The potential benefits of developing landfill gas-to-energy (LFGE) projects are substantial, and should be A-list priorities for cash-strapped municipalities seeking new and creative sources of revenue. These projects turn greenhouse gas into energy, earn dollars for their host communities and improve our environment.
Even smaller LFGE projects – i.e., those landfills with one to three million tons of waste – may provide big financial and environmental benefits.
So why aren’t more communities jumping on the LFGE bandwagon? We analyzed some of the roadblocks through in-depth interviews with owners of smaller landfills that are in the early stages of implementing LFGE projects.
Small landfill operators often overlook the potential for LFGE projects in their communities because of concerns about smaller volumes of methane gas emitted, the quality of the gas, the availability of project financing and the overall economic feasibility of owning and operating LFGE projects. Smaller operators are also concerned about the lack of in-house technical, financial and legal expertise to evaluate and develop such projects.
What we learned can best be described as a problem of perception. Many smaller landfill owners perceive obstacles that either (a) do not exist or (b) can be surmounted with the assistance of available professional resources.
The private sector has a good track record of evaluating and managing LFGE resources, and there has been a sharp increase in the number of LFGE projects in recent years. The public sector, however, is lagging far behind. As they sit on the sidelines, they’re missing out on a potentially valuable opportunity.
Based on our interviews with LFGE operators, we have put together a top-line list of items that may help to allay concerns about LFGE projects and spur municipalities into action.
Get educated on the LFGE process
Those individuals involved in the LFGE project decision-making process need not be experts. There are many project consultants and attorneys who can provide the technical, financial and legal assistance to evaluate and develop a project. But they should understand the basics to help alleviate some of their concerns. Our survey respondents noted that their primary LFGE project challenges were associated with getting educated on the issues.
Volume/Quality of Gas
As a landfill owner, knowing at the outset the quality and quantity of your landfill gas supply is essential to assessing the viability of pursuing an LFGE project, and negotiating a contract from a position of knowledge and strength. A variety of techniques – such as computer modeling, review of landfill records and site-specific investigations – can more accurately predict LFG supply and quality.
Financing the Project
A lack of funding is clearly considered a big obstacle for many potential LFGE project developers, as our Tennessee respondents affirmed. In reality, however, the prevailing project model is for a municipality to partner with a gas provider, developer, or other end-user who will help defray the costs. If the landfill owner is not partnering with a developer, then the ability to secure financing becomes more problematic and can require specialized expertise regarding the types of financing available.
Compensation packages vary based on several key factors, including the location of the project; age, size, depth and configuration of the landfill; availability of tax incentives; and voluntary versus mandatory “green tags” or credits.
In response to our survey inquiries, we learned that royalty rates paid to landfill owners by developers vary considerably, ranging from 10 percent to 30 percent. This seems to be largely a function of the relative bargaining power of the parties negotiating the landfill lease agreement.
Other types of compensation methods identified include: payment by the developer of a fixed price for the purchase of the gas from the landfill owner and sharing of income from environmental attributes; up-front payments by the developer to the landfill owner with indexed gas pricing and sharing of income from environmental attributes; and fixed rental fees or guaranteed minimum payments by the developer to the landfill owner.
Additional Financial Benefits
The owners and operators of smaller sites can often benefit not only from the sale of gas or electricity generated, but also through the sale of carbon offsets and sharing of tax benefits.
In some communities, participants also may receive incentive payments.
Landfill gas-to-energy projects likely will continue to increase as owners look for ways to boost revenue and be better environmental stewards. While the benefits are potentially substantial, the projects aren’t without challenges. Our best advice is to do your homework, set your goals and priorities and seek out those who can provide independent professional advice. Then, once the project is complete, you can reap the financial and environmental benefits.
Jeffrey Karp is a partner at Sullivan & Worcester LLP in Boston, New York, and Washington, D.C. (www.sandw.com). Steve Batiste, P.E., is a solid waste practice leader at Brown and Caldwell (www.brownandcaldwell.com).