INVESTMENT PROPOSAL: THE CASE BANSKO Closed landfill on Bansko municipality, in Southwestern Bulgaria near the city of Bansko

INVESTMENT PROPOSAL: THE CASE BANSKO Closed landfill on Bansko municipality, in Southwestern Bulgaria near the city of Bansko

The case of Bansko General information: - Closed landfill on Bansko municipality owned terrain 59,965m 2 in Southwestern Bulgaria near city of Bansko - GPS coordinates: +41 50' 2.28" North, +23 31' 31.42"East - The landfill was closed in 2012 - Infrastructure in place service road connecting the landfill with the main road 19 - The landfill is located very closed to the city of Bansko, just 1.6km from the most Eastern part of the city and 2.6km from the city center - There is a low/medium voltage grid line 350m away from the site. The local grid operator is CEZ Bulgaria and it is the responsible institution for issuance of the grid connection permit - The waste volume of the depot is 400,000m 3 equivalent to 220,000 tonnes of municipal waste - Biomass available for electricity generation, good solar conditions 1150kWh/kWp per year for a crystalline PV technology, poor wind conditions low annual mean wind speed - There aren t any known Natural, Environmental, Technical/Infrastructural, Socio cultural or Legal constraints that would restrict construction of a RE power plant Figure 1: Bansko city and the nearby closed municipal waste depot

Technical analysis: The investigated terrain has a surface area of 59,000m 2 and the waste deposited there equal 400,000m 3. It is predominantly municipal waste, but due to poor control, construction materials, electronic waste and chemicals could also be found at the landfill site. The actual production of biogas from the landfill depends on the waste composition, the volume, the conditions (temperature, pressure, humidity) and the age of the waste deposited. It is hard to determine the exact values of those parameters due to the lack of information about the ratio of different types of waste landfilled on the site. The conditions and the yield in terms of landfill gas as well as the proportion of methane in it could be determined with field tests. It is recommended to perform the tests for completion of a detailed feasibility study. For the purposes of the current preliminary pre-feasibility study general assumption about the unknown parameters were made. The weight of the waste could be estimated from its volume [1]and in our case equals 220,000 tonnes with average density of 0.55 tonnes/m 3. That amount of waste could generate up to 9,600,000m 3 of methane gas over a period of 15 years taking into consideration the conditions and the type of waste deposited [2]. The generation rate of landfill gas from the waste depot would vary throughout the years; the methane production is expected to peak betweenthe 5 th and 7 th year after the wastes are dumped. Subsequently the peak will turn into a plateau, reaching the highest possible methane production and sustaining it for a period of several years. Then a decline in production is observed and shortly after, the process of methanization will be completely ceased. Those characteristics are extremely important for sizing a Power plant(pp) running on LFG. For example during the first couple of years the PP could operate with only one engine and when the peak in LFG production is reached additional engine could be set to utilize the extra LFG[3]. For simplicity, in the case study for Bansko, LFG production is considered to be constant throughout the 15 years period. The expected volume of methane is 117.33 m 3 per hour, which could generate 398.35kWh of electricity if the PP is working with electrical efficiency of 35%. The size of the system is defined taking into consideration the total amount of methane generated during the 15 years period and the yearly availability of the PP, which indicates how many hours per

year the PP will be working on full capacity (full load hours). The chosen system will generate only electricity and its nominal electric power is 400kW. The type of technology used is an Internal Combustion Engine (ICE) running on natural gas and/or LFG (Figure 2). It was preferred over the other options, because of its simplicity, reliability and low investment costs. Internal Combustion Enginesprovide power output from 10 kw to 10 MW e with electric efficiency ranging from 25% up to 45% depending on the size. The electrical efficiency of a system with capacity of 400kW is around 35% [4][5] Figure 2: TCG 2016 gas engine with capacity of 400kWe manufactured by MWM[6] The PP will provide only electricity and will work on full load 5000hours per year for a period of 15 years. The system is considered to be relatively small but the amount and the quality of the waste on the landfill doesn t allow installation of a larger PP. The period of operation (15 years) is short, but it could be extended, if alternative supply of methane is found. The landfill gas could be substituted by natural gas or methane derived from the animal and plant wastes coming from the local farms. Economic analysis: The main costs are associated with the ICE, the gas collection system and the annual costs for operation and maintenance. Unfortunately, the landfill in Bansko doesn t meet the necessary sanitary requirements and did not have a gas collection system. The price for developing one is estimated to be0.7474 per tonne of waste, in our case and investment of 164,428 is needed, because the total amount of waste is 220,000. The price of the engine is 345,000 or 1,725 /kw and the costs for

