With the growing emphasis on finding renewable sources of energy and decreasing the country's dependence on foreign sources of energy, interest in landfill gas-to-energy (LFGE) projects is at an all-time high.
The first LFGE facility opened in 1977. During the past couple of decades, most LFGE projects have had to rely on alternative fuel tax credits or some other form of economic support beyond energy sale revenues to succeed. Today, there are the federal Section 45 tax credits and Clean Renewable Energy Bonds (CREBs), as well as state renewable portfolio standards (RPS), which increase the demand for and price of renewable energy, and programs that reward the reduction of greenhouse gas (GHG) emissions. All of these programs can enhance the value of landfill gas and its potential energy products.
Couple these financing mechanisms with the increasing interest in going green, and you have a perfect storm for LFGE facilities.
An LFGE project consists basically of an extraction wellfield and collection system that takes gas from the landfill and delivers it to a processing/conversion facility, which converts the gas into a usable form of energy. Electricity generation is the most popular end-use — as well as one of the simplest — but landfill gas also is used as a lower-grade substitute for natural gas in boilers and furnaces at industrial facilities. The gas can be made suitable for injecting into a natural gas pipeline and can even be converted into compressed natural gas (CNG) or liquefied natural gas (LNG) for use as vehicle fuel. The complexity of the processing and conversion technologies can vary and will depend upon the selected end-use.
So, if you want to develop an LFGE project, how do you do it? Historically, most landfill owners have signed a gas utilization agreement with a third-party developer selected through a request for qualifications (RFQ) and/or a request for proposal (RFP) process. The developer then takes care of all aspects of project development and operation, and provides some sort of remuneration to the landfill owner. This remains the most common development path, but more and more projects are being developed by the landfill owner or the energy end-user.
Examples in which different parties invest in different components of the LFGE project also are cropping up with increasing frequency. For example, the landfill owner may invest in and operate the wellfield and collection system. He then might sell the raw gas to a developer or end-user, who then processes the gas and converts it to usable energy.
Though there are many ways to implement an LFGE project, there are some basic steps common to all projects. This article will outline the steps for developing an LFGE project and also evaluate the advantages and disadvantages of self-development versus using a third-party developer.
Developing an LFGE Project
Depending on your particular situation, some of steps below may be performed simultaneously or in a different order. It is likely that in most of these steps you will need the assistance of an LFGE expert. In some steps, you also will need legal counsel and perhaps financial assistance as well.
Step 1 — Initial assessment/pre-feasibility study. The purpose of this initial step is to estimate the quantity of gas that can be recovered from a landfill over time, identify and evaluate potential end-uses for the recovered gas, and perform basic financial analyses of the most likely development scenarios.
To perform this initial assessment, information on the landfill and the potential end-user needs to be gathered and evaluated by an LFGE expert. This usually will involve a site visit. Typical information to be gathered includes the landfill's current topographic site plan in computer-aided design and drafting (CADD) software, information on the design and installation of the landfill's liner and cover systems, the site's fill sequencing plans, and data on the landfill's environmental monitoring and control systems.
Furthermore, if a potential end user is an electric or gas utility, the LFGE expert will evaluate the utility's interconnection requirements and RPS goals. If the energy created is going to be used directly by a facility such as a factory or plant, the consultant will examine, among other things, the facility's annual power usage, potential pipeline routes and possible environmental issues.
This information is then used to develop an initial site assessment report that includes an estimate of the amount of recoverable gas from the landfill on an annual basis, a preliminary estimate of the capital and annual operations and maintenance (O&M) budgets for each potential LFGE facility, and potential pricing for all available revenue streams. (View a complete list of the information gathered during the initial assessment and the resulting report.).
Even if you have no intention of self-developing a project either as a landfill owner or as an end-user, the information compiled in this initial study will help you understand what end-use scenarios are most likely. It also will equip you with the technical and financial knowledge to allow you to better assess those proposing to develop the project, as well as arrive at a fair deal with the selected developer.
If this is to be a third-party developer project, the landfill owner, sometimes in conjunction with a preferred end-user, could issue an RFQ/RFP, and ultimately select a project developer. Or he can perform step 2 before making that decision.
Step 2 — Feasibility study on selected LFGE options. Based on the initial assessment, typically one or two LFGE project configurations arise as the most desirable options. In this step, seek additional information on these options to refine the potential project costs, revenues, permitting requirements and funding sources. If you still are unsure whether this is to be a self-developed or third-party developed project, the information gathered in this step can help you make that decision. If you have not yet contracted with a developer, you should retain the services of an LFGE expert for this task as well. If this project is already being handled by a third-party developer, they likely will perform all of the functions outlined below.
During this step, you should hold pre-application meetings with the appropriate regulatory agencies to discuss, in detail, all of the permitting requirements, schedules and constraints. In some jurisdictions, the requirements and/or schedules may preclude certain end-use technologies and therefore drive the selection of the technology for the project. Additionally, detailed cost estimates should be prepared for each potential LFGE project configuration.
