Waste Conversion Congress Roadmap (2011)

Waste Conversion Technology:
A Progress Report North America

Key insight into the challenges and opportunities in developing waste conversion technologies across North America By Ben Schiller
FC Business Intelligence 2011
Waste Conversion Congress:

Industry Leaders Thoughts
Although some of the science behind todays waste conversion technologies has been around for some time, it is only in the last few years that full-scale projects are starting to get off the ground. Changes to permitting and state and federal regulations, the desire of municipalities and communities to go green, and encourage renewable energy, and, in some cases, dwindling space for landfill, have all spurred development. Still, the going for many waste conversion businesses remains rocky. Uncertain funding streams, capricious and sometimes contradictory government support, and questions over whether technologies can be built at scale, have cast shadows. While it is clear that waste conversion in general is here to stay, it is by no means certain which technologies will take hold, where, and in what form. Renewable Waste Intelligences Waste Conversion Congress West Coast will take place in San Jose, California, December 6-7, with many of the waste industrys biggest names in attendance. The event will tackle vital issues facing the industry today, including:
What are the best sources of funding for new technologies,

and how can companies mitigate risks as investors see them?
What are the best ways for waste conversion pioneers

to move from demonstration phase to full-scale commercialization?
What are the permitting and regulatory obstacles, and how

can companies overcome them?
Waste Conversion Congress West Coast Conference & Exhibition San Jose, December 6-7, 2011 Your Roadmap to Funding, Planning and Operating a Profitable Waste Conversion Project
eyeforenergy.com/wasteconversion
What are the game-changing technologies of the future?

Four speakers gave us their thoughts on these questions, and others:
John May is managing director at the investment bank Stern Brothers, where he is responsible for developing the renewable energy practice. Over a 15-year banking career, he has financed more than $1bn in loan and par values for more than 100 clients.
Harvey Gershman is president of Gershman Brickner & Bratton, a consulting firm specializing in solid waste management. He has advised government and industry for over 35 years.
Michele Young is organics manager for the City of San Jose, CA. Her team is currently finalizing feedstock agreements to support a commercial-scale anerobic digestion facility due to start operating in July 2012. She is also involved in a feasibility and demonstration project for a gasification unit for both wood waste and bio-solids.
Paul Relis is senior vice president at CR&R, an Orange County-based waste management company that has franchises in 40 cities. Paul is responsible for new technology development at CR&R, which is currently building an AD plant at its Riverside County site.

FUNDING: In the current economic climate what are the most realistic funding options?
John May: We rely on an independent engineers report to evalu-
ate a technology. It tells us how well something works after, say, 1000 hours at a demo facility, and gives us an assessment of whether it will work at commercial scale. It doesnt guarantee anything though, and the problem is that most energy-fromwaste (EfW) projects have not achieved commercialisation yet. The attitude of debt investors is we dont want to take technology risks. They just want to get repaid, because they dont have an equity upside. This antipathy to renewable energy technology has been around for years. We have to be aware of that and find a way to to mitigate the risk. If we get a loan guarantee, from the DOE, USDA, or EXEM bank, for a substantial part of the debt, that takes a burden off the investor. It means that, if the project doesnt work out, they are still going to get, say, 70 percent of their money back. Technology performance insurance is another way to de-risk. Were pursuing insurance from underwriters who are well-known names, who recognize developers need to lay off some of this risk to raise debt or equity, particularly for first commercialization. For a percentage of the technology and equipment cost, they will pay out monies necessary to fix the technology in the first five years. The rating agencies have said to us that properly structured insurance can lead to a better rating on a piece of debt. There are other ways to de-risk, including getting a guarantee from a parent that is an investment-rated publicly held company. As with the other methods, we are tranforming the proposition from something that is speculative to something that is substantially de-risked. On the equity side, investors want to see contractual arrangements, some certainty of cashflow, repayment of debt, and payment of dividends. But where equity differs from debt is that it is looking for a much higher percentage return: 1520 percent, or higher. They are prepared to take on some of technology risk in return for being compensated for it. The question then becomes how the investor decides between opportunities in a very crowded market. I think you havent seen a lot of investment so far because its difficult to figure out

