Of all the reasons to embrace landfill gas to energy projects, making a fast buck is rarely one of them. Profit margins are far from dazzling; nor are there swift returns on investment. Any means of reducing global methane emissions is desirable, but those who commit money are reconciled to a decent return later rather than sooner.
As we reflected in the first instalment of the landfill gas “mini-series,” there are various complexities and the collapse of carbon credit (CC) price to navigate. Investors a decade or so ago who set out to cash in on CCs have been forced to change tack. But those who have shaped the right business model are making things work.
Even so, global rating agency Fitch recently struck a downbeat tone when examining the potential of landfill gas to energy projects. It stressed the need to ensure stable cash flow amid “uncertainty over the underlying supply risk and operation of a utility scale LFG site.” Fitch also cited “unproven technology” as a risk to LFG cash flows compared with other thermal plants.
In other words, Fitch says, deep pockets are needed to ride out operational problems arising during an LFG project’s lifetime. (The report made for sober reading.) But is Fitch overstating the problems? The technology seems largely tried and tested. It’s constantly developing, increasingly able to deal with gas impurities. The need for good site management – a potential problem if neglected – ought now to be understood and factored in.
In America, the world’s largest economy, progress has been steady if unspectacular — the amount of unexploited municipal solid waste (MSW) landfill appears to tell its own story. Recent figures from the US Environmental Protection Agency (EPA) listed 621 operational LFG energy projects with around 450 other “good candidates” capable of converting enough methane to power 500,000 homes.
The environmental case is compelling. MSW landfills are the third-largest human-generated source of methane emissions in the US. EPA’s last available figures estimated that in 2011 America released 84.1 million metric tons of CO2 equivalent into the atmosphere. Methane is highly potent – 21 times stronger than CO2.
LFG energy projects can capture 60-90% of methane emissions, depending on system design. Past US schemes have been stimulated by federal production tax credits (PTCs) — for landfill gas schemes, these were worth 1.1 cents per kWh. Although PTCs expired last December, projects under construction before January 1, 2014, still qualify. One pressure group, the Union of Concerned Scientists, is calling for a long-term extension of credits to help give the renewable energy industry more stability.
Time will tell if the business world agrees with EPA’s optimism about unexploited sites. Some are being closely scrutinised by, among others, Green Gas, a Dutch company. Its US arm, Green Gas Americas Inc, recently acquired Lime Energy’s 2.8 MW landfill-gas-to-energy project in Charlotte County, Florida, on a landfill deal with long-term agreements to sell power to the Orlando Utilities Commission.
Green Gas was founded in 2005, originally to exploit carbon credits through methane gas elimination projects. It set up in the US in 2007, its first gas to energy project in Massachusetts, an 8MW project at Pioneer Crossings. Currently Green Gas generates 125 MW from landfill and coal gas methane projects around the world, mainly in Eastern Europe.
Green Gas chief executive Joost Knoll says the key to making the most of US landfill is technical expertise. The company has high hopes for its ‘low methane kit’ (LMK) - this Knoll claims, will allow it to exploit sites that other firms might forego.
LMK was first used it in Germany, producing methane base energy from old coal-mines. “We can operate it when the CH4 content is as low as 17-18%; that’s an example of improving return on investment,” Knoll explained. “We’re now looking at closed landfill sites where other companies are divesting them. Making profit is to do with know-how.”
Perhaps for that reason, landfill gas to energy attracts relatively few companies. Long-term investments with elements of uncertainty tend not to be a world inhabited by business cut-throats. “In the US, it’s possible to have a contract for 8-12 years with a reasonably economic power price,” Knoll stated. “The forward curve is going up.”
According to Knoll, Green Gas has about 10 projects in the US that it is trying to clear for development, to the east and south. As he explains: “We’re upgrading Lime Energy — we can easily turn out two or three times the power there by investing in the gas recovery system. LMK makes landfill projects attractive to us that wouldn’t interest other operators.”
In taking over Lime Energy, Green Gas had no need to trawl for outside investors. As Knoll puts it, “We have money in the bank.” Besides Europe and US, Green Gas has studied the viability of landfill methane to energy projects from Turkey to Brazil. Knoll considers the former a “very interesting market,” with the potential for 100MW. “There are good incentive arrangements – a guaranteed green tariff for 10 years at an attractive rate,” he said. “Turkey has 80 million people; there’s been a lot of growth. You need big landfill and big cities, and Turkey has these. Some operators are using western technology. We’re in the early stages of looking, but it’s a risky country, politically; it’s still developing.”
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