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Project Financing

The following information is a guide to the major steps to determine financing needs for anaerobic digestion systems. The guide also contains links to online calculators and other sources of related information. View an interactive overview of the diagram below.

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Preliminary Planning Technical and Financial Feasibility Refine Project Plan and Select Approach Detailed Financial Modeling

Technical Feasibility

Financial Feasibility

  • Funding On-Farm Anaerobic Digestion (PDF) (5 pp, 427K) (EPA, 2012) — Fact sheet presents overview of funding mechanisms available to farm operators, as well as case study examples for each.
  • Digester Project Funding Guide (PDF) (14 pp, 480K) (Innovation Center for U.S. Dairy, 2012) — Step-by-step guide to plan a digester project, conduct a feasibility study, estimate funding needs, and develop successful application for USDA funding. Provides an overview of available USDA funding programs.

Financial Feasibility Calculators

  • Biogas Economic Model and Toolkit (Baker Tilly, 2012) — MS Excel tool that models project scenarios and provides a basis for making some “go/no-go” decisions. Model can perform an initial assessment of power generation at farms and dairy processing facilities.
  • RETScreen (Canada Natural Resources Council, 2013) — Excel-based analysis tool that helps to quickly and inexpensively determine the technical and financial viability of potential renewable energy and cogeneration projects. Note: this model is not specific to AD.

Preliminary Planning

Determine whether you are a candidate for anaerobic digestion (AD), considering: manure availability, whether your manure management technique is compatible with an AD system, potential uses for recovered energy, and whether you have the capacity to manage the system.

Technical and Financial Feasibility

Identify the AD system components, including feedstock, onsite conditions, the system type and size, and operating mode for electricity generated.

Estimate Revenue — Based on technical feasibility inputs, develop an estimate of potential annual revenue you could achieve based on the amount of methane produced, as well as renewable energy credits and carbon credits.

Estimate Expenses — Based on technical feasibility inputs, develop an estimate of the expected one time (capital) and ongoing annual (operation and maintenance) costs of the system.

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Detailed Financial Modeling Calculators

  • Cost of Renewable Energy Spreadsheet Tool (CREST) (National Renewable Energy Laboratory, 2011) — An economic cash flow model designed to allow policymakers, regulators, and the renewable energy community to assess project economics, design cost-based incentives (e.g., feed-in tariffs), and evaluate the impact of state and federal support structures. CREST has a module specific to anaerobic digestion technologies.
  • Additional calculators that can support detailed financial modeling:
    • Anaerobic Digestion Financial Decision Tools (Cornell University, 2011) — Tools to assist in conducting financial assessments for AD projects on dairy operations, conducting economic analyses of capital leases, calculating financial statements for agriculture, calculating annual and monthly cash flow projections, analyzing replacement equipment purchases, and calculating the interest on a lease.
    • An Economic and Functional Tool for Assessing the Financial Feasibility of Farm-based Anaerobic Digesters  (Renewable Energy International Journal, 2013) — Includes a workbook to determine the financial feasibility of farm-based AD systems. The tool identifies the technical and financial parameters affecting the returns to an AD system and their sensitivity. (Cost: $35)
    • System Advisor Model (SAM) (National Renewable Energy Laboratory, 2010) — Financial model calculates financial metrics for power projects based on a project's cash flows over an analysis period based on installation and operating costs and system design. Note: this model is not specific to AD.

Funding Sources

Financing Methods

  • Vendor Directory: Develop Agricultural Biogas Recovery Systems (EPA, updated bi-annually) — Identifies financing specialists that provide loans for biogas projects, fund on-farm biogas systems for profit, and broker the sale of carbon offsets and renewable energy certificates. Also identifies designers, project developers, energy service providers, equipment manufacturers and distributors, and commodity organizations.
  • Arranging Debt Financing for Biomass Projects (Biomass Magazine, 2012) — Provides an overview of sources of debt financing and federal funding sources.
  • Attracting Institutional and Impact Investors (PDF) (9 pp, 4.3MB) (Wastewater Capital Management, 2013) — Provides an overview of institutional and impact investor interests and needs, and why biogas projects can be a good fit for these investors.

Utility Agreements

Advanced Planning

Refine Project Plan and Select Approach

The feasibility of AD projects depends on site-specific factors that influence the amount and quality of methane generated, variability in electricity prices, availability of incentives, financing rates, etc. This is an iterative stage in project planning, where assumptions can be refined until an optimal AD project scenario is developed.

Detailed Financial Modeling

Model Revenue & Expenses — A comprehensive spreadsheet-based model should be used to capture updated estimated revenues and expenses based on the selected AD system approach.

Determine Equity Share and Sources — Estimate how much funding you are able to put into the project as equity and where the equity funding will come from. Generally, a minimum of 10% equity is required; higher amounts of equity provide greater comfort to investors and lenders and reduce the amount of financing required.

Identify Funding Sources — Typically, there is a gap between the amount of equity funding you can put into a project and how much is needed. Identify grants, loan guarantees, and financial assistance from federal and state governments, nonprofits, and private companies for which you qualify.

Calculate Return on Investment — Compare the estimated annual revenue against expenditures to estimate when the initial investment will be paid back and the rate of return on the money invested. Methods include:

Select Financing Method — Financing is provided by a lender (who provides a loan) and/or an investor (who seeks a return on the project) to fill remaining project funding gaps. Understanding the potential return on investment will help attract financing.

Negotiate Utility Agreement — If the AD project will produce electricity, the utility contract is a major influence on the profitability of a project. Some states have established requirements for utilities to supply electricity from renewable energy sources through Renewable Portfolio Standards. Typical utility contract arrangements include:

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