Commissioner Patricia Aho
Department of Environmental Protection
17 State House Station
Augusta, ME 04333 September 30, 2013
Re: Bingham Wind Project Comments
Dear Commissioner Aho:
In response to recent revisions to applicant submissions, please accept the following comments and recommendations from Friends of Maine’s Mountains (FMM).
To be sure, FMM has never supported a mountain-based grid scale wind project, and we are unlikely to alter that position until we are persuaded that a project’s benefits exceed its impacts. Accordingly we oppose Bingham Wind Project (BWP). But this is not mere NIMBYism; it is critical thinking. Our analysis of BWP is fact-based and empirical, using the application materials and available data from objective sources like the US Energy Information Agency (EIA) and the Independent System Operator-New England (ISO-NE).
Following is our impact/benefit comparison, then our decommissioning comments.
The application and agency review documents in the case file readily acknowledge that a project built to the scope and scale contemplated by BWP will have massive impacts. Our remarks here are limited to environmental / economic impacts. We tolerate some level of impacts with every form of development, but we must ensure that the countervailing benefits exceed the impacts. If they do not, we should deny the permit. Accordingly, FMM asks you to assess net tangible benefits for BWP. It has been our experience that the public still perceives wind development to be higher in benefit and lower in impact than it actually is. The general public and the environmental activism community have been quick to accept presumptions and assumptions, and slow to view grid-scale wind through a critical, empirical lens. So we are pleased to see the Department undertaking an assessment that looks beyond presumptions and assumptions so that you can accurately quantify net tangible benefits.
BIG ENVIRONMENTAL IMPACTS
Wildlife Canada Lynx, Roaring Brook Mayfly, Brook Trout, Rainbow Trout, Atlantic Salmon, Northern Spring Salamander, multiple Bat species (some gravely threatened), Bald Eagles, Eaglets, and Nests, and possible Golden Eagles (which roam thousands of miles).
Habitat High Quality Cold Water Resources, Mountain Watershed, 34 streams crossed by a 100-foot clearing that removes shade, “Critical” Salamander and Salmon habitat, 40 acres of wetland, permanent removal of 250 forested acres. 206 acres cleared for a generator lead line.
Landscape 17 miles of 38-foot crane paths, 5.3 miles of expanded roads, 62 x 375-foot diameter turbine pads, Two million cubic yards of cut, almost one million cubic yards of fill.
Scenic Four resources listed on National Register of Historic Places, three great ponds rated “outstanding” for scenic quality, two rivers, one scenic turnout, and the Appalachian Trail. Night sky will be significantly altered, even if radar-activated lighting is deployed. An intercept survey (about 60 people) was completed, but the results of these are predictable and largely immaterial.
# The Department should count these individual and cumulative environmental impacts on an undeveloped area when considering net tangible benefits.
BIG ECONOMIC IMPACTS
Maine’s and the Region’s electric grid is constrained, even as billions are being spent to fortify our T&D system. The Public Utilities Commission recently approved Central Maine Power Company’s 19% T&D increase, and all experts anticipate additional increases system-wide. Wind power is an expensive proposition for T&D. It is even more expensive when located in remote areas with harsh conditions. The ISO-NE forecasts T&D upgrades capable of handling our wind power goals to cost as much as $25 billion, even as load growth projections are essentially flat. The issues of curtailment and negative pricing will further exacerbate ratepayer impact. The energy cost (excluding T&D) of wind power has recently fallen, but even its best prices are double the market rate. The 2012 ISO-NE year-end average price was 3.8 cents per kWh. Wind power contracts are generally from 8 cents to 15 cents. In no other market do we see such a low quality product commanding such a high price. At hours of low-load, wind generators often bid into the stack at still lower, even negative prices. But this does not save us money because necessary generators must remain operational and are still being compensated via capacity payments and higher O/M costs that are recovered from ratepayers.
A. The Department should weigh these economic impacts when assessing net tangible benefits.
IMPACTS NOT ASSESSED
– Our environmental impact assessment does not count the carbon and other environmental impacts from concrete, fiberglass/composite turbine manufacture, construction activity, lost forest sequestration, and rare earth. Nor do we count the regional environmental impacts resulting from concomitant transmission infrastructure upgrades, or operational inefficiencies rendered onto the grid’s conventional generators when wind generation proliferates.
