Agriculture reportedly produces 36% of the methane associated with human activity, and methane is worse, according to climate alarmists, than CO2 when it comes to global warming.
Enter, stage left, anaerobic digesters.
Animal waste, manure from cows, cattle, pigs and chickens, can be put into a digester and be converted into methane, i.e, natural gas, plus some byproducts, such as fertilizer.
The methane can be used to generate electricity which can be sold to a utility company.
A Wisconsin utility was paying around 8 cents per kWh for the electricity purchased from digester systems, but will now only pay 3 cents per kWh because of the low cost of producing electricity from natural gas combined cycle (NGCC) power plants.
NGCC power plants typically generate electricity for 5 cents per kWh, so paying 8 cents for electricity generated by digesters only made sense where utilities had to meet renewable portfolio standards (RPS), which was the case in Wisconsin.
RPS laws require that a certain percentage of electricity sold to consumers by utilities comes from renewable sources such as wind and solar … and digesters.
Or, in the case of Germany, which has over 8,000 digesters, where the farmer is guaranteed above market rates for electricity, for years.
The cost of a digester runs into the millions of dollars, and farmers have found that maintenance costs are higher than expected.
Clearly, a farmer wouldn’t invest in a new digester system if he can only get 3 cents per kWh for the electricity generated by his system.
But why would a farmer, who has already invested in the digester, sell electricity at such a low price?
The same question can be asked of wind farms and solar power plants that enter into agreements to sell electricity at a below market price, such as for less than 5 cents per kWh.
The media has cited purchase agreements with low prices for electricity to demonstrate that wind and solar can produce electricity for less than natural gas or coal.
But, these low price agreements obscure a fundamental economic factor, and they don’t establish that wind and solar are the lowest cost producers of electricity.
The farmer who has already invested in his digester system need only recover more than his variable cost when producing and selling electricity to the utility. If he can recover more than his variable cost, the additional revenue can go toward covering the cost of his fixed investment, or be profit if the fixed investment has already been recovered.
Variable costs would include, for example, the cost of handling the manure and maintaining the equipment.
If he can’t recover more than his variable cost, he would be throwing good money away.
The same is true for the wind farm or solar installation, where, in many cases, the investment has been covered by a subsidy. Companies with an existing investment need only recover more than their variable costs.
Reports in the media that wind and solar generate electricity for less than natural gas or coal-fired power plants need to be viewed very skeptically. They are in all probability wrong … especially if the media reports are based on purchase contracts for electricity.
There are very few instances where wind and solar can generate electricity at a lower cost than natural gas or coal-fired power plants, and they are unique situations, such as on isolated islands, e.g., Hawaii. See, High Cost of Renewables.
When a farmer, wind or solar company sells electricity at below cost, so as to recover more than variable costs, it’s not proof these installations can produce electricity at a lower cost than NGCC or coal-fired power plants, where their costs include both fixed and variable costs.
Claims of being the low cost provider of electricity need to be carefully examined, because media reports are frequently wrong.
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Part 2 of Nothing to Fear describes the cost of renewables and how they can have negative economic consequences.
Nothing to Fear is available from Amazon and some independent book sellers.
Link to Amazon: http://amzn.to/1miBhXy
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