building a 2.3km pipeline to transport the hot water are expected to be around 250,000. The total initial expenses for the whole system are estimated - 823,200, they include the aforementioned costs and the costs for feasibility study, engineering, administration costs, transmission line construction, transportation, air filters and monitoring system and salaries for the personnel employed. Moreover, costs for operation and maintenance (O&M) have to be included 30,000 /year All the numbers and price estimations have been acquired from a report[7] prepared for EPA (United States Environmental Protection Agency) and a report [3] prepared for the Ministry of Environment of British Columbia. The prices in both reports have been compared to the ones provided by a Bulgarian distributor of biogas systems -Ecorai-Energy EOOD (Single Member Limited Liability Company). Ecorai- Energy offers lower prices but for the current case study the foreign report estimations have been used. For the detailed economic analysis the following parameter were applied: - Fuel cost escalation rate = 3% - Inflation rate = 5% (round up five year average for Bulgaria[8]) - Discount rate = 10% - Project lifetime = 15 years - Depth ratio = 70% of the money will be lend from the bank - Depth interest rate = 5% (average for large business credits in Bulgaria) - Depth term = 10 years - Depth payment per year = 52,321 - Income tax = 10% (Corporate income tax determined by the Corporate Income Law) According to the Bulgarian legislation (Renewable Energy System Act, 2012) electricity generation from biogas or LFG is supported by a feed-in tariff (FiT) system. In the current case study the tariff, for 1kWh electrical energy generated is 0.1091. The total annual income from electricity generationis expected to be 218,749. From it each year the costs for O&M (56,980 ) and the depth to the bank (52,321 ) have to be subtracted. The remaining revenues after the 10% income tax are 98,503 per year. The Internal rate of return (IRR) after tax on equity and on assets are positive, being 50.3% and 12%. They are an indicator for the economic viability of the project, which in our case is expected to be very attractive and profitable. The net present value (NPV) equals 470,099. It is showing the value of all

future cash flows, discounted at the discount rate, in today's currency[9]. The NPV is an indicator for the financial feasibility of a project, if it is positive then the project is considered to be financially acceptable. Another important parameter is the Equity Payback Period, showing the break-even point, 1.9 years will be needed to cover the equity investments and the loan will be completely paid after 10 years. The cumulative cash flows are shown on the figure below: Figure 3: Cumulative cash flows - 15years period[10] The PP in Banskois not only showing a good financial viability, but in a long term it will contribute significantly to the municipality energy supply. The project could be extended beyond the 15 years period. The neighboring farms could supply additional quantities of methane after the depletion of the LFG. Another opportunity is to fuel the PP with natural gas. Expected benefits of the project: - The municipality will make profit by selling the generated electricity - The closed landfilled will be rehabilitated - A project of such kind is expected to create up to 2 permanent jobs and 20 jobs during the peak of construction - Significant emission reductions of 1,201tonnes of CO 2 per year are expected, equivalent to 220 cars not being used

- The operating PP will be a good example for the local municipalities how they can transfer a land with low economic value into a sustainable and profitable project. Regulations on power establishment For the realization of BanskoPP project, the Bulgarian legal procedures have to be followed: 1. Registering a firm/company 2. Purchasing a land or renting a land. 3. Change the designation of the agricultural land (if the land is not marked as technical land in the municipality s development plan) into a technical land and obtaining a legal right for Biogas installation. Conversion of agricultural land for non-agricultural uses is permitted depending on the productive quality of the land and the objective to change. The owners of the land make a request to the mayor for its inclusion within the construction limits of the settlements and to change its purpose-art.20a PALA (Agricultural LandProtection Act)[11] 4. Estimation about the necessity of evaluation of the project impact on the environment; 5. Evaluation for compatibility under art. 31 of the Biodiversity Act for projects or investment proposals which separately or interacting with other projects or investment proposals, can negatively impact the protected areas 6. Preparing an elaborate development plan (EDP), including technical and financial details about the project. 7. Receiving a visa for engineering and construction from the local municipality 8. Submitting a request to the transmission or distribution company for investigation of the conditions for grid connection 9. Acquiring a building permit from the municipality chief architect or the regional chief architect 10. Signing a Preliminary contract for grid connection with the electricity transmission or distribution company 11. Construction and installation of buildings, structures, networks and facilities under art. 12, para.1 of SPA (Spatial Planning Act). 12. Signing a contract for Grid access 13. Signing the final Contract for grid connection with the local electricity company 14. Carrying out series of control test of the facilities and installations checking the performance, the operation parameters and the safety regulations under art. 175, para. 1 of SPA

