Is RNG Right for Your Farm?
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The economics of renewable natural gas, or RNG, and the evolution of carbon markets have generated serious interest in the byproducts of animal agriculture. It's creating opportunities for livestock producers to expand their operations, diversify their revenue and improve their own carbon footprints.
The conversations around this topic, however, are complex and sometimes raise more questions than answers. I recently moderated a panel of agriculture industry and financing experts to discuss carbon markets, negotiating the deal, issues around installing digesters, and the potential impacts that RNG projects can have on a farm’s operations and finances. Joining me in the discussion were:
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Jordan Hemaidan, Partner and Energy Group Chair at Michael Best, a Milwaukee-based law firm
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Dan Wenzel, Founding Partner of Dairy Business Consulting
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Aidin Sadr, Vice President of Investment Banking at BMO Capital Markets’ Energy Transition group
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Steve Kehoe, Director of Investment Banking at BMO Capital Markets’ Energy Transition group
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Brad Guse, Senior Vice President and Agriculture Relationship Manager, BMO Commercial Bank
Following is a summary of the event.
RNG and carbon credits
One key driver of the recent activity around RNG is the ability to earn environmental credits. Credits can be generated by converting livestock manure into RNG via an anaerobic digester. Operators can then monetize those credits by selling them to a buyer. As Sadr explained, there are two key types of credits:
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Renewable identification numbers, or RINs, which are used as currency under the Environmental Protection Agency’s Renewable Fuel Standards program.
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California’s Low Carbon Fuel Standard, or LCFS, which is designed to decrease the carbon intensity of the state’s pool of transportation fuel. Fuels with carbon intensity scores lower than diesel generate LCFS credits.
"These programs apply to fuel importers and refiners, and they're obligated to participate in this program,” Sadr said. “Many of the largest refiners in the world are purchasing credits.”
Buyers and sellers connect through third-party intermediaries, and the EPA website provides real-time pricing information. Sadr said more markets are coming online, including Washington state and Canada’s federal system, which are expected to launch in 2023.
Generating value
Like any other tradable commodity, supply and demand figures into the value of RNG credits. Right now, Kehoe said there's plenty of room for demand to catch up with supply. "If we were to capture all of the renewable natural gas we could in North America from all the sources—cattle, dairy, municipal, solid waste—it would amount to about 2 billion cubic feet [BCF] per day,” Kehoe said. "When you think that North America consumes about 115 to 120 BCF per day, it's a drop in the bucket. From the perspective of people who own these assets, dairy farmers, you've got an asset that's very limited going into a market that’s very broad.”
Given that the carbon credit market is still emerging, determining whether a farm is getting a fair deal can be difficult. Hemaidan said enlisting an engineering consultant can provide producers with a rough idea of what their farm’s carbon intensity score would be. “The value of renewable natural gas is first and foremost determined by your carbon intensity score,” he said. “So having an idea of what that score is and what the value is of how much gas you're going to produce at that score can be very powerful for a farm in terms of getting an estimate about what they hope to get paid and what they ought to get paid.”
Hemaidan also pointed out that the finance sources for RNG infrastructure are evolving. Until recently, private equity firms were driving up to 90% of the deals, he said. But that’s beginning to change. “That ratio is coming down as banks get more comfortable and more interested in this space,” Hemaidan said. “And, of course, the cost of that debt is going to be a lot lower than the cost of equity.”
Operational impact
Financial opportunities aside, operators will have to determine the impact an RNG project can have on their day-to-day operations. Construction tends to be a key concern, according to Wenzel.
“The timelines and deadlines of the management of the construction site are different than what the farm is used to,” Wenzel said. “The farm likes to get it done, and there's a lot more corporate bureaucracy in some of the construction, design and planning.”
Wenzel added that working with the gas company during construction can be another obstacle. “Another thing I've run into is the gas company forgetting what they agreed to,” he said. “In some cases quite a bit of time has elapsed since the agreement was signed versus the construction. So it's really important to know what you're agreeing to and have documentation.”
Wenzel gave the example of a gas company that installed pumps and pipes that were too small to get manure consistently to the digester. “You're partnering with someone that doesn't understand your business, and it just takes a little bit of time to step back and communicate to make sure that it’s a smooth process and that you have a say in the process,” he said.
Financial considerations
Along with the logistics of installing a digester, farms may have to make significant operational adjustments. As Wenzel said, the more cows a farm has the better deal they can get. “If you're big enough that's fine,” he said. “Otherwise, I’ve had farms that have expanded to either get a digester or to get a better deal with the digester. So, first of all, they have to be in a financial position to do that. Secondly, they have to make sure they have approval from their milk plant to ship more milk.”
Partnering on an RNG project can provide an opportunity to expand, but that also requires capital investment. That’s why Guse said operators will need to answer two key questions before making a commitment.
“Number one: what does it do to my cost of production? Number two: what does it do to my balance sheet?” Guse said. "You want to make sure that you’ve got a profitable plan in place and that it has adequate cash flow to cover debt service. What does it do to the balance sheet? You want to pay close attention to working capital and also to your longer-term shock absorber, which is equity.”
After construction, Guse said a good rule of thumb to follow is to have 2.5 months of working capital available and more than 40% equity in the balance sheet.
For any farm that ultimately decides to take on an RNG project, Hemaidan noted the importance of making sure you manage your environment credits properly. “Give the developer what they're entitled to,” he said. “They're entitled to all credits and monetization of those credits that arise from their production of pipeline-grade gas from manure.”
But there are many different agricultural practices and potential practices that ought to belong to the farmer. Anytime a farmer is negotiating, don't give away all environmental credits from all activity on the farm. Give them away for the production for what the developer is doing. And make sure there's something in the agreement that reserves the rest to you.”
To hear the full discussion, listen to the podcast:
Sustainability Leaders podcast is live on all major channels including Apple, Google and Spotify.
You can also watch the video replay here:
Janine Sekulic: Well, good morning, and thank you for joining us. I'm Janine Sekulic. I'm based in Chicago and I lead BMO's US Agriculture Team. The economics of renewable natural gas and the evolution of carbon markets have generated serious interest in animal- in the by-products of animal agriculture. It's providing what looks to be an exciting opportunity for livestock producers to expand operations, diversify their revenue and improve their own carbon footprint. These are complex discussions that sometimes raise more questions than answers and we've certainly had a number of those discussions with our customers, and so we have lined up a panel of internal and external experts to help address some of those. We've got a lot to cover in a pretty short time, so let's get right into it.