which technologies are going to be transformative. Theres been anerobic digestion, and things like fluidized bed boilers. But I dont think these are perceived as high-return generators. There are probably only 15 or 20 companies with equity investment so far. Its very difficult to distinguish yourself, and raise equity, particularly from financially-motivated investors. It may be slightly different, though, with strategic investors such as waste management companies. They may be looking to invest for slightly different reasons: for example, so they can do longterm planning, or show off their green credentials.
Michele Young: There are ways the public sector can play a
positive role. Municipalities have the ability to direct feedstock, and assure the rates paid by generators support the processing plans to reach diversion goals. These agreements allow vendors to get financing and develop processing infrastructure. We can also write support letters to funding and state agencies expressing commitment to the project. Finally, municipalities can support legislation that can ensure the best economic conditions for the private sector developers. One such example is legislation to provide conversion technologies with renewable energy credits for the energy they generate. What we hear from the vendors is that they are anxious to work with municipalities that already have political buy-in for innovative technology projects. Without such support, there are examples of projects that fall apart due to lack of leadership or stakeholder support. In San Jose, the mayor has made renewable energy and technology innovation a priority. In his 2011 State of the City speech, he listed gasification is one of his top three priorities for the year. Over time, we have developed leadership buy-in, and thats critical to project success.
Harvey Gershman: The public is reticent about providing capital,
or guarantees, until the technologies are more proven. If the company cant get guarantees, use its own equity or debt, or get some funding from state or federal grants or loan guarantees, and cant access debt financing, they will have a difficult time developing new projects. The companies rather should focus on their demonstration plant to help mitigate the risk from going to a larger plant. It should be operating at least at a 100 to 200 tonne per day level. They can also work on finding a local government to act as a guarantor to supply the waste and who will pay a service fee when the new technology facility is working and providing service.

We dont have a disposal crisis here in the US, so its hard to make a case for new technologies. Its not something that waste management people necessarily need. Landfill provides about two-thirds of our disposal capacity, and there is plenty of capacity. To change from what we have now, you have to convince people the technology works better. Or, you have to argue that waste companies and communities can be greener, giving them something to brag about. It has to meet our need for renewable energy and lowering greenhouse gas emissions from waste management. Having said that, most people dont want to pay a premium for being green. And, at the moment, we dont know how much these new technologies are going to cost. We wont really know until the new announced plants get up and running.

COMMERCIALITY: How can waste conversion be moved from demonstration phase to a commercial scale?
Paul Relis: The critical factor is to have a long-term supply of
feedstock. Without that, project development becomes very difficult. Given our many franchise contracts and the long terms of these contracts the waste supply is not an issue for us. You need a technology that is robust and that can handle the variations in solid waste sourced material- even if its source separated. The system needs to be simple and have low operations and maintenance costs. Our feasibility benchmark is the relatively low cost of landfill in our marketplace. Though landfill costs are rising they are still below the cost of our technology. Were relying on a $4.52 million grant from the California Energy Commission. That helps offset the cost of the gas clean-up system and the pipeline development. This grant is very important to the feasibility of the project. We believe if we achieve scale at 450 tons per day or greater (ours is 150 tpd) an AD project could compete in the marketplace within 5 years. But that depends on the policies California adopts, for example whether it continues to encourage higher rates of recycling, and puts some kind of limit on the food waste going to landfill. That would be a big economic boost to this type of project. We will privately finance the project based on our balance sheet through a bank consortium that is very supportive of our efforts. Its been an ongoing education process for our banks. But they realise that this industry is changing, often in response to legislation, and that we need to adapt. It would be harder for a newer company. We are a 45 year old company, with a long track record, and long-time relationships with our banks and our cities. That helps create opportunities that might not exist for others. Its also important to have a good project design. Ive seen projects start without a clear long-term waste supply. There have been many projects that have had false starts because performance expectations couldnt be met, or theyve run into opposition from public interest (i.e. environmental justice and other organizations who tend to oppose thermal technologies). That affects the risk profile, and it makes a project more financially dicey.
Michele Young: San Joses goals of zero waste to landfill, and
conversion of waste to energy, as well as 100 percent renewable energy by 2012, exemplify that the city is open to innovation. Our demonstration policy allows a company to propose a two-year project, which if approved by the City Managers Office does not need to go through the normal procurement process. We used this process to consider a proposal for gasification from Harvest Power, and then enter in to a grant application to the

California Energy Commission who awarded the partnership $1.9 million to do a feasibility study and demonstration project. The private sector could not apply for grant funding alone. Supporting a feasibility study with third party review, and demonstrating technology on city land, are good examples of how public sector can support commercialization. For all of our projects, regardless of procurement type, we use third-party engineering consulting who only work for government entities. This creates reports that are not affected by any biases of the developer, and it helps the vendor because investors, and community stakeholders, tend to treat research from the public and third party consultants as more valid.
Harvey Gershman: Companies need capital, and partnerships,
both public and private. Partners can provide sites, waste supply, and assistance in permitting. The key question to consider is: Under what conditions do the waste suppliers pay for service? The answer becomes embodied in the waste supply and/or service agreement developed among the parties. Are service fees paid come hell or high water, or only when service is actually provided according to performance requirements, or somewhere in between. If the public is involved, it is more likely to be only when the service is provided, and when it isnt provided for a long time, the service agreement is cancelled. If the facility is on the publics site, it will need to be removed and the site returned to its prior condition. It is not prudent to count on the conversion technology being reliable from the onset. There needs to be a backup disposal location to dispose of the waste in case there are start-up commercialization issues. Which there are very likely to be. Another thing to think about is whether, from preparing feedstock for the conversion process, there might be additional recycling benefits that might accrue locally.

