Miramar Biomass to Power Economic Feasibility Study

1
Miramar Biomass to Power Economic Feasibility
Study

• June 23, 2008

2
Agenda

• Introduction
• Technology
• Capital Cost
• Operating Cost
• Feedstock
• Competition
• Regulatory / Incentive
• Power Prices

• Scenarios Modeled
• Miramar Landfill
• MCAS Miramar
• Generic Case
• Sensitivities
• Conclusion

3
Introduction

• Economic Feasibility of Biomass to Power
• At Miramar landfill
• At MCAS Miramar
• At a generic site
• Participants
• West Biofuels
• EnXco
• UCSD
• Jacobs School of Engineering
• Rady School of Management

4
Dual Fluidized Bed Gasification Approach for
Biomass-to-Power

• Gasification
• 70 of biomass (volatiles) converted to product
  gas
• Source for
• Engine/generators for power applications
• Conversion to syngas in reformer for ultimate
  conversion to mixed alcohols.
• Combustion
• 30 of biomass (char) burned with air to provide
  heat for process

5
Improved Dual-Bed Gasification Process for Biomass

• Needs No Oxygen
• Atmospheric Pressure
• Auto-regeneration of catalyst
• Extensive Testing on MSW
• Pyrox Process Japan, MITI
• 3 units each 150 tons/day
• 7 year demonstration
• 1983 -1989

6
Capital Cost Constituents, 3 MW Plant
2.375 MM gensets
6 MM gasification system BOP
7
Comparisons

• West Biofuels/Enxco

• Alameda County Investigation

Alameda comparison projects include estimated
costs for site acquisition (this project accounts
for land lease separately), permitting (same
comment)
8
Güssing 2MW Plant Comparison
9
Operating Costs Miramar Landfill
Total Annual Expense 1.13MM

• Labor
• 7 FTEs
• Effective labor rate 10 more than West Biofuels
  Placer County Study
• Effective man-hours per day 20 less than Placer
  County study
• Maintenance 7/MWh (parts only) within 2 of
  Placer County Study
• Equipment Loader, Bull-dozer, etc. (Lease)
• Land Lease Assume 100,000/year at Miramar
  landfill

10
Feedstock Quality

• Base Assumptions used in Study
• Moisture 30
• Higher Heating Value 7000 BTU/dry lb
• Ash 5
• Results of samples from Miramar Landfill

Higher Heating Value (Gross Calorific Value) and
ash content not measured for these samples.
These are representative literature values from
biomass database.
11
Feedstock-Cost Center vs. Revenue Source

• Miramar Landfill Tipping Fees

• Green Waste is becoming a valuable commodity
• 15-20 per ton (3-4 per cubic yard)

12
Urban Green Waste Feedstock Availability

• Miramar Landfill
• Currently 100,000 tons/year (Separated and
  processed in the Greenery)
• Expanding to 150,000 tons/year April 2009
• Additional 120,000 tons/year that is not
  separated and is thus land filled
• 95 of what is separated is sold
• Allied Waste Sycamore Landfill
• Santee, CA
• 1.5 of permitted capacity utilized
• 200,000 tons/year
• Collectors
• Agri-service/El Corazon - Oceanside
• Organic Recycling West, Inc - Otay Mesa
• Summary
• Currently Landfilled Supply Over 300,000
  tons/year
• Our Demand 34,000 tons/year for a 3MW 56,000
  tons/year for a 5MW

13
Feedstock Contracting

• Alternatives available to Miramar
• Recent (3/2008) approval to increase permitted
  capacity,
• Push est. closure out min. 5 years to 2017
• Competition (3 other parties interested)
• Other Biomass Gasification Power Companies
• Conventional Co-Fire plants
• Existing vs. New Investment
• Miramar Landfill foresees a Sellers market
• Anticipated term 1 yr with 1 yr extension
  options
• Anticipated pricing 15-20/ton
• Landscapers and Tree Trimmers open to
  alternatives to high cost of disposal

