Anaerobic digestion (AD) as a means of generating clean energy has received considerable investment in the UK during the past 10 years. According to figures from the Anaerobic Digestion & Bioresources Association (ADBA), around £500m was invested in the AD industry in 2016, having peaked at around £660m in 2014-15.
But this expansion has led to more and more business failures. These can be avoided if the owners are properly supported and gain the expertise needed to run an efficient facility.
AD and biogas technologies convert organic waste and certain crops into renewable heat and power, clean transport fuel and biofertiliser, all of which can be used by the plant owner or sold for a profit. This makes them popular with farmers, who can dispose of animal manure and organic waste for additional income.
The technology is now well advanced, and operators have learned some important lessons from the early years of the AD industry when it had teething problems.
”For your average farmer, is easy to underestimate the complexity of embarking on a project where you are becoming a manufacturer at a scale of greater than £10m.”
Jason Baker, an insolvency practitioner from restructuring specialist FRP Advisory, says: “For your average farmer, even one used to running a complex farming or dairy process, it is easy to underestimate the complexity of embarking on a project where you are becoming a manufacturer at a scale of greater than £10m.”
Although agricultural AD plants have featured among some of the industry’s highest profile insolvencies – the rate of which has accelerated in the past three years – such projects are also some of the most successful.
Digesters such as those operated by Staffordshire-based BioG UK, are running efficiently and are proving lucrative for the farmers that run them, as well as having a positive impact on the environment. Experts like Rob Greenow, director of BioG UK, and owner of three AD plants with three more under construction, say the plants require close attention from their operators, which can be challenging if the digester owner is also running a busy farm.
“It can’t be run as a sideline project. You have to be prepared to come out day and night. You have to live and breathe AD,” he says.
As the market continues to develop and grow, there are also specialist lenders willing to support farmers embarking on an AD plant.
One such is Privilege Finance, whose chief executive Phil Gerrard says: “With opportunities to decarbonise the grid, reduce agricultural emissions and provide green gas for the transport network, it is undeniable that AD is helping to bridge the gap between the Government and its 2022 carbon budgets.
“To date, Privilege has invested more than £300m in agricultural and food waste AD projects. We know from experience that AD can be a great way of creating energy from organic matter that would typically be considered a waste product.”
Charlotte Morton, chief executive of ADBA, agrees, and notes that several of its members have successfully incorporated AD operations into working farms. They report a range of benefits, including home-grown energy, better management of farm wastes and the ability to diversify their income in a time of volatile commodity prices.
Martin Frost, chairman of Avocet Infinite, a company which collaborates with AD projects to develop their processes, is similarly optimistic: “The AD market is a great opportunity for using new forms of technology and blending it with existing business practices.”
One of the criticisms that has been levelled at the AD industry – as with other kinds of renewable energy – is that it is subsidised by public money, through initiatives such as the Renewable Heat Incentive and Feed-In Tariff – a fact that is particularly galling if an AD business goes bust. Morton says that farmers producing biogas from AD plants can apply for these funding incentives, but stresses that it is a common misconception that such projects are subsidised by the EU.
According to Frost, “the [AD] business has to justify itself without the need for subsidy”. He also suggests that the efficiency of many AD plants can be improved to strengthen the case for further investment.
ADBA believes that the future for the AD industry is bright, predicting that as many as 50 biomethane-to-grid plants will be built during the next 18 months, making a vital contribution to decarbonising the UK’s heat supply.
Certainly, the creation of commoditised models, meaning cheaper AD plants and a greater ability to obtain finance, combined with a new generation of farmers willing to invest their time in operating these plants properly, will see this sector become more professionally run as profitable businesses.
That will be good for farmers and the environment.
Stewart Perry is a restructuring and insolvency partner at international law firm Fieldfisher