I'll start off by introducing our panelists. Joining us from New York is Aiden Seder[?], vice President of BMO's Energy Transition Group. Aiden provides advisory services and leads transaction execution for energy related opportunities supporting clients as they navigate to a low carbon economy. Aiden is specifically focused on RNG, renewable fuels, environmental products, carbon capture and hydrogen. He has over 11 years of experience in oil and gas, including energy investment banking here at BMO and previous technical experience in subsurface [inaudible] at Canadian Natural Resources. Thanks for joining us, Aiden.
From Calgary, Alberta, we have Steve Kehoe, director in BMO's Energy Transition Group. Steve is a broad specialist focusing on new energy transition technologies, including among others, low carbon fuels, renewable natural gas, hydrogen and carbon capture and sequestration. Steve came into this role with a Bachelor of Engineering Science with Distinction and a Master of Engineering Science in mechanical engineering from Western University and he's an ambassador with the Energy Futures Lab. Prior to joining BMO, Steve worked in the oil and gas industry in production and exploitation engineering and then spent 12 years working in acquisitions and divestitures advisory with BMO's Energy Group evaluating energy assets and executing transactions. His work on the hydrogen economy has become an important touchpoint for many BMO clients, government and agencies. Thanks for joining us, Steve.
From Madison, Wisconsin, we are pleased to have Jordan Hemaidan, partner and energy group chair at Michael Best. Jordan helps energy companies and other sophisticated businesses structure and contract for large scale capital expansion procurement, including representation in citing and certification cases for large power generation facilities, electric transmission lines, private energy facilities and large agricultural projects. He also represents clients in the transactional and regulatory aspects of purchasing and developing renewable energy projects, including wind, solar and biomass. Jordan is known for his ability to achieve consensus among various stakeholders as well as his creative solutions in resolving disputes and completing transactions. His practice also includes a wide range of energy related procurement and construction matters, including contract negotiation, contract administration, bid protests and dispute resolution. He guides public utilities through rate making and other regulatory matters by establishing close relationships with regulators, yet never compromising his ability to fight for his clients. Thanks for joining us, Jordan.
Jordan Hemaidan: Thank you, Janine.
Janine Sekulic: Joining us from New London, Wisconsin is Dan Wenzel. Dan is a founding partner of the Dairy Business Consulting Group. He has been working in the dairy industry since 1986 and has been a consultant working with large modern dairy since 1990. Dan provides financial and business management services to dairy farms, including budgeting and monitoring analysis, benchmarking, expansion planning, workout scenarios and expert witness consulting. He also helps his clients with on-farm communication, farm transfer preparation and advisory team meetings. Raised on a dairy farm in Manitowoc, Wisconsin County – the Canadian comes out every once in a while when I try to say those Wisconsin names. I got it. Dan graduated with honors from the University of Wisconsin Madison with a Bachelor of Science degree in Dairy Science and Agricultural Economics.
And last but certainly not least, from Marshfield, Wisconsin, we have Brad Gucey[?], Senior Vice President in Agriculture Relationship Manager here at BMO. Brad manages a portfolio of production agriculture customers with a focus on dairy accounts. He has 10 years of experience in dairy nutrition and over 25 years of agricultural banking, 21 of which have been here at BMO. Brad is also very involved in the industry and in his community and is passionate about farm safety and mental health. He served 21 years in the Wisconsin Army National Guard, retiring in 2004 after a successful deployment to Afghanistan. Thank you for your service, Brad.
Brad: Thanks for being worth it, Janine.
Janine Sekulic: Thank you. He holds a bachelor’s degree from the University of Wisconsin River Falls and would note that he saw his first bio digester in 1981 and has been involved in financing the earlier round of digester projects. Well, I am excited about the breadth of knowledge and the perspective that we have here today. I've got some questions to get us started. I would encourage you, if you have questions, please type them in the chat box. We'll get to as many as we can today and we'll follow up later on the rest. At the end of the webcast, you'll also see a survey pop up once you log out and we'd really appreciate your feedback on what you see today and what things you might look to us from in the future. Okay, so let's get started. Let's start with what's driving all of this activity and the carbon market in general. So Aiden, maybe we'll start with you. What is the carbon market? What's trading? Who's buying? How do they connect with sellers?
Aiden: Good question, Janine. I'm sure everyone's heard a variety of different concepts and names and voluntary and compliance in fuels. And I think to simplify it all, it's just important to simplify compliance. And the right way to think of that is people that need to do it or participate in that market and voluntary people who choose to participate. And so when we think about RNG, there's two types of credits that are really important. There's the RINs or what's referred to as Renewable Fuel Standard, which is a federal program administered to the EPA and then the California Low Carbon Fuel System, which is a state program that's administered to the California Air Resource Board, often referenced as CARB. These programs apply to fuel importers and refiners. So think of people that are making your diesel, your gasoline or importing from other countries and they're obligated to participate in this program. So many of the largest refiners in the world like Shell, like Valero are purchasing credits and there's a variety of parties that are generating them. And so these folks connect through third party intermediaries directly in order to facilitate the buying and selling of the credits. And that's how the market works in a very short, kind of, in a nutshell, if you will.
Janine Sekulic: Okay. So what has that value of those credits done over time and how did the value of the different types of credits compare?
Aiden: That's a good question too. So the two markets we talked about and it's important, we're only talking about a subset of these. You know, we could go on for hours and hours if we were going to talk about this one topic alone. So the LCFS market, so that's the California market we just talked about, has gone through some pricing pressures. So over a couple of years ago, you would've seen the price being about $190 a time that's come down to, you know, about a less than a $100 a time. And this has been driven by the large volume of renewable products that have come online. So the reason for the program is to incentivize renewable products like renewable natural gas to enter the market, but there's been a lot of these products that have entered today. And so carb, if you remember the California Air Resource Board who administers the program is contemplating some broad scale changes in order to support that pricing backup. There's no magic, you know, 8 ball that identify exactly where they go, but they're working towards providing some pricing support to that program. RINs, which is the federal level program we talked about, have gone through some pricing volatility, but have actually been quite stable over the last while. So there's a bunch of different RINs, and I won't go into it, but the one that you want to keep an eye on if you ever go to the EPA website is the D3 RIN. So Delta 3, that's the one that's most applicable to RNG producers.