15. After the successful completion of the required tests the municipality issues the final commissioning documents 16. Signing a contract for Purchasing of the generated electrical energy The regulations mentioned above apply only for the electricity generation. For the construction and commissioning of a biogaspower plant in Bulgaria several institutions on regional and national level have to be addressed: The Ministry of Agriculture and Food The Ministry of Regional Development The Ministry of Environment and Water State Commission on Energy and Water Regulation The local municipality the development department, the chief architect The regional architect The local electricity distribution company or the national Electricity System Operator (ESO) The procedure is considered to be complicated due to the number of the involved parties and the lack of unified body responsible for issuance of the necessary documents. The departments are often not familiar with the exact practices regarding biogas power plants and prolong the deadlines for issuance of certificates, permissions, visas and other papers. According to a national survey [11]from Energoproekt JSC part of the Intelligent Energy Europe Programme, the main barriers for the biogas project developers in Bulgaria are: Process Barriers Severity* Complicated land use change procedure. Ban for Administrative process Administrative process Administrative process Funding Acquiring Grid connection permit Administrative process designation of agricultural land on 40% of the Bulgarian territory The permitting procedure is long and complicated Too many authorities are involved during the realization of a biogas project It is hard to find external financing Missing guarantees for grid access Varies fees add great external costs to the project Table 1: Main barriers for realization of biogas project in Bulgaria [11]

*The most problematic processes during the realization of a biogas project are marked in red stages associated with difficulties are in orange., the In Bulgaria, the electricity generated by biogas power plants (PP) is supported by a FiT system. For the combined cycle, heat and power, there is a higher tariff, but it only applies for Combined Heat and Power Plants(CHPs) between 500kW - 1.5MW and 1.5MW 5MW utilizing waste biomass from animals and plants. Thus the utilization of municipal waste through CHP plant is not attractive enough, because there aren t any incentives for the generated heat. The feed-in tariffs for biogas PP are shown below: Categories FiT in BGN/MWh excluding VAT from July 1st 2011 until June 30th 2012 FiT in BGN/MWh excluding VAT from July 1st 2012 until August 31st 2012 FiT in BGN/MWh excluding VAT from July 1st 2013 till NOW 1. Power Plants (PP) using biogas from municipal waste with 263.83 243.40 225.27 capacity up to 150kW 2. PP using biogas from municipal waste with capacity from 150kW 253.03 234.09 213.90 up to 500kW 3. PP using biogas from municipal waste with capacity from 500kW 243.86 226.14 206.32 up to 5MW 4. PP using biogas from animal and plant biomass with capacity 432.81 472.63 453.12 up to 500kW 5. PP using biogas from animal and plant biomass with capacity 405.61 452.14 434.13 from 500kW up to 1.5MW 6. PP using biogas from animal and plant biomass with capacity 335.19 402.66 387.53 from 1.5MW up to 5MW Figure 4: Current fit-in tariff for electricity generation from biogas and fit-in tariff change during the last two years[12]

The prices in the table are in BGN per MWh fed into the electricity grid. To obtain the price in EUR per MWh the numbers should be multiplied by BGN to EUR exchange rates (1 BGN for 0.51 EUR, August 2013). The fit-in tariff for electricity generation using biogas derived from animal and plant biomass is the most attractive, especially in the period from July 2012 to July 2013. The problem is that in Bulgaria there aren t any large farms or plantations, therefore the maximum capacity of a biogas PP running on that kind of wastes could hardly exceed 1MW. The only opportunity for construction of a larger biogas PP is by having contracts with several farmers to supply the required biomass. In that case additional risk, due to the multiple dependencies, is added to the project. Despite the attractive fit-in tariff, there are only 5 biomass power plants [13] in the country of which 3 are running on biogas while the others are directly burning woody biomass. Stakeholder analysis: The stakeholders have been identified as well as their direct and indirect relations to the realization of Banskopower plant. The main drivers for the completion of the project are the ones that have the greatest interest. These are the local municipality and the project developers/installers. They will both benefit from installation in terms of money. Additional benefits are expected for the municipality such as job creation, economic development opportunities and rehabilitation of the problematic terrain. The stakeholders that act like a break are CEZ and the local competitors. CEZ has no need to connect additional capacities to the electricity network, because there is already an oversupply in Bulgaria. Another concern of CEZ is the grid stability due to the fact that the transmission lines and the existing stations are old and partially overloaded. If the municipality applies for EU funding and requests a credit from the bank, it has good chances of getting both. The main European funds that could allocate money for the realization of the project are: Energy Efficiency Fund, European Fund for Regional Development and the European Agricultural Fund for Development of the Rural Areas. By receiving additional money from the European Union the initial expenses of the municipality for the construction of PP are going to be considerably reduced.