B. The Department should assess these environmental impacts in determining net tangible benefits.
– Our economic impact assessment does not count taxpayer costs, which are separate from – and additional to – ratepayer costs. Most of the additional $400 million cost of BWP generation assets will be recovered from ratepayers, to the extent that about one third of the costs will be recovered from taxpayers. Nor do we count the statewide opportunity cost from high electric prices. One note on “jobs.” While approximately 300 Maine businesses have worked on wind power construction, that cadre represents less than one percent of the 35,000 Maine businesses that are required to pay the cost. If the former cohort adds 100 employees while causing the elimination of 10,000 employees from the latter, we cannot count a NET tangible benefit. Maine could spend billions paying people to dig holes and fill them in again, but we would be wise to also get something of value in exchange for creating all those jobs. We would rather be commenting on the environmental and economic benefits of spending this $400+ million dollars on efficiency upgrades, rooftop solar panels, fuel conversions, transport investments, etc. To use the “socialized” cost model applicable to T&D, we can assume that at least 8% of BWP’s costs, or $32 million) will be unnecessarily extracted from the Maine economy. With a median income of $27,000, Maine would lose the equivalent of 1185 jobs because of BWP.
C. The Department should consider these economic impacts in determining net tangible benefits.
Please read carefully the tangible benefits section of the application submissions. We assess those, as well as real and perceived benefits. Broadly assessed, the benefits of BWP are environmental and economic. As above in IMPACTS, here we more critically assess those benefits.
D. Additionally, we strongly urge the Department to read with a critical eye the applicant’s tangible benefit presumptions, omissions, and dubious claims, and to make adjustments as appropriate to your calculation of net tangible benefits.
The applicant projects electrical output of 551,000 mWh. As no fuel would be burned, this might be counted as a benefit, even if the grid does not need – and often cannot use – the power. We note that the 551,000 mWh projection is predicated upon a 33% capacity factor. Last year all Maine wind projects achieved under 25% capacity. We have no reason to believe that the relatively low-elevation of BWP will perform better. This is important because tangible benefits such as emissions-reductions will be directly influenced by generation capability. However, for purposes of this assessment, we will allow the generous 33% presumption. Wind’s environmental benefit is quantified by the dirtier generation that it can theoretically replace or displace. We note that wind generation does not necessarily replace or even displace conventional generators. Because of the fatal combination of intermittence and unpredictability, wind generators cannot do the sort of work that base load and peak load generators do. Because it is non-dispatchable, it is incapable in most instances to do the work of load-following generation. Working in tandem with more nimble hydro, gas, and biomass generators, wind can displace some conventional generation. But considering the foregoing limiting characteristics, as well as real factors like congestion and curtailment, it is safe to say that BWP will not replace or displace anywhere near 551,000 mWh of dirty generation. Again, for purposes of this assessment, we will go with the generous projection.
E. The Department should use a more realistic performance projection (based on experience) to get an accurate accounting of net tangible benefits.
At 551,000 mWh, the applicant extrapolates theoretical avoided annual CO2 emissions of 228,000 tons. Using the most recent EIA data, anthropogenic CO2 emissions from all Maine sectors were 18.52 million tons in 2010. The electricity generation sector was responsible for about 18% of that total, or 2.73 million tons. The remaining 82% came from the transportation, residential, industrial, and commercial sectors (with transportation responsible for almost half). The (optimistic) projection of 228,000 tons from BWP would mean a CO2 reduction of .8% from the Maine electricity sector, and .012% from all Maine sectors. As a percentage of the New England electricity sector CO2 emissions, BWP would avoid .0014%. And as a percentage of the US electricity sector CO2 emissions, BWP would avoid .00004%. These generous numbers are about as “tangible” as a grain of sand.
F. The Department should use empirical emissions data per above in determining net tangible benefits.
MONEY & JOBS:
The application clearly lists the local tax revenues and other funds that will accrue to various recipients. We cannot count any net gain in employment. See explanation above, in IMPACTS.
G. The Department should do its best to use realistic numbers for the above in its calculation of net tangible benefits.
BENEFITS NOT ASSESSED
– Our emission reduction environmental assessment does not deduct the carbon impacts from concrete, fiberglass/composite turbine manufacture, construction activity, and lost forest sequestration. Nor do we deduct the regional environmental impacts resulting from concomitant transmission infrastructure upgrades, or operational inefficiencies rendered onto the grid’s conventional generators when wind generation proliferates.
H. The Department should calculate and deduct these impacts for determining net tangible benefits.
CONCLUSION ON NET TANGIBLE BENEFITS
The massive environmental and economic impacts of the BWP, compared to the negligible benefits, lead us to oppose the project. If the benefits could clearly be demonstrated to exceed the impacts, we, as a protector of mountains, would be inclined to support it. Even using the optimistic projections and dubious assertions of the applicant, the disparity between impacts and benefits is too great.
