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December 2007

Landfill gas generates healthy profits
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James Martin, an engineer for Republic Services, Inc., monitors landfill gas flow at the Sycamore Ridge Landfill near Terre Haute, Indiana.

As high oil prices fuel the race for alternative sources of energy, the solid-waste sector is turning to landfill gas-to-energy projects to provide power and profits.

Waste Management Inc., the nation’s largest solid waste company, already has 100 landfill gas-to-energy facilities in operation. The Houston-based company expects to have 60 more facilities by 2012. Lynn Brown, vice president of corporate communications, said 10 more facilities would go on line by the end of the year.

With 10 other landfill gas-to-energy facilities also under development, Waste Management plans to commission new gas-to-energy projects at landfills in Texas, Virginia, New York, Colorado, Massachusetts, Illinois, and Wisconsin.

“Consumers and utilities are showing strong demand for green energy, which has created a new market for landfill gas-to-energy projects,” Brown said.

“Generating electricity from landfill gas-to-energy makes economic sense, with prices for this form of energy on par with wind-generated power. Climbing energy prices mean Waste Management can generate more revenue than was previously possible.”

The landfill gas-to-energy facilities provide valuable sources of energy for utilities because the gas produced provides a dependable base load of power. This contrasts with the often intermittent nature of other renewable energy sources, like wind and solar, Brown said.

Waste Management expects to eventually generate more than 700 megawatts, enough to provide power for more than 700,000 homes or replace 8 million barrels of oil per year, noted Stewart Scharf, an analyst with Standard & Poor’s Corp. in New York.

“With 281 landfills, the most of any landfill operator in the United States, the company is well positioned to expand its renewable power generation,” Scharf said.

There were 375 landfill gas-to-energy facilities in the United States in 2005, generating electricity or providing a direct-use energy source for boilers, furnaces and other applications, according to research by Leone Young, an analyst with Citigroup Inc. in New York. There were 423 gas-to-energy facilities open by June of this year.

A landfill gas collection well at the Sycamore Ridge Landfill is adjusted.

Landfill gas-to-energy facilities currently generate 1,180 megawatts of electricity per day, according to Young’s research. She noted that the Environmental Protection Agency estimates that there are roughly 570 additional landfills that could be developed into gas-to-energy facilities, producing another 1,370 megawatts of energy per day.

Young estimated each project costs around $5 million. While a big project generates $1 million in revenues a year, a more typical project generates $500,000.

“It is important to note, however, that besides very high incremental margins, these projects at the very least defray the cost of current regulations,” Young said.

Regulations already on the books require landfill operators to capture methane at large landfills, requiring expensive piping systems, Young noted. In the past a lot of the methane was flared off, because it was often uneconomic to do anything else with it.

“Now with the high price of energy, tax incentives, and the likelihood of some tighter regulation these projects increasingly make economic sense,” Young said.

With Waste Management’s plans to develop 60 landfill gas-to-energy projects over the next 5 years, the company may spend up to $400 million during that time, Young noted. She said that this would account for roughly 5 percent of Waste Management’s capital expenditures budget, estimated at $1.35 billion for 2007.

“The initiative has a number of very tangible but difficult to measure benefits. It’s terrific public relations, given the concern over greenhouse gases and global warming, and enhances the green image Waste Management has been cultivating,” Young said.

“It also tends to build community relations. Given the increased economic value proposition, all the solid waste players are pursuing these projects where appropriate.”

Allied Waste Industries Inc., based in Phoenix, Arizona, has 52 landfill gas-to-energy facilities. Tim Ralston, manager of landfill gas development at the country’s second largest solid waste company, said 17 more projects are in development.

Power from existing facilities could heat 339,270 homes, while reducing emissions equivalent to nearly 3.3 million cars on the road each year, Ralston said. “Landfill gas-to-energy projects are the ultimate in recycling, as gas created as a byproduct of waste decomposition is captured and used as an alternative fuel source.”

Each project must conform to strict air emission regulations and Allied Waste must respond to local market concerns during the permitting process, Ralston said.

“Most communities can appreciate the benefit of these projects,” he said. “Each landfill gas-to-energy project is different, but these projects are profitable and typically generate very good returns on invested capital, while having the added benefit of providing a renewable energy source and managing harmful methane gas.”

Landfill gas-to-energy projects make sense economically for solid-waste companies, said Corey Greendale, an analyst with First Analysis Corp. in Chicago. “They wouldn’t do it if they weren’t going to make money off of it,” Greendale said.

If the price of electricity drops it might not make economic sense, however. “They might not be able to generate enough revenue from it,” he said. But with the current high price of oil, Greendale said he does not expect such a scenario to happen anytime soon.

Landfill gas-to-energy facilities also help with public relation’s efforts, Greendale said. “If you are hoping to get expansion permits at landfills, it helps if people see you as a friend of the environment, as opposed to somebody who could harm the environment.”

Republic Services Inc., the third-largest solid waste company in the United States, operates eight landfill gas-to-energy facilities. Will Flower, vice president of communications at the Fort Lauderdale, Florida-based company, said Republic Services has a dozen more projects under development, with three already under construction.

Flower said that the projects currently under consideration are running into very little, if any, opposition. “If anything, our opponents to the landfills seem to like our program, which creates clean and reliable energy from society’s waste,” Flower said.