The air smells fruity, slightly alcoholic. Against the strong hum of machinery, 175 cows are eating hay. As their dung drops to the slatted floor, a machine sweeps it through and it runs underneath the barn to a futuristic dome outside.

The Heegs’ 75-hectare family farm in remote Friesland, in the north-west of the Netherlands, where cows outnumber people almost two to one, marks the start of a national experiment to encourage farms to turn their manure into biogas.

The process is simple: the dung is broken down by bacteria into biogas in an anaerobic digester. Other machines then extract nitrates and phosphates to make fertiliser, leaving organic matter, which is spread on the Heegs’ farm.

Masterminded by FrieslandCampina, the country’s largest dairy collective which buys milk from 13,500 of the Netherlands’ 17,000 dairy farmers, the project has established an initial target of getting 1,000 large farms across the country to make power from cow manure within four years.

Dutch dairy farmer Pieter Heeg with a handful of his 175 cows. Photograph: Senay Boztas

Farmers lease an anaerobic digester and are given a 12 year fixed price for the biogas they produce, subsidised by the Dutch government. To date, the economic affairs department has committed €150m (£135m) to the cow power programme.

“Before, we just spread [dung] on the land. Now I process it, get energy from it and then fertiliser. This way, we make everything useful,” says 27-year-old Pieter Heeg. He expects to make €10,000 a year selling excess energy to Jumpstart, a new cooperative launched by FrieslandCampina to help farmers through the process of leasing and installing an anaerobic digester.

In the 20 days since Henk Kamp, the Netherlands’ economic affairs minister, turned on the Heegs’ digester, it has generated 9,342 kWh of electricity, enough to power three homes for a year. At the switching-on ceremony, Kamp spoke about the contribution such energy generation would make to the Netherlands’ target (pdf) of generating 14% of its energy from renewable sources by the year 2020.

One of the reasons the Netherlands is leading the way in manure processing is because the situation has become so extreme. About 10% of the Netherlands’ greenhouse gas emissions come from agriculture, mostly methane as a result of the dairy industry, and the country’s livestock produces 74m tonnes of manure a year, according to FrieslandCampina.

This cannot just be spread on the land because nitrates and phosphates leach into the water, causing excessive algae growth and pollution. Last year the Netherlands exceeded its phosphate ceiling set by the EU, despite shipping manure hundreds of miles to Poland, Hungary and Germany, where it is used for fertiliser.

Oscar Schoumans, who is working on a project to extract value from manure at Wageningen University & Research, says: “On all maps from the European commission, the Netherlands is a very red area in terms of production of manure, cows and pigs per hectare, nitrogen and phosphorus surplus. Together with Flanders, we are the bad guys.”

While Schoumans acknowledges that the Netherlands is working hard to find solutions, he does not believe the FrieslandCampina project will resolve the problem since it is not mandatory for farms to adopt the scheme and it does not deal explicitly with excess chemicals from manure. “We need to see [manure] not as waste but as a source for minerals we need for [agricultural] production,” he says.

In addition, some commentators in the Netherlands have suggested that, with cheap fuel from coal and gas, the cow power scheme in its current form doesn’t make financial sense.

Hans van den Boom, renewable energy relationship manager at Rabobank, is sceptical about the business case for the farm-by-farm digesters, saying it remains to be seen how it works in practice: “We believe that having bigger, more centralised digesters is, from an economic point of view, the only way to make manure digesting profitable. The first digesters have yet to prove in practice that they [work] on a farm scale.”

However, Jan Willem Straatsma, sustainable livestock farming manager at FrieslandCampina, is positive about the future of the new Dutch biogas initiative. He points out that FrieslandCampina does have large digesters, but also says that what’s attractive about the small digesters is that they help reduce transport costs. “With larger ones, you need to transport manure, causing more traffic and energy use,” he adds. “Smart technology on farms is a better solution.”

Out in the fields, the Heegs are optimistic. Their Holstein Friesian cows chew on, their dung powering what they hope will be a cycle of change.