Janine Sekulic: Okay. That kind of leads into a question I was just about to ask, which was how transparent is that market for credits, but it sounds, like where do we find these values? It is the EPA website generally.
Aiden: That's a good question. Yeah, the EPA website provides you some real-time pricing where people who are trading will report in the pricing on a weekly basis. So you can see some weekly averages on their website. And then the California Air Resource Board, again, they provide some weekly pricing as well, which you can find on their websites.
Janine Sekulic: Okay. And are those really the only two- I know you've already sort of mentioned there are a number of others, but can you give us a couple of examples maybe of other?
Aiden: Yeah, so look, there's more markets coming online. Two of the major ones that are coming online in 2023 are going to be Washington State and the federal system in Canada for folks that are near or proximal to the border. But there's also programs in Oregon and British Columbia, if you're on the West coast or in the Western interconnect. And further, there's programs that are voluntary. So what's happening is parties out there, just corporations who consume natural gas, will enter into off-take contracts similar to the renewable power market, where they will go to someone who's generating renewable natural gas and say, I will buy it for this set price for an extended period of time, which just completely bypasses the credit market altogether.
Janine Sekulic: Got it. Okay. So maybe Steve, that leads to a question for you. I guess obviously, there's a supply and demand sort of built into the value of these credits for the gas in general. I guess what's the size of the market for RNG? How many digesters can we build and do you think there's a risk of saturation?
Stephen Kehoe: In terms of saturation, I don't think it's a risk. One of the stats I heard was that if we were to capture all of the renewable natural gas we could in North America from all the sources, so cattle, dairy, municipal solid waste, it would amount to about 2 BCF per day. And when you think that North America consumes about 115, 120 BCF per day, it's a drop in the bucket. So I think from the perspective of people who own these assets, so think dairy farmers, you've got an asset that's very limited that's going into a market that's very broad. So I would say there's not a risk of it being saturated. It's almost the opposite.
Janine Sekulic: That's very promising for the kind of longevity of these projects for sure. How does the work that you are doing today compared to the work you did in the heyday of conventional oil and gas?
Stephen Kehoe: I think it's very similar and we see it as a very similar market. So when we would work with oil and gas companies, we typically worked - the area I worked in and Aiden was in that for a bit as well, they're relatively small companies, so junior mid-size and they essentially worked as like the R&D arm of bigger oil companies. So they would go out and develop properties. They would get into a point where they were sustainable and commercial and then they would want to be sold. So we would act as essentially like a real estate agent. So we would represent them, we would help them build a marketing plan and then take it to market. And we also have the relationships with most of these companies that would be buyers. So larger oil companies, private equity firms, midstream companies sometimes. So we would have those relationships and then we would help these oil companies get the best value for their asset that they had built up. And then typically what they would do is after they sold that, they would go start up another one. So it was sort of a running treadmill that way and it worked really well. So we see this as a really good analogy with what's going on with farming right now and with the whole renewable natural gas space. So dairy farmers, cattle farmers, they've got the asset and I'm sure many of them are being approached right now by different developers. And as many of them are clients of the banks, we want to make sure they get the best possible deal they can. So that's sort of the situation we see is where they've got the asset and you've got to maximize that value.
Janine Sekulic: That's great context. I think that kind of ties or leads over nicely to talk to Jordan, our attorney on the panel. Jordan, you've been working in this space since very early on. And from your standpoint, how have the structures of these contracts or projects evolved?
Jordan Hemaidan: I think it's a very interesting history, Janine. What we saw at first, I'll call it the tale of two developers. We saw first very sophisticated subsidiaries of established energy companies coming in, targeting farms that already had digesters. That's what I'll call a low hanging fruit. And these sophisticated companies who made this their target were very successful at sort of rolling up these larger farms that already had digesters and structuring the deals so that the main compensation to the farm was in the form of a fixed rent amount under the lease. And then there would be a separate manure supply agreement that wouldn't be separate compensation under that so the rent amount, which remained unchanged except for maybe an inflation escalator throughout the long term of the contract, the competition was fixed. At the same time, there was sort of an explosion of developers who mean very well, but who were very thinly capitalized. Now, one would think that farms would take a look at these folks and just say, thanks, but no thanks. But what they were good at is sort of promising the moon, saying, hey, we're going to build either the biogas upgrade facility if you already have a digester or the entire capital expansion with the digester and upgrade facility and we're going to have, I'll say loosely, a partnership and we're going to give you 50% of the net profit of the project, which is extraordinarily generous for the person who's taking the technology and capital risk to offer. But the problem was they didn't have the money behind them.
So I think a lot of farms got caught up in, you know, negotiating contracts, which promised the moon, but where there wasn't enough capital to back it up and then these developers were left scrambling not only for capital, but if they could get it sort of in the back of the queue for procurement of the long lead steel items, which was especially challenging during the supply chain crisis, which we're still feeling the effects of. So the evolution from there, I'll say, has been sort of a movement to the middle where most developers, including sophisticated ones, are now offering a percentage of EBITDA from the project, certainly not 50. You're seeing more around the range of 10% to 20% to the farm. Oftentimes now, even with the price pressures that Aiden talked about, you're seeing the developers willing now to spend pretty significant amounts of money to change the manure handling aspects of the farm, if they're betting on sand, for example, to move to solids and to make the investment for the farmer and manure separation equipment and drying equipment to make that possible and maybe deducting some of that from the percentage that the farm will get over time until it's paid back.
I've also seen an increasing willingness on developers to leave the digester and the manure separation equipment behind at the end of the term. You won't see them leaving the biogas upgrade or compression equipment that that's on a skid, that's very portable, it's going to go away at the end if they don't continue the relationship. But I think farms are now seeing the potential to have very nice capital upgrades including in some cases switching from flush systems to vacuum systems for manure collection and that that's a big plus for the farms. So that's where I'm seeing these deals sort of converged to. Farms are sophisticated too. These are sophisticated businesspeople. They do want to focus on milk and cows because that's what they're in this for, but I think most are starting to see that a taking a fixed amount of rent for the project isn't enough skin in the game for them and they're willing to take a little bit of a chance on price volatility and arrange their compensation in terms of how much the project is earning.
Janine Sekulic: Right, right. So that's a great point. So is there a process by which a producer could evaluate the offer? Is that something that you, as their representation or as someone who's helping put that deal together, is there a way for them to say, this is a good deal or I'm leaving something on the table? I guess in some way, you always run that risk, but I guess is there enough- are there enough comparables out there to get a sense of that, do you think?
