Presented by

Translate

Thursday, June 16, 2011

A Tale of Two Projects

Continuing in the vein of recently reported biomass news...

There are a lot of biomass projects being approved/started in the last few months, and I thought it would be helpful to contrast a couple of them to identify key success factors and hurdles for biomass.



Let's start with a project here in Pennsylvania. Up in the northwest part of the state, in Crawford County, the Crawford Central school district broke ground last month on a wood-chip fired district CHP solution for three facilities:
"The Crawford Central School District, Crawford County Career and Technical Center, and the Meadville Recreation Complex have now entered into a Joint Operating Agreement to install a combined heating and power (CHP) biomass system that is fueled by renewable woody biomass and produces electricity... 
This system will replace 80 percent of the annual cost of natural gas and 15 percent of the cost of electricity with a renewable energy source and will avoid future capital costs to replace HVAC equipment. This system will allow the three entities some control over future energy costs by replacing volatile fossil fuels with locally produced renewable energy sources. Their annual energy costs are projected to be reduced by approximately $200,000."
The total cost of this project is $3.5 million, of which over $2.5 million, or roughly 70%, will be paid for by local citizens through a bond issue. Project planners were able to secure grants for the remaining 30% of the project, roughly $740,000 from the state of Pennsylvania and $200,000 from the federal government through the US Forest Service.

At the projected rate of $200,000 in annual energy savings, the locals will receive full payment of their bond obligation in about 12 years. After that point, they will continue to receive their annual savings for the remaining life-span of the system. If it lasts 40 years, and maintenance of the system is counted as equal to the cost of maintenance of any alternative system, then the good citizens of Crawford County will net a savings of  $5.5 million over the life of the system. At a cost to the rest of us (the grantors) of about a million dollars.

Let's compare that to a recent announcement that the city of Montpelier, Vermont, will build a wood-chip district heating solution for its city hall, police station, fire station, and two schools. The cost of this project is much larger: $20 million. But the taxpayers of Montpelier only agreed to pay slightly more for this project, $2.75 million, than the taxpayers of Crawford County agreed to. The Vermonters are only paying for about 13% of their project, as opposed to the 70% the Crawfordians ponied up. Montpelier project planners were able to obtain $8 million in grants from the federal government through the Department of Energy, and an additional $8 million in grants through the state of Vermont.

From what I can read between the lines, it looks like the expected annual energy savings in Montpelier will be about the same as the Crawford County Project. Again, assuming the project delivers 40 useful years, the Montpelierians will net about $5 million in energy cost savings on their $2.75 million investment. But this particular project will cost the rest of us about $17 million, compared to the $1 million we're funneling up to Crawford County.

Great deal for the citizens of Montpelier, paying only 13 cents on the dollar for a system that frees them from the ties of dependence on fuel oil. So it is a little surprising that about 40% of the citizens voted against it. Many of those against the project were quoted citing (again!) the Manomet study and unrepaired potholes on the streets of Montpelier as their reason for opposing the bond proposal. Guess they don't highly value the $5 million savings in the cost of running their city over the next 40 years.
"We don’t have the money,” said Marie Hamel, 75, who voted no. “I’m not sure Montpelier’s handled the money we let them have that well. And this is for downtown. Us up in the hills, all we will have to do is pay. And pay and pay and pay.”
Wonder how Ms. Marie would feel if she was like the rest of us, paying a collective $17 million to heat a few public buildings in a city we're not likely to visit even once in our lifetime? Bet she'd really be tweaked.

These two projects point to something that I suspect is poorly understood by most of the general public but suspected by a bunch of you out there. I'd be willing to bet there is a correlation between the cost of a project and the percentage of the project that is covered by public grants. Grant money tends to seem like "free" money to local project planners, and the project vendors, and is spent pretty freely. In contrast, projects that are funded by mostly local money are kept tightly focused on the exact needs of the project. If they aren't, folks like Ms. Marie run the project planners out of town on a rail with tar and feathers.