If this is a project developed by the landfill owner, the owner will reconfirm the end-users' interest as well as seek to refine pricing and the energy purchase agreement schedule and requirements. If this is a project developed by an end-user, the end user will need to reconfirm the landfill owners' interest as well as settle on the expected remuneration for obtaining the landfill gas. Furthermore, if the project will generate reductions in GHG emissions, you should assess the paths for monetizing them and the requirements for registering, monitoring and verifying them.
You should also hold discussions with all of the potential funding sources to confirm their availability and the requirements for obtaining the financing. There are many potential funding sources for LFGE projects. These include project financing, private equity, direct municipal funds, municipal bonds, tax credits, CREBs, and a myriad of federal, state, and even local grants. These should have been identified in step 1.
You may need to seek counsel for projects that intend to use bonding or tax credits as a funding source. Applications for all potential grants and incentive programs should be obtained and reviewed.
The information developed above should be used to re-run the projects' financial statements. If more than one project configuration is being considered, they should be ranked.
Step 3 — Memorandum of understanding (MOU). At this point you should know which project configuration you want to pursue. It is time to obtain MOUs with the other parties that outline the structure of the proposed deal. Depending on who is developing the project, MOUs should be obtained for the right to use the landfill gas as well as for the sale of the resulting energy product.
Step 4 — Obtain financing. Based on the conditions of the MOU(s), apply for all of the potential financing/funding. If seeking to monetize GHG emission reductions, this would be a good time to do so. This can be accomplished by joining the Chicago Climate Exchange (CCX) or making a private deal with an organization that specializes in monetizing reductions. This can be accomplished through an RFP process.
Step 5 — Finalize contracts. This step can be done concurrently with step 4. Negotiate the final contracts, as appropriate, for the rights to the landfill gas as well as the sale of any energy products.
Step 6 — Procure design, permitting, construction and operations services. If you still are intending to self-develop, it is time to procure the services to design, permit, construct and operate the LFGE project. Typically, this is done either through a turnkey contract for engineering, procurement and construction (EPC) or through a design/bid process. The operations contract can be added to the EPC contract or bid separately.
Many public works projects are performed using the design/bid method, where an owner selects an engineering firm through a RFQ/RFP process. The selected firm designs the facility, acquires the permits and develops a bid package for the construction of the project. The owner issues the bid documents and selects a contractor to construct the project. Typically, the engineer is retained by the owner to act as the owner's representative during the construction of the project.
In the LFGE field, more owners are procuring these services through an EPC contract. With this approach, one firm is responsible for all design, permitting, procurement and construction services. This typically results in a lower overall cost and a faster project implementation schedule. Also if issues arise, there is only one party to deal with to resolve the issue. If this approach is selected, you should obtain a guaranteed-maximum price as well as project performance guarantees from the contractor.
Step 7 — Celebrate. At the conclusion of step 6, you should have an operational LFGE facility, and it is time to take credit for the positive work you have accomplished. You should have a ribbon-cutting ceremony, issue press releases and conduct public tours. These are great projects for the solid waste industry, and, once up and running, can provide ongoing opportunities for high-profile, positive publicity.
Self-Develop or Third-Party?
With a self-developed project, either the landfill owner or the end-user will need to perform all of the steps previously outlined with the assistance of an LFGE expert as well as legal and financial counsel. With a third-party developer, the landfill owner still will need the same expert assistance and counsel, but could perform only step 1 and then select the developer through a RFQ/RFP process. Both paths have resulted in numerous successful projects, but both also have distinct advantages and disadvantages.
Some of the advantages of self-development are:
Greater financial benefit to the landfill owner or end-user.
More control over on-site activities at the landfill, particularly with respect to compliance. The landfill owner can make sure that compliance takes priority when making decisions about how to operate the landfill gas extraction wellfield.
Reduced number of parties results in reduced potential for conflict.
Some of the disadvantages are:
You must cover all of the capital cost.
You assume all of the project risk.
Involvement in an unfamiliar business may be required.
Management attention could be diverted away from your primary business.
Meanwhile, the advantages of using a third-party developer are:
You cover none of the capital cost (unless you invest in the wellfield and sell gas to the developer).
You assume none of the project risk.
You do not have to spend as much of your own time and resources to implement the project.
Some of the disadvantages are:
Less financial benefit to the landfill owner or end-user.
Potentially less control over landfill gas management at the site.
More potential for conflict, especially over compliance issues.
In summary, if you ever have considered an LFGE project at your site, or if you are an end-user looking for renewable source of energy, now is the time to seriously look at such a project. As discussed, there are many ways to see an LFGE project come to fruition. This article describes the possibilities in very broad terms. But once you get started and get help from those already experienced in the LFGE field, you can find the right pathway for your organization to have a renewable energy project that you can point to with pride.
Read this author's case studies of several LFGE projects.
Steven M. Hamilton is a vice president of SCS Engineers. He is based in the firm's Santa Rosa, Calif., office.