Jordan Hemaidan: Well, I think this is a challenge. First of all, I'm pretty straightforward upfront with my clients that I've got too much to do to be able to keep up on the economics of where the offset price, where the credit prices are, where they're moving, whether or not- because developers are going to be very close to the best about what their proforma look like and what sort of profit proposition there is. And I don't know what the cost proposition is, so I really don't feel qualified to tell my clients from an economic standpoint if this is a good deal. That said, you know, I work with partners in consulting and engineering firms who are good at keeping up on these things and who can give at least a gut check back at the envelope formulation to the farm about how good of a deal they could hope to get. And for something less than $10,000, they can have an engineering firm do a preliminary carbon intensity score evaluation because you know, the value of the renewable natural gas is first and foremost determined by your carbon intensity score and sort of counterintuitively, the lower that score is, the better off you are. It's all about how much methane emissions you're avoiding. And so again, the lower the score, the better.
So having an idea of what that score is and what the value is of how much gas you're going to produce of that score can be very powerful for a farm in terms of getting some estimates about what they hope to get paid and what they ought to get paid. I think the other thing too that I would just- that pops to mind here that I think farms need to be very careful of is making sure that the developer has good relationships with finance sources. And most of these deals we're seeing now and this is another way they're evolving- most of these deals up until last year were very equity heavy, private equity heavy. So we're looking at 80%, 90% equity and now that is coming down as banks get more comfortable and more interested in this space. And of course the cost of that debt is going to be a lot lower than the cost of equity. So that's freeing up some money. Another thing that farms ought to be aware of is that in the administration's Inflation Reduction Act, which was just signed into law, there is an investment tax credit now that can pay up to a third of the capital costs of these projects. And you can imagine that dramatically changes the proforma for a project. And I think farms need to be aware of that when they're negotiating for how much of that [inaudible] they're going to be able to get as well.
Janine Sekulic: Steve, I don't know if you maybe want to chime in on this. So you've looked at a number of contracts and talked to a number of producers. Do you have some thoughts just to maybe to add to what Jordan's outlined?
Stephen Kehoe: Yeah, exactly. And that's the kind of advice that Jordan was talking about. It's very similar to what we have done in the energy space previously. And we're definitely getting a lot more comfortable being able to do that now. We've seen a number of these contracts and we can see what the difference is between some. I mean, you've primarily got- you know, you could have- at one end, you could have hundred percent owned and operated by the farmer, where you put up all the capital and you'd operate it and take care of your own off-take agreements. I don't think anyone wants to do that. I think they all want to stick with their primary business, which is producing milk. The other one would be sort of a JV where you sort of partner with the developer. I haven't really seen any of those, but by far the most common contracts are the developer will come and put up all the capital. And as Jordan mentioned, there's that- it's about a 30% tax credit now. So with the Inflation Reduction Act, RNG biodigesters are now equal to solar and wind developments. So it's the same investment tax credit that's available there.
There's another new markets tax credit that can be available as well that can cover up to another 20%. So it's possible that these developers are getting up to half of the capital covered through tax credits, which- it's important for the farm to know because it does change the economics and then it also makes it very important for the farmer to understand that they- yeah, you can get a fixed fee. So basically a dumping fee for your manure plus some kind of a rent. But I think it's more important to try and negotiate in some sort of a revenue sharing agreement, whether it's revenue sharing directly or a royalty payment. So those are a lot of the factors we like to consider, I guess, when we'd be reviewing these contracts.
Janine Sekulic: Okay. Great. Thank you. Maybe turning, like, just kind of switching a little bit to the operational aspect, Dan, of what this means- what these projects mean for the farm and for day-to-day operations. What are you hearing from your clients? What are some of the biggest frustrations maybe that you've heard from your clients when it comes to the construction phase of these projects?
Speaker: In my experience with the construction phase, I've had a couple that have gone okay and I've had some that have had some frustrations. Basically, the timelines and deadlines, the construction site, the management of the construction site is different than what the farm is used to. The farm likes to get it done and I think there's just a lot more corporate and breadth of bureaucracy in some of the construction design and planning. Another thing I've run into is the gas company, forgetting what they agreed to, in some cases it's been quite a time has elapsed since this thing was signed versus the construction. Sometimes people have changed. An example is there's supposed to be a pipe buried to the farm for gas and the gas construction crew said, well, that's your responsibility and the farmer said, well, that's your responsibility. They dug out the fine print and the farmer was right. So it's really important to know what you're agreeing to. And I've run into that a couple times. Another thing I've seen is the gas company may be putting in installing some pipes and pumps and a lot of times I'll see the farm is responsible to the digester and then after the digester, the management is at the gas company. But the gas company may install pumps that are too small, pipes that are too small. Farmers saying that's not going to work. And lo and behold it doesn't work. I think part of it is cost cutting. Part of it is just now annoying. You're partnering with someone that doesn't know the dairy operations. I've had a farm where they've had to unplug the pump several times already and since that time the gas companies came back and changed the pump and changed the diameter of the pipe. Also I think it really just comes down to you're partnering with someone that doesn't understand your business and it just takes a little bit of time to step back and communicate and make sure that that's a smooth process.
Janine Sekulic: Great. Yeah, good considerations for sure. I guess, you know, what are some of the kinds of things that a dairy- like you mentioned that your customers are needing to make some investments, maybe is it, changing barn dynamics or animal movement, or is there considerations around any of those kinds of things? Or is it pretty much just you bolt this on and it's business as usual?
Speaker: Well, you know, depending upon the better- the more cows you have, the better deal you can get. And so if you're big enough, that's fine. Otherwise, I have people that have expanded to either get a digester or to get a better deal with the digester. So first of all, they have to be in a financial position to do that. Secondly, they have to make sure they have secured milk market to add more milk, but obviously barns and cows, but it may fall into manure storage, feed storage and then the whole bedding situation. Going to sand, going away from sand for some is a concern. So am I going to go to a screw press and dryer and do I need a dryer? Other people I've decided to stay with sand and are going to have a sand separation. So I think all those things that occur with the normal expansion would occur with this, just the addition of the bedding system.
Janine Sekulic: Thank you. Turning, now just sort of thinking about those investments in the capital that's required on the dairy farm side to make this happen, turning to our banker, what are some of the key metrics that a banker specifically BMO is going to be looking at when it comes to financing, maybe financing and expansion to accommodate one of these projects, like Dan mentioned. Does it change anything from a financial perspective?
