January-February 2005

There's Treasure in That Trash

San Diego waste managers team with industry and the Navy to turn garbage into methane-fueled cogen.

Virtually all active municipal trash heaps sit inside a cloud of naturally produced methane—and most of it is potentially cheap fuel to run generators for landfill lighting, weigh stations, and to sell to the local utility. Better still, the federal government offered big tax breaks (at least until the mid-1990s) to help pay for the gas's costly extraction. Landfill site operators must control this gas production—with or without subsidies—because methane, as a greenhouse gas, "is something like 32 times worse than carbon dioxide" as a pollution source, notes Tom Alspaugh, senior mechanical engineer with San Diego's Metropolitan Wastewater Department (MWWD). Alspaugh oversees energy programs—methane extraction, digester production, solar photovoltaics, and even a small hydro plant, along with multiple onsite generators—yielding a combined 18.25 MW of total onsite power generation.

Spurring the city's drive to self-sufficiency was the fact that the EPA requires landfill operators to collect methane and either flare it or pipe it somewhere for usable combustion. But, as Alspaugh notes, once an operator has paid the mandatory investment in extraction, why quit there? "It hardly makes sense to spend millions of dollars on building landfill gas wells, then sticking a flare on it," he said, when you could just as well burn it for heat and power. If that output also can provide additional kilowatts for the nearby electrical grid, so much the better.

Much of the same appealing potential can be found at wastewater treatment facilities. Biosludge can easily be fed into anaerobic digesters to yield methane as generator fuel; meanwhile, the process also decomposes and neutralizes the waste itself. Digester gas methodology has been honed for decades. The resulting power can then energize assorted pumps and machinery, or illuminate administrative offices. Even the engine radiator heat and exhaust can be captured to provide warmth for the digesters and for space heating. There's an extremely appealing double duty here, which is why, as Alspaugh notes, most major wastewater treatment plants now produce their own power. And smaller ones are catching up.

The Neighbors Object
On the flip side of this waste-based fuel bonanza, though, residents downwind of the sites tend to want them moved elsewhere. That was the case in San Diego in the early 1990s near the potential site of the Metro Biosolids Center (MBC) and North City Water Reclamation Treatment Plant (NCWRP). Nearby residents were concerned about odors from the MBC, which treats biosludge from the NCWRP and other plants in San Diego. And so, as Alspaugh recalls, action had to be taken.

Not far away, on the southern portion of Navy property at what was then the Miramar Naval Air Station, the city's Environmental Services Department (ESD) was operating a landfill. The MWWD's then-director, Dave Schlesinger, hit on the idea: Why not move the MBC next to the landfill? Problem solved.

Moreover, at the time, the landfill had been detected emitting gas, which meant that money would need to be spent tapping and collecting it. At that time, the Navy had retained all rights to the gas in the landfill's property lease with the city, and the service had the responsibility for its collection. So, if the sludge plant were re-sited next to the landfill, which has anaerobic digesters as part of its process, two side-by-side sources of methane could be provided—one from the land and one from the wastewater. The combined output could fuel a centralized generating plant, and the resulting power could easily meet the load for both operations, with plenty to spare.

And so the MWWD drafted a request for proposals aimed at structuring a public-private partnership in which an outside developer might own and operate the plants, with the city reaping the benefit of low-cost, reliable power. Nifty idea. All that was needed, initially, was the Navy's buy-in on the big expansion.

Reasonably enough, the brass at Miramar first needed to see detailed master plans and impact studies. What exactly would a wastewater plant, gas extraction, and electricity generation do on military real estate? There would also be a renegotiated lease, with lots of fine print, and approval from the higher-ups back east. In fact, as Alspaugh recounts, the Navy's side of the undertaking would ultimately require three years and, literally, "an Act of Congress" to accomplish.

The Art of the (Cogen) Deal
Meanwhile, contract negotiations on the Navy's end were still being completed when time became an urgent factor. In March 1994, participants learned that if contracts were not signed by December 31, 1994, and construction wasn't finished by December 31, 1995—just 22 months away—the developers stood to lose millions in landfill gas (LFG) tax credits (at $1 per MMBtu of gas extracted), which would expire on that date.

Therefore, in March 1994 the MWWD's request for proposals went out, producing a short-list of four potential developers.

With time running out, the MWWD, the ESD, Minnesota Methane (MM), NEO Corp., and the Navy all finally came to terms in October so that the equipment installation and operation could begin. Contracts were signed on December 28, 1994.

