Erath County, Tex., produces two commodities in bulk: milk and manure. Visitors to the Victorian-era courthouse in Stephenville, the county seat, 70 miles southwest of Fort Worth, are greeted by an imposing fiberglass cow named Moola. The tons of waste produced by bovine herds, however, have created, well, a stink in the area. For years, officials in downstream Waco accused the dairies of contaminating the water supply. So when a New York-based renewable energy company proposed taking the muck off farmers' hands at no charge, everyone loved the idea. The plan was to transform the manure into a climate-friendly gas for energy. "It was going to be win-win for everyone," says July Danley, head of the Stephenville Chamber of Commerce.
Poop-to-gas plants—the technical term is anaerobic digesters—are not new. They're big in China and northern Europe, thanks to government subsidies. In the U.S. the technology enjoys support from green groups. "I'm very high on that approach," says James D. Marston, director of the Environmental Defense Fund's energy program. Yet federal grants and loans to the industry totaled just $37.2 million through 2009. While the number of projects has increased from a dozen in 1990 to more than 150 today, according to federal statistics, they're generally more modest in scale than many abroad.
The exception is Texas, where everything is bigger. Here, on the outskirts of Stephenville, North America's largest digester facility sprawls across 73 acres. The surrounding air smells as pungent as one would expect. Shaped like fat grain silos, the eight five-story anaerobic digesters that form the core of the 22-employee plant were humming on a recent autumn morning. Manure mixed with water was flowing into the computer-controlled 916,000-gallon digesters. There the sludgy organic material decomposes into biogas—methane, mostly—which is refined into pipeline-quality natural gas. The developer, Microgy, signed contracts to supply utilities in Texas and California, claiming the plant could meet the energy needs of 10,000 homes. The U.S. Environmental Protection Agency promoted the project on its website, and Microgy boasted as recently as May that it did not need government backing to succeed. "We're sustainable without incentives," Executive Vice-President Michael Hvisdos told the website ClimateWire.
In July, Microgy's parent, Tarrytown (N.Y.)-based Environmental Power (EPG), filed for bankruptcy, saying it would liquidate. The company was partly a victim of its own ambitions: It expanded too quickly, with projects in California, Colorado, and Wisconsin, and borrowed too much. Environmental Power's revenues jumped 62 percent in 2009, to $4.7 million, yet its losses more than doubled over the same period, to $36 million. A Securities and Exchange Commission filing from April shows long-term liabilities totaling $50 million. It wasn't just an excess of debt that sank the enterprise, though. The death of national climate legislation exacerbated Environmental Power's difficulties and hampered the renewable energy market more broadly. If Congress had created a system to reduce carbon emissions by setting caps and encouraging companies to trade pollution permits, projects such as the one in Erath County could have benefited by selling credits linked to the clean energy they produce. The surging supply and falling price of natural gas didn't help either, denting the competitiveness of more expensive renewable energy. The company's former chief executive officer, Richard E. Kessel, declined to comment.
Still, there may be hope for the Stephenville project. In November, a buyer scooped up the plant at the bargain-basement price of $3.3 million. Riding to the rescue—and signaling at least some long-term confidence in manure-to-energy—is Element Markets, a carbon-trading firm in Houston co-founded by Lou L. Pai. Pai has had a long and, at times, controversial career in energy. After working at ConocoPhillips (COP) and DuPont (DP), he landed at Enron in the 1990s, where he led the retail energy unit. Pai left Enron six months before it collapsed in late 2001, pocketing more than $265 million from exercising Enron options and selling stock, according to a U.S. Senate panel. Without admitting wrongdoing he agreed to forfeit $25 million to settle SEC allegations that he abused inside information to dodge investment losses before Enron's demise. He was not charged. Pai did not return a phone message seeking comment.
Randall N. Lack, Element's chief marketing officer, says: "The biomethane market can provide clean energy and reduced emissions while being commercially successful."
Element might have better luck revving up the Texas plant, because the bankruptcy process has stripped the facility of its daunting debt burden. The company says on its website that it works with utilities, municipalities, and companies to develop renewable energy, trade environmental credits, and nurture new clean energy ideas. One of the images on the site is that of a handsome brown cow mooing under a wide-open sky.
The bottom line: Too much debt nearly sank a huge project to turn cow manure into gas. Can new owners keep it afloat?