Date Published: May 22, 2017, 3:43 p.m.
J
ohannesburg, a city of 3.8 million people, has to handle more than 1.6 million tons of waste annually and to oversee eight landfill sites, which harm the environment and the surrounding communities. In addition, the City is facing serious difficulties regarding energy provision and particularly load-shedding issues. In this context, the City launched a landfill gas-to-energy project in 2007. The project uses gas turbines to drill out methane gas, caused by the degradation of bioorganic compounds at its landfill sites, and to generate renewable energy for the municipal grid, thus offsetting largely coal derived electricity. The project, which should be fully operational by the end of 2015, was developed through a Public-Private Partnership (PPP) with the British company EnerG Systems under a 20 years contract. To benefit from additional revenue, the City initiated a Clean Development Mechanism (CDM), which was completed in November 2012, and signed a Power Purchase Agreement (PPA) with the national electricity company, Eskom, to sell the energy produced in the landfill sites. Since 2011, wells to extract and flare the greenhouse gases as well as energy generators have been built in the five landfill sites selected for the project. Energy commercialization started at the beginning of 2015. The expectation is to produce 19MW per year starting in 2016 from the five landfill sites, which should be enough to provide energy to 12,500 households. By the beginning of 2014, the project had managed to reduce pollution and noise for surrounding communities, had produced 137,888 Certified Emission Reductions (CER’s) and destructed 18,288,457 Nm3 of landfill gas.
The City of Joburg, as of 2012, has been handling more than 1.6 million tons of waste annually and overseeing eight landfill sites. As a result the City is spending much on transportation costs, which also contributes to air pollution and Green House Gas (GHG) emissions from the trucks (emissions per capita in Joburg are 6.4 tons annually). Pikitup, a municipally-owned waste management entity created in 2001, covers an area of 1,625 km2. Faced with the challenge of limited space for more landfill sites associated with GHG emissions; the City of Joburg has launched an integrated waste management operation which incorporates waste separation at source, garden dumping sites and composting plants. The city is looking into other technologies to deal with waste, as its landfill sites fill up. Possibilities are incineration and pyrolysis, or the composting of waste. Another important issue South African cities are facing is the difficult energy provision because of its dependence on coal. Therefore, the City of Johannesburg has been exploring possibilities of harvesting energy from existing landfills.
The goals of the City of Johannesburg Landfill Gas-to-Energy Clean Development Mechanism Project are:
Landfill gases. Landfill gases (LFGs) are unknown to most citizens, but the odors coming from landfills, which are caused by these gases, are an apparent sign of their presence. Landfill gases are created when organic waste decomposes. Most landfill gas is composed of roughly 50% methane, 50% carbon dioxide and a very small amount of other organic compounds, some of which are hazardous. Both methane and carbon dioxide are greenhouse gases. Methane is 21 times more harmful to the environment than carbon dioxide. This means reducing LFGs is important to help reduce greenhouse gases. In addition, methane is highly combustible, making it a fire hazard. Keeping these gases under control is part of the operational issues faced by all landfills.
One way of managing landfill gases is transforming them into clean energy. The Project has two complementary activities: (1) Methane collection and destruction (through flaring) and/or utilization of LFG (through combustion in electricity generation units), in order to convert its methane content into CO2 and thus reducing its greenhouse gas effect. (2) Electricity displacement: the generation and supply of electricity to the grid of the local and national power purchaser, thus displacing a certain amount of fossil fuels that are used for electricity generation for the national grid. In the case of the project, electricity will be “exported” by connecting the generators to the municipal distribution grid, with Eskom’s (the National electricity supplier) or City Power’s (Johannesburg’s electricity supplier) distribution infrastructure.
Scope of the project. Due diligence into the City of Johannesburg’s landfills indicated that only five of the initial eight targets for the project were viable, as some would have generated less than 1MW. The five landfills selected to receive the installation of active LFG capturing systems are: Robinson Deep, Marie Louise, Linbro Park, Goutkoppies, and Ennerdale. According to Dave Harris, general manager for landfill at Pikitup, there is enough gas to keep the project running for 15 to 20 years.
Project implementation. The implementation of the project started in Robinson Deep landfill site in February 2011, with the construction of 68 wells and pipelines and the beginning of flaring or burning of methane gases in May 2011. The installation of four generators began in October 2014, and they were operational by early 2015. Each one of them costs about R10 million (USD 760 000) and will generate 1MW per year. This landfill currently produces around 1,400m3 per day which is destroyed by means of a flare. When operating at full capacity, the capped landfill will produce around 3,000 m3 per day. This amount of landfill gas can be converted to 5 MW of renewable electricity when in the second phase the generators are installed providing renewable electricity for around 4,000 to 5,000 households. When operating at full capacity, the reduction of greenhouse gasses is equivalent to approximately 149,000 tons of CO2-equivalents per annum.