Speaker: As I look at things, the key metrics really don't change different from a RNG project or not. At the end of the day, you still have to ask the same two questions. Number one, what does it do to my cost of production? Number two, what does it do to my balance sheet? And when I'm talking about cost of production, I'm looking at profit and losses. I mean, it doesn't make sense to make an investment to lose money, right? So we want to make sure that we've got a profitable plan and place and that it has adequate cash flow to cover debt service. The second thing with the balance sheet, when I'm talking about that, I'm looking at, you know, what does it do to the balance sheet? I want to make sure I pay close attention to working capital and then also to my longer-term shock observer, which is equity. Working capital, I want to see somewhere around that two and a half months or more of working capital available after construction. And I want to see somewhere over 40% equity in the balance sheet after construction. So understanding that I think it was a couple of the folks mentioned, the gas companies maybe or the developers maybe putting some money into these projects, that could have a significant impact on the balance sheet and make a project more viable because that money is coming in, both on limiting the amount of debt being used and/or providing a better or stronger cushion on the balance sheet. So that's one of those considerations that you want to think about as you look at that expansion, if there is cash coming in or not for that project from the gas company.
Janine Sekulic: Right. Okay, thanks for that. We've got a couple of questions coming in from the audience and I'd like to get to those, I think. So first of all, there's a question about whether the webinar will be recorded and it will be. We'll make sure that's made available to you. Okay, so here's one question. I'll ask the question and maybe see who wants to put their hand up to address it. I live where a community digester is being proposed. They will source mostly dairy manure, some poultry and maybe others, lots of daily trucking. A group travel to Denmark to see them working. Is anyone aware of this concept being implemented in the US Midwest? Is anyone aware of pros and cons? Jordan?
Jordan Hemaidan: Yeah, I can answer a little bit. I'm aware of at least two community digesters in Wisconsin. I think there's one in Dane County and I think there's one up in the Turtle Lake area. And I think for the most part, this concept of bringing substrate in from various sources, food waste, municipal waste and so on has worked pretty well. Yes, it increases daily trucking, but it's through the local zoning and regulatory bodies like the town boards and county and so on, where you can address those things, I think pretty well. And remember, Wisconsin, unlike many other states, has a very well-developed network of town roads because [inaudible] to get to market. So in most cases, the roads themselves are in good shape for that. Yeah, it's going to have some community impact if there are ways to work around that in terms of establishing certain routes and time of day operations. And I think- you know, in my experience, I've spent a lot of time earlier in my career being in front of town boards advocating for people who are trying to develop projects and seeing communities kind of take the not-here approach. And, you know, I've never really seen that work well. I think the thing that- the best approach is to work together to find a solution which allows a project to be there, but which minimizes the adverse impacts on the community, but it can work and I've seen it work.
Janine Sekulic: Thanks for that. Steve, did you have some comments as well?
Stephen Kehoe: Yeah, I'd just add with that. So one thing you have to be concerned with community digesters is that the feedstock- different feedstocks have different CI scores. As I understand it, dairy has probably the best CI score, probably even better than cattle. You can get below negative 200, which is- so for a point of reference, if you burn natural gas, it has a CI score of about 80 or 90 grams per megajoule, whereas dairy- converting dairy to- dairy waste to natural gas, you get a score of negative, say 250. So when that factors into the carbon credit generation, it makes it very valuable. The idea is to bring that score down as low as possible. So if you can get it to zero, that's great. If you can go negative, that means you're removing more carbon than you're avoiding. So when you start adding in different types of feedstock, you can reduce that quality. So I don't know how these community digesters are set up, but if you're dumping your manure from a dairy farm, you're probably going to get one score. If you're dumping it from a hog farm, it's going to be different. And a lot of times too, I think these things will take in like food waste, things like that and that can really degrade it as well. So it's just that consideration you have to know about and you have to maybe be careful of, if you've got an opportunity to put one on- put a digester on your own land and you're going to control the feedstock. That's something else you'd want to make sure is it included, if it is going on your lands. There's not going to be this additional truck traffic on your roads.
Janine Sekulic: Right.
Speaker: One thing I'd add to that real quick is sometimes these community digesters are really for the smaller dairies. I've had dairies less than a thousand cows that are getting their manure trucked. I've had one dairy that's been for over two years, they've had their manure picked up daily, digested and brought back. And as another source of revenue, I have another farm that has been doing it for six months. And the gas company is not only paying them for the raw product per gallon for the manure, but they're also paying them to haul the manure themselves. And they have a next generation coming in with trucking. And it's very lucrative. Actually, the trucking is surprisingly lucrative.
Janine Sekulic: Great comments. Thanks guys. We've got a question here about what percent of digesters are actually able to get carb certified? Jordan, would you like to take that one?
Jordan Hemaidan: Sure. I can't give a statistic, but what I can tell you is that all of the deals that I've done were the steels in the ground and it's operating. I'm not aware of any which carb has failed to certify or assign a preliminary CI score to. And I think what that owes to is you've got investments- if the developers are building a digester for a three to 5,000 cow farm, you're talking about a $30 million to $40 million capital investment. So those developers are not going to take a chance on what I'll call regulatory risk and go with a digester that hasn't been proven or that might risk not getting certified. So I think I don't see that as a big risk.
Janine Sekulic: Okay. Thanks for that. Anyone else have-
Aiden: Maybe I'll add on here. As you think about carb, look, there's a lot of volume that's going to California today, but that's not the only end market. The end markets are really developing outside of California, whether it be folks looking at voluntary off-take or alternative markets. I think we're going to see a more prominence of gas going to other places and as a result, less dependency on the California market.
Janine Sekulic: Thanks, Aiden. Another question from the audience and maybe this- I think, Aiden, we'll start with you on this one and maybe Jordan, you can weigh in and Steve as well. What does the regulatory future look like in regards to dairy farms being forced to be carbon neutral? Will a farm still be recognized as carbon neutral if their assets are used to supply the digester, but a third-party company owns and operates the digester? Do farms need to hold digester ownership to get credit? I think there's a number of questions in there, but I think it's a really good one.
