Friday, December 21, 2007

When is it time for a break?

Dairy farmers have reason to celebrate this holiday season. Milk prices are at record levels and look to stay high well into next year. Although costs have risen substantially (driven by the doubling of corn prices), everyone is making money and catching up after a terrible 2006.

I am about ready to turn off this computer for a few days. Our schedule has been slowing down all week, redeemed only by a meeting set up by our friends at Skagitonians to Preserve Farmland. We keep pushing forward where we can, but sometimes it's difficult not to feel like we've already started a undeservedly long holiday break.

Our farmers don't have to worry about any such feelings. Cows require just as much care on Christmas as they do any other day, regardless of the plans of relatives. All entrepreneurs expect their work to displace leisure at certain points, but dairy farmers are among the few who know this will happen for the duration. When things get busy for us next year, we can only hope to match their work ethic. To all our friends, Merry Christmas!

Friday, December 14, 2007

Is Farm Power working in the right part of the value chain?

Before we founded Farm Power, some people urged us to find a quiet corner of the renewable energy world and start a little service business; this was supposed to let us gain experience with minimal investment before eventually leading to a real energy-producing opportunity. It would also give us time to find the millions of dollars needed to create a project, perfectly reasonable advice given our limited resources.

We didn't take it. From the beginning, we have believed that what the renewable energy industry needs is not more service providers but more actual owners. As long as we count the number of small utility-grade (100kW to 10MW) green power installations in Washington on one hand, we continue to see an implementation problem. So we dived right in and committed ourselves to a business model where we owned and operated multi-million-dollar anaerobic manure digesters.

Our local dairy farmers understand capital-intensive business and took us seriously from the beginning. Their industry draws great numbers of service providers all trying to make money off the actual producers--equipment dealers, seed salesmen, drug companies, feed consultants, milk haulers, processing plants, and many others. All of these depend on a shrinking number of farmers who invest millions of dollars in the daily miracle of primary agricultural production: the sun, the land, green plants, now a baby calf, then milk.

The process of extracting energy from manure has less appeal than caring for animals but it is a miracle in its own right. When bacteria in liquid manure are kept comfortable at about 100 degrees Fahrenheit, they begin to produce methane (the main component of natural gas). We cannot duplicate this amazing process any more than we can synthesize a newborn calf or squeeze grass out of a pile of mulch. The further that society gets from the basic natural transformations that make life possible, the more easily "value creation" forgets the importance of the actual "creation" part and focuses solely on "value-added".

I recently finished Wealth and Democracy by Kevin Phillips; one of his main contentions is that economic superpowers rise with an emphasis on production and commerce but eventually begin to decline with an excessive focus on finance. The author traces this trend with the Dutch in the 17th century, the British in the 19th, and Americans during the past few decades. We have found plenty of companies in our industry that provide funding, market products, and consult. While we don't doubt that these businesses can be both useful and lucrative, they don't actually create value; they simply allow existing value to be realized more quickly and efficiently.

As children of rural America, we share with farmers an affinity for actually creating things. Eventually, courtesy of vast numbers of bacteria, we will produce electricity and a sawdust-like fiber from cow manure. By selling these and other products ourselves, we will control as much of the value chain after the initial creation as possible. But, in our opinion, finding the most profitable part of the value chain is answering the wrong question; until the renewable energy industry gets much closer to saturation, we must focus on starting new chains rather than latching on to existing ones. That is what is needed for farmers, America, and the planet.

Tuesday, December 4, 2007

Good enough on paper to count on in reality?

I just finished the latest version of the Farm Power pro forma, an enormous set of spreadsheets that peers far into the future and concludes that anaerobic digesters can actually make a profit in the long run. Compared to May, when the first version of the pro forma was completed, we have much more real data and far fewer estimates. However, our digester remains a paper project; in order to make the jump to reality, we need something more than elegant spreadsheets.

We found some of what we were lacking last week at the EPA AgSTAR conference, the country's only manure digester convention. This year people from across the industry gathered in Sacramento, giving the conference an unfortunate focus on California's dysfunctional utilities and environmental laws. The speakers list was not especially strong and some of the vendors brought more hope than actual experience. By the end of the first day, though, we had met the designer of our first-choice digester, the likely supplier of our engine-generator sets, and the owner of the engineering company that will build the whole project. We were finally able to take a few specific questions to the source and--more importantly--get a feeling for what it would be like to work with these suppliers.

We're getting a good feeling. These people are experienced, honest, and dedicated to the success of digester projects. Better than ever before, we can stand in front of farmers, investors, community members, regulators, and other stakeholders to assure them that Farm Power's team will make sure digester projects function as advertised or get back on track when they don't. That confidence isn't something we can express in numbers, but it's absolutely invaluable to making Farm Power a reality.