PROJECT DEVELOPMENT AND PROCUREMENT STRATEGIES
PROJECT DEVELOPMENT AND PROCUREMENT STRATEGIES FOR BIOGAS PROJECTS MAY 21, 2015 PREPARED BY: TED PYTLAR, VICE PRESIDENT } } } } Full Service Professional Engineering Firm 190 Employees Experience in All Aspects of Wastewater Treatment/Sludge Handling, Anaerobic Digestion, CHP, Solid Waste Management, SEQR, Permitting, and Public Participation Relevant to Anaerobic Digestion (AD) and Organics Management Projects Members of American Biogas Council (ABC), NYSBSG, NYWEA, NYSWANA, NYSASWM, NYSAR3, AAEE, CMAA, NSPE, APWA 2 } ◦ ◦ ◦ Anaerobic digestion provides an outstanding opportunity to attain the following goals: Extract usable energy from wastes that are presently disposed. Advance toward the goal of being a sustainable, zero net energy utility Provide environmental and economic benefits to the agency’s member municipalities through the diversion of organic wastes - reducing disposal and generating revenues to the benefit of rate payers. 3 ◦ ◦ ◦ ◦ ◦ Take advantage of financial support for the production of bio-energy and landfill diversion provided by New York State and the Federal Government Reduce greenhouse gas emissions and the facility’s carbon footprint. Take advantage of financial benefits available from environmental attribute markets. Get ahead of the trend toward legislation requiring the diversion of organic wastes from disposal. Provide regional leadership and solutions for beneficial use of biosolids, fats, oil and grease (FOG) and SSO/HSW. 4 } In recognition of the opportunity, WWTF’s seeking to develop AD facilities, on the basis of public-private partnership (P3) principles. However, in order to attain technical, environmental and commercial success, several challenges, including those listed below, must be addressed. ◦ ◦ ◦ ◦ Co-digestion of feedstocks such as biosolids, FOG, commercial organics and source separated organics /High Strength Wastes (SSO/HSW) is a relatively new concept in the United States, with just a few AD facilities currently operating in this mode. The number of successful P3 models for codigestion are also relatively few. Although the number is growing. The ability of existing AD technology suppliers and developers to provide the project engineering, procurement and construction (EPC) capabilities and financial “deep pockets” necessary to support a viable, affordable P3 approach has not been widely demonstrated. Programs for the collection and assured delivery of SSO/HSW and other organic waste feedstocks must be implemented in order to provide an important “high strength” feedstock for the AD Facility. 5 ◦ A variety of equipment designs and processes for removing the contaminants from SSO (plastics, glass) are proliferating in the marketplace in recognition of the problems posed by the contamination. ◦ Management of the liquid and solid digestate produced by AD processes is necessary for the economic success of the AD facility, in order to minimize its impact on plant operations and operating costs and attain productive utilization of the nutrients therein. 6 } ◦ ◦ } The available technologies and contractual models for conversion of biogas to a salable energy product are increasing: CHP, CNG, pipeline injection. Options must be evaluated for the best economic strategy for a project in terms of costs, energy and environmental attribute revenues. The NYSPSC and NYSERDA are considering significant changes to the subsidization and utility regulatory structures (Reforming the Energy Vision-REV; Green Energy Fund) that may have a significantly beneficial financial impact on AD/CHP projects. 7 In order to develop a successful project, the wastewater treatment agency or other project sponsor should assemble a project team with expertise in the matters which are the essential to a successful Anaerobic Digestion to Energy Facility } Public/Private Partnerships (P3) , Performance Based Contracting and Innovative Waste to Energy Projects or Programs } Design, Contracting and Construction Management Experience for Anaerobic Digestion, Biosolids/Wastewater and Solid Waste Management Facilities } Project Financing for P3, wastewater, solid waste and energy recovery systems } Quantification and sale of environmental attributes } SEQRA and permitting for wastewater and solid waste management projects } Funding (Grants and Low/No Interest Loans) Opportunities for Anaerobic Digester, CHP, SSO/HSW Projects. } Experience in Collaborative Projects. 8 New York State procurement law provides two models for attaining AD project development objectives and managing project risks First Model: Competitive Procurement following NYSGML-120W 120w allows competitive procurement of a “Solid Waste ManagementResource Recovery Facility” “Solid Waste” as defined in New York State Part 360 Regulations includes both municipal solid waste and sludge from a wastewater treatment plant. 9 First Model: Competitive Procurement following NYSGML-120W A municipality may award a contact on the basis of cost, facility design, system reliability , energy efficiency, compatibility with source separation and other recycling systems and environmental protection. In New York City, the Law limits the use of 120w procurements to 20 sites. 