14
Competition (SD-based gasification of green waste)

• Bull Moose, LLC
• Capacity 20MW
• Customer SDGE (20 yr contract)
• On-stream December 2008 (est.)
• Location Close Proximity (lt1 mi.) from Organic
  Recycling West
• 60MM investment from Morgan Stanley
• Envirepel
• Customer SDGE
• Under contract 16.5MW (Vista, Ramona landfill
  and Los Coyotes Indian reservation)
• Bid (2007) 240MW (including 90MW in Fallbrook)
• Allied Waste Industries Strategic Partner
• Overview of emissions testing posted on website

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Regulatory Requirements

• Focus on emissions (also water and land)
• Federal (gt10 tons/yr of regulated pollutant)
• Clean Air Act
• New Source Review
• State (Regulator gt50MW)
• Local (Regulator lt50MW)
• Air Pollution Control Districts
• Authority to Construct
• Authority to Operate
• Air Quality Management Districts
• Regulatory Critical Path 6 mo to gt3 year

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Credits/Incentives Federal Government

• Statutes
• Public Utilities Regulatory Policies Act (PURPA)
  - 1978
• Energy Policy Act 1992, 2005
• Incentives
• Accelerated Depreciation
• Production Tax Credit
• 5 years at 0.01/KWh

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Credits/Incentives State Government

• State Renewable Portfolio Standards (RPS)
• Existing Renewable Facilities Program
• Emerging Renewables Program (solar, wind,
  nuclear, fuel cell)
• New Renewable Facilities Program
• Available to utilities (or other retail sellers)
  to support the RPS program
• RPS standards
• 20 by 2010
• 33 by 2020 (proposed)
• Lack of Eligibility
• Current focus on solar and wind

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Credits/Incentives Voluntary Markets

• Renewable Energy Credits
• Nominal value in CA
• Due to more demanding RPS
• Volatile ? Risk
• Carbon Credits
• Immature market / Different Standards
• Issue of Additionality
• Difficult and costly to establish
• However, UCSD research supports 50 GHG reduction
  using this technology vs. landfill gas

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Example Power Customer-SCE

• Feed-in Tariff for Small Renewable Generators (lt
  20MW)

• Relinquish Green Attributes to Retail Seller

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Scenarios and Sensitivities
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Other Financial Assumptions(unless otherwise
noted)

• Operating
• 93 onstream (uptime)
• Capital
• Engine/Generator 750/KW
• Heat Recovery 150/KW
• Probabilistic Variables
• Normal Distribtuions
• Variables
• Capital Costs
• Higher Heating Value
• Natural Gas

• Financial
• Cost of equity 20
• Cost of debt 5
• Leverage 50
• Depreciation 5-yr MACRS
• Construction Period 9 months
• Project Life 20 years
• No perpetuity
• Inflation 2.1

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Case 1 West Miramar Landfill

• Assumptions
• 15/ton feedstock
• Power sales at 98.4/MWh
• No waste heat sales
• 100,000/yr. Land Lease
• 93 onstream

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Case 1 Miramar Landfill (3MW)
Forecast Current LAC of Electrical Energy
(/MW)
Cumulative Chart
10,000 Trials
9,901 Displayed
1.000
10000
Mean
.750
.500
98.4/MWh
.250
.000
0
107.4899
113.3427
119.1955
125.0483
130.9011
/MWh

• Not Feasible at Feed-in Power Price
• Economically feasible if there is a
  commercial/industrial customer willing to pay
  premium prices

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Case 2 MCAS Miramar

• Assumptions
• 20/ton feedstock
• Power sales at 100/MWh
• No waste heat sales
• 50,000/yr. Land Lease
• 93 onstream