In August—with much optimism, but without a firm land-use agreement, the MWWD awarded two development contracts: one to NEO, a subsidiary of Northern States Power, which would cover extraction of the Miramar LFG; and the second went to MM, which would buy the fuel to run its generators and, in turn, sell power, heat, and chilled water back to the MWWD. The surplus watts would be sold to the local utility, San Diego Gas & Electric (SDG&E).

"At the last minute," Alspaugh recalls, "a friendly Congress extended the tax break, bailing out several projects around the US that were then in progress but unfinished, and extended the construction completion deadline to December 1997."

Thus, San Diego's Miramar LFG extraction system opened for business in February 1996.

In this business model the city would have to fork over essentially nothing until the LFG systems were installed and the power was up and running. "We got a very good deal," notes Alspaugh.

By this time there were multiple stakeholders involved, reflecting interests as diverse as the San Diego City Council; two of the city's departments, the MWWD and the ESD; rate-paying citizens; two private developers of cogen and methane gas extraction; their financial backers; and lastly, holding land title, the Department of the Navy. All had material interests, critical expectations, and associated risks. A few essentials of their resulting agreement included:

• The Navy would be relieved of the responsibility to install the required LFG systems, and agreed to allow the installation of the cogen plants, gas wells, and the MBC additions in exchange for 2% of the LFG revenues and other benefits.

• The ESD received the rights to the LFG and the responsibility to install the LFG wells. It relinquished those rights and responsibilities to the MWWD, the large electrical energy user, in return for the free installation of the LFG system, free operations and maintenance of the LFG systems, free electricity for the landfill operations, and free administration of the 20-plus-year project and contract.

• The MWWD would obtain the rights to the LFG and select and manage the third-party developer that would provide the MWWD electricity at a reduced cost for its new wastewater solids treatment plant, the MBC.

So much for the expectations; what about risks?

The city council's biggest concern, as Alspaugh recalls, was energy pricing: "What if the cost of power at SDG&E should go down someday," he asked, leaving MWWD locked in to higher-than-market rates? In hindsight this worry might seem far-fetched, but in the mid-1990s, deregulation loomed, and prognosticators foresaw downward price pressures. "San Diego, and particularly MWWD, really were taking a calculated risk," he notes. So, to allay the city council's fears, MWWD added price-protection clauses and a provision invoking rate renegotiations if onsite power became too overpriced.

As events played out, local electric rates did go down with California's electrical deregulation experiment, which happened shortly after the generators came online in 1997. Of course, prices soon bounced up again, and roared higher than ever in 2000. At that point, the MWWD's rate cap—providing it with a per-kilowatt-hour price of about one-third the going market rate at that time—turned into one of the sweetest aspects of the agreement, at least for the MWWD.

Other Unknowns
Still another risk faced by both the city and developers alike was how much gas the landfill actually contained. Naturally, estimates can be calculated based on the size and age of the trash heap. The city predicted 9 MWof fuel; the developers thought they might get 15 to 20 MW. No one really knows what's down there for sure until the wells are dug. What if they came up with much less usable fuel than expected?

In any case, the MWWD took another calculated risk and decided to lay underground piping for the anticipated gas, running it from the Miramar landfill over to the MBC's original site, the NCWRP, 2 miles away. At the time, as Alspaugh explains, a trench was being dug anyway for a sludge pipeline connection from the NCWRP to the MBC; the same furrow could readily enclose a gas line as well, even if the expectations of its eventual usage were a bit premature. As he recalls, "It ended up being a million dollars that we put in the ground, as a calculated risk." And so, he adds, "MWWD said, ‘We'll just do it, based on our gas projections and hope that there's even more gas, and that we can work out a good contract with the privatizer when the time comes.' "

Soon thereafter, at the city's new MBC sludge works adjacent to the new landfill wells, the developers connected to the three new anaerobic digesters installed by the MWWD. In essence, they perform the same gas-making process above ground, under controlled conditions in a tank, that wet garbage does below ground. The resulting digester output will depend, he notes, on the composition of the solids, how well it's mixed, time spent in the digester, and ambient temperature. To hasten the hoped-for microbial gorging, additional warmth can be applied from the methane-fueled generators—making a kind of virtuous cycle. For that matter, the same engine heat can warm the occupants of the nearby MCB administrative offices in cool weather. The cogen developers could then invoice the MWWD for assorted energy they might sell to the MBC every month.