Aiden: It's a good question. I'm going to take a step back here and just talk about in a general sense and I'll hand over the dairy specific part with the folks on the line that are much better versed on the dairy side of the equation. I think where you ring fence the assets is not important. It's how they define the formula. So when they define carbon neutrality, it's what comes into the ring fence and what comes out of it and how they define that attribute. Whether or not a third party does it is not- like retaining ownership to the attributes or the steel's not important. It's how they're accounting for the carbon accounting around the environmental credits that are generated. And normally, one would anticipate this to be straightforward, but a history has kind of dictated to us that this is not as straightforward as one would think. And sometimes there's special accommodations or certain emissions are excluded and certain items are let in. So the importance is going to be in each jurisdiction to see how they're defining carbon neutrality and what are eligible emissions and what are non-eligible emissions and working backwards from that.
Jordan Hemaidan: Yeah, I would agree with Aiden a hundred percent on what he said. And I'd like to draw another distinction, which is the distinction between generating value in the form of credits that can be monetized versus just complying within an environmental mandate. And this comes in, you know, with do I have to own it or do I get credit if a third party owns it? I think there's different kinds of requirements. If the requirement is just to have a carbon neutral operation and it doesn't have to do with the generation of credits that can be monetized, my sense is most rules that'll be written around that will allow you , to achieve that requirement by engaging in a project like an RNG project with a third party. I think the formulation for, are you complying or not with carbon neutrality, will be a measurement of what are you emitting? However you mitigate those emissions or take them away, I don't think will be germane to answering that question. I think what's really important and if I was going to make one point today, I want to make this, is that farms who contract with developers for these projects give the developer what they're entitled to. They're entitled to all credits and monetization of those credits that arise from their production of pipeline grade gas from manure. But as we all know, there are many different agricultural practices and potential practices, nutrient separation and disposition, you know, land spreading techniques and things like that, which ought to belong to the farmer. And so anytime a farmer's negotiating, don't give away all environmental credits from all activity on the farm, just give them away for the production for what the developer's doing and make sure that there's something in the agreement which reserves all the rest to you.
Janine Sekulic: That's a great point, Jordan. I think there's a question asked here and I think you've just answered it. It's what sort of environmental attributes are given to a dairy digester project? The agreements I've looked at typically reserve environmental attributes from the digester project to the gas producing entity. I'm concerned about loss of the ability to claim environmental attributes if our co-op or milk buyer demands it of us sometime in the future, i.e., looking for a zero-carbon footprint from the dairy farm. But I think, Jordan, what you've just said really addresses that. So hang on to that aspect of these projects and of the practices you're engaging on the farm.
Jordan Hemaidan: That's right. I mean if the milk co-op is looking for environmental attributes that arise from the creation of marketable gas from the manure, those are already given away if you have an RNG project. And so there's not going to be double dipping allowed here. That's sort of overall golden rule with environmental attributes. But in reserving all of the rest of the farmer, the farmer is keeping the ability to create credits through other means, either upstream or downstream of the project.
Janine Sekulic: Okay. Thank you, Jordan. That's great. This one is a more technical question. Dan, maybe you could take a stab at this one and maybe Steve. Are farms in high humidity climates having to use dryers to get quality bedding? Do high temperature digesters versus lower temperature digesters have an effect on bedding quality?
Speaker: I can step on- I can take at the dryer. I don't know the answer. I can just tell you I'm part of maybe- I agree with the question is I have some that are going with dryers and some that aren't going with dryers. Some feel that there needs to be a certain dryness and other ones say, well, [inaudible] this farm. So I actually see it's split. Certainly, the digested process helps if you don't dry it compared to just separating without the digester that I have seen, but I've seen that split dryer versus non-dryer.
Janine Sekulic: Okay. Sorry, there's some great questions in here. I just want to make sure we're- and I'm kind of bouncing around a little bit. There's a comment here, kind of leading back to the community digester question. The farmer gets a fertilizer product back, which they must have different storage for. So that I think is another consideration that this audience member would like to add to that. So it's a good point. Here's another question kind of interesting. Is an RNG project easily expandable to line up with an increase in livestock numbers? So is there a possibility to expand on a farm down the road? I don't know if anyone wants to. Jordan.
Jordan Hemaidan: I think the answer is yes. And the biggest indication of that, Janine, is that almost every developer that I've negotiated with wants to write a first refusal to expand their RNG project if the farm expands. So these projects are scalable. Usually, they're going to put a little extra capacity in the digester if they can and the biogas upgrade facility skid is going to have some margin of expansion ability. But, you know, if the farm's going to double in size from 3000 to 6,000 cows, they're going to be more than happy to come in, put another digester and increase the size of the biogas upgrade facility. So yeah, these things are scalable and I think only limited by any impact it would have on the farms operations or the production area and regulatory issues.
Janine Sekulic: Great. Thank you.
Speaker: Janine, I see- when I've seen it done, the challenge is not so much in the doubling, it's the incremental ones where you end up with expanding 500 cows and you don't have that wiggle room in your digester, because when you think about a digester, that digester is really a 21-day to 28-day manure storage facility is what it is. So if you add cows into that, you lose days of capacity, which then reduce your gas [inaudible]. So you got to make sure you understand what's going on with that. So the incremental growth that we've often seen on farms is very limited. You almost have to scale in combination with the digester or at least have that thought process in your planning.
Janine Sekulic: Right. Good point, Brad. Thank you. Here's a question around capital. With interest rates rising, has private equity capital dried up for this sector or is there still capital being attracted to this space given the growth in carbon markets? Maybe Jordan, Aiden who'd like to- anyone?
Stephen Kehoe: I'd say from what we've seen it, it hasn't dried up. I mean, people who have capital still have to deploy it and they see this is a really good market for that. I think it's almost the opposite. You're not going to see a flood of capital flood coming into it, but I think everyone's expecting the carbon market to grow and expand, notwithstanding what we've seen with the California market, but that's really just the function more of it's just the only market that's been available, I think. And as Aiden pointed out, the RINs haven't really dropped too much, but, I would say it's almost the opposite. We're going to see money being put into operations like this. And as we've said right at the beginning, there's a very limited feedstock of RNG projects available. So I don't think that's really a concern.
Jordan Hemaidan: I don't think so either. I was initially surprised by the resiliency of private equity with the price volatility, particularly with LCFS, but it makes more sense to me now because where most of this private equity is coming from, at least in my anecdotally is very established energy companies who are comfortable making these investments and taking the long view of them.
