The Economics of Anaerobic Digester Technology for Ontario Farmers

The government of Ontario has implemented several renewable energy initiatives since the passing of the Green Energy and Green Economy Act in 2009.  The Ontario Ministry of Agriculture Food and Rural Affairs (OMAFRA) has provided  farmers and agri-food businesses with 11.2 million dollars to help build renewable energy projects throughout Ontario through its Biogas Systems Financial Assistance Program, which ran from September 2008 to March 2010. The Ontario Power Agency (OPA) is also making renewable energy developments more economical through its Feed-in-Tariff (FIT) and micro Feed-in-Tariff programs. One form of renewable energy that is being subsidized by the FIT program and was subsidized by the Biogas Systems Financial Assistance Program is anaerobic digester (AD) technology.

ADs use anaerobic bacteria to breakdown organic material in the absence of oxygen, with the main purpose of producing biogas. Biogas is approximately 60% methane and 30-40% carbon dioxide. ADs have three sources of easily quantifiable value for Ontario Farmers, these include electricity generation, heat generation and tipping fees.  Electricity generation can be obtained by running the biogas produced from the anaerobic digester through an electric generator with a FIT contract this can then be sold to the grid at a rate ranging between 0.132$/kWh and 0.269$/kWh. The economic value from heat generation can be obtained through the burning of the biogas alone or by capturing the heat given off when it is run through the electric generator. Tipping fees have quantifiable economic value because they are direct payments to farmers, typically on a per ton basis, for taking off farm organic waste from sources such as restaurants or meat processing plants and treating them with the anaerobic digesters.

The initial cost of an AD can easily be up to hundreds of thousands of dollars and in many occasions even millions. Investment costs for an AD vary considerably depending on the electrical capacity of the system, the efficiency, whether it is intended to run mainly during On-peak hours or not, and the location. Variable costs can fluctuate as much as the investment costs, as many of the variable costs are either directly or indirectly dependent on the initial cost of the AD. ADs involve large financial commitments that have uncertain savings, income, and costs. This makes the value of the completed project very uncertain.

The purpose of this study is to assess the profitability of ADs for farmers in Ontario under different scenarios such as farm types, farm sizes, system operation practices, system specifications, government policies, and levels of investment certainty. This project has four specific objectives. The first is to develop a capital budget model for an anaerobic digester by constructing a excel workbook which can estimate initial capital investment and yearly cash flows generated by an AD. The second is to assess the break-even electricity prices, electricity yield, capital and annual cost, tipping fee revenue, digesting livestock manure, off-farm material and energy crops. Next is to assess the sensitivity of net benefits from an anaerobic digester to changes in electricity prices, electricity yield, capital and annual cost, tipping fee revenue, digesting livestock manure, off-farm material and energy crops. Finally to determine the effect of investing under uncertainty on the profitability of an anaerobic digester, by conducting a real options analysis. Real options analysis is used to incorporate uncertainty into the capital budget model, and to estimate the value of strategic investment decision making.

Based on the results from the overview analysis done on the dairy, beef, broiler, and hog livestock industries in Ontario, when no other input material is available other then livestock manure, AD technology is only financially feasible for dairy farms with at least 616 cows on farm. Another important finding is that solid grease and vegetative waste both can improve the financial feasibility of an AD investment. This analysis also shows that dairy farms larger than 400 cows could be adequately encouraged to decide to invest in AD technology in Ontario if carbon credits where available.


An economic evaluation tool for farm-based anaerobic digesters (1730) (Updated June, 17th)


Workbook Report (1281) (Updated June, 17th)


Hydro One's Station & Feeder Capacity Calculator


Important References:

AgriEnergy Producers Association of Ontario. Innovation Forum: New Markets for Biogas, Backgrounder Available from:; December 2011 [accessed 29.02.12].

Bishop, C.P., and C.R. Shumway. The economics of dairy anaerobic digestion with coproduct marketing. Applied Economic Perspectives and Policy 2009;31:394-410.

Lazarus WF, and Rudstrom M. The economics of anaerobic digester operation on a Minnesota dairy farm. Rev Agr Econ 2007;29:349-64.

Ontario Ministry of Agriculture, Food and Rural Affairs, Ontario Biogas Systems Financial Assistance (OBSFA) Program Projects. Available from: [accessed 01.03.12]

Ontario Ministry of Agriculture, Food and Rural Affairs, Overview of Ontario Biogas Systems Financial Assistance Program. Available from: [accessed 01.03.12]

Ontario Power Authority, FIT Price Schedual. Available from:  [accessed 01.03.12]

Pipatmanomai S, Kaewluan S, Vitidsant T. Economic assessment of biogas-to-electricity generation system with H2S removal by activated carbon in small pig farm. Applied Energy 2009;86:669-74.

Wang  Q. Thompson E. Parsons R. Rogers G. and Dunn D.  Economic feasibility of converting cow manure to electricity: A case study of the CVPS Cow Power program in Vermont. Journal of Dairy Science 2011; 94 :4937–49.

White AJ, Kirk DW, Graydon JW. Analysis of small-scale biogas utilization systems on Ontario cattle farms. Renewable Energy 2011;36:1019-25.

Links to Other Workbooks/Programs that Assess the Financial Feasibility of Anaerobic Digesters:

Spreadsheet to Calculate the Economic Feasibility of Anaerobic Manure Digesters on Florida Dairy Farms


“Anaerobic Digester Economics” Spreadsheet, "University of Minnesota"

EPA Food Waste Biogas Economic Model