HomeMy WebLinkAbout04.a. Receive update on Central San's Bioenergy Public-Private Partnership (P3) project Page 1 of 4
Item 4.a.
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Central Contra Costa Sanitary District
May 16, 2018
TO: REAL ESTATE, ENVIRONMENTAL AND PLANNING COMMITTEE
FROM: MELODY LABELLA, PROGRAM MANAGER - RESOURCE RECOVERY
REVIEWED BY: JEAN-MARC PETIT, DIRECTOR OF ENGINEERING AND TECHNICAL
SERVICES
ROGER S. BAILEY, GENERAL MANAGER
SUBJECT: RECEIVE UPDATE ON CENTRAL SAN'S BIOENERGY PUBLIC-PRIVATE
PARTNERSHIP (P3) PROJECT
I ntroduction
Last Spring, Central San embarked on an innovative procurement to develop a public-private partnership
(P3) to demonstrate a new solids handling technology that could postpone the need to add anaerobic
digestion in Central San's treatment plant within the decade as identified in the Comprehensive
Wastewater Master Plan. One year later, Central San finds itself at an important crossroads in needing to
make a go/no-go decision on continuing with the project.
Project History
On April 20, 2017, staff issued a Request for Interest in the formation of a P3 for the development and
implementation of a Bioenergy Facility, employing innovative technology, that would process a portion of
Central San's wastewater solids and produce renewable energy. Under the P3 model, the facility would be
designed, built, owned, operated, financed, and maintained by the private partner with an option for Central
San to purchase and operate the facility in the future (e.g. after 10 years of successful operation, or such
mutually agreed upon time for the private partner and Central San to achieve their business objectives,
including proof of concept and return on investment).
After reviewing and scoring the eight letters of interest received by the June 16, 2017, deadline, four
teams were shortlisted. The following table summarizes the four teams (in alphabetical order), along with
their proposed technology(ies).
Team Proposed Technology(ies)
Aries Clean Energy Gasification
CH2M Thermal Hydrolysis and Anaerobic Digestion followed by
Gasification
Denali-Cambi JV Thermal Hydrolysis and Anaerobic Digestion followed by
Incineration by Central San
Element Carbon Gasification
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Shortly after notification, having been acquired by Jacobs, CH2M withdrew their interest, so the remaining
three teams were invited to respond to a Pre-Interview Questionnaire and participate in a team interview.
After scoring both the responses to the Pre-Interview Questionnaire and the September 20, 2017,
interviews, all three teams were invited to the Request for Proposals (RFP) round, which was initiated on
October 19, 2017.
As with any P3 project, expert assistance was needed to effectively support the P3 transaction. On June
6, 2017, staff issued an RFP seeking technical, financial, and legal P3 advisory services to assist Central
San in successfully delivering this project. Six proposals were received. CDM Smith's team (CDM Smith
as technical advisor, Ernst and Young Infrastructure Advisors LLC (EY), as financial advisor and Hawkins
Delafield & Wood, LLP (Hawkins) as specialized P3 legal advisor) were selected as they provided the
overall, most-qualified team, which is comprised of experts familiar with the wastewater industry and
experienced in energy and solids handling P3 projects. In mid-November 2017, to accelerate the
selection process in order to shortlist a P3 technology and concessionaire prior to the end of the current
fiscal year, staff issued an update on the RFP process, including modifications concerning the selection
process aimed at completing the team selection process by the end of the fiscal year, while minimizing the
effort required of competing teams, based on the following analyses:
1. Define the proposed technology solution and its impact(s) on existing facilities.
a. Determine how the proposed solutions will eventually go from the pilot/demonstration phase to
full-scale.
b. Define impacts on the treatment plant, adverse impacts, how they will be mitigated and their
associated risks and costs.
c. Define P3 the integration plan for each proposed solution.
d. Request a list of concerns from each team (technical, financial, legal, permitting, etc.).
2. Complete lifecycle cost analyses of the following scenarios.
a. Reference baseline: this includes the cost of our current solids handling operation plus
implementation of the Master Plan (anaerobic digestion and fluidized bed incineration).
b. Gasification (Aries) — Phase 1 Pilot (15 DTPD fluidized bed gasifier) in parallel to incineration
then Phase 2 full scale (two 60 DTPD units for redundancy and no incineration) — includes
mitigation such as loss of steam under Phase 1.
c. Gasification (Element Carbon) — Phase 1 Pilot (10 DTPD downdraft fixed bed gasifier) in
parallel to incineration then Phase 2 full scale (three 40 DTPD units for redundancy and no
incineration)— includes mitigation such as loss of steam under Phase 1.
d. Thermal Hydrolysis and Digestion (Denali-Cambi) — (60 DTP digestion plus food waste for
production of biogas). Digested sludge to incinerators and includes mitigation such as side-stream
treatment of centrate to result in no net nitrogen loading to Central San.
e. Combine Thermal Hydrolysis with Anaerobic Digestion and Gasification— includes mitigation.
3. Complete a preliminary risk allocation matrix for each of the proposed solutions. The following
aspects will be considered in the risk matrices:
a. Develop a risk matrix and prepare a mass and energy balance for each of the proposed
technologies (gasification and thermal hydrolysis with digestion).
b. Identify, quantify, and assess the likelihood of occurrence of risks, mitigation strategies, and
potential benefits of each of the technologies.
c. Develop nonmonetary impacts such as environmental, social, and operational impacts.
d. Include such factors as integration plan, risk allocation, permitting, schedule, operating
responsibilities, use of the site, etc.