Janine Sekulic: Right, right. Yeah, which sort of leads to- We often- some of the things that we've heard from customers as we're having conversations out there in the market about these things, is what's the long-term outlook on this? Like, we do this project, there's a change in administration or there's a different view on these things and does this go away? And I think what I'm certainly hearing and what I've heard from all of you is that no, it isn't. But I don't know if anyone has any kind of specific thoughts around that.
Aiden: So I guess some of my colleagues have said like the RINs or the D3 RINs are major source of the economic incentive here. And the EPA program has been around since 2005, just slightly changed since 2007. So if we think back to the various administrations that have come and gone, no one has fully revamped the system to the point to kind of put it out of relevance. And as we see things that have happened here- as capital has deployed here, private industry really builds a little bit of a moat around these programs, because when big refiners are investing in purchasing these things long term or large E&P or oil and gas companies are investing in these projects, it's pretty hard after Exxon and Shell and BP deployed tens of billions of dollars for the government to come in and just swipe and say, hey, where this program's gone away. So there is built some a little bit of, if you think, stickiness around these programs with almost two decades of operation. And to be honest, renewable natural gas provides a solution not only for decarbonization, but it can go into different industries that are part of the broader decarbonization. So it can be used to make hydrogen, it can be used to produce other renewable fuels, it can be used in a variety of other applications as well where it can stack technologies. So all this to say, you know, whether it's in the compliance market or the voluntary market, there will continue to be a large demand for renewable natural gas for the foreseeable future.
Janine Sekulic: Thanks, Aiden. There's one more question here from the audience. My neighbor has a large digester. They have a 30,000 propane tank to keep the digester at temperature in the wintertime. How is this carbon friendly? So I guess that's kind of an interesting question. Jordan, did you-
Jordan Hemaidan: Yeah, my first stab at this would be that the carb is going to account for the energy and going into the project versus the carbon intensity of the project, right? So it's for lack of a better term, baked in. We have to remember that methane as a greenhouse gas is many, many multiples more harmful than carbon. So I think the short answer is that these projects from the standpoint of greenhouse gas mitigation are very effective, even if you have to bring in the natural gas from the gas company for the dryer to make the renewable natural gas.
Janine Sekulic: Okay. Thanks Jordan. Here's another question. What happens if the farm either sells or goes out of business in the middle of a contract?
Jordan Hemaidan: So that's also something I've negotiated pretty heavily and this is a difficult question in these negotiations because again, developers making a huge investment and they want to protect that investment. But there are things that can happen particularly on the regulatory front, on the milk quota front and just generally on the economic front that could result in the dairy going out of business or getting smaller. And so what I try to do most of the time successfully is come to a midpoint with a developer where we identify certain things that are beyond the farm's control and identify those as things that if they impact performance, the dairy won't be punished for that. Now I think the developers from a pragmatic standpoint know that if a dairy's going out of business, you know, getting anything by way of damages in a remedy is sort of like squeezing blood out of a turnip. So I think they know that. For all the farms that I represent, I make sure that to the absolute extent possible, we protect the farms from things they can't control.
Janine Sekulic: Right, right. And we're almost out of time. We've got about six minutes remaining. So if there are any questions, please pop them into the chat now. I think one that is kind of on my mind and one that I've heard and I don't know who might like to tackle this one. It's processing capacity. So how much- if we're talking about dairy expansions or we're talking about accommodating these projects, how much do you think the industry can absorb and is that going to be a limiting factor in terms of the milk side of this equation?
Speaker: Well, I think there's certain times of the year and certain years where that's tighter than others. I think right now it's a little bit looser. Now requesting, you know, I'd like to add a 1000 cows or 3000 cows might be a little bit easier depending upon the plant than it would've been two years ago. But I always have that concern if they say yes today, that doesn't mean they'll cut you back in the future. But I think it's very plant dependent. I have some plants that are very strict on no volume beyond a certain level and I have other plants- I've got a guy approved for 3000 cows and 1000 cows and the plant said, okay. So that's my experience.
Janine Sekulic: So it's important to talk to make sure that's an important part of the project, obviously. Yeah.
Speaker: Yeah. I think you've got to- Janine, I think you've got to negotiate as part of a project. If you're going to do an expansion, you've got to make sure you negotiate a good milk supply agreement and maybe even get somebody from Jordan's firm involved in that negotiation to make sure that you do have a home for your milk so that you can maintain that supply and continue to sell your milk basically.
Janine Sekulic: Right. Okay. I think, we'll take this one last question here. What is the Inflation Reduction Act timeline to take advantage of the 30% discount? Is there any other regulatory changes expected in the near future? And what was the additional 20% mentioned earlier to get the project funded up to 50%?
Stephen Kehoe: I think the timeline on the IRA was 10 years, but- I mean, they've extended them in the past and the Inflation Reduction Act extended the previous IPCs. So there's that 10-year timeline, but again, I would expect that to continue. The other 20% new markets tax credit that I mentioned. That's a very- that's a specialized credit. It can be applied to different projects. It has been applied to RNG projects. It's dependent on geography, so where the facility is located. So that one becomes dependent on where the farm is basically.
Janine Sekulic: Right. Okay. Three minutes left. Here's one more question. What would define a good deal for project in revenue generated per cow? What was good in the past versus what is likely now? Does anyone want to take a stab at that one? Likely comes back to the bottom line at the end of the day, but-,
Speaker: I think Jordan, you've seen most of the contracts, right? So probably more than any of us, what you've seen, they're not typically tied to a per cow, but we end up by doing some math to try and get there, right? And what does that look like today versus what it looked like before? I have seen numbers all over the board, Jordan, haven't you?
Jordan Hemaidan: I have and again, what that goes to is the black box we were talking about before, which is we don't know what the cost proposition. Some of these projects, they're literally compressing the gas and trucking at a 150 miles and still the project pencils up, but it's going to be a lot less lucrative than a project where the gas line is right there. Volume is also a big determinant. I think it's fair to say I started out 2 years ago, like during the pandemic, parties negotiating things that would start to look like $70 or $80 a cow. Now I am seeing deals pretty regularly where we're looking at a minimum of 35 to 45 per cow, but this again, has to do with all of those factors plus the price volatility that Aiden was talking about.
Janine Sekulic: Right. Alright, well, we are one minute from the top of the hour. I think this was a really great discussion and like I mentioned, we're certainly- we'll make sure that contact information is available after this or that the replay is available, if folks are interested. I'd like to thank our panelists for your insights this morning and thank the rest of you for taking the time to join us and listening. We want to remind you that we're all here to help you through that process, obviously and we'd love to hear any feedback or follow-up questions that you might have. So there certainly is a lot of uncertainty out there today, but we certainly believe there's a ton of opportunity for primary agriculture here in this decarbonizing world and we're really excited to help navigate through that. So with that, we're right at the time. So thank you again, everyone. Have a great day.
