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


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

  • Trend towards larger CAFOs, more concentrated waste streams

Anaerobic Digesters

Source: Hallmark Power Ltd.

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

  • 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

  • Low utility buyback rates for dist. generation

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

Source: Federal Energy Regulatory Commission

Troubling Trifecta

  • High material costs for upgrades

Price of Nonferrous Wires and Cables (Index)

Source: U.S. Dept. of Labor

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

  • 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

  • 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

1) Utility option

2) Net metering option

3) Transmission utility option

4)Operating lease 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 Option

  • Energy charges

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 Option

  • Energy charges

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 Option

  • Capacity charges

Proportional Cost Sharing:Utility v. Transmission Options

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!


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