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Reallocating Distribution Upgrade Costs for Farm Digester Projects. by Ed Cubero , Sam Harms, Sam Shannon University of Wisconsin-Madison. Dairy Industry in Wisconsin. 141,000 jobs $5.2 billion in annual sales $26.5 billion economic impact

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Reallocating distribution upgrade costs for farm digester projects

Reallocating Distribution Upgrade Costs for Farm Digester Projects

by

Ed Cubero, Sam Harms, Sam Shannon

University of Wisconsin-Madison


Dairy industry in wisconsin
Dairy Industry in Wisconsin Projects

  • 141,000 jobs

  • $5.2 billion in annual sales

  • $26.5 billion economic impact

  • Trend towards larger CAFOs, more concentrated waste streams


Anaerobic digesters
Anaerobic Digesters Projects

Source: Hallmark Power Ltd.


Digester potential in wisconsin
Digester Potential in Wisconsin Projects

  • 251 dairy farms in WI are candidates for Anaerobic Digestion (500+ cows)

    • Currently, 30 on farms (≈10% of potential)

  • Approx. 44 MW of potential capacity (386k MWh/yr) from manure alone

    • Co-digestion w/ other wastes would increase


Benefits of anaerobic digestion
Benefits of Anaerobic Digestion Projects

  • Environmental

    • Odor Reduction

    • Methane Reduction

    • Pathogen Reduction

    • BOD Reduction

  • Economic

    • Electricity offset / sales

    • Fiber

    • Heating

    • Fertilizer

    • Jobs

      • 75-80 Construction

      • 3 long term


Interconnection
Interconnection Projects

  • Often requires upgrades to distribution system

    • wires, substations, protection equipment

  • State admin. code allows utility to recover these costs from connecting customer

  • Liability on balance sheet, but no asset

    • Especially tough for capital-constrained smaller farms


Troubling trifecta
Troubling Trifecta Projects

  • Low utility buyback rates for dist. generation

MISO 30-Day Rolling Average LMP ($/MWh)

Source: Federal Energy Regulatory Commission


Troubling trifecta1
Troubling Trifecta Projects

  • High material costs for upgrades

Price of Nonferrous Wires and Cables (Index)

Source: U.S. Dept. of Labor


Troubling trifecta2
Troubling Trifecta Projects

  • Requirements for expensive equipment

    • Fiber optic cables

  • Wis. Admin. Code PSC 119.25(3)

    “A Category 2, 3, or 4 DG facility shall include…Other equipment, such as other protective devices, supervisory control and alarms, telemetry and associated communications channel, that the public utility determines to be necessary.”


Wisconsin precedent
Wisconsin Precedent Projects

  • WP&L: Shared Savings Program

    • Low-interest loans for Ag-related businesses

  • Econ. Development Rates/Real-Time Pricing

    • WP&L, WEPCO

  • Recent shifting of rate increases away from large users, towardsother ratepayers


Status quo
Status Quo Projects

  • Wis. Admin. Code PSC 119.08(2)

    “The public utility may recover from the applicant an amount up to the actual cost, for labor and parts, of any distribution system upgrades required.”

  • All major utilities require customer to pay for upgrades

  • Must be paid in full prior to (or soon after) startup


Policy options
Policy Options Projects

1) Utility option

2) Net metering option

3) Transmission utility option

4)Operating lease option


Utility option
Utility Option Projects

  • Require utilities to cover costs of distribution upgrades and earn rate of return

  • Advantages

    • Spreads the costs across the rate base

    • Keeps the upgrades off the generator project

  • Disadvantages

    • Fairness Issues

    • Largest impact to ratepayers


Utility option1
Utility Option Projects

  • Energy charges


Net metering option
Net Metering Option Projects

  • Change to state net metering rules

  • If utility does not pay for upgrade, required to offer net metering (up to 1 MW) for ADs

  • Advantages

    • More assistance to smaller generators (more capital constrained)

    • Already being done in NY

  • Disadvantages

    • Does not accurately reflect the cost of the upgrades

    • Upgrades show up as a liability on the generator project


Net metering option1
Net Metering Option Projects

  • Energy charges


Transmission utility option
Transmission Utility Option Projects

  • Require local transmission utility to pay for the upgrade

  • Most likely a one-time invoice from the utility company to ATC

  • Advantages

    • Larger rate base

    • ATC gets a say in the engineering

    • Michigan pays for 1% of costs

  • Disadvantages

    • Requires a statutory change

    • Requires a decision from FERC allowing these charges on the rate filings


Transmission utility option1
Transmission Utility Option Projects

  • Capacity charges


Proportional cost sharing utility v transmission options
Proportional Cost Sharing: Projects Utility v. Transmission Options


Operating lease option
Operating Lease Option Projects

  • Utility recovers the cost of the upgrade via long-term lease to generator

  • Ratepayers secure lease in case of default

  • Leases could be combined with other options

    • Ratepayers cover lease payments for first 5 yrs (25% of total)

    • Generator covers payments over remaining 15 yrs (75% of total)

  • Advantages

    • Generator does not need capital financing for upgrades

    • Easy to implement; no new legislation required

    • Minimal impact to ratepayers

  • Disadvantages

    • Generator still responsible for the cost of the upgrade


Recommendation
Recommendation Projects

  • Operating leases

    • Generator does not need to secure capital financing upfront

    • Easiest to implement; no new legislation required

    • Minimal impact to ratepayers


Thank you

Thank You! Projects

Questions?


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