The Economic Development Benefits of Waste-to-Energy Facilities – Part 1

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The long-term availability of a cost-effective, reliable and sustainable solid waste management system is an important component of the infrastructure needed by a local community to spur economic development. In this regard, municipal solid waste management (MSW) systems that utilize waste-to-energy (WTE) facilities to process nonrecycled waste for energy recovery provide a number of noteworthy economic development benefits which are highlighted in this article.

This article is based on an FY2011 research report developed with input and guidance provided by the SWANA Applied Research Foundation (ARF) WTE Group Subscribers who are listed in Table 1.

 

The economic development benefits that can accrue to a community which implements a WTE-based solid waste management system include

  • long-term savings in waste disposal tipping fees;
  • the retention of waste management expenditures in the local community;
  • creation of high-quality jobs that cannot be outsourced; and
  • the production of base-load renewable electricity.

Long-Term Savings
WTE facilities typically have higher tipping fees than MSW landfills. For example, Biocycle magazine reported that, in 2009, the average landfill tipping fee in the US was $44.09 per ton, while the average tipping fee at WTE facilities was $67.93 per ton (van Haaren, R., Themilis, N. and Goldstein, N. “The State of Garbage in America [17th Nationwide Survey of MSW Management in the U.S.]”, Biocycle, October 2010).

On a long-term, life cycle economic basis, however, WTE facilities cost less than disposing of MSW in MSW landfills. There are two reasons for this:

  • The repayment of the WTE facility bonds before the end of its service life
  • The control of WTE tipping fees through facility capital and operating costs

A significant portion of the tipping fee of a WTE facility represents the financed capital cost of the facility. Many of the 87 WTE facilities in the US were built in the late 1980s and early 1990s. As a result, the average age of these facilities is 22 years (Energy Recovery Council. 2010 “Directory of Waste-to-Energy Plants in the United States). A number of these facilities were financed with 20-year revenue bonds that have been repaid. As a result, the tipping fees at these facilities are now competitive with and even less than those charged at regional landfills.

In a statement made before the US House Ways and Means Committee in 2005, Mr. Michael Norris, director of business development for American-Ref-Fuel Co., stated: “In the case of the construction of a typical new ‘greenfield’ facility, the capital cost of a facility that converts 2,250 tons of trash each day into 60 MW of electricity is approximately $350 million. The operation and maintenance cost without capital recovery approaches $28 million annually.” (Statement of Michael Norris, Director of Business Development, American Ref-Fuel Co., Montvale, New Jersey, on behalf of Integrated Waste Services Association. Testimony before the Subcommittee on Select Revenue Measures of the House Committee on Ways and Means. May 24, 2005. It is assumed that the $28 million operations and maintenance cost figure quoted by Mr. Norris includes ash disposal.)

 

These cost figures were used to develop the life-cycle costs (LCC) for a hypothetical WTE facility constructed in 2011. Key assumptions used in this analysis include the following:

  • Electricity Revenues—It was assumed that the WTE facility would receive $0.055 per kilowatt-hour (kWh) from the sale of electricity to the local power utility. (The Lancaster County Solid Waste Management Authority [LCSWMA] reported that, in 2009, it received revenues of $11.8 million on the sale of 214,000 megawatt-hours [MWh] of electricity, which equates to $0.055 per kWh.)
  • Disposal at a Regional Landfill—It was assumed that the closest regional landfill was 50 miles away and charged a tipping fee of $44.10 per ton. (According to the NSMWA, the average tipping fee at US landfills in 2005 was $34.29 per ton, which, when escalated by the US Department of Labor’s inflation calculator, equates to $41.10 per ton in 2011 [Repa, E. NSWMA’s 2005 Tip Fee Survey (Research Bulletin 05-3. Washington, DC: National Solid Waste Management Association, March 2005]).

The LCC results are presented in Table 2 and Figures 1 and 2.

 
 

As shown, the WTE facility starts out with a 2012 projected tipping fee of $53 per ton, which is equivalent to the $53 per ton estimated costs of transferring, hauling and disposing of MSW at the regional landfill. When the WTE facility bond payments are paid off after 25 years in 2027, the WTE facility tip fee drops to $16 per ton (2011dollars) compared to the remote landfill disposal option cost of $52 per ton in 2011 dollars. Over the 40-year life cycle time frame, the WTE facility is projected to save $591 million, or $11.8 million per year.

Another reason that WTE facilities cost less than disposal at regional landfills is that their tipping fees are controlled through costs and revenues negotiated through long-term (20- to 25-year) contracts. In this regard, the tipping fees at WTE facilities comprise three major components: 1) amortized financed capital cost of the facility; 2) the facility’s operating costs; and 3) the revenues received from the sale of the electricity generated by the facility. Each of these components is based on contracted costs or revenues that are tied to published escalation rates. As a result, WTE facility tipping fees are both predictable as well as under the control of the local government that owns the facility.

In contrast, the tipping fees charged at regional landfills are based on the level of competition from other regional landfills and, as a result, are not necessarily related to the cost of disposal. In addition, waste disposal contracts are generally short-term contracts, typically on the order of five years. As a result, the long-term tipping fees paid by a community for disposal of its waste at a regional landfill are neither predictable nor under the control of the local government whose residents and businesses utilize the landfill. (It should be noted that the tipping fees charged at many US landfills do not cover the long-term management costs associated with the site following the 30-year post-closure period prescribed in the EPA’s “Subtitle D” landfill regulations.)

The future tipping fees for landfill disposal presented in Table 2 and Figures 2 are based on an assumed inflation rate of 3%.  However, in reality, since the tipping fees charged at regional landfills are based on marketplace competition, there is no accurate method of predicting what the tipping fees will be at these landfills on a long-term basis. (In this regard, a factor that inhibits competition is referred to in the industry as the “geographic hauling advantage.” This term refers to the natural competitive advantage that one regional landfill has over a distant competing landfill due to the difference in costs associated with waste hauling to each regional facility.)  MSW_bug_web

 

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