VANCOUVER, Oct. 27, 2014 /CNW/ - A new analysis of Metro Vancouver's business case for a proposed second waste incinerator finds estimated costs could be off by $806 million to $1.3 billion.
In its report, ICF International (ICF) identifies a number of errors and incorrect economic and engineering assumptions which could result in a total project cost of $1.8 billion to $2.3 billion, a range which is more than 80% greater than Metro Vancouver's business case estimation of $1 billion.
"The assumptions built into our analysis recognize known risks and sensitivities, and best practices when it comes to projects of this nature and scale," says Duncan Rotherham, vice president for ICF International in Canada. "We employed an identical approach to Metro Vancouver's and remained neutral to the specific incineration technology and site location. In our experience, a prudent approach provides a much more accurate and realistic price tag for projects of this scale."
In particular, Metro Vancouver significantly overestimated the revenue it would earn by selling electricity from the new incinerator to BC Hydro over a period of 35 years. A more realistic and prudent scenario would see BC Hydro adjusting the price it pays for electricity once Metro Vancouver's capital outlay is recovered (after 15 years, according to Metro Vancouver's estimates). Assuming Metro Vancouver were to successfully negotiate a rate of $100/MWh for the first 15 years of operations, that price could realistically be renegotiated thereafter to $43/MWh (the rate recently negotiated with the existing Burnaby WTE facility) for years 16-35. This oversight in Metro Vancouver's business case for the new incinerator adds $362 million to the estimated $1 billion project cost.
Belkorp Environmental Services Inc. (BESI) commissioned ICF to conduct the analysis of Metro Vancouver's April 2014 business case for a new waste incinerator. ICF will present its findings today to the City of Coquitlam Council. Earlier this year, the City of Coquitlam requested an updated business plan for the incinerator project.
Russ Black, Vice-President of Corporate Development for BESI, commends the City of Coquitlam for seeking confirmation on Metro Vancouver's estimates.
"This report contributes timely expert analysis to the discussion about the business case for incineration. The proposed second incinerator would have significant and long-term implications for the recycling and waste management sectors and municipal budgets, and the business case therefore should withstand any scrutiny. We are happy to provide this report to municipalities and the regional government and hope it will be welcomed as they consider how best to meet waste diversion and other objectives," he says.
Key Findings and Potential Impacts
Metro Vancouver made errors and incorrect assumptions in its business case, including overly aggressive revenue targets for recovered metals, and other calculation and technical errors, totaling $178 million. These fundamental errors and incorrect assumptions were factored in as ICF established a corrected base case for analysis.
Metro Vancouver significantly overestimated the revenue it would earn by selling electricity from the new incinerator to BC Hydro. Specifically, Metro Vancouver assumed a new incinerator would receive $100/MWh over its entire 35-year life cycle. Metro Vancouver failed to consider that once the capital outlay is retired (Metro Vancouver estimates this would occur in the first 15 years), BC Hydro would adjust the rate as return on capital debt would no longer be applicable.
Assuming Metro Vancouver were to successfully negotiate a rate of $100/MWh for the first 15 years of operations and further assuming this rate were renegotiated thereafter to $43/MWh (the rate recently negotiated with the existing Burnaby WTE facility), the total project cost over the 35-year study period would be approximately $540 million greater than the total net nominal cost in the Metro Vancouver business case (including the ICF base case correction of $178 million).
The Metro Vancouver business case for incineration does not include a contingency for operating and maintenance (O&M) costs. It is prudent to apply a contingency to the wide range of known O&M costs. A suggested 15% contingency (similar to what Metro Vancouver has applied to other projects) results in an increase in cost of $491 million (including the ICF base case correction of $178 million).
The issues detailed above highlight the study's main findings. The study models cost outcomes based on a number of possible scenarios, and reports a range of possible project costs. The full ICF report and complete analysis will be available today at approximately 2pm Pacific Time at www.belkorp.com.
About ICF International
ICF International provides professional services and technology solutions that deliver beneficial impact in areas critical to the world's future. ICF is fluent in the language of change, whether driven by markets, technology, or policy. Since 1969, we have combined a passion for our work with deep industry expertise to tackle our clients' most important challenges. We partner with clients around the globe—advising, executing, innovating—to help them define and achieve success. Our more than 4,500 employees serve government and commercial clients from more than 70 offices worldwide. ICF's website is www.icfi.com.
About Belkorp Environmental Services Inc. and the Belkorp Group
The Belkorp Group, primarily through Belkorp Environmental Services Inc., is currently involved in recycling and waste disposal services in Greater Vancouver and in the Thompson Nicola Regional District, and actively supports the adoption of a zero waste philosophy in the province. One of Belkorp Environmental Services' affiliates is NextUse Recycling Ltd., a new recycling business taking a progressive approach to waste management, focused on material recovery and recycling which provides new opportunities to local remanufacturers and other members of the green economy. One of the Belkorp Group's other subsidiary companies is AtSource Recycling Systems Corporation, a leading supplier of waste and recycling equipment across Canada, including a large selection of organic digesters, balers and compactors. Wastech Services Ltd., a related Belkorp Group company, owns and operates a landfill in Cache Creek, BC.
SOURCE: Belkorp Environmental Services Inc.
For further information: Nancy Grenier, Belkorp Environmental Services Inc., 778.994.3485 | [email protected]