A main barrier to growth in the biogas sector is the reluctance of farmers to undertake biogas projects. Farmers cite difficulties obtaining favorable financing, as well as the complicated and time-consuming process of project development—filing for federal and state incentives, arranging interconnection agreements, obtaining permits, and other required paperwork. Third-party ownership models alleviate this burden on farmers by allowing an investor or project developer to finance, own, and operate a biogas project on a farm. The farmer buys electricity generated on the farm from the third-party at less-than-retail rates and the third-party secures power purchase agreements (PPA) with a utility and/or other nearby customers to sell excess electricity. This transfers the administrative burden and risk of project management and ownership from the farmer to a third party.

However, many states do not allow third-party sales of electricity to consumers; only regulated utilities can provide that service. The law effectively prohibits third-party ownership models that allow citizens to generate energy on their own property without purchasing the energy system outright.

As demonstrated in the case of CH4 Biogas and Synergy Dairy, third-party ownership is a viable model for a biogas project. CH4 Biogas built, owns, and operates a biogas project at Synergy Dairy in Covington, New York. The 1.4 megawatt (MW) co-digestion project has “diverted more than 1.14 million gallons of food waste from landfills and wastewater treatment facilities” and uses manure from more than 2,000 head of cattle. A portion of the electricity generated by the project provides all the electricity needs of the farm and the remainder is sold to the New York Independent System Operator (NYISO) under a power purchase agreement (PPA).

Allowing third parties to develop, own, and sell electricity from biogas projects could help the biogas sector achieve economies of scale to reduce overall system costs and spur in-state demand. Additionally, third-party sales could reduce farmers’ risk associated with fuel supply and feedstocks— the threat of herd culls due to illness and equipment maintenance issues often increase risk in biogas projects. Utilities could also benefit from third-party sales of electricity from biogas projects. Rather than negotiating with individual farmers, PPA and interconnection negotiations would be more efficient with professional counterparties. Additionally, large investors and active biogas developers are better informed of federal grants, tax credits, and subsidies that would optimize capital cost reductions. Opening the market to large investors and project developers by allowing third-party sales of electricity would increase the economic potential of state biogas sectors.