California Farms Take Risks When Going Green

California dairy farmers might soon start converting their cow waste to fuel, but in doing so, they may be taking on more insurance risks — risks that their insurance agents might not be aware of, said James D. Redinger, principal engineer-director of engineering and standards for The Hartford Steam Boiler Inspection and Insurance Co.

U.S. farmers face significant pressures today to lower costs and compete in the global market. They are looking for ways to increase their yields and revenue streams, reduce expenses and maintain margins. New green technologies — including biomethane systems — seem to offer many revenue generating or cost cutting advantages, and also often are subsidized with government grants. Yet while green technologies may be attractive avenues for farmers to pursue, if equipment is not constructed, used or maintained properly, it can lead to large exposures, Redinger said.

Biomethane

Manufacturing biomethane involves processing raw manure through an anaerobic digestion process to create heat, fuel and an odorless fertilizer. Basically, the manure is put into a tank to speed up the decomposition process and make fuel. The fuel often is used to power a generator to generate electricity.

Using manure as a renewable source to make fuel is beneficial for the air and water because it removes a product that otherwise would have to be disposed of. The process also helps to control fly and odor issues because manure isn’t sitting out on the farm. Dairy farmers in California might soon be required to convert their manure into methane in California because the state Air Resources Board has set strict targets to reduce the state’s greenhouse gas emissions. Meanwhile, farms that create biomethane can receive federal, state and local subsidies, so there’s an incentive to get “paid” for doing the right thing, Redinger said.

“Everyone will have [a biomethane generator] in the next 10 years. In California, everyone will have one in the next one to two years,” he predicted.

Problems can occur, however, with the equipment. “What happens if the tank holding the converted methane gas leaks?” Redinger asked. “Gas will go downhill, pool or ignite,” he answered. Of the first nine biomethane plants that were constructed in Canada, eight blew up, he said.

Redinger said equipment should be built and installed by a professional, and employees should be trained on the equipment. The farmer is not experienced in maintaining the equipment and safely handling the products himself. “Biomethane creates multiple exposures, and farmers need to understand the implications that they have,” he said.

Redinger advised that because the No. 1 use of biomethane on farms is to fuel electrical power generators, farmers should have equipment breakdown coverage. One biomethane-fueled generator can power 100 homes, so in many cases, farmers are selling this power to the electrical grid. But often, power companies will stipulate in their contracts that if power generation to them stops for any reason, the generator has to pay a fine to make up for the interruption, Redinger said. Consequently, farmers may want business interruption coverage to cover the power contract, he said.

Biodiesel

Manufacturing biodiesel is similarly risky. Creating this “green” is relatively simple and involves blending vegetable oils, animal fats and recycled cooking oil with diesel gas to create a fuel for vehicles. “Small” batch production units are being installed on many farms today, Redinger said, noting that a farmer can buy the biodiesel manufacturing equipment and reactive chemicals to convert the oil into fuel at a local hardware store and install it himself all for about $4,500. However, the catalyst used to make the fuel is hazardous, he cautioned.

“If you pour it on your hands, you’d be looking at nothing but bones,” Redinger said of the catalyst’s caustic properties. Additionally, because the fuel uses grease, it can create slippery conditions in a garage or barn — and unsafe conditions for farm workers.

The hazards exist for large and small biodiesel manufacturing operations alike. Even if the farmer is making the fuel just for use on his and one of the neighbor’s trucks, what happens if the neighbor’s truck engine seizes up?

“Guess who’s going to be buying [neighbor] Bill a new engine?” Redinger asked. “Is it going to be in the insurer?”

Agents should be aware that if a farm is manufacturing biodiesel, it is not a standard farm exposure, Redinger cautioned. By manufacturing biodiesel, the farmer is creating a risk of having flammable fuels in large amounts on a farm.

Moreover, one of the byproducts of the fuel manufacturing is glycerin, he added. If a farmer is making biodiesel for personal vehicle use, then he’s not generating glycerin in large quantities. But that likely means “the farmer is putting [the hazardous substance] in a 55-gallon drum and dumping it on the back of his property and making a pile of it out there,” Redinger said. “Sooner or later, someone is going to say the farmer is polluting the groundwater. In small operations, no one is watching the potential liability.”

Solar and Wind

Using the sun or wind to generate electricity comes with its own risks.

On a farm, solar thermal heating generally is not practical or economical, Redinger said. But farmers can easily use photovoltaic-charged batteries to operate equipment like security gates, lighting and portable electronic equipment. Redinger said his own sister’s farm uses surveillance cameras that are solar powered. “Who pays if there is hail damage to the photovoltaic cells?” he asked.

Similarly, a farmer can go to the local hardware store to buy a windmill that is 75 feet tall and install it himself to generate a little power. But, “how many people are going to install it closer to the barn than it is tall?” he said. “Who’s going to assure that the equipment is properly grounded so it’s not a lightning rod, and who’s going to properly maintain the windmill?” If the windmill blades are not properly installed and maintained, the blade could come off in the wind and be thrown a mile to mile and a half away, he said.

“Home made almost always indicates higher personnel, property, liability and equipment exposures,” Redinger said.

The bottom line with many of these green technologies, Redinger noted, is that while they may be money makers or help to reduce costs, there also is increased risk. “Modern green farming technologies present exposures that farmers didn’t have before. Most farmers are not qualified to install, operate or maintain the unusual equipment — but that might not stop them from trying to do so,” Redinger said. Nevertheless, “All of this can be underwritten, but agents need to know the equipment is there. The challenge for us as an industry is to understand the exposures and be ready for them now. Green technologies are changing so quickly they’re a moving target. But if the agent doesn’t know the equipment exists on the farm, then he can’t help the farmer to manage the risks.”

Redinger was a speaker at the Insurance Skills Center Agribusiness Conference.

Topics California Agribusiness Manufacturing