Renewable Natural Gas - Economics

Chad Kruger, Suzette Galinato, Craig Frear

Center for Sustaining Agriculture and

Natural Resources

Washington State University

Photo: Andgar

Guiding Questions

Photo: Jim Jensen

1. What is the importance of the relative

difference of an AD project’s operating cost

with respect to its capital cost?

2. How do different end-uses for biogas (e.g.,

heat, electricity, renewable natural gas for

pipeline or transportation fuel) affect the

profitability of a digester project?

3. How important is revenue from fiber and

nutrient co-products to digester profitability?

4. How important are environmental

payments (Renewable Energy Certificates,

Renewable Fuel Standards credit, carbon

credits) to digester profitability?

Baseline AD Project

Borrelli, K., S. Kantor, C. Kruger and G.G.

Yorgey.

Baseline Project Capital Cost = $4.4m

Alternative 1: Boiler

Borrelli, K., S. Kantor, C. Kruger and G.G.

Yorgey.

Boiler Project Capital Cost = $4.4m

Alternative 2: RNG

RNG Project Capital Cost = $9.8m*

*RNG Infrastructure additional to Baseline CHP system

Project Capital and Operating Costs / Ratio

AD Project Capital cost1

Operating cost2 Operating cost-Capital cost

ratio

AD-Combined heat and power

(baseline project)

$169,231 $283,270 1.67

AD-Boiler $169,231 $33,000 0.20

AD-Renewable natural gas $377,901 $293,706 0.78

Notes: 1 Average annual capital cost = total capital cost divided by 26 years.2 Operating costs include maintenance and repair, and labor cost.

Table 1. Average annual capital and operating costs of an anaerobic digester (AD) project under different

configuration systems.

Revenues by Scenario

Figure 2. AD system revenue from multiple sources, as a percentage of average annual gross revenue.

0%

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90%

Combined heat and powersystem

Boiler system Renewable natural gas system

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% o

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Electricity Renewable natural gas Fiber & nutrients REC & WA REI Carbon credits

Net Present Value by Scenario

Impact of Economic Parameters on NPV

Reference or acknowledgement information

Contributions to Revenue by RNG Price Scenario

Figure 3. Contribution of different products to the total revenue of the AD-renewable natural gas (RNG) system, given two price scenarios for renewable fuel.

0%

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RNG Price Scenario 1 (commodity value + RIN) RNG Price Scenario 2 (CNG retail price + RIN)

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% o

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Electricity Renewable natural gas Fiber & nutrients REC & WA REI Carbon credits RIN

NPV, BCR and Total Costs by Scenario

AD System NPV BCR Total Project Costs

AD-Combined heat and power $7.5 million 1.80 $11.8 million

AD-Renewable natural gas (RNG)

Baseline RNG price: commodity value $1.4 million 1.10 $17.5 million

RNG Price Scenario 1: commodity value + RIN $16.8 million 2.12 $17.5 million

RNG Price Scenario 2: retail price + RIN $28.5 million 2.50 $25.4 million

Table 4. Net present value (NPV), benefit-cost ratio (BCR) and total costs of different anaerobic digester (AD)

systems.

Impact of Project Retention of RIN

NPV

($ million)

AD-Combined heat and power $7.5 1.8

AD-Renewable natural gas (RNG)

Baseline Scenario: commodity value $1.4 1.1

RNG Price Scenario 1: commodity value plus RIN

100% RIN retained by AD Project $16.0 2.1

75% RIN retained by AD Project $12.4 1.9

50% RIN retained by AD Project $8.8 1.6

25% RIN retained by AD Project $5.1 1.4

0% RIN retained by AD Project $1.4 1.1

RNG Price Scenario 2: retail price plus RIN

100% RIN retained by AD Project $28.5 2.5

75% RIN retained by AD Project $24.8 2.3

50% RIN retained by AD Project $21.1 2.1

25% RIN retained by AD Project $17.5 1.9

0% RIN retained by AD Project $13.8 1.7

AD System BCR

Table 5. Net present value (NPV) and benefit-cost ratio (BCR) of anaerobic digester (AD)

systems given different rates of RIN revenue retained by the AD project.

http://cru.cahe.wsu.edu/CEPublications/EM090E/EM090E.pdf

Borrelli, K., S. Kantor, C. Kruger and G.G.

Yorgey.

Available

Now!

Acknowledgements

This work was funded by the WSU ARC Biomass Research

Program, and USDA National Institute of Food and

Agriculture Award #2012-6800219814.