Capturing Additional Revenue with Landfill Gas to Energy Projects
Landfill gas, or LFG, to energy projects provide tangible public benefits by reducing greenhouse gas emissions, improving air quality and generating local jobs. Municipalities are finding that landfill gas to energy projects can also significantly provide another revenue stream: allowing agencies to effectively convert LFG to energy into additional funds.
Green projects are now mainstream, with real tangible, economic benefits. The Environmental Protection Agency (EPA) recognizes LFG as a green power source, making LFG another renewable energy source in addition to the sun and wind. The phrase, “save green by going green” has been often applied to solar, wind and other renewable energy projects that can save municipalities money by reducing energy costs. LFG to energy projects can rightfully claim to “generate green by going green” by putting to use a previously-viewed waste as a resource to generate additional revenue.
In the current economic climate, municipalities throughout the country have been aggressively exploring all avenues of supporting job creation in their jurisdictions by building solar, wind and now LFG to energy projects. Such renewable energy projects are inherently local, with site work, installation and construction that cannot be outsourced. Additionally, renewable energy projects constructed for municipalities in California under power purchase agreements (PPA) or other alternative structures must now pay prevailing wages, if certain criteria are met (as mandated in SB 136 which became effective January 1, 2012). Local jobs at prevailing wage rates are incentive enough, in addition to the “green” benefits of a renewable energy project, for municipalities to explore their renewable energy resources.
Many municipalities currently do not have the funding set aside to construct a renewable energy project. As such, alternative contracting methods that combine hybrid private-public partnership structures, lease/leaseback, revenue sharing agreements and PPAs have been created and refined to maximize opportunities for municipalities to build renewable energy projects without the initial capital outlay. Such contract structures have been utilized in the private energy sphere for years and are now being applied in the municipal context to maximize federal and state incentives available to a project while minimizing a municipality’s investment.
These structures may mean that a municipality does not own the renewable energy project itself but rather leases the facility from a private party, purchases the energy generated from the renewable energy facility or agrees to share in the revenue generated from the renewable energy project. Such structures not only help a municipality build a project without significant investment but also allow the municipality to avoid many of the risks inherent in owning a project.
For example, under a PPA, a municipality will lease, license or grant an easement to a private party for a nominal fee. In exchange, the private party agrees to construct a LFG to energy project and agrees to sell all or most of the energy generated from the facility to the municipality at a negotiated rate for the term of the agreement.
The benefits of a PPA arrangement for a municipality are multiple. The municipality does not bear the risk of developing the project itself. Federal and state incentives become available, which, by virtue of its status as a public agency, the municipality might have otherwise been ineligible to receive. Local jobs are created, as is a green energy source that reduces greenhouse gas emissions and potentially improves air quality. Finally, and perhaps most importantly for its constituents, from the negotiated PPA rate the municipality is not only able to project its energy cost savings to be generated from the project but also accurately budget its energy costs for the term of the PPA.
Another contract structure used for LFG development is a revenue sharing agreement under which municipal property is leased to a private party to construct a LFG to energy project. The energy created is then sold to the local utility. Under this structure, unlike the PPA, the municipality does not contract to purchase the energy generated from the project but instead requires, in exchange for the nominal lease amount, a portion of the revenue generated from the sale of energy, under a revenue sharing agreement.
The County of Shasta is currently exploring utilizing this structure for its West Central Landfill (WCLF), which is located west of Redding, California, and is owned by county and operated by Redding. WCLF consists of two separate waste disposal areas, Phase 1 and Phase 2. Phase 1, which was closed in 1991, encompasses approximately 20 acres and contains approximately 900,000 tons of waste. Phase 2, which is the active disposal area, currently encompasses about 70 acres and contains approximately 2.7 million tons of waste. Phase 2 opened in 1991 and is being built out in 10 to 15-acre units.
A LFG collection and control system (GCCS) was installed in October 2011 by the county to flare methane in order to comply with state clean-air standards. The GCCS also allowed the county to measure methane production at the site, which was then used to quantify available LFG, set forth in a request for proposals (RFP) for the LFG to energy project published by the county on March 22, 2013. In addition to the LFG to energy component of the project, the county anticipates that the successful proposer will upgrade and maintain the GCCS, eliminating maintenance from the county’s responsibilities and costs. The county’s RFP seeks a revenue sharing agreement, placing the onus on the developer to secure grants and incentives and ultimately finance the project. It is estimated that the LFG project will generate $400,000 a year for the county. To view the RFP, click here.
LFG to energy and other renewable energy projects offer a tremendous opportunity to maximize a municipality’s resources, especially given the current significant financial challenges. Such projects create local jobs, generate additional revenue, reduce greenhouse gas emissions and assist the municipality with shifting operational responsibilities, risks and costs to a private party. The County of Shasta’s GCCS is but one example that we can expect to see in the coming years as LFG to energy catches on and more municipalities realize the extensive benefits.
Sophie A. Akins is a partner of the law firm of Best Best & Krieger LLP, located in the firm’s San Diego office. She is the leader of BBK’s Renewable Energy Practice Group, specializing primarily in solar and renewable energy projects, proceedings before the California Public Utilities Commission and public contracts. She also provides general governance advice to public entities. Ms. Akins can be reached at firstname.lastname@example.org