Seems like another good argument to keep biomass projects small and locally funded. Every dollar counts, these days.

7 comments:

Jeff Forward said...

Much of what is said about the Montpelier project is out of context. I am sure both projects have their own unique circumstances. I don't know much about the Crawford County project, but the Montpelier project has been in the works for many years and is a very good project. The federal money going into is largely stimulus money to create jobs. Say what you will about stimulus money, I am certain that far more stimulus money is being spent on far less worthy projects. As far as the state money that is going into it, the state is a partner in this project and will be using the heat for the state capital and surrounding office buildings. The state desperately needed to upgrade its heat infrastructure for these buildings and was planning on spending their share of project costs anyway on a new heating plant. By collaborating with the city, they are able to get double duty out of the state investment, stabilize their energy costs for the long term and reduce our overall carbon footprint. I say it is a good deal for all involved and I am thankful that the citizens of Montpelier saw it this way as well.

Instead of eating our own and giving nay sayers ammunition to bash biomass, I think we should be be highlighting the benefits of biomass and encouraging communities to consider the costs of biomass compared to the costs of fossil fuels. When we compare biomass project to biomass project without intimate knowledge of the circumstances, all we do is give skeptics a reason to stick with the status quo. The status quo is not good enough and has gotten us into plenty of hot water.

Anonymous said...

I am happy for the two projects. I have read with great interest the articles on biomass fueling and am convinced of their rewards. However, I am very tired of footing the bill (Federal Grants)for projects. Government should NOT select winners and losers by funding "pet" projects. Let them succeed or fail on merit alone.

kman

Anonymous said...

I agree with Jeff - much of what is written in this article takes the details of the Montpelier project completely out of context. The are several key points that were missing:

First, the $8 million from the State of Vermont's capital budget goes toward the refurbishing the existing 30 plus year old wood heating plant that currently provides heat to approximately 500,000 square feet of state facilities. These savings of continuing to heat this footprint were not accounted for in Mr. Ray's comments.

Second, this project is in Northern Vermont with many more heating degree days than in Pennsylvania and the Montpelier Project is largely displacing expensive number 2 heating oil whereas the Crawford County project is displacing comparatively inexpensive natural gas. Bottom line is the value of the Montpelier project is a lot better than how it is portrayed in Mr. Ray's article above.

Chuck Ray said...

Jeff, Anon(2)...

I appreciate your thoughtful comments. I did not intend to demean the technical aspects of the Montpelier project at all; I assume it is a great, well-thought out project, and I am glad that wood heating was the alternative energy system selected. As I mentioned in the post, the project as funded is apparently a great deal for the citizens of Montpelier. I do not blame the project leaders in Montpelier for accepting the funding; they are simply taking advantage of the system currently in place.

My comments are simply offered to explain that any projects, biomass or not, that are funded by largely non-local, government funding are not demonstrations of "sustainable" energy projects. If we hope for biomass to take hold as a long-term alternative to fossil fuels, the projects have to be seen as viable, justifiable expenditures by the citizens receiving the direct benefits of the project. The Montpelier bond referendum for $2.75 million passed...would it have passed if the cost were 70% of the project cost ($14 million) as the Crawford County citizens voted for?

If your answer is yes, then it should have been funded that way, and the grant awards could have been reduced from $16 million to $6 million, saving non-local taxpayers $10 million.

If your answer is no, then you've proved that the project would not be justifiable at that level of expenditure.

Generally speaking, biomass projects can be competitive alternatives to fossil fuels and other alternatives. But funding them largely with non-local funds does not prove that...and in fact, tends to send the opposite message - that biomass projects only work with large infusions of subsidy.

In these times of public debts that we can't even grasp (trillions?), these are demonstrations of an unsustainable future. We don't need any more of those.

Chuck Ray said...

Sorry, the question posed above should have been...

