Reallocating distribution upgrade costs for farm digester projects
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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

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Reallocating distribution upgrade costs for farm digester projects

Reallocating Distribution Upgrade Costs for Farm Digester Projects


Ed Cubero, Sam Harms, Sam Shannon

University of Wisconsin-Madison

Dairy industry in wisconsin

Dairy Industry in Wisconsin

  • 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

Source: Hallmark Power Ltd.

Digester potential in wisconsin

Digester Potential in Wisconsin

  • 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

  • Environmental

    • Odor Reduction

    • Methane Reduction

    • Pathogen Reduction

    • BOD Reduction

  • Economic

    • Electricity offset / sales

    • Fiber

    • Heating

    • Fertilizer

    • Jobs

      • 75-80 Construction

      • 3 long term



  • 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

  • Low utility buyback rates for dist. generation

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

Source: Federal Energy Regulatory Commission

Troubling trifecta1

Troubling Trifecta

  • High material costs for upgrades

Price of Nonferrous Wires and Cables (Index)

Source: U.S. Dept. of Labor

Troubling trifecta2

Troubling Trifecta

  • 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

  • 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

  • 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

1) Utility option

2) Net metering option

3) Transmission utility option

4)Operating lease option

Utility option

Utility Option

  • 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

  • Energy charges

Net metering option

Net Metering Option

  • 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

  • Energy charges

Transmission utility option

Transmission Utility Option

  • 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

  • Capacity charges

Proportional cost sharing utility v transmission options

Proportional Cost Sharing:Utility v. Transmission Options

Operating lease option

Operating Lease Option

  • 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



  • 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!


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