The viability of landfill gas-to-energy (LFGTE) projects has traditionally been predicated on a reasonably high price for electricity and a cost advantage of landfill gas (LFG) over natural gas. However, the traditional business model for LFGTE projects is eroding, Forester Daily News reports.
Increases in fracking and horizontal drilling have increased US gas production, resulting in a significant drop in the price of natural gas. This price drop, coupled with the growing regulation of coal, has driven utilities to shut down coal plants or convert them to natural gas. As the price of natural gas has fallen, so has the price of electricity, reducing income streams for LFGTE project owners.
There are, however, alternatives to the LFGTE model, such as high BTU (LFG-to-pipeline gas), compressed natural gas (CNG) and LFG-to-liquids projects.
While these alternatives often face similar financing challenges to those associated with LFGTE projects — often an LFGTE project is too small to efficiently bear the transaction and deal costs of a traditional project financing but too large to be built completely from developer equity — the availability of state and federal financing programs and tax-exempt financing may be ways to address this issue. Corporate guarantees and financing a transaction with a low loan-to-value ratio may also be viable workarounds.
When an LFGTE project is being converted to an LFG alternative project, owners will also need to consider whether an existing loan on the project prohibits the conversion or will otherwise need to be refinanced in connection with the conversion.
Photo credit: Landfill gas recovery plant via Shutterstock