At the Marie Louise landfill site, 28 gas extraction pipes were built and flaring began in February 2012. Construction for the three remaining sites (Goudkoppies, Ennerdale and Linbro Park) commenced in 2014. Commercial operation started for all five landfill sites in the first semester of 2015.
The total investment for the five sites will be R276 million (USD 21 million).. Once the five landfill sites will be operating, they will constitute the largest landfill gas-to-energy program in the country, producing an estimated 19MW of power, sufficient to supply 12 500 households per year.
Conception phase 2001- 2006:
The City of Johannesburg started making efforts to launch a landfill gas project in 2001, but faced financial constraints and lacked expertise. In 2005, the City identified the 5 landfills to benefit from the project. In 2006, the City’s Environmental, Infrastructure and Services Department (EISD) chose to finance and manage the landfill gas-to-energy project through a Public-Private Partnership (PPP) and started a process of seeking out a private partner that would be awarded a long-term contract to design, develop and implement the system.
Choosing a PPP. The City of Johannesburg, through its Environmental, Infrastructure and Services Department (EISD), decided to finance the landfill gas to energy project through a Public-Private Partnership (PPP) mainly because the City could not fund the project on its own (the expected development cost of the project was USD 765 million), and lacked technical expertise. As such, a PPP should ensure dividing responsibilities and risks. In this specific project, the negotiation allowed the City to be the owner of the facilities and the private sector to build and operate but not take the demand risk (which remained with local and national electricity providers, City Power and Eskom). In addition, the City expected that offering the implementation of the project to a private company would help with the challenge of community ownership by reducing theft and vandalism towards state assets such as municipal electricity and waste infrastructure; unlicensed trading with state assets by illegal businesses; and culture of non-payment for municipal services. According to the City’s former Project Manager Palesa Mathibeli, “We would rather take a risk-averse process and have a private party come in to develop and invest in the project at no cost to the City.”
Preparation and negotiation phase 2007-2009:
Tender process and choice of the private partner. The tender process brought several potential service providers, but EnerG Systems had put in place similar systems in various places around the world, including South Africa, and had the necessary capability, expertise and acumen with LFG extraction projects. EnerG Systems Consortium was awarded the tender in 2007 and, after intense negotiations, the contract was signed with the City in 2009. The negotiations with the service provider were difficult and protracted and each clause had to be agreed upon. The contract was signed in 2009 to construct and operate the landfill gas-to-energy project over 20 years. The agreement also gave EnerG Systems exclusive rights to mine gas and generate electricity at the five sites.
Studies and Analysis. Before launching the project, a feasibility study on the landfills was conducted between 2007 and 2009. WSP Environmental South Africa was appointed by Ener-G Systems to carry out the environmental scoping, Environmental Impact Assessment (EIA), and draft Environmental Management Plan (EMP), for the development of the Joburg Landfill Gas to Energy Project into a CDM Project. Environmental impact assessments on each of the landfill sites have been completed and the City received Waste Licenses under the Waste Management Act to implement the projects on each of the sites in 2010.
External expertise. In order to strengthen its negotiation skills and expertise for the PPP implementation in general and LFG projects in specific, the municipality employed in 2008 an outside legal firm with expertise on LFG project negotiations, the North American company Lee International. The consultants provided financial, legal, and environmental experts to advice on each aspect of the project and contract. In addition to international experts, the Project Manager was able to call on the National Treasury, which at the time had an expert assisting with municipal projects. This individual assisted in negotiations when the service provider came back to ask for changes to the contract. When the private party was appointed, it presented the City with a draft contract, which it assured the City had been signed by another municipality. Advice from the Treasury assisted Johannesburg in determining that the contract was one-sided and did not benefit the municipality. It took one year to renegotiate the contract and sign a new, comprehensive one.
Legal framework. The gases and their management are not complicated, but the legislation, the requirements of the Kyoto Protocol 2002, other legislative requirements and legal processes make the “landfill gas to energy clean development mechanism project” very complex. Compliance with national and state legislation is key to guarantee the success of the project and the city’s project managers and team members had to engage in intensive due diligence to put in place the legislative and financial requirements to get the project off the ground. Several different agreements, legislative issues, tenders and other legal documents have bearing on the success of LFG gas projects. An understanding of how each of these will impact timelines, outcomes, costs and results is critical, and can either enable a project team or clarify challenges. Current Project Manager Simphiwe Mbuli of the City’s Environment and Infrastructure Services Department (EISD) has identified several pieces of legislation, document requirements and agreements that had bearing on the project:
Implementation phase 2009 – present:
FINANCIAL INFORMATION
Global Budget
10 Billion South African Rands (USD 764 million)
Short Term Funding
200 Million to 2 Billion (Planning and Design or Small Scale Rollout or POC) (USD15 million to USD 153 million)
Long Term Funding
10 Billion (Large Scale Rollout) (USD 764 million)
PPP projects of this nature require LFG experience and expertise, which is expensive. While the service provider contract allows for a private contractor to take on the actual capital and maintenance costs, the municipality must still pay for the consultants and experts to assist with the agreements and legal requirements. The City of Johannesburg has invested more than R200-million (USD15 million) in developing the landfill gas-to-energy project. The PPP was designed in order for the project to fit in the municipal budget and a specific risk management framework was established. Operating costs are estimated at 10% of capital cost per year and security alone is 3% of the contract value, and these need to feature in future budgets and financial projections for the project.