10 Many P3 solid waste management projects for recycling, composting, waste-to-energy and transfer station facilities design, construction and operation have been carried out under GML 120w. Example: ◦ Rockland County Solid Waste Management Authority Biosolids Cocomposting Facility ◦ Authority contracted for design, build and operate (DBO) services. ◦ Facility began operations in 1998. Continues to operate. ◦ Has undergone significant repairs and improvements. ◦ Contracted operations contractors have changed due procurements conducted at the expiration of contracting periods. ◦ Construction schedule guarantees provisions of the contract were enforced in response to contractor delays – RCSWMA received compensation from the contractor ◦ Operations and maintenance guarantees were enforced against the contractor – led to buy-out payment to the RCSWMA and procurement of a replacement operator. ◦ All compost has been marketed. 11 Second Model: Competitive Procurement following New York State Energy Law, Article 9 –Energy Performance Contract Provides for privately financed improvements to public facilities for the purpose of attaining reductions in energy consumption. Example: ◦ Rockland Sewer District No.1 –Energy studies and anaerobic digestioncogeneration system conversion ◦ Contractor(ESCO) performed a survey/audit of facility(ies) to identify facility improvement measures(FIMs) that could save/generate energy, save operation and maintenance costs ◦ Contractor prepared cost/benefit analysis for each FIM ◦ RCSD determined which FIMs they wanted to investigate further ◦ Contractor performed preliminary design and firmed up the cost/benefit analysis 12 ◦ ◦ ◦ ◦ RCSD determined which FIMs to enter into contract for. Contractor designed, built and if requested operated and maintained the FIMs. Contractor guaranteed the performance and cost /benefit of each FIM through measurement and verification protocols. RCSD selected the method of funding the FIMs, i.e. bonding, municipal lease, etc. with the costs of financing paid for from the guaranteed savings. 13 PROJECTS UNDERWAY OR RECENTLY COMPLETED THAT COULD HAVE BEEN DEVELOPED FOLLOWING NEW YORK STATE’S P3 PROCUREMENT MODELS Competitive Procurement of a contractor for DBO and financing of AD-CHP system Procurement was initiated following New Jersey’s version of 120w. ◦ Project Sponsor: Camden County (NJ) Municipal Utilities Authority ◦ Contractor proposals for financing and operations of the AD were too costly ◦ CCMUA selected Anaergia/Synagro as project development partner 14 PROJECTS UNDERWAY OR RECENTLY COMPLETED THAT COULD HAVE BEEN DEVELOPED FOLLOWING NEW YORK STATE’S P3 PROCUREMENT MODELS } ◦ ◦ ◦ ◦ ◦ ◦ CCMUA revised the contractual structure to allocate responsibility as follows: Financing by CCMUA AD and CHP design and equipment supply by Anaergia/Synagro Design, specifications, bidding and construction management (CM) by CCMUA (D&B is design and CM engineer for CCMUA) AD/CHP installation and WWTP modifications by CCMUA contractor AD operations by CCMUA CHP operations by Synagro 15 PROJECTS UNDERWAY OR RECENTLY COMPLETED THAT COULD HAVE BEEN DEVELOPED FOLLOWING NEW YORK STATE’S P3 PROCUREMENT MODELS Developer Design/Build/Own/Operate (DBOO) Reedy Creek Improvement District(RCID) – Disney World Previously composted biosolids adjacent to Park and hotels Composting Odor issues AD/CHP system developed by Harvest Power (HP) HP leased 2.5 acre site from RCID HP Agreement with RCID to digest biosolids HP sourced resort food waste and other HSW to Supplement Biosolids and Increase Energy Yield ◦ Sell power from CHP to RCID ◦ ◦ ◦ ◦ ◦ ◦ ◦ 16 Competitive Proposals under GML 120w Pros } Flexibility to base contractor selection on a combination of cost, performance, environmental and financial factors, rather than low bid } Flexibility to negotiate terms with one or more proposers prior to contractor selection } A substantial portion of the costs to design the facility are transferred to the contractor } Changes in scope may be made based upon contractor feedback 17 Competitive Proposals under GML 120w Pros (Cont’d) } Can specify guaranteed design, construction, operations, regulatory compliance, energy production/marketing and financial condition obligations to be met by the contractor throughout the term of the agreement } Can incorporate strong contractual terms for enforcement of the contractor’s obligations, including liquidated damages payments } Can utilize tax exempt government debt, grants, loans and tax benefits to reduce cost to the private sector } Design, financing, construction, ownership and operation can all be vested with one or more contractors or public sector can retain ownership } Projects may be eligible for financial assistance from multiple agencies: NYSDEC, NYSEFC, and NYSERDA 18 Competitive Proposals under GML 120w Cons } Reliance upon the capabilities of the contractor’s team to carry our final engineering, procurement, construction and operation } Disputes among contractor team members may delay or cause other detriment to the project } Selection of other than the low cost proposal must be justified in a report that is subject to challenge } If financing is based upon private ownership, the public sector loses a measure of control } Privately