Stakeholder Power Influence Needs AIH* LIH HIH MIH Concerns The financing and the Municipality Low High Strong grid connection has to succeed Developers/ Installers Medium Low Strong Worried about financing and grid connection Banks High High Weak Want to have a guarantee EU Funds High to Medium Low Medium Concerned about the viability of the project Does not want to CEZ High Low Weak connect additional capacities Positive public Consumers Low Low Strong opinion regarding waste utilization Local competitors Low Low Strong Table 2: Stakeholder analysis Want to keep their leading supply role *Key: AIH Against it happening; LIH Let it happen; HIH Help it happen; MIH Make it happen

SWOT analysis To ease the decision making process, for the people responsible in the municipality and to do a preliminary estimation of the risks, a SWOT analysis has been made. It evaluates the Strengths, Weaknesses, Opportunities and Treats involved in the project. Strengths Weaknesses Ensure partial energy independence Political support on municipal and European level Funding support from the EU development funds Positive environmental impact Local job creation Additional source of income for the municipality Positive public opinion regarding waste utilization The project is very complex and involves several parties Requires construction of infrastructure Safety concerns - leaks, explosions A conflict of interests might arise between the current suppliers electricity and the municipality Opportunities Positive impact on the local economy Usage for educational purposes Improved life standards of the local people Possibility for energy demanding industries to develop their production lines in the municipality The waste heat could be used as a process heat in the industry Threats Rejection of funding Possible time delays for the administrative procedures, the technical part and/or the financing Instability of the Bulgarian legal framework regarding renewables unpredictable changes in the FiT tariff, introduction of varies fees (like the grid access fee), changes in the Renewable Energy System Act Possibility of unpleasant odors near the site Table 3: Project's SWOT analysis

References [1] HSMO, "Waste management paper no. 26B," Landfill design, construction and operation practice, p. 189, 1995. [2] I. Ganev, "Validation of a model predicting the mean, annual landfill gas generation in landfill Suhodol," Periodical of the Technical University - Sofia, pp. 193-198, 2012. [3] Conestoga-Rovers & Associates, "Landfill gas management facilities design guidelines," British Columbia Ministry of Environment, 2010. [4] F. Fantozzi, S. Ferico and U. Desideri, "Study of a cogeneration plant for agro-food industry," Applied Thermal Engineering, vol. 20, no. 11, pp. 993-1017, 2000. [5] Smole et al., "KWK-Potentiale in Österreich," E-Bridge Consulting GmbH, Villach, 2005. [6] MWM, "TCG - efficiency straight down the line," 2013. [Online]. Available: http://www.mwm.net/uploads/tx_mwmdownloads/gas-engine_tcg-2016_en_01.pdf. [Accessed 15 November 2013]. [7] Energy and Environmental Analysis Inc. an ICF Company, "Technology Characterization: Reciprocating Engines," Arlington, 2008. [8] The World Bank, "Inflation, GDP deflator," 2013. [Online]. Available: http://data.worldbank.org/indicator/ny.gdp.defl.kd.zg/countries/bg?display=graph. [Accessed 4 August 2013]. [9] RET Screen International, "NPV Definition," RET Screen International, 2012. [10] RET Screen International, "Cumulative cash flows," RET Screen, 2013. [11] L. Yavashev and P. Apostolov, "Permitting procedures for biogas projects in Bulgaria," ENERGOPROEKT JSC, Sofia, 2010. [12] State Commision on Energy and Water Regulation, "Decision C-19," 28 June 2013. [Online]. Available: http://www.dker.bg/files/download/res-c-19-28062013.pdf. [Accessed 1 July 2013]. [13] Sustainable Energy Development Agency, "Register of Green certificates," 2013. [Online]. Available: http://www.seea.government.bg/index.php?option=com_content&view=article&id=9279&itemid=234 &lang=en. [Accessed 6 July 2013].