Maine has the third lowest state CO2 emissions from electricity generation in the nation. Depending upon what Vermont does next year, we could be #2. Our Renewable Portfolio Standard is by far the highest in the nation, and 99% of Maine generation comes from clean sources other than coal and oil. Maine generation capacity exceeds our load by 3:1 or 4:1 on almost any given day, and we have much untapped capacity in our biomass and other generators. To the extent ISO-NE anticipates needing new generation, it will be base load, peak load, or load balancing. Where is there such urgent need for wind power at all, let alone on the scope and scale of BWP? Government mandates notwithstanding, there would be no demand for the product in question.
FMM is vigilant about Maine’s signature Quality of Place, the 2006 Brookings Institute report Charting Maine’s Future identified as our most invaluable and irreplaceable asset, even for economic development. That report, adopted by the Legislature, talked about balancing impacts and benefits. As our Department of Environmental Protection, you need to be measuring those well so that you can determine net tangible benefits. The low energy density of grid scale wind development relative to its sprawling scope and scale has the potential to destroy Maine’s Quality of Place for precious little net benefit – economic or environmental. It is the general “high impact-low benefit” nature of this form of development that leads us to oppose it generally, and specifically at BWP.
DECOMMISSIONING PLAN – BINGHAM WIND PROJECT
If wind turbines can have an adverse impact on Maine’s scenic quality, abandoned turbines can have a catastrophic impact. There are also land and water environmental risks from turbine materials, not to mention fires. And of course, they can harm our economy. But the primary decommissioning issue with abandoned wind turbines is the same as with the abandonment of any other commercial or industrial equipment: safety hazards.
Wind turbines are akin to 40 to 50 story buildings atop mountain ridges. In darkness there is no way a low flying aircraft or flock of migratory birds is going to know the structures are present. The steel towers are magnets for lightning and concomitant fires where it is difficult to get suppression access. Abandoned structures are also major attractions for curious kids, and it is not worth the life of one teenager who thinks it would be cool to climb inside to see if it is possible to reach the top. The Bingham to Guilford area is snow country, and “it’s too far to walk” does not apply to a group of snowmobilers in winter. In keeping with the expression “build it and they will come” we can project into the future a ridgeline of abandoned towers, and people who will find a way to get access, and to have their version of fun. Add alcohol or drugs and the potential problem is compounded. Maybe not the first year, or the second. But in time people will find their way to the abandoned towers and get hurt. Then some unfortunate parent will be left wondering why “they” didn’t get rid of the towers when they were supposed to.
If the applicant is going to build and profit from potential safety hazards then the Department must hold them accountable for thorough removal when the structures are no longer functional. It is the only fair and responsible thing to do. Given the monumental liability, we applaud the Department for its effort to front-load the decommissioning fund. But it must be done right. The dollar amount proposed by the applicant appears almost as though it was plucked out of air. Wherever it comes from, it is not enough money.
There is little empirical industry information on the actual decommissioning of current grid scale wind turbine installations. But based on what we do know and employing some simple math, we conclude that the Bingham Wind Project (BWP) decommissioning plan is multiple disasters waiting to happen.
In a nutshell, its estimated revenues from salvage value are excessive and its decommissioning reserve funds are inadequate. Given the precarious nature of the business model, the BWP decommissioning plan is bad both “coming and going.”
We assert that the actual cost to reduce all the towers to market scrap size is substantially higher than projected, and the actual recoverable value from the scrap steel is substantially less than estimated by the applicant. The Department must maintain its effort to require full funding, but the applicant’s dollar estimates must be recalculated.
There is little if any historical experience to guide decommissioning large turbines. The net cost today in California to remove 100 KW turbines that originally cost $250,000 to erect is $15,000 – $30,000. So 10% of original acquisition might or might not be a reasonable number for the larger turbines. BWP’s estimated removal costs are alarmingly below that 10% mark. The submissions grossly underestimate both the cost to “reclaim” the land and the care that is required to disassemble the turbines. They also neglect to add high transportation and scrap metal processing costs.
Attached is a copy of Scrap Definitions. Please note that “#1 Steel” assumes maximum size for length and width, and it excludes “coated” steel. Wind turbine towers are coated inside and out to prevent rusting, normally with high zinc content. Protective metal coatings contaminate the smelting process so such steel sells at a discount to raw steel.
