Using Sustainable Return-on-Investment (SROI) as a Tool for Ranking Projects

Transcription

1 Using Sustainable Return-on-Investment (SROI) as a Tool for Ranking Projects David L. Clark and Stephane Larocque, HDR Engineering, Inc. Dave.clark@hdrinc.com and Stephane.larocque@hdrinc.com July 26, 2012

2 Innovative Sustainability Analysis for Wastewater Facilities Planning Sustainable Return on Investment (SROI) Overview Sustainability Framework for Wastewater Planning Case Studies 1. Advanced Treatment and Water Quality Analysis Value of Effluent/Water 2. Biosolids Optimization and Diversification Study 3. Sustainable Nutrient Removal and Next Level Treatment

3 SUSTAINABLE RETURN ON INVESTMENT (SROI) PROCESS

4 What is Sustainability? Environmental Stewardship Energy Social Water Quality Polish Your Green Image Greenhouse Gas

5 Making Sustainable Decisions Based on the Triple Bottom Line

6 Sustainable Return on Investment SROI Adds to Traditional Financial Analysis the Monetized Value of Non-cash Benefits and Externalities Project s Cash Impacts Internal Non-Cash Benefits External Non-Cash Benefits Capital Operations & Maintenance Water Quality Health & Safety Other (Community, Aesthetics) Green House Gases Criteria Air Contaminant Waste Financial Return Financial + Internal Sustainable Return on Investment (SROI)

7 Sustainable Return On Investment: SROI Elements of the SROI process have been used to evaluate the monetary value of sustainability programs and projects valued at over $10B

8 Sustainable Return on Investment (SROI) Methodology A Four Step Process to Reveal the Hidden Value in Projects

9 SROI Methodology Step 1 Example Structure and Logic Diagram Documents relationships and facilitates communication between Engineers and Economists

10 SROI Methodology Step 2 Quantify Input Data Assumptions Carbon Dioxide (CO2) / Expected Mean Value % 80.0% 10.0% Pert ( , , ) Minimum $ Maximum $ Mean $ Std Dev $ Values in $

11 SROI Methodology Step 3 Risk Analysis Session Participants Owner Project Team Technical Specialists Financial Experts Consultant Team Facilitator Economists Engineers Technical Specialists Outside Experts Public Agencies & Officials Business Groups

12 SROI Methodology Step 4 Run the Model and Produce Results

13 Example Analytical Results Provide Both Financial (FROI) and Sustainability Return on Investment (SROI) The Sustainability S Curve to Optimize the Total Value of Projects

14 EXAMPLE WASTEWATER SUSTAINABILITY FRAMEWORK

15 Example Denver MWRD Process for Developing the Sustainability Framework Workshop 1 Vision and Goal Setting Workshop 2 Economics Alum Alum (Cl2) rse en Grit Removal Primary Clarifier Fine Screen N/DN MBR Membrane Modules CCT CCT MLR RAS WAS DAFT TSL Anaerobic Digestion Holding Tank (Ferric) DFR Centrate Storage Workshop 3 Environmental and Social Workshop 4 Sustainability Analysis Framework DC Disposal

16 Sustainability Study Goals Document Current District Currently Practices Develop District Wide Sustainability Goals Develop Sustainable Return on Investment (SROI) Framework

17 Sustainability Goals -- Economic Optimize Power, Natural Gas, Water, Chemical Use Maximize Resource Recovery and Provide Flexibility to Market Changes (Biosolids) Maintain Flexibility for Processes to Meet Future Regulations Cost Effective for Customers

18 Sustainability Goals -- Environmental Portfolio Approach to Optimize Power, Natural Gas, Water, Chemical Use Incorporate Sustainable Principles into Facilities Enhance Water Quality and Continue Environmental Stewardship of the River Limit Greenhouse Gas Emissions Whenever Possible Balance Competing Environmental Priorities