owned projects may be under the control of the contractor at the conclusion of the term of the agreement 19 Competitive Proposals under Article 9 of the Energy Law –Energy Performance Contracts Pros } Repayment of financing is based upon a combination of energy and/ or operations and maintenance savings } Energy and O&M savings are guaranteed by the contractor } Project financing may be by the contractor or through other parties } Use of EPC may assist in obtaining NYSERDA financial support 20 Competitive Proposals under Article 9 of the Energy Law –Energy Performance Contracts Cons } Contractor’s recovery of its costs through energy savings is based upon private sector rate of return on investment } Energy and O&M savings benefits must exceed the contractor’s costs } Consideration of proposals is more constrained than under 120w } Ability to structure the contractor’s performance incentives for nonenergy related performance may be more limited than 120w } Limited ability to enforce contract breaches that are non-energy related 21 Competitive Proposals under Article 9 of the Energy Law –Energy Performance Contracts Cons (Cont’d) } Contractor may subcontract certain O&M obligations, raising fees to the public sector owner } Design of the project (anaerobic digester) has to be based upon the results of the contractor’s audit 22 Approaches to mitigate and allocate risks can be incorporated into the selected project development/procurement approach: Develop a Comprehensive Project Development Strategy: ◦ Address the leadership, technical, environmental, contractual and financial aspects of the project and ◦ Incorporate that strategy in procurement and contractual documents. 23 Develop a Comprehensive Project Development Strategy: ◦ The following slides briefly (1) identify the risks associated with P3 projects; and (2) describe methods to mitigate the risks. 1. P3 Project Risks : ◦ Technology Risks Waste Receiving Capacity Waste Processing Capacity Operational Reliability Energy and Recovered Materials Generation Rate Energy and Recovered Materials Quality/Marketability Digestate treatment, upgrading, disposal or utilization Compliance with Emissions Limitations Odor Control 24 1. P3 Project Risks : ◦ Project Delivery Risks Private Developer Project Abandonment Public Sponsor Project Delay/Abandonment Contractor’s Team Capabilities/Cohesiveness Private Developer Credit Worthiness Contract for Energy and Material Product Sales on Favorable/Financeable Terms ◦ Public/Political Support Risk Community Concerns Environmental Organization Concerns Taxpayer Concerns ◦ Regulatory Risks Meeting Current Standards Potential Future Changes in Law/Regulations 25 1. P3 Project Risks : ◦ Financing Risks Assembling Credit-Worthy Project Structure Financial Strength and capability of the Project Developer Assigning risks to most appropriate party e.g., assign delivery risk to public sector, assign technology risk to Developer Selecting Qualified Developer Financial Market Conditions – Interest Rates/ Availability of Equity Rating Agency Evaluations 26 1. P3 Project Risks : ◦ Construction Risks On Schedule On Budget Pass Commissioning Test (see technology risks) Maintaining Existing Plant Operations during Construction ◦ Operations and Maintenance Risks Maintain Optimum Processing and Energy/Materials Production, Digestate Treatment, Digestate Disposal/Utilization Performance Handle SSO/HSW without negative impacts Consistent quantity and quality of SSO/HSW Meet Regulatory Conditions Maintain Good Neighbor Status – Traffic, Odor, Noise, Lighting Meet Ongoing Preventive and Corrective Maintenance Protocols 27 1. P3 Project Risks : ◦ Economic Performance Risks Normal O&M Carried Out On Budget Delivery of Needed Quantities and Quality of Waste Feedstocks Cost of Disposal of Liquid and Solid Residuals (SSO and Digestate) Fluctuations in fees charged for SSO/HSW Fluctuations in energy/materials sales revenues Nonperforming equipment Change in Law 28 2. Methods to mitigate the risks: a. Develop a comprehensive Project Definition Report that defines (1) all of the technical, environmental/regulatory, community, contractual and financial requirements for the Project (2) the roles and responsibilities of the public and private sector parties and (3) allocates the risks to be assumed by each of the parties. b. Prepare design, procurement, permit, contractual and financing documents that incorporate the risk allocations and protections to the agency as defined in the Project Definition Report. 29 2. Methods to mitigate the risks: c. Specific Risk Mitigation Measures I. II. III. IV. V. VI. Developer Performance Guarantees covering construction and operations –schedule, cost, commissioning standards, continuing operating standards, regulatory compliance, reporting and auditing Select qualified developer/development team Letters of credit, project bonds, insurance Implement effective mechanism(s) to assure delivery of SSO/HSW via contractual, economic or legislative means Incorporate design elements allowing modifications in response to potential regulatory or technological developments Independent oversight of project delivery, operation and performance 30 31
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