Janine Sekulic
Managing Director, Agribusiness East
312-350-1061
Janine Sekulic is Managing Director, Agribusiness East at BMO Commercial Bank. Janine leads a team of agriculture specialists who focus on building relationships an…(..)
View Full Profile >The economics of renewable natural gas, or RNG, and the evolution of carbon markets have generated serious interest in the byproducts of animal agriculture. It's creating opportunities for livestock producers to expand their operations, diversify their revenue and improve their own carbon footprints.
The conversations around this topic, however, are complex and sometimes raise more questions than answers. I recently moderated a panel of agriculture industry and financing experts to discuss carbon markets, negotiating the deal, issues around installing digesters, and the potential impacts that RNG projects can have on a farm’s operations and finances. Joining me in the discussion were:
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Jordan Hemaidan, Partner and Energy Group Chair at Michael Best, a Milwaukee-based law firm
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Dan Wenzel, Founding Partner of Dairy Business Consulting
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Aidin Sadr, Vice President of Investment Banking at BMO Capital Markets’ Energy Transition group
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Steve Kehoe, Director of Investment Banking at BMO Capital Markets’ Energy Transition group
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Brad Guse, Senior Vice President and Agriculture Relationship Manager, BMO Commercial Bank
Following is a summary of the event.
RNG and carbon credits
One key driver of the recent activity around RNG is the ability to earn environmental credits. Credits can be generated by converting livestock manure into RNG via an anaerobic digester. Operators can then monetize those credits by selling them to a buyer. As Sadr explained, there are two key types of credits:
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Renewable identification numbers, or RINs, which are used as currency under the Environmental Protection Agency’s Renewable Fuel Standards program.
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California’s Low Carbon Fuel Standard, or LCFS, which is designed to decrease the carbon intensity of the state’s pool of transportation fuel. Fuels with carbon intensity scores lower than diesel generate LCFS credits.
"These programs apply to fuel importers and refiners, and they're obligated to participate in this program,” Sadr said. “Many of the largest refiners in the world are purchasing credits.”
Buyers and sellers connect through third-party intermediaries, and the EPA website provides real-time pricing information. Sadr said more markets are coming online, including Washington state and Canada’s federal system, which are expected to launch in 2023.
Generating value
Like any other tradable commodity, supply and demand figures into the value of RNG credits. Right now, Kehoe said there's plenty of room for demand to catch up with supply. "If we were to capture all of the renewable natural gas we could in North America from all the sources—cattle, dairy, municipal, solid waste—it would amount to about 2 billion cubic feet [BCF] per day,” Kehoe said. "When you think that North America consumes about 115 to 120 BCF per day, it's a drop in the bucket. From the perspective of people who own these assets, dairy farmers, you've got an asset that's very limited going into a market that’s very broad.”
Given that the carbon credit market is still emerging, determining whether a farm is getting a fair deal can be difficult. Hemaidan said enlisting an engineering consultant can provide producers with a rough idea of what their farm’s carbon intensity score would be. “The value of renewable natural gas is first and foremost determined by your carbon intensity score,” he said. “So having an idea of what that score is and what the value is of how much gas you're going to produce at that score can be very powerful for a farm in terms of getting an estimate about what they hope to get paid and what they ought to get paid.”
Hemaidan also pointed out that the finance sources for RNG infrastructure are evolving. Until recently, private equity firms were driving up to 90% of the deals, he said. But that’s beginning to change. “That ratio is coming down as banks get more comfortable and more interested in this space,” Hemaidan said. “And, of course, the cost of that debt is going to be a lot lower than the cost of equity.”
Operational impact
Financial opportunities aside, operators will have to determine the impact an RNG project can have on their day-to-day operations. Construction tends to be a key concern, according to Wenzel.
“The timelines and deadlines of the management of the construction site are different than what the farm is used to,” Wenzel said. “The farm likes to get it done, and there's a lot more corporate bureaucracy in some of the construction, design and planning.”
Wenzel added that working with the gas company during construction can be another obstacle. “Another thing I've run into is the gas company forgetting what they agreed to,” he said. “In some cases quite a bit of time has elapsed since the agreement was signed versus the construction. So it's really important to know what you're agreeing to and have documentation.”
Wenzel gave the example of a gas company that installed pumps and pipes that were too small to get manure consistently to the digester. “You're partnering with someone that doesn't understand your business, and it just takes a little bit of time to step back and communicate to make sure that it’s a smooth process and that you have a say in the process,” he said.
Financial considerations
Along with the logistics of installing a digester, farms may have to make significant operational adjustments. As Wenzel said, the more cows a farm has the better deal they can get. “If you're big enough that's fine,” he said. “Otherwise, I’ve had farms that have expanded to either get a digester or to get a better deal with the digester. So, first of all, they have to be in a financial position to do that. Secondly, they have to make sure they have approval from their milk plant to ship more milk.”
Partnering on an RNG project can provide an opportunity to expand, but that also requires capital investment. That’s why Guse said operators will need to answer two key questions before making a commitment.
“Number one: what does it do to my cost of production? Number two: what does it do to my balance sheet?” Guse said. "You want to make sure that you’ve got a profitable plan in place and that it has adequate cash flow to cover debt service. What does it do to the balance sheet? You want to pay close attention to working capital and also to your longer-term shock absorber, which is equity.”
After construction, Guse said a good rule of thumb to follow is to have 2.5 months of working capital available and more than 40% equity in the balance sheet.
For any farm that ultimately decides to take on an RNG project, Hemaidan noted the importance of making sure you manage your environment credits properly. “Give the developer what they're entitled to,” he said. “They're entitled to all credits and monetization of those credits that arise from their production of pipeline-grade gas from manure.”
But there are many different agricultural practices and potential practices that ought to belong to the farmer. Anytime a farmer is negotiating, don't give away all environmental credits from all activity on the farm. Give them away for the production for what the developer is doing. And make sure there's something in the agreement that reserves the rest to you.”
To hear the full discussion, listen to the podcast:
Sustainability Leaders podcast is live on all major channels including Apple, Google and Spotify.
You can also watch the video replay here:
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