Profitability and Risk Assessment of Energy-Neutral Dairy Chains in the Netherlands

This paper analyses the profitability and associated risks of the energy-neutral milk initiative by the dairy sector in the Netherlands. A Monte Carlo simulation model of producing 25 PJ of energy per year from dairy manure and other co-products through a combination of four business models- CHP-farm, CHP-large, Green gas and Central upgrading was developed. Key project variables in the simulation model were investment costs, price of feedstocks, biogas yield, engine efficiency, subsidy levels of electricity (or green gas) and disposal cost of digestate. A scenario analysis on the basis of NPV and operating profit as the investment evaluation criteria was performed. Our results show that the probability that the project will result in a negative operating profit and NPV is 0.13 and 0.60 respectively under default scenario. Economic results of individual business models suggest that the CHP-large model is not economically viable as it resulted in a negative NPV under all the scenarios investigated. From the alternative scenarios, producing all the energy from green gas only resulted in the highest NPV with a 75% chance of positive NPV and less than 10% chance of operating under loss. This is attributed to the high efficiency of upgrading gas as compared to CHP units where by 60% of the heat generated is flared to air and consequently resulted in a lower energy efficiency