Farm Power investing millions in Northwest dairy towns

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Farm Power is building energy-producing digesters in dairy towns at about $4 million each.

A new energy company is making substantial investments in Northwest dairy towns, hoping partnerships with farmers in Oregon and Washington will pay big dividends from energy produced in anaerobic digesters fueled by cow manure.

Skagit County, Wash.-based Farm Power Northwest LLC is headed by brothers Kevin and Daryl Maas. The duo are partnering with dairy farmers in Washington, and most recently in Tillamook to build anaerobic digesters that harvest methane collected from manure. The company burns methane to produce electricity for sale. Its model is attracting investors who are interested in seeing long-term returns from the 30-year projects.

So far Farm Power has is operating two digesters in Washington near Lynden and Rexville. The company is also building a third digester called Rainer Biogas near Enumclaw, Wash., and is moving into Oregon with two projects set to begin operations in 2012 in the Tillamook area. Farm Power Tillamook is scheduled to come online this month. Farm Power Misty Meadow is under construction and is expected to begin operations in the fall.

Seizing on the enormous amount of manure available in dairy communities, Kevin Maas, who grew up in an agricultural community, said he came to the business spying opportunity, but also looking to make a difference in dairy towns for both struggling farmers and communities.

“The dairy industry, especially on the west side has been fighting hard just to keep their heads above water. Someone has to do something, so this is what we came up with,” he said. “I was looking for a way that energy could bring new value to farms, not just repackage the old values.” What he and his brother found, Maas said, was an unmet need. “You could almost call it a market failure. There was a resource but farmers weren’t putting in digesters … because they already had enough work to do.”

Maas said the duo envisioned a business model that would create revenue for their investors from energy sales, but also add value to farmers by assuming the risks of digester investments and providing long-term storage for manure, something that reduces the workload for farmers who would otherwise haul it to big tanks and lagoons in the winter and spread it again in the fall.

Digesters cost between $3 and $4 million to build, Maas said, depending on the size. The projects earn about $500,000 a year in power generation. About half of total earnings are spent sustaining operations — each digester requires at least a half time employee to run it. The digesters are built to run for 30 years. A typical financing model has the loans taken out to build the digester paid off after 10 years.

“We take tremendous risk, but the alternative is to do nothing. That’s why we go to areas that have several farms, because we may lose one, and hopefully over the life of the project at least one farm will be around,” said Maas.

“The digester is kind of new on the scene to help with manure management,” said Thad Roth of Energy Trust of Oregon. “Think of it as kind of a refinery. It has feedstocks that come in, and then there are products that come out.”

Aside from the labor reduction that benefit farmers, Roth said digesters offer bedding to dairies, reduce nutrients in manure in ways that benefit the water supply and also create compost. In a study in May 2011, Energy Trust and The Climate Trust concluded Oregon could have a biogas industry 12 times its current size if the state realized its potential in the sector. So far most development has been in the public sector. Eugene and Portland are both developing digesters to manage municipal solid waste.

As Farm Power wades in, the company’s business model relies on a long-term relationship with a farm to deliver manure over the life of the project and also on long-term relationships with utilities that have opened up to distributed power generation, primarily Puget Sound Energy in Washington and the Tillamook People’s Utility District in Oregon.

“We size in the megawatt range which means that we can hook into the distribution system relatively easily,” and also avoid transmission costs, Maas said.

In addition to revenue from electricity sales, Farm Power also earns money by selling carbon offsets, bedding and disposal of non-manure organic material.

There are challenges, however, associated with the declining number of dairies in the region, Maas said, and the fact that the company assumes all of the risks associated with lending and power generation. The risk is spread between 60 members of the Farm Power LLC, mainly individuals from Northwest Washington. The company has no corporate backing, but rather draws from a pool of investors interested in putting money into renewables and seeing long-term returns. One Pacific Coast Bank and New Resource Bank have offered financing, and Farm Power has also received grants toward construction of digesters from the USDA's Rural Energy for America Program, state programs and stimulus funds.

Right now the company has little competition. One other private company is targeting the Willamette Valley for digester construction, Maas said, while Farm Power focuses on dairy communities to the east.

Lee van der Voo, lvdvoo*at*gmail.com, is a freelance writer for Sustainable Business Oregon.