Power Train Yields Plenty—But Where to Use it?
So much for fuel supply; now for the hardware. Based on their gas-availability estimates and the projected electrical loads, the two developers had specified no fewer than eight Caterpillar 3516 reciprocating engine generators at the MBC. Alspaugh notes that these were regarded as tried-and-true power trains, being used at the time of selection for about two-thirds of the nation's landfills—a fact that, he says, "gave us comfort" in going with the Minnesota Methane proposal. The Caterpillar model, which has water-cooled exhaust manifolds, can be tuned to burn either low-grade methane from a landfill (consisting of about 430 to 500 Btus per cubic foot) or natural gas (about double that), to yield 800 kilowatts each. In the mid-1990s, twin 3516s were coupled to one shaft in tandem to yield 1.6 MW output from one generator, or a total, at the MBC, of 6.4 MW. Caterpillar later upgraded this popular design to a dry-cooled manifold version producing 950 kW.

The Cat 3516 also was reportedly good at handling moisture- and contaminant-laden landfill fuel, which might be laced with the notorious and engine-fouling siloxanes, synthetic lubricants found in cosmetics and medical wastes. "This stuff is really nasty on the engines," Alspaugh says. Other landfills might contain these, or perhaps differing constituents, and their onsite plants might succeed in using a wider range of equipment options, including turbines. On the other hand, though, "Some landfill gas and wastewater energy projects haven't fared very well," he points out, "because the hardware specified wasn't appropriate, or was experimental, or didn't optimally suit the conditions."

Miramar's onsite generation was thus launched in May 1997, with its primary mission being energy self-sufficiency for the MBC and landfill. Excess electricity was sold to SDG&E, as planned.

Soon after the commissioning, however, meticulous load measurements revealed that the new MBC was using only about 30% of the 6.4-MW output rather than the 60% projected. Naturally, this was a disappointment to the developers, who had envisioned selling more of this power to the MWWD at contractually agreed rates for years to come. (As of mid-late 2004, Alspaugh adds, the MBC's rate was $0.045 per kilowatt-hour, and the developer would like to keep the electricity to sell to SDG&E at $0.05.) In contrast to this, the utility, SDG&E, was typically paying $0.032 per kilowatt-hour, which was a fluctuating wholesale rate, at the time the project was commissioned.

Meanwhile, gas developer NEO Corp. was busy drilling for fuel. Landfill drilling basically consists of taking perforated PVC pipes with suction attachments and inserting them deep into the garbage. However, while the gas volume turned out to be close to the MWWD's estimate, it came to only 60% or so of the developers' estimate. During the landfill's subsequent seven years of operation, it has been yielding about 210,000 cubic feet of gas, at 430 Btus per cubic foot, for a total of 90 million Btus per hour. That's a respectable quantity, but still was disappointing, given the developer's higher expectations. In hindsight, the developer's initial estimates probably had not fully considered San Diego's very low rainfall and arid climate: moisture is critical to methane formation. While the trash inherently has moisture in it, added moisture from rainfall greatly enhances production.

Fortunately, the original fuel plan had called for supplementing the landfill output with digester gas, and this was working out OK. Alspaugh reports that the sludge digester consistently supplies about one-sixth of the MBC generators' fuel needs, with the other five-sixths coming from the landfill, as predicted by city staff.

The Art of the (Revised) Deal
Business-wise, the income streams at the beginning of the project did not fully materialize for the two developers. For the MWWD, this wasn't too serious because the MBC was fitted with redundant electric chillers, and Minnesota Methane's price for electricity was less expensive than the contract price for delivered chilled water. This resulted from a miscalculation in MM's pricing formula.

At the outset of this undertaking three years earlier, the parties had decided to work collaboratively to help each other attain goals in a win-win vision; and now, accordingly, the MWWD readily agreed to buy electricity at the lower price in order to help the vendors. Alspaugh recalls, for example, "We realized they were going to have to spend a ton of money to get the chiller to run, but they said, ‘We don't want to do this!' So, we didn't make them, since it was going to cost MWWD less in the long run anyway. It was sort of like, ‘Hey, don't throw us in the briar patch on this one.' "

Another item that caused financial problems was the cost and delay MM suffered in getting its grid connection (a common problem with many cogen projects). Alspaugh observes: "Some of this could have gotten into some really time-consuming litigations." In the end, though, instead of facing major conflicts, the working relationship remained "extremely positive," Alspaugh says, thanks to the collaborative attitude. The developers stayed solvent and were even able to keep investing.

