C A S E S T U DY — T H I R D - PA R T Y PA R T N E R S H I P
FOR ANAEROBIC DIGESTERS
Dairy Power™
Overview
Big Sky West Dairy partnered with a
third-party company, DF-AP, LLC, to
build a successful digester project
at their location. Their success
demonstrates the potential of this
third-party business model for dairies
around the country.
The Big Sky West Dairy’s anaerobic
digester project has been financially
self-sustaining, paying a return to its
investors while lowering operational
costs for the dairy, improving
manure management and reducing
GHG emissions.
DF-AP, LLC — a partnership between
Dean Foods and AgPower Partners —
won the 2012 U.S. Dairy Sustainability
Award for Outstanding Achievement in
Energy for the exemplary innovation
and business practices of this
digester project.
Idaho dairy farm demonstrates the potential of thirdparty-owned and -operated anaerobic digesters.
Dairy industry experts are excited about the future of anaerobic digesters at dairy farms. Anaerobic
digesters have been proven to lower operational costs, improve manure management and reduce
greenhouse gas (GHG) emissions. But the expertise, time and financial requirements of the project are
usually too burdensome for most dairy farms. That’s why Big Sky West Dairy turned to a new model for
success — collaborating with a third-party investor to build and operate an on-site anaerobic digester.
Dean Foods Company and AgPower Partners joined together to form DF-AP, LLC, and launch one
of the first third-party-owned and -operated dairy digester projects in the United States at Big Sky
West Dairy. The company takes the burden off the dairy producer by securing financing, building and
operating the digester, and selling electricity back to the power company. DF-AP, LLC, has paid a
return to its investors using the power and products produced by the digester, and is well-positioned
for stable, long-term success.
Big Sky West Dairy can now focus on what it does best, while taking advantage of lowered
operational costs, reduced GHG, a steady supply of cow bedding and a sustainable, cost-effective
manure management program — without risking a single cent of their own budget.
Three key components of a successful third-party business model.
1. An agreement with the dairy farm to supply manure.
2. Performance guarantees from the digester operator and manufacturer that the digester will
work as designed. If it doesn’t work, the operator or manufacturer carries the risk for the initial
term of agreement.
3. Most important, an “off-take agreement” — a contract with a purchaser of digester products
(energy, fiber, emissions credits) to ensure there is sufficient revenue to pay the loan and provide
a return to the equity investors. Off-take agreements with creditworthy companies provide added
assurance that sufficient revenue will exist to pay debt service. In this project finance model, the
project developer secures the agreements and takes on the risk — not the dairy farm.
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Commitment
Key Benefits
Financial opportunity — The digester at Big Sky West Dairy produces 1.2 megawatts of electricity. That’s enough energy to power
approximately 900 homes, 24 hours a day, seven days a week — for a full calendar year. It also produces 34,000 cubic yards of
ammonia-free fiber, which is sold at retail as a landscape fertilizer, or as an alternative to peat moss or compost, where it fetches more
than twice the price of standard compost.
Reduced odor and pest management — The system provides improved manure handling and decreased solids in the effluent (liquid waste
coming off a system) entering into settling lagoons, which significantly diminishes odor and pest problems.
Reduced manure management costs — Dairy farms see an immediate increase in their bottom-line savings by eliminating the costs of
their previous manure management program.
Healthier bedding — 40 percent of the ammonia-free fiber produced in the Big Sky West Dairy digester is returned to the farm to use as
cow bedding. In some instances, this is a more sterile and virtually pathogen-free material than the previous bedding source, resulting in a
healthier, more productive herd.
Opportunity to reduce food waste — The digester also can accept food waste from commercial/retail and industrial food processing,
and turn it into renewable energy while reducing GHG emissions.
Third-party revenue opportunities — DF-AP, LLC, realizes profit from the sale of renewable electricity, GHG emission credits, renewable
energy certificates (RECs) and agricultural products.
Collaboration and third-party investment can deliver results despite challenges.
Challenge area: A changing financial environment.
The environment for financial returns for future digester projects might be changing, due in part to a decline in electric power rates as well
as the expiration of the investment tax credit program (commonly known as the 1603 program), which provided cash payments from the
U.S. Treasury for up to 30 percent of the total project cost to the owner/investors of the project. However, new markets are emerging for
digester products, such as nutrient-rich fiber for soil amendment and the use of organic food waste as digester feedstock. Learn more at
www.USDairy.com/DairyPower.
Two 710 kW engines generate renewable electricity.
Ammonia-free fiber is used as cow bedding.
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Commitment
Big Sky West Dairy and Renewable Dairy Fuels Project by the Numbers
Farm type
Dairy
Herd size
4,700
Type of digester system
Mixed plug flow
Digester capacity
120,000 gal/day
Manure collection method
Scraped into a flume, flushed into a collection put and pumped to digester
Biogas production
500,000 scf/day
Installed electrical generation (kW)
Two 710 kW engines
Ownership (farmer-owned, third party,
cooperative)
Third party owned by joint venture between Dean Foods and AgPower Partners.
Operated by Andgar Corporation.
Digester designer
Design — DVO, Inc. (formerly GHD, Inc.)
Manufacture and installation — Andgar Corp.
Development — AgPower Partners
Date operational
2009
Utility contract ($/kWh)
$0.06.1
Engine brand
Guascor
Solids use (manure, organic waste)
Organic waste
Utility
Electricity — Idaho Power Co.
Financial information
Investment
$5.3 million
Annual operating and maintenance cost
$250,000 to $300,000
Revenue
N/A
Payback period
7 to 8 years (without ITC)
The Dairy Power™/Biogas Capture and Transport™ project is focused on realizing the significant potential of anaerobic digester systems
for U.S. dairy farmers by helping put 1,300 methane digesters on dairy farms by 2020. Working with regional and national programs,
the project addresses existing barriers, such as technology and financing.
Dairy Power/Biogas Capture and Transport is one of eight projects endorsed by the Innovation Center for U.S. Dairy® to help reduce
greenhouse gas emissions and increase business value across the dairy industry. For more information about Dairy Power/Biogas
Capture and Transport, or to join our mailing list, email innovationcenter@usdairy.com.
The Innovation Center aligns the collective resources of the dairy industry to offer consumers nutritious dairy products and ingredients,
and promote the health of people, communities, the planet and the industry.
Email: innovationcenter@usdairy.com
USDairy.com/Sustainability
©2012 Innovation Center for U.S. Dairy®
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