The project was set to generate additional revenue for the City of Johannesburg through: 1. selling carbon-credits on the international market and 2. selling the power to Eskom (national electricity supplier).
In 2009, the City of Johannesburg initiated the process of applying to the Clean Development Mechanism (CDM) projects under the United Nations Framework Convention on Climate Change (UNFCCC) to reduce greenhouse gas emissions and registration was achieved in December 2012.
In 2002, the South African government signed its accession to the Kyoto Protocol on World Climate Change, a legally binding commitment by developed countries to reduce greenhouse gas emissions and for the implementation of supportive CDM projects in developing countries. The protocol created a mechanism of carbon credits transactions between developed and developing countries Carbon credits may be purchased on the open market. They are a source of revenue for developing countries, while at the same time serving as ways to offset the carbon requirements for developed countries under the Kyoto Protocol.
Since the project covered several years, the viability of selling carbon credits alone as a revenue source was not enough to finance the project. In addition, with the Kyoto Protocol expiring in 2012, the cost of carbon credits began to decline, and banks required additional revenues. While a carbon credit price of €11 was secured and an overseas buyer for the credits was in place, this was also contingent on the registration of the project with the UNFCCC, which was due to be completed only by the end of 2012. The City began to hold the service provider to the agreed-upon timelines to execute the project. Since 2012, the project has produced 137,888 Certified Emission Reductions (CER’s).
Constructions at the different landfill sites followed three phases: (1) Installation of the gas extraction and collection systems, and installation and commissioning of the gas flares within equipment compounds located at the landfill sites. (2) Installation of gas engines that will be used to generate electricity using the landfill gas as fuel.(3) Electricity generation.
One of the riskiest aspects of LFG projects is the funding and income streams. While the service provider is responsible for raising the funding, without external capital the service provider might have difficulty in fully executing the contract. Hence, the bank that EnerG Systems was working with (Nedbank) required that the City and EnerG Systems signed a Power Purchasing Agreement (PPA) for the sale of the power extracted from the landfill sites, before releasing financing to develop the third phase of the project. As such, the City and EnerG Systems started looking for a buyer to the energy produced in the landfill sites and applied to a REBID tender under the National Department of Energy’s (DOE) Independent Power Producers (IPP) Procurement Program[1], in May 2012. In October 2013, the department of Energy approved the project and agreed to sign a Power Purchase Agreement (PPA) with Eskom for a 19 MW contribution as part of the Renewable Energy Independent Power Producers program. An independent power producer is an entity that is not a public electric utility that owns and operates facilities to generate power for sale to an electricity utility, central government buyer and end users. The stakeholders agreed that the electricity would be sold to Eskom for 94c/kWh. The income from the sale of power to Eskom will amount to R800-million a year (USD 61 millions). A portion of this will be paid to the city as a royalty, which will largely be used to maintain the sites.
GOVERNANCE OF THE PROJECT
The City of Johannesburg implemented a tight management process. The Municipality:
This innovative project, first and biggest of its type in South Africa, has seen several key accomplishments, including:
The City of Joburg identified the following difficulties when developing and implementing the landfill gas to energy CDM project:
Finally, projected timelines are normally not met which has severe impacts on the budget.
The City of Johannesburg has identified key elements that guaranteed the success of the Landfill Gas to Energy project and the main lessons learned from this experience:
Joburg 2040: Growth and Development Strategy
Gauteng Provincial Government Waste Management document
Presentation, “Making Municipal Carbon Projects Work – Challenges Faced and Overcome”, Carbon Markets & Climate Finance Africa, by Lee International, Ekurhuleni and the City of Johannesburg,25 – 26 January 2011
Mail and Guardian, “Greening the Future Awards”, 16 – 22 March 2012
Various references on www.joburg.org.za and www.pikitup.org.za
Resource papers from Shaazia Bhailall, including: http://www.sabinet.co.za/abstracts/cleanair/cleanair_v18_n1_a4.html and http://www.sabinet.co.za/abstracts/resource/resource_v13_n1_a10.html