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Case 2 MCAS Miramar
Forecast Current LAC of Electrical Energy
(/MW)
Cumulative Chart
10,000 Trials
9,927 Displayed
1.000
10000
Mean
.750
.500
98.4/MWh
.250
.000
0
111.7101
118.1710
124.6320
131.0930
137.5539
/MWh

• Not Feasible under preliminary investigations
• No need for waste heat

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Case 3 Generic 3MW Site

• Generic Location
• Likely not San Diego County
• 2/ton feedstock
• Power sales at 98.4/MWh
• No waste heat sales
• 30,000/yr. Land Lease
• 93 onstream
• 65 Leverage (9 WACC)

• Or with 50 leverage, need
• Heat sales 1.5/MMBtu, or
• Larger plant
• to meet cost of capital

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Case 3 General Cogen Revenue Sensitivity

• Base Case No waste heat sales
• 50 heat recovery approx. 4900 KW
• 150/KW in capital for heat recovery
• Significant financial upside

• Opportunities
• Landfills/Transfer Stations in close proximity to
  industrial plants
• 4.5/MMBtu approx 0.03/KWh

3MW plant, 2/ton feedstock, 5-yr MACRS, 50
leverage, 93 onstream
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Case 3 General Operating Sensitivities

• 5/ton 0.005/KWh
• Negative Cost (Tipping Fee) Possible
• Imputed value of extending landfill life captured
  in tipping fee

3MW plant, 5-yr MACRS, 50 leverage, no waste
heat
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Case 3 General Operating Sensitivities

• Aggressive Base Case 93
• Significant Downside Possible

3MW plant, 5-yr MACRS, 50 leverage, no waste
heat
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Case 3 General Financing Sensitivities

• Base case assumes 5 debt cost at 50 leverage
• Returns much more sensitive to leverage than debt
  cost

3MW plant, 2/ton feedstock, no waste heat , 93
onstream
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Case 3 General Plant Sizing Sensitivity

• Capital Cost
• Gasifier scales by the square root of the ratio
  of the capacity
• Engine Generator Set and Heat Recovery Scale
  Linearly
• Some Operating Costs Scale Linearly
• Maintenance
• Consumables
• Utilities
• Other operating costs remain unchanged
• Labor

Additional Study Required Emissions Testing

• 3MW to 5MW 0.025/KWh

5-yr MACRS, 50 leverage, 2/ton feedstock, no
waste heat , 93 onstream
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Feasible Project (3MW) Many Criteria will need
to be met

• Low to no cost feedstock
• Or ability to capture imputed income of extending
  landfill life
• Good revenue sources
• High power price and/or "Green Attribute" revenue
• Waste Heat Sales
• Operational Excellence - 90 onstream or better
• Supporting Financials
• 5 yr MACRS depreciation
• Production tax credits
• Leverage

And/Or Scale to gt5 MW plant
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Conclusion
Generic Case includes 65 Leverage
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Conclusion

• Siting facility at Miramar Landfill is not
  feasible
• Economically
• 3MW is justified only if customer is willing to
  pay premium price
• 5MW may be justified (in theory)
• Other Factors
• No long term contract for feedstock available
• Height restrictions on landfill
• Marine Corp Air Station Miramar has potential
• Lack of waste heat revenue potential makes this
  undesirable
• Other Locations may be more conducive
• Lower cost, more reliable feedstock costs
• Potential for waste heat revenue
• Example Northern California

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Public Policy Implications

• Federal
• Continuation of tax subsidies
• 5-year accelerated depreciation
• Continuation of Production Tax Credit
• State
• Future Amendments to AB 939 - allow gt10 of
  diversion waste streams to go to transformational
  uses (i.e. power)
• Local
• Current San Diego pricing and contracting terms
  will not encourage new investment
• Feedstock costs anticipated at 15-20/ton
• 1-year contracts with 1-year options to extend
• New diversion will aid in compliance with 50
  diversion by 2000 target set by AB 939 (current
  (1996) estimate diversion 47)

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Thank You

• Questions?