19 Sustainability Goals -- Social Be an Asset to the Community Be a Leader in Sustainability Mitigate Odors Raise Awareness of Environmental Benefits (Air Quality / Water Quality / GHG emissions) Form Partnerships to Contribute to Sustainable Community Development

20 Summary of Sustainability Goals Top Three from Each Category Environmental Optimize Power, Natural Gas, Water, Chemical Use Portfolio Approach to Minimizing Energy and Chemical Consumption Adopt LEED Principles Into Entire Facility Economic Optimize Power, Natural Gas, Water, Chemical Use Maximize Resource Recovery and Provide Flexibility to Market Changes (Biosolids) Maintain Flexibility for Processes to Meet Future Regulations Social Blend In with Community (Needs to Fit In With History of Community) Establish Sustainability Leadership and Image Provide Safe Working Environment and Minimize Industrial Exposure

21 CASE STUDY 1: DENVER MWRD NORTHERN TREATMENT PLANT

22 Case Study Example: Denver MWRD Northern Treatment Plant New 24 mgd Greenfield Wastewater Treatment Plant Conventional Activated Sludge (CAS) Conventional Activated Sludge Filtration (CAS+F) Membrane Bioreactor (MBR) New Effluent Discharge to South Platte River Effluent Dominated Evolving State Numeric Nutrient Standards

23 Value of Water Sensitivity Analysis Water is Highly Valued in Colorado Dominate External Value in SROI Analysis Investigate Treatment Process Selection Sensitivity to Valuation Approaches and Assumptions Conventional Activated Sludge (CAS) Conventional Activated Sludge Filtration (CAS+F) Membrane Bioreactor (MBR) No Value for Water Equivalent Value of Water Differential Value of Water

24 Value of Water Structure and Logic Diagram Value of Water: Colorado River, Reclaimed, Potable, Replacement Treatment Process, Nutrients, Trace Organics, Microbial

25 Typical Values of Water Along Colorado Front Range Description Source Average Value ($/acre ft) Colorado Big Thompson West Slope Single Use $6,000 South Platte Intra Basin Single Use $15,000 South Platte Denver Water Out of Basin Use to Extinction Potable Water Large Customer Denver Water Reclaimed Water Large Customer $25,000 $12,675 $8,250

26 Liquid Stream Treatment Process Comparison of Effluent Quality Phosphorus MBR mg/l > CAS+F mg/l Nitrogen TN 6 mg/l Trace Organics SRT 10 days Pathogen Risk MBR 3 to 4 Log Removal > CAS + F 2 to 3 Log Removal Rocky Mtn Water/South Platte R. Conventional Activated Sludge Reclaimed Water Potable Water Alternative: CAS + Filter Alternative: MBR Process Train Water Quality Description Phosphorus Nitrogen Trace Organics Pathogen Risk NH3N 2.04 to 4.6 mg/l NO mg/l 48 to 90% Removal Existing NPDES Permit Endocrine Disrupting Compounds and Implications for Wastewater Treatment. WERF 04 WEM Coag. + Media Filt. Coag. + Media Filt. Denver Water reclaimed process train similar to NTP CAS + F option to mg/l Phase 1 Treatment Goals TP 0.5 mg/l and TN 6 mg/l SRT 10+ days Equivalent No EDC removal data for CAS + F 2 to 3 Log Removal Lower SDWA filtration/disintection credit Membrane Superior Physical Barrier 0.05 to mg/l Membrane capable of Lower Effluent P SRT 10+ days Coag. + Media Filt. 70 to 99% Removal Equivalent Comments and References Endocrine Disrupting Compounds and Implications for Wastewater Treatment. WERF 04 WEM to 4 Log Removal Higher SDWA filtration/disintection credit

