PROJECT DEVELOPMENT AND PROCUREMENT STRATEGIES

PROJECT DEVELOPMENT AND
PROCUREMENT STRATEGIES FOR BIOGAS
PROJECTS
MAY 21, 2015
PREPARED BY:
TED PYTLAR, VICE PRESIDENT
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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
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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.
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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.
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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.
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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.
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◦  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.
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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.
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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.
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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.
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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.
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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:
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Rockland County Solid Waste Management Authority Biosolids Cocomposting Facility
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Authority contracted for design, build and operate (DBO) services.
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Facility began operations in 1998. Continues to operate.
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Has undergone significant repairs and improvements.
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Contracted operations contractors have changed due procurements conducted at the expiration of
contracting periods.
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Construction schedule guarantees provisions of the contract were enforced in response to
contractor delays – RCSWMA received compensation from the contractor
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Operations and maintenance guarantees were enforced against the contractor – led to buy-out
payment to the RCSWMA and procurement of a replacement operator.
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All compost has been marketed.
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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
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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.
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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.
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Project Sponsor: Camden County (NJ) Municipal Utilities Authority
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Contractor proposals for financing and operations of the AD were too costly
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CCMUA selected Anaergia/Synagro as project development partner
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PROJECTS UNDERWAY OR RECENTLY COMPLETED THAT COULD
HAVE BEEN DEVELOPED FOLLOWING NEW YORK STATE’S P3
PROCUREMENT MODELS
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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.
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2. 
Methods to mitigate the risks:
c.  Specific Risk Mitigation Measures
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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
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