Over the past year there has been a significant change in on-farm anaerobic digestion (AD), based around a simple, small-scale, slurry-only system, primarily designed for dairy farms. They can be installed at a lower capital cost than traditional systems, making it affordable for many rather than the few.

The government response in early February to the consultation on support for AD through the Feed-in Tariff (FIT)* scheme was on balance positive for this scale of scheme, with an uplift in the tariff from 5.99p/kwh to 6.93p/kWh due to come into effect on 1 April. However, those considering investing in AD need to consider the key concerns around budget caps that were not addressed in the consultation: budget caps are likely to delay when the scheme will start receiving the FIT payments.

Our analysis of some of these systems proves they do have potential, with returns on capital of 10 per cent per annum, which is often higher depending on local demand for heat and electricity.

Micro AD systems less than 50kWe, have the same advantages as the larger on-farm AD systems currently more widely known about. They help to save money on fertilisers, reduce onsite energy bills and provide a diversified income. They also reduce the farm’s carbon footprint, an increasingly important criteria of the main milk buyers.

The micro AD systems almost solely require slurry as the feedstock. There is no requirement for energy crops, which on a dairy farm will compete with land for fodder, and eliminates the need to rely on Feedstock Supply Agreements with neighbours. As slurry is classed as waste it will automatically comply with the sustainability requirements of the FIT and RHI schemes – tighter controls have recently been placed on the use of energy crops making crop-only plants unlikely from now on.

The cost of the system is in the region of £300,000 for a 50kWe unit, but as there will be additional site specific costs, an outlay of £400,000 should be budgeted for.

A high output dairy herd of approximately 350 head, housed all year could produce sufficient slurry to support a 50kWe AD plant. However, most herds will not be housed all year, so it is important all farms accurately calculate how much slurry will be available. With most AD systems of a fixed size, if there is insufficient slurry the efficiency and output will fall, reducing the viability of the system.

It is also important to appraise the demand for energy on farm, both electricity and heat. Our calculations suggest that a system with no heat use, and exporting all the electricity will turn a small profit. However, the cash generated will not be sufficient to cover the repayment of a 10-year capital and interest loan.

A 350-cow dairy herd will typically consume 150,000-200,000 units of electricity, which equates to approximately half of the available output of a 50kWe system. Unless there are other local electricity demands, the balance will have to be exported. Electricity can be exported for approximately 5p/kWh with a FIT being claimed on top, whereas heat has no value (no RHI income) if it is not used.

Another way to look at these systems is to calculate how much removing the energy costs would reduce the price per litre of producing milk. Will it result in a bigger profit at the end of the year if the money were invested in more cows? Will it keep the business competitive with fluctuating milk prices?

*Review of support for Anaerobic Digestion and Micro-Combined Heat and Power under the Feed-in Tariffs scheme

Further information

Contact Savills Rural Services