So, in November 1995—with encouraging initial LFG production tests in hand and "expert" calculation of the predicted NCWRP electrical loads—the city and MM began negotiations for a 5.2-MW power plant to be installed, at the end of the 2-mile pipeline the city had installed from the Miramar landfill. Agreement came in March 1996. But that summer, once the MBC cogeneration plant was running, it was discovered that the early LFG production tests had over-predicted the continuous production of gas from the Miramar landfill. At the same time, the NCWRP was starting up and was consuming half the 5 MW the experts predicted.

Now the partnership decided to renegotiate the contract, and resized the plant at 3.8 MW, leaving just a little room for growth in LFG production and NCWRP energy consumption.

However, to keep all parties happy, it was agreed that this revenue stream would be dedicated to the installation of new LFG, as well as to the Miramar landfill's expansion.

In December 1997, groundbreaking began on this second privately funded power plant for the city's benefit, two miles north of Miramar at the NCWRP. With the gas pipeline having been built three years earlier, installation proceeded for four more Cat 3516s, these being the 950-kWh models with air-cooled exhaust manifolds. Three-quarters of their 3.8-MW output would drive the pumps and machinery and power the lights at the NCWRP, for which the city currently pays a bargain $0.045 per kilowatt-hour. The balance was sold to SDG&E at variable but lower wholesale electric rates. (The NCWRP now consumes almost all of the North City Cogeneration Plant's electric production, and MM now sells the excess electricity at $0.05 per kilowatt-hour.)

More fortuitously than with the Miramar plant, the NCWRP generators were appropriately sized to match the onsite load. Thanks to having the NCWRP history, the loads could be precisely measured prior to the power plant's final design.

Unfortunately, though, due to the less-than-expected gas flow coming in, MM does not always operate all power trains at the MBC; one unit sometimes sits idle. "We're about 800 kilowatts short in summertime, when there's no rain at all," Alspaugh explains. During the rainy seasons, the landfill produces gas to spare (and to flare).

Meanwhile, new exploratory well drillings at Miramar are trying to determine if the plant might be expandable by 950 kW.

Still More Bumps Ahead…
These were not the participants' only challenges. California's energy price fiasco—which had a relatively lessened impact on the MWWD, thanks to its ample onsite power—began in June 2000. Two years later, the Enron scandal broke, which, unfortunately sucked down NEO's parent, Northern States Power, into bankruptcy and reorganization.

During these trials, the developers' management configuration changed about three times. But even so, as Alspaugh recalls, "We were very fortunate that, through those changes of ownership and of management, we maintained wonderful relationships. We started out with good relationships, and we intended to keep good relationships."

He continues: "As each new manager came aboard and the management company changed ownership, I think they realized that these projects—while not great projects initially for the developers—were still good deals, and have improved significantly over the life of the projects." Thus, despite the management changes and after weathering several major issues that required mutual understanding and cooperation, "Everybody has been able to work together very well."

Today, MM runs the power plants "more efficiently than ever," and also profitably, because "they're a small, ‘lean, mean' company" instead of a bulky subsidiary, and because the wholesale price of renewable electricity has increased by 60%. Alspaugh singles out MM's manager, Trond Aschehoug, as one of the catalysts of the transition and success: "It was wonderful how he kept it all intact," Alspaugh says. "It has ended up being an amenable deal for all of us."

The MWWD initially projected each plant to save $850,000 per year. Those marks were not met in the initial years, but the department is now saving, altogether, over $2 million annually.

All in all, the MWWD's scorecard today shows a diversified array of energy resources, having a combined output of 20.7 MW of renewable fuels and natural gas fuels: at the Point Loma Wastewater Treatment Plants, 4.5 MW at a gas utilization facility, 1.35 MW from a hydro plant on its outfall (see "Point Loma's Lofty Waste Plant"), and 1.2 MW from a unique diesel- or digester-gas-fueled generator (see "Conversion Will Multiply Generator's Usability"); a combined 10.2 MW from the LFG-fueled MBC and NCWRP plants; and on top of it all, even 30 kilowatts from rooftop solar panels powering an MWWD headquarters building. Two 1.67-MW natural gas–fueled engines drive pumps at one wastewater pump station.

What, finally, was the key to making this multifaceted deal succeed, when significant trouble seemed imminent?

Probably the group decision, made back in 1994, to work cooperatively as a matter of principle, says Alspaugh: "We used formalized, third-party partnering all through the development process," in which participants sat down and discovered each others' needs and expectations. "We would say, ‘OK, what are your goals? And here are my goals. What do you want out of this project?' Then we all agreed to work together to make sure that we were all meeting our goals, so that nobody was being left out," he says. "Everybody agreed on an informal basis. I mean, it's not spelled-out in the contract that way, but we just put it on a human level," he says. "And it has been very useful."