The Montpelier bond referendum for $2.75 million passed...would it have passed if the cost were 70% of the project cost ($8.4 million) as the Crawford County citizens voted for?

Corrected calculation after taking out the $8 million state portion for the capitol, as Anon(2) suggested.

Question and point still stand.

Jeff Forward said...

What about the government subsidies that go into fossil fuels that are not accounted for? Exxon made tens of billions of dollars last year, but paid little or no taxes. How much would their fuel cost consumers if the government and taxpayers did not subsidize their exploration costs? And who will pay for the localized damage for drilling and spilling, let alone the untold damage to the planet from burning fossil fuels. Not much of that is included in the costs we pay for fuel. Every day our government subsidizes fossil fuel producers in a myriad of ways. From tax incentives to military intervention.

Renewable energy advocates of all stripes would gladly turn away government subsidies if they could compete on a level playing with conventional energy sources. That goes for biomass as it does for wind or solar.

I still feel the Montpelier project is not just a good deal for Montpelier, it is a good project for government to support. It supports local jobs, it keeps our energy dollars in-state, it reduces the state's and the city's carbon footprint. There are far worse ways to invest government dollars.

Chuck Ray said...

Hey, Jeff, thanks for the follow-up.

You make great points, that I actually mostly agree with. But now you have slightly changed the topic.

I agree that government subsidies should not be supporting competing energy platforms. The oil companies maintain that they get no subsidies, that the tax incentives they take advantage of are the exact same incentives that any company in America can take advantage of, and most do.

Take for example, your comment about Exxon that they paid "little or no taxes." That statement is a little misleading; from CNNMoney:

Exxon paid the most taxes last year of any U.S. company, by far -- but not a cent went to the IRS for income taxes. That's because the oil giant does business in some of the mostly highly taxed countries in the world. Want to extract petroleum in Nigeria? Be prepared to fork over up to 85% of your profit in tax payments.

Exxon doled out more than $15 billion in income tax payments to foreign countries last year. U.S. tax codes allow companies to take massive deductions in light of those international charges, which knocked Exxon's federal income-tax bill down into negative territory.

That said, Uncle Sam gets his money in other ways. Including sales taxes and duties, Exxon recorded $7.7 billion in U.S. tax costs last year, and paid even more overseas.

Its grand total in global taxes for the year? A whopping $78.6 billion. The company's effective income tax rate was a hefty 47%, its highest in three years.


So its hard for me to buy the idea that we are "subsidizing" Exxon-Mobil, considering that tax bill...except for your excellent point about the military operations. I agree, these should be stopped if they are in fact being waged to protect our oil supply...but no president, Democrat or Republican, has ever said that. In fact, they always explicitly say we are not waging military operations for oil, but for defensive reasons (first Gulf War) or for terrorism (Iraq, Afghanistan) or humanitarian reasons (Libya). So you either believe them, or you don't. I do wish we weren't involved over there, but I can't see how we can definitively state that our military operations are subsidies to the oil companies.

But as I said, the post really had nothing to do with oil, nor with comparing the Montpelier grants to any other government spending. Again, I agree with you, that money is probably much better spent on the Montpelier project than a bunch of other things our taxes get spent on, but we'd have a bunch of people arguing with us about that, defending their own projects in a similar way.

The original post was comparing two biomass projects, pointing out the positive aspects of local funding, with the key point being that the more local money is used, the more economically appropriate and efficient the projects are. As great as the Montpelier project is, can you tell me definitely that it couldn't have been accomplished for less than $20 million? Bet it could have; but constraint is difficult to apply with $16 million in federal and state grants.

And all your points about jobs, carbon, etc., still apply, even if federal funding isn't used. The project is just as good, in fact, I maintain better, if local dollars are the primary funding mechanism.

I know, the buy-in for local taxation projects is hard to get. But it can be gotten. We just have to wean ourselves off the federal teat, and become good at educating ourselves and our neighbors about the best road to energy self-sufficiency.