PERMITTING: What are the barriers for a waste conversion project during the permitting process?
Paul Relis: There has been a debate between high temperature
and so called body temperature technologies. AD is biological, low temperature technology and the marketplace tends to prefer that, even though some thermal technologies are more versatile. We need an organic rich feedstock, whereas a thermal system does not mind if it has lots of paper and plastic. We have been researching alternatives to landfill for 15 years, and looked at many technologies. We decided to go with AD because there is considerable opposition in California to thermal, and because we think its in line with the policies of many cities and states. One the objectives in California is to recover the 6-7 million tonnes of organic waste going to landfill every year. Our objective is to capture some of that, convert it to biogas, and then inject it into the pipeline as an alternative to fossil fuel gas. We hope to be fully up and running by 2013, processing about 150 tonnes a day. The renewable natural gas that our project will produce should be enough to power between 60 and 100 waste trucks per day. This variation in gas output is the result of the variations that can occur in the organic feedstock to the digester. The US has been slower to adopt AD than Europe, because we havent had a ban on organic waste going to landfill. The EU directive has been a tremendous stimulus across the pond. We dont have that here, and thats why youve seen very few projects so far. Even in California, where we have more regulatory drivers, ours will be among the first projects. The permitting process is a challenge. These are new types of facilities, so the regulatory agencies are not accustomed to processing the applications. In some cases, you have to educate the regulatory community. And there is the general difficulty with permitting in California, for almost any type of project. When you add newness to that, you have a steep hill to climb. California has a convoluted permitting system that has developed over almost 40 years. Our regulators can operate in silos, very focused on their specific regulatory responsibilities. Crossagency intelligence isnt as developed as it should be. We havent found a way of bridging that. So we end up with a lot of parallel, duplicative and sometimes contradictory steps in the project approval process. This adds unnecessary time and expense, making already difficult to develop projects even more so.

Harvey Gershman: Most of the interest is in California now,
because it has said no to traditional and proven waste-toenergy technologies. Thats because of political reasons and outdated environmental concerns. There is strong opposition in California to conversion technologies too. Other states have incineration bans. But there are projects getting off the ground, such as in Indiana and Mississippi, for instance. Looking around the US, youd think places with high disposal costs would be logical locations for new plants. But actually we have also seen plants developed in places with low disposal costs, like Mississippi and Texas. So, its more about where the company can find a willing partner to work with, whether its for a site or waste supply. I would hope that permitting agencies allow projects to get started, and see how they go. If they work, they work. If they dont, they can shut them down.
Michele Young: California is a stringent permitting environment
due to our air, water and solid waste regulations. For new and emerging technologies, there are still gaps in the regulatory framework that will need to be addressed as projects are defined, and presented for consideration. Local and state regulators will need to adapt the existing regulations and permitting structures to represent conversion projects. For the AD project, we will be permitting with regulations that were designed for composting, while we wait for development of a framework that is specific for AD. In the future, the state is planning to streamline the process, but we will use currently available measures until that point. For conversion technologies that use higher temperatures, there are changes to the Public Resource Code being considered that will help to align facilities with appropriate regulatory frameworks, as well as renewable energy incentives. Vendors have expressed their concern that if regulations are not refined to meet emerging technologies, these technologies will go to other states. We hope our work on the permitting of the gasification unit will help refine the conversation about public/ private partnerships to support development of conversion technologies.
John May: There is still enormous regulatory risk associated with
the industry. In California, its almost impossible to get a permit for a EfW facility because the current statutory regime because it characterises a lot of these technology as mass-burn or incineration, regardless of what the facts are, and the emissions profile is. They get lumped into a catch-all category of things that shouldnt be permitted.
Waste Technology Progress:

The time and money involved in the permitting process is such that people look at that risk and say what are the chances of emerging in California with a permit in my lifetime?. Its hard to raise debt and equity when you have that kind of risk hanging over you. Jim Stewart, of the BioEnergy Producers Association, is trying to change that so a decent definition of what is permitable can be used. Another regulatory risk is that it isnt clear in every state whether the renewable portfolio standard (RPS) includes energy-fromwaste. There is a question of whether the RPS going to be favorable in the state I want to locate my project, and if the RPS is going to motivate a utility to buy power from the company. There is uncertainty over whether the developer can get credit per-kilowatt-hour. Finally, there is regulatory risk at the federal level, as there is over the whole renewables space. You look at the cost to produce electricity from waste, and like every invention, it costs more in the early years. So government subsidies, like tax credits, are important. When the recession hit, the market for tax credits fell off because companies had less taxable income and didnt need to buy credits. At one time, you could raise money from tax equity, but its now gone away. The government initiated the cash grant, section 16-03, in lieu of the ITC. Thats been very popular, but it sunsets at the end of this year. At the moment, people are asking whether there is going to be another recession and what is going to happen in the tax credit market. Theres also talk that Congress might terminate both the investment tax and production tax programs. The whole of industry is concerned about where things are going, and theyre trying to work out whats going to happen.

TECHNOLOGIES: Which of the gamechanging technologies out there do you feel are the most viable in the current regulatory and economic environment?
Harvey Gershman: I dont have an opinion on the best technolo-
gies. It is too early to know. But I do think the companies with the larger and more operating hours on their demonstration plants are going to have a better chance of success. Some of the anerobic digestion technologies that produce biogas are also fairly proven. But, on MSW, we dont have companies with a lot of proven operating years behind them in the US, so its hard to know what is going to break through.
Paul Relis: I think in California, we may see one
or two thermal technologies come in. There has been a gasification project proposed by a Canadian company firm, PLASCO. They have encountered some opposition, but I think there is a growing sense here that there is room for a number of different types of technologies, each of which will have to stand on its own. While the lead projects will be AD, I think, there will be space for thermal, as long as they are not too large, and they adequately address the recycling interest of the public and environmental groups. By and large those groups have not bought into gasification and pyrolysis. There was a long shadow cast by incineration that dates from the mid-80s. Incineration was viewed to be threatening the development of recycling and composting then as well as waste prevention. Current objections to thermal technologies are not so much science based as they are values based.
Waste Technology Progress:

END-NOTE:
The speakers comments reveal the complexities and uncertainties facing the waste conversion industry today - each from different perspectives. Two of the speakers - Paul Relis and Michele Young - are quietly confident about the initiatives they are involved with, while cautioning about the challenges. Both speak of the permitting difficulties in a state with strict environmental laws, a vocal environment lobby, a disjointed regulatory structure, and outdated laws. But they are optimistic these can be overcome in time through careful project design, long-term planning, stakeholder management, and, eventually, changes in legislation. Their comments also show the value of public-private partnerships to develop AD in California, as well as less accepted technologies like gasification. John May, the banker, and Harvey Gershman, the consultant, provide a wider perspective, including the prospects for companies beyond the West Coast. May gives a candid assessment of the funding challenges, which seem considerable in the current economy. But he also gives hope in the shape of practical advice for overcoming technology and regulatory risk. Gershman, a veteran of the waste industry, explores some of the practical issues that companies may not have considered in drawing up contracts with municipal authorities. Nothing is straightforward, it seems. All in all, the interviews show the pitfalls for companies in the waste conversion space, while providing some advice for avoiding them. We can look forward to more of each come the event in December.
All the waste industry pioneers interviewed in this report are speaking at Waste Conversion Congress West Coast in San Jose on December 6 7, 2011. They will be joined by over 20 other expert speakers, who will be presenting on all aspects of waste conversion technology development, and 150+ senior executives from across the North American waste industry. More information and opportunities to reserve places at this landmark event are available on: www.eyeforenergy.com/wasteconversion
Exclusive ticket offer: As you have downloaded this report, just use discount code REPORT and receive an extra $100 discount off the current listed prices when you reserve your place at the conference through the event website: www.eyeforenergy.com/wasteconversion

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Waste Conversion Technology:

A Progress Report North America

FC Business Intelligence 2011

Waste Conversion Congress:

What are the best sources of funding for new technologies,

What are the best ways for waste conversion pioneers

What are the permitting and regulatory obstacles, and how

What are the game-changing technologies of the future?

Waste Conversion Congress:

Four speakers gave us their thoughts on these questions, and others:

Waste Conversion Congress:

John May: We rely on an independent engineers report to evalu-

Waste Conversion Congress:

Harvey Gershman: The public is reticent about providing capital,

Waste Conversion Congress:

Waste Conversion Congress:

Paul Relis: The critical factor is to have a long-term supply of

Waste Conversion Congress:

Waste Conversion Congress:

Paul Relis: There has been a debate between high temperature

Waste Conversion Congress:

Harvey Gershman: Most of the interest is in California now,

Waste Technology Progress:

Waste Conversion Congress:

Harvey Gershman: I dont have an opinion on the best technolo-

Waste Technology Progress:

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