Moreover, the maximum size of scrap to be processed is determined by manageable size. A typical 100 meter tower is approximately 14 feet in diameter at the base and 10 feet in diameter at the top. The steel width at the base is typically 2 inches while the steel width at the top is 1/2 inch. The most efficient method for cutting such steel is either acetylene or plasma torch. Sewall estimates that it will take only 100 man-hours at $15/hour to completely reduce each tower to “scrap” size. Using the maximum scrap size (5 feet by 3 feet) means that the minimum 6,260 square foot surface area will be cut into 417 pieces. Their projection would produce one piece every 15 minutes, each weighing an average of 1,200 pounds. There are no line-item provisions in the Sewall report to account for tools, cutting fuel, scaffolding, material handling equipment and other incidentals. Assuming the scrap maximum size limit, it is incomprehensible that 2 inch-thick steel can be cut at a rate of 1 foot per minute using non-industrial equipment given the remote site location. And this does not include any time allocated for work preparation and material handling, shipping, etc.
I. The Department should ask the applicant for a recalculation with more realistic and more accurate disassembly and scrap preparation cost projections.
We recently spoke with the Public Works Director in Falmouth, Massachusetts. That community has been overwhelmed by wind turbine turmoil for the last two years, and they recently held a decommissioning referendum. He told us that they used an estimate of two million dollars per turbine just to dismantle their two turbines which are located not in remote mountains, but in a flat industrial park setting. The local voters chose not to decommission because the town proposed a bond issue of $14 million, with the additional monies to pay remaining purchase debt, fronted RECs, grant repayment, and other liabilities. He advised several times that a surety bond or some form of insurance should be required to cover the cost of decommissioning. This begs the question of whether similar liabilities should be anticipated in the premature decommissioning of a commercial wind project like BWP.
J. The Department should require a thorough accounting of other costs expected as a result of premature distressed decommissioning.
K. The Department should obtain a clear and realistic plan and accounting for decommissioning costs for hazardous materials, lubricants, rare earth, fiberglass, carbon composite, etc.
The history of scrap prices is volatile. There is no way to predict future prices, especially 25 years out. The conventional approach for future-year projections is to assume current prices, because all other costs will likely move in the same direction, more or less on pace with inflation. However, market forces can turn prices dramatically in a very short time, so flexibility and caution should be built into these decommissioning projections.
The applicant assumes a price of $230/Ton for 724,223 pounds of steel without any specificity on meeting the current scrap condition requirements. Heavy Metal Steel (HMS) has very strict handling requirements in order to fit into smelting mills. Most scrap pricing sources require subscription to their services (we do not subscribe) but cursory research will indicate to the Department that today’s prices nationwide for “unprepared” steel are from $145/Ton (Iowa) to $200/Ton (Detroit). Distance from the smelting mill is a major factor for local pricing and net cost, and we know of no such mills near the Kennebec Valley.
The applicant appears to be subscribing to a concept of near-full salvage value recovery where decommissioning could ultimately become a local or state burden. If this full salvage concept were such a solid assumption, then why wouldn’t Western US localities, where thousands of old wind turbine towers have been rusting idle for two decades, allow the removal of towers by professional or amateur scrap vultures – free of any other reclamation responsibilities – just to lose the hazards and eyesores?
Again, we remind the Department that there is little history for decommissioning the newest generations of large turbines. The net cost today in California to remove 100 KW turbines that originally cost $250,000 to build is $15,000 – $30,000. So 10% of original acquisition might be a reasonable number for our larger turbines. BWP’s estimated removal costs are alarmingly below that 10% mark, and the terrain here is certainly more challenging than it is in the desert. The Department should assume that the applicant grossly underestimates both the cost to “reclaim” the land and the care that is required to disassemble and dispose of the turbines. They estimate the salvage values based solely on gross tonnage. They neglect to add high transportation and scrap metal processing costs.
In 2008 a West Virginia community scrutinized the decommissioning plan for the Beech Ridge Wind Project. The applicant estimated scrap values at $12.64 million in current dollars. A third party consultant was hired to review the details of those estimated values. The consultant contacted the major regional scrap yard, which said the scrap (steel and copper) was worth $2.63 million after it was shipped to the yard and processed into acceptable sizes. (See Hewson, attached.)
L. The Department should get more specificity and accuracy from the applicant on realistic salvage value projections.
The BWP decommissioning plan appears built on assumptions of tangential market activities. We should all know better after so many years of lessons learned. For example, in 2007, the consensus of all the “smart” people was that fossil fuels consumed by the power industry would escalate into perpetuity much as the same smart people had assumed in the 1970s and 1990s. Markets react when prices begin to bubble. Natural gas prices are now below prices of 20 years ago after inflation, and are as close to a sure bet to stay fairly low as any bet we have seen in decades. A similarly erroneous view could be taken of the scrap steel industry. Its market essentially did not exist 20 years ago and nobody knows where it will be in 20 years.
Apply that same concept to turbines. It has been the consistent track record of the wind industry over the last 40 years to leapfrog into the next technology before the old technology has proven itself. It is