Bill (SB) 1122 and other initiatives will provide off-take agreements that can cover the high costs of the environmental regulations.

Q.5: What role do you see the co-digestion of manure, food waste, and other organics playing in the expansion of the biogas industry? 

We believe it can play an important role. However, it will take a handful of years to flesh out the regulatory issues, define good partners, and establish the needed contractual relationships. In addition, not all dairy projects will be able to co-digest manure and food waste because of limited capacity of adjacent lands to apply the effluent.

Q.6: What potential state or federal policies would best support the expansion of the biogas industry? 

The state is becoming increasingly engaged with biogas issues in California, and it can make a huge difference.  Various agencies have been learning about biogas for the past number of years and are developing the requisite expertise. In tandem, legislative initiatives are advancing significantly, which offer the promise to incubate this promising industry.

Historically federal policy has been important primarily through grants and tax incentives. The most successful was the federal 1603 tax grant program, which ended in 2011. It is unlikely to be extended.  Further, it is unfortunate that biogas projects, which established eligibility for the grant in 2011, must be completed by the end of 2013 to receive the grant. In contrast, solar projects have until 2016. This is a disappointing and heavier burden for these farm-based projects. Money will be lost and many biogas projects will be hurt if the federal government does quickly rectify the inconsistency and set a similar standard for biogas that is in place for solar.

Q.7: Speaking of pending state policies, how do you think that passing Assembly Bill (AB) 2196, a bill to lift the moratorium on injecting processed biogas into the natural gas pipeline, will help the biogas industry in California?  

We think it is very important to allow projects that meet the newly defined criteria to inject gas into the pipeline. We anticipate that this will be addressed shortly since it is California’s interest.

Q.8: The other bill in the pipeline is SB 1122. This bill proposes that electricity providers procure at least 250 megawatts (MW) of electricity from biogas or biomass. As a part of this energy procurement program, utilities would be directed to develop standard contract terms and conditions to create streamlined contracting process. If this bill passes, how do you think that it would affect the biogas industry? 

We believe it will be a critical step to unlocking the state’s biogas assets. It offers the promise for a market based yet economically viable price for projects across the biogas spectrum. The program creates three category buckets, which means projects in one bucket only compete with other similar projects for contracts. Thus, for example, dairy projects compete with each other but not against wastewater projects; and neither compete with more advanced solar and wind. As a result, the different categories can also work cooperatively with each other, exchanging technology innovations and sharing resources, driving the entire industry down the cost/learning curve.

Q.9: What do you see as the main hurdles for developers in getting power purchase agreements (PPAs) for biogas energy? 

The first is price, discussed above, and addressed in SB 1122. The second is interconnection, with upfront investment barriers and significant upgrades currently borne by only one project, also discussed above.  The third is a simple contract, appropriate for small projects and also adapted for the characteristics of biogas projects.

Parting Shots

The symposium includes a Wednesday afternoon field trip to Clean World Partners food waste digesters in Sacramento. Registration for the symposium may be completed on-line, on the UC Davis Renewable Energy Systems website. Contact the EPA's coordinator for the symposium, Lauren Fondahl ( ) at (415) 972-3514 for more information.