Brokers Shape Renewable Energy Partnerships with Food Firms

Nov. 7, 2014

There’s an upside to generating huge amounts of waste in food production: the love of utilities investors 

Energy production is not a core competency of food companies, so a reluctance to dabble in solar, wind, biogas and other alternative energy sources is understandable. But food plants in rural areas often are blessed with two resources that are attractive to investors in alternative energy projects: open land and lots of waste. That makes them desirable partners (and ready-made customers) for those investors.

A case in point is Smithfield Foods’ hog operations in northern Missouri. Until state legislators passed a bill last year limiting public-nuisance suits involving the company’s confined animal feeding operations (CAFO), the pork giant was being peppered with lawsuits over the stench from its CAFOs, some with more than 100,000 hogs. An internal legal opinion five years ago estimated Smithfield’s legal exposure at $150 million-$200 million. New legislation allowed Smithfield to dodge the liability bullet, but the company still needed to deal with the methane-rich hog waste in the CAFO lagoons.

Smithfield tried and failed several times over the last decade to harvest energy itself from hog waste, but three years ago it found an alternative solution: Roeslein Alternative Energy agreed to cap more than 100 lagoons with impermeable covers to capture the methane for energy production. Project cost is estimated at $100 million. Smithfield’s capital contribution: nothing.

The energy potential in food processors’ waste is greater than manure’s, and multiple bidders stepped forward when Campbell Soup Co. issued an RFP for 14 renewable energy projects at its North American properties. The winner was BNB Renewable Energy Holdings, which also was involved in a 10 MW solar installation at Campbell’s Napoleon, Ohio, plant. BNB also invested in a biogas project in Napoleon. As with Smithfield, Campbell won’t contribute capital to any of those projects. In Napoleon, it contributes 300 tons of waste a day to the biogas’s anaerobic digester and leases 60 acres to BNB for the solar array. Campbell also will purchase—at a favorable price—all the energy produced by those systems.

“We’re developing wind, solar and biogas at various sites throughout Campbell’s network,” BNB executive Matthew Baird explains via e-mail. “Fuel cells and CHP could also play a role….We have looked into co-gen/CHP as a base-load complement to wind and solar, and we think there’s a lot of potential there.”

“Biogas generators are certainly a great fit for a food plant,” Baird continues. “But you have to have a lot of waste to make these generators hum, and that’s where the challenges arise. It is difficult to secure long-term feedstock contracts. With solar, we know with some certainty what we’re going to get for 20 years.”

“Campbell’s doesn’t want to be in the energy business,” chips in Steve Giles, vice president-alternative energy at Hull & Associates Inc., a Dublin, Ohio, engineering and project development firm and an unsuccessful bidder for Campbell’s alternative-energy contract. Campbell retained Hull in 2011 for preliminary work on an upgrade to an anaerobic digester. After crunching the numbers, Hull recommended the biogas upgrade.

The economics of every alternative energy project are different and depend on many factors, such as the Btu value of the waste stream and the prevailing costs for gas and electricity in the local market, notes Giles. Outside investors are almost always needed. A two-year ROI on capital projects is about as long as a food company will tolerate, he points out, whereas investors like Hull are comfortable with 6-7 year paybacks. “You’re not going to get a two-year payback on any solar project,” adds Giles.

“Utility-type returns are low single digits,” seconds Corey Wendt, senior manager with Baker Tilly, an accounting and management consultancy. “Campbell needs more to be accretive to their earnings.” Wendt, who has advised participants in alternative energy projects, says partnerships between energy producers and food companies can be mutually beneficial. “It requires system-wide thinking,” he concludes. “Do you want to grow a facility’s footprint, save money and be green?”

In rare cases, being green is enough. Mars Inc. burnished its green cred by entering into a power purchase agreement (PPA) with Mesquite Creek, a 200 MW wind farm near Lamesa, Texas. Mars won’t actually consume the turbines’ electricity output; the wind credits will simply offset power consumption at its 37 U.S. plants. “Without their PPA, the Mesquite Creek wind project would not have been constructed,” maintains BNB’s Baird. “We originally approached Mars with a DG (distributed generation) portfolio concept similar to Campbell’s, but as our conversations unfolded, we all realized that a single utility project PPA would allow them to achieve a carbon-neutral position in a single transaction.”

A mix of self-funding and investor partnerships characterize fuel cell projects involving technology from FuelCell Energy Inc., a Danbury, Conn., manufacturer of carbonate fuel cells, according to Tony Leo, vice president-application engineering and advanced technology development. The role of financial angel for fuel cells usually is filled by a governmental body or a utility company in a state that mandates alternative energy in power companies’ generation portfolios.

Both natural gas and biogas power some of the fuel cells from Leo’s company. Its installation at Sierra Nevada Brewing Co. in Chico, Calif., uses both types. Production is continuous at a brewery, but if there’s a shortfall of biogas, natural gas kicks in. For food and beverage processors that shut down on weekends and holidays, that capability is a necessity.

Extra conditioning is needed for landfill gas. FuelCell partnered with Quadrogen Power Systems in a tri-gen installation in Vancouver, B.C., recently. Dry and sulfur-free methane fires a 300 kW fuel cell to generate electricity, with waste heat used to heat water sent to Village Farms International’s a 110-acre hydroponic greenhouse. Extra hydrogen is produced for alternative-energy vehicles. “We think fuel cells can be an important component of the energy that hydrogen vehicles will need,” says Leo.

Fuel cell investments are in the proof-of-concept stage, according to Hull’s Giles. “There’s an evolution going on,” he says. “We’re really at a starting point.”

A former executive with American Electric Power, Giles sees a prominent role for distributed generation, the industry term for on-site power generation. As old, centralized coal-fired power plants are phased out, plants fired by natural gas will replace them, augmented by more distributed energy projects. “The future is going to be a combination of large central power plants fueled by natural gas, nuclear and even coal,” he believes, “and we will begin to see smaller distributed power plants. It’s all a matter of scale for those behind-the-meter projects.”

That’s good news for food plants with enough waste and energy demand to serve as both raw-material supplier and key customer for utility projects funded by third parties.