Central San staff worked with CDM Smith to develop Excel workbooks that contained draft process flow
diagrams and mass/energy balances for Central San's baseline and Master Plan scenarios and each
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proposed P3 solution. In early January 2018, while maintaining confidentiality among the teams, these
workbooks were shared with each P3 team for their review, with feedback due by February 8, 2018.
In early February 2018, staff held a conference call with all of Central San's P3 advisors (CDM Smith,
Hawkins, and EY) to review the progress on the project and solicit their feedback on Central San's
procurement process. The advisors shared similar concerns on the possible lack of competitiveness
included in the procurement process as currently written.
As a result, staff scheduled and held an in-person workshop in early March with Central San's Executive
Team and District Counsel and all three of Central San's P3 advisors.
Key Takeaways from March 2018 Workshop with P3 Advisors
During the March 7, 2018, workshop, a number of valuable insights were shared by Central San's highly-
experienced P3 advisors. The key takeaways from this workshop include:
• Central San current cost for power production and solids handling is the most cost-effective on a
twenty-year present worth basis.
• All three P3 Concessionaires initial offering to sell power to Central San at 13 cents/kwh vs. our
current cost of 9.5 cents/kwh for producing power.
• Central San's procurement process, as currently envisioned for shortlisting, would not meet all the
requirements for competition under California's P3 statute (§5956 of the California Code). Central San
cannot shortlist based on planning-level cost estimates. A guaranteed price needs to be established by
competing teams prior to selecting a winning team to ensure adequate competition.
• New, unproven technologies like gasification will likely have a challenging time securing financing, as
financial lenders and banks do not want to take on the risk of the technology not meeting its
performance claims.
A referenced P3 project— the Poseidon Desalination Facility in Carlsbad — was a unique situation, in
that Poseidon already had control of the land and the NPDES discharge permit for the brine disposal,
so that aspect of the project could not be competed. Instead, every other aspect (design-build
contract, bank financing, etc.)was competed to satisfy the competition requirements under§5956.
The varying nature of the three offerings remaining in our P3 project procurement creates difficulty in
comparing one against the other and makes establishing competitive tension difficult. For example:
several different technologies are being proposed (downdraft gasification, fluidized bed gasification,
and thermal hydrolysis with anaerobic digestion); two teams are offering complete disposal solutions,
while one is not, two teams are offering renewable energy while one is not, etc. Therefore, this current
process should stop.
Central San should issue a formal RFP with specific goals and requirements. Firm pricing and terms
and conditions needs to be clearly established.
Offering a stipend should be considered as the cost for potential partners to develop guaranteed
pricing can be significant.
Discussion
Since the time this project was conceived and initiated, two important drivers have changed.
1. The potential capacity limitation on Central San's incinerators was found to not be an issue.
In 2016, due to unrepresentative primary solids sampling data, the Comprehensive Wastewater Master
Plan identified a potential capacity limitation on Central San's incinerators and recommended further
evaluation of the issue. Last year, as part of Central San's Solids Handling Phase 1 Project's predesign
process, a pilot project was conducted to confirm the volume of solids being sent to the operating
incinerator. A new calibrated meter was installed on the solids feed to the centrifuges upstream of the
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incinerator, which confirmed that this is not the case. Central San's existing incinerators have enough
solids handling capacity for the current and future service area populations.
2. Portions of Central San's existing solids handling facilities have reached a critical point and
require a significant capital investment that should not be delayed any further.
Due to aging infrastructure, current and future air permit compliance issues, including reportable
compliance activities being triggered by the bypassing of Central San's air pollution control train and
upcoming particulate matter regulations that cannot be met by Central San's existing wet scrubber, and
inadequate seismic reliability in the Solids Conditioning Building, Central San needs to move forward on a
significant investment ($82M) in our existing solids handling facilities. With the Solids Handling Phase 1
Project, Central San would leverage an existing ratepayer investment in order to be able to rely on the
existing solids handling technology well into the future.
Staff Recommendation
Considering the expert advice from Central San's P3 advisors regarding the need for greater competition
in our procurement process, staff evaluated the need and cost Central San to move the P3 process
forward. In order for Central San to continue with this procurement, a significant investment will be
required to achieve the meaningful competition required by California's P3 law.
Due to the lack of a clear driver for continuing to pursue this project, the immediate needs of Central San's
current solids handling infrastructure, and the expanding cost for implementing a P3 project, staff
determined that the best option for Central San was to terminate the P3 procurement process. Staff
notified the three vendors on May 1, 2018.
Staff recommends that the renewable energy production element be decoupled from the solids handling
demonstration project. A separate stand-alone procurement, using a P3 model, could be considered at a
time when Central San's electric demand increases dramatically, such as with the following scenarios:
• If a large advanced-treatment project (such as the Refinery Recycled Water Exchange Project) is
implemented;
If Central San proceeds with the conversion of the aeration blowers from steam to electric;
If there is a reduction in the availability and/or quality of Central San's landfill gas supply; or
If nutrient removal requirements (level 2 or 3 under the Bay Area Nutrient Watershed Permit) are
enacted by the Regional Water Quality Control Board.
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