27 Value of Water Comparison Matrix Colorado Water Values Sensitivity Analysis of Effluent Valuation Water Type Median Range No Value Equivalent Value Differential Value $/AF Min Max $/AF $/AF $/AF Rocky Mtn Water/South Platte R. 4,900 7,000 Conventional Activated Sludge Baseline 0 7,000 7,000 Reclaimed Water 8,250 Alternative: CAS + Filter 0 8,250 8,250 Alternative: MBR 0 8,250 9,075 Potable Water 12,675 17,744 Incremental Water Purchases 15,000 45,000 Conventional Activated Sludge (CAS) South Platte River Irrigation $7,000/AF Conventional Activated Sludge Filtration (CAS+F) Reclaimed $8,250/AF Membrane Bioreactor (MBR) $8,250/AF or $9,075/AF 10% > Reclaimed $8,250/AF

28 Example Summary from SROI Framework Comparing MBR and CAS+F v. Baseline CAS CAS $7,000/AF CAS+F $8,250/AF MBE $9,075/AF CAS $7,000/AF CAS+F $8,250/AF MBE $8,250/AF Effluent Value $0 Differential Value of Water Equivalent Value of Water No Water Value SROI MBR vs. CAS CAS+F vs. CAS MBR vs. CAS CAS+F vs. CAS MBR vs. CAS CAS+F vs. CAS Incremental Net Cash Flow (First Full Year) $58,186 $41,992 $33,587 $41,992 ($3,056) $5,350 Incremental Biosolids Utilization Savings $888 $888 $888 $888 $888 $888 Incremental O&M ($4,880) ($2,194) ($4,880) ($2,194) ($4,880) ($2,194) Incremental Liquid Stream Energy Costs ($2,016) $523 ($2,016) $523 ($2,016) $523 Incremental Solid Stream Energy Costs ($326) ($326) ($326) ($326) ($326) ($326) Incremental Social Value of Water $61,242 $36,642 $36,642 $36,642 $0 $0 Incremental Social Value of Scope 1 GHGs Avoided $26 $26 $26 $26 $26 $26 Incremental Social Value of Odor Avoided $5,897 $5,857 $5,897 $5,857 $5,897 $5,857 Green House Gas Social Cost from Energy Use ($879) $124 ($879) $124 ($879) $124 Criteria Air Contaminent Social Cost From Energy Use ($1,765) $454 ($1,765) $454 ($1,765) $454 Net Present Value $302,185 $337,028 $66,921 $337,028 ($283,520) ($13,346) Return on Investment 27% 57% 17% 57% 2% 16% Discounted Payback Period N/A N/A Internal Rate of Return (%) 19% 35% 11% 35% N/A N/A Benefit to Cost Ratio FROI Expected Expected Expected Expected Expected Expected Net Present Value ($313,251) ($75,422) ($313,251) ($75,422) ($313,251) ($75,422) Return on Investment 1% 8% 1% 8% 1% 8% Discounted Payback Period N/A N/A N/A N/A N/A N/A Internal Rate of Return (%) N/A N/A N/A N/A N/A N/A Benefit to Cost Ratio NPV moves from negative FROI (all costs) to positive SROI when social costs and benefits of GHG, CAC, Effluent Water Quality, etc included

29 Example Net Present Value of MBR and CAS+F vs Baseline CAS with No Value of Water Value Effluent = 0 CAS+F SROI MBR SROI MBR more expensive than CAS+F and earns no value for benefits of improved effluent quality

30 Example Net Present Value of MBR and CAS+F vs Baseline CAS with Equivalent Value of Water Value Effluent CAS $7,000/AF CAS+F $8,250/AF MBR $8,250/AF CAS+F SROI MBR SROI Positive NPV for both MBR and CAS+F NPV CAS+F > MBR

31 Example Net Present Value of MBR and CAS+F vs Baseline CAS with Differential Value of Water Value Effluent CAS $7,000 CAS+F $8,250/AF MBR $9,075/AF CAS+F SROI MBR SROI Positive NPV for both MBR and CAS+F NPV MBR crosses over CAS+F

32 CASE STUDY 2: DENVER MWRD BIOSOLIDS OPTIMIZATION AND DIVERSIFICATION STUDY

33 Case Study Example: Denver MWRD Biosolids Optimization and Diversification Study Historical Program Land Application Based Recycling 2007 Biosolids Master Plan Recommendations Thermal Drying Diversification of Management Options Objective Incorporate Sustainability into Biosolids Initiative Planning

34 Biosolids Optimization and Diversification Study Farm Diversification Alternatives Optimize Farm Wind Farm Biosolids Diversification Alternatives Continue with 100% Class B with Expanded Private Composting Diversify into Class A with Thermal Drying at RWHTF and NTP Diversify into Class A with Thermal Drying at RWHTF only Diversify into Class A with Enhanced Digestion (CAMBI Thermal Hydrolysis) Biosolids Treatment Optimization Cell Lysis (OpenCEL) Pretreatment at NTP Combustion at NTP with Waste Heat Used to Thermal Dry Combined Heat and Power at NTP

35 Thermal Drying Initiative Selected and Then Reconsidered Thermal Drying was Recommended in 2007 Biosolids Master Plan Diversification Benefit was Not Well Understood Believed to be Vitally Important Risk Analysis Process (RAP) Session Team Reconsidered Costs v. Benefits

36 Alternative 3: Diversify into Class A Product With Thermal Drying at Both Treatment Plants (Distributed Thermal Drying) FROI Benefits Costs 1 Proven Performance Adjustment Days / Year Cost of Freight Transportation $ / Mile Reduced Freight Truck Miles Miles / Year Increased Revenue from Class A Biosolids $ / Year Increased Energy Consumption MWh or MmBTU / Year Average Electricity and Natural Gas Prices $ / MWh or MmBTU Incremental Capital Costs $ Cost of Increased Energy Consumption $ / Year Other Incremental O&M Costs $ / Year Capital Replacement Costs $ Benefit of Reduced Transportation O&M $ / Year Benefit of Incremental Revenues from Biosolids $ / Year Cost of Thermal Drying Equipment and O&M $ / Year 10 Discount Rate % FROI Reduced transportation costs to haul dried product Costs for drying equipment, increased energy use, etc

37 Alternative 3: Diversify into Class A Product With Thermal Drying at Both Treatment Plants (Distributed Thermal Drying) Internal SROI Add benefit of diversification Add public outreach benefit for stakeholder support

38 Alternative 3: Diversify into Class A Product With Thermal Drying at Both Treatment Plants (Distributed Thermal Drying) SROI Proven Performance Adjustment Days / Year 1 Benefits Costs Accident Cost per Freight Truck Mile ($/truck mile) Reduced Freight Truck Miles Miles / Year GHGs: Diesel Conversion Factor Tons / Diesel Gallons Reduced Diesel Consumption Gallons CACs: Diesel Conversion Factor Tons / Diesel Gallons GHGs Conversion Factor Tons / MWh or MmBTU Incremental Energy Consumption MWh or MmBTU / Year CACs Conversion Factor Tons / MWh or MmBTU Reduced GHG s from Diesel Consumption Tons / Year Reduced CAC s from Diesel Consumption Tons / Year Increased GHG s from Energy Consumption Tons / Year Increased CAC s from Energy Consumption Tons / Year Net GHGs Impacts Tons / Year Social Cost of GHGs $ / Ton Social Cost of CACs $ / Ton Net CACs Impacts Tons / Year From Alt 3 ISROI Reduction in Land Application % difference From Alt 3 ISROI Biosolids Sent to Landfill Base Case Dt/year 12 CO2E Emissions Avoided by Displacing Fertilizer Production Tons CO2E / Tons of fertilizer 13 Social cost of CO2 $ / Ton From Alt 3 ISROI From Alt 3 ISROI From Alt 3 FROI From Alt 3 FROI From Alt 3 FROI Benefit of Improved Safety (Truck Accidents) $ / Year Benefit of Diversification (Reduction in GHGs) $ / Year Benefit of Diversification (Reduction in Tipping Fees) $ / Year Benefit of Improved Public & Stakeholder Acceptance $ / Year Benefit of Incremental Revenues from Biosolids $ / Year Benefit of Reduced Transportation O&M $ / Year Cost of Thermal Drying Equipment and O&M $ / Year Cost of GHGs Increase $ / Year Cost of CACs Increase $ / Year Benefits of increased truck safety, transportation GHG s SROI 14 Discount Rate % Costs for GHG s, CAC GHGs - Carbon Dioxide (CO 2) - Methane (CH 4) - Nitrous Oxide (N 2O) CACs - Sulphur Dioxide (SO 2) - Nitrogen Oxides (NO X) - Particulate Matter (PM) - Volatile Organic Compounds (VOCs)

39 Biosolids Optimization: Monetized Alternatives Results Reflect All Costs and Benefits Financial Return on Investment (FROI) Traditional Cost Benefit Analysis Internal Sustainable Return on Investment (ISROI) Add Internal Denver MWRD Sustainability Factors Sustainable Return on Investment (SROI) Add Societal Costs/Benefits for GHG, CAC, etc. NPV moves from negative FROI (all costs) for all options to positive SROI for Class B Land Application when social costs and benefits of GHG, CAC, Effluent Water Quality, etc included

40 Net Present Value S-Curve Results for Thermal Drying Alternative SROI $142M Increased Societal Costs Outweigh Benefits (CHG, CAC, etc) Traditional FROI $125M Compared to Baseline 100% FROI ISROI SROI 90% 80% 70% Probability of Not Exceeding 60% 50% 40% 30% 20% 10% $142 $125 $124 0% -$160 -$150 -$140 -$130 -$120 -$110 -$100 Total NPV (Millions) Conclusion: Costs of Thermal Drying Outweigh Benefits When Sustainability is Considered

41 Thermal Drying Initiative Selected and Then Reconsidered Risk Analysis Process (RAP) Session Team Conclusion: Costs of Thermal Drying Outweigh Benefits When Sustainability is Considered It was not until we went through this process that I really saw the costs and benefits. Thermal Drying is not a good idea for us Steve Rogowski MWRD Operations Manager

42 CASE STUDY 3: SUSTAINABLE NUTRIENT REMOVAL AND NEXT LEVEL TREATMENT

43 Nutrient Sustainability Analysis: Algal Production Potential v. Greenhouse Gas Production 25,000 12,500 Algae Production per Treatment Level (lb algae/d) 20,000 15,000 10,000 5,000 0 Level 1 (No N/P Rem) Level 2 Level 3 Level 4 Level 5 10,000 7,500 5,000 2,500 0 GHG Emissions (CO2 eq mt tons/yr) Algae Production GHG Emissions Water Environment Research Foundation (WERF) Striking the Balance Between Wastewater Treatment Nutrient Removal and Sustainability November Secondary Treatment (No nutrient removal) 2. Biological Nutrient Removal (BNR) TP 1 mg/l TN 8 mg/l 3. Enhanced Nutrient Removal (ENR) TP mg/l TN 4-8 mg/l 4. Limit of Treatment Technology (LOT) TP <0.1 mg/l TN 3 mg/l 5. Reverse Osmosis (RO) TP <0.02 mg/l TN 2 mg/l

44 Biological Phosphorus Removal (0.3 to 1.0 mg/l) v. Next Level Treatment w/effluent Filtration (0.100 to mg/l) Benefits Water Quality Improvements Costs Capital Costs Tertiary Filtration System Operating Costs Tertiary Filtration Chemical Solids Production Biosolids Management Increase Truck Hauling Increase Utilization/Disposal Increase Electrical Power Consumption Inter-stage Pumping Greenhouse Gas Production When does it make sense to go to the next level of treatment?

45 Potential Impacts to Improvements Cash-Costs Additional Capital Expenditure Costs Additional Annual O&M Costs Social & Environmental Benefits? Water quality improvements. how to value? Social & Environmental Costs? Additional cost impacts...how to value? SROI will assist in making the optimal decision for the facility improvements in meeting the next level of TP limits to determine if there is a net benefit or cost to society from a triple bottom line perspective

46 SROI High-Level Valuation Diagram Social benefits: water quality improvements as determined by the value placed on water quality improvement by the local population: recreation, habitat, and ecological impacts Social costs: the costs of accidents, congestion, pavement damage, and increase in GHG and CAC emissions from increased truck miles traveled, as well as the social cost of state generated nuclear power, and the GHG and CAC impacts from electricity consumption and Alum and Polymer use

47 Water Quality Improvement Benefits Variables to Define 1. Quantifying a change in the water quality versus the base case 2. The number of users and non-users impacted by the water quality changes 3. The monetary value of a change in water quality

48 Water Quality Improvement Benefits Analytical Approach 1. Quantifying a change in the water quality versus the base case Relate Nutrient Loads to Water Quality Response Variable (i.e. Chlorophyl-a) and convert to change in Water Quality Index (WQI) Water Quality Monitoring Data Analysis or Modeling 2. The number of users and non-users impacted by the water quality changes Based on Census data or other location specific data 3. The monetary value of a change in water quality Willingness to Pay (WTP) for a change in WQI Using meta-analysis techniques commissioned by the EPA (2007 study used 131 WTP estimates from 18 studies) Basis for linking in-stream chemical, physical, and biological characteristics to human-based economic value estimates

49 Example SROI Analysis Results: Benefits v. Costs $1,000 $500 $0 $500 $1,000 Water Quality Benefits Capital Costs Social & Environmental Costs O&M Costs $1,500 Significant benefits to improved water quality; however, the capital and O&M costs are significantly greater, and there are additional social and environmental costs related to the improvements.

50 Benefits of Sustainable Return on Investment (SROI) Analysis Cost-Benefit Analysis Based Approach Triple Bottom Line Economic, Social, Environmental Cash, Non-cash, and Externalities Provides a Full Range of Possible Outcomes Generate Consensus by Being Both Interactive and Transparent Fosters Internal Approval Public Support Funding Opportunities 50

51 Using Sustainable Return-on-Investment (SROI) as a Tool for Ranking Projects David L. Clark and Stephane Larocque, HDR Engineering, Inc. Dave.clark@hdrinc.com and Stephane.larocque@hdrinc.com July 26, 2012

52 Q&A

53 Process Flow Diagram Potable Water (Denver Water)

54 Process Flow Diagram Reclaimed Water (Denver Water)

55 Example Wastewater Treatment Trace Organics Removal Efficiencies Compounds AS AS+MF MBR Naturally Occurring Steroids/Sterols Alkyl Phenols 5-90 >90 Total Estrogenic Activity 94 >80 17a-ethinylestradiol (EE2 synthetic contraceptive) 71 >95 17b-estradiol (E2 natural hormone) >95 Estriol (hormone metabolite) >97 >90 Estrone (E1 hormone metabolite) 48 >70 Bisphenol A (anti-oxidant in plasticizers) >90 >90 Nonylphenol (surfactant detergent, contraceptive) 62 >60 Androgen Activity 99 >99 Testosterone (steroid hormone) 90 >99 Octylphenol 80 >70 GREEN: Technical Brief: Endocrine Disrupting Compounds and Implications for Wastewater Treatment. WERF 04-WEM BROWN: Removal of Endocrine Disrupting Compounds In Water Reclamation Processes. WERF 01-HHE-20T

56 Typical Log10 Removal Credits Long Term 2 Enhanced Surface Water Treatment Rule (LT2 Rule) Technology Virus Giardia Cryptosporidium Direct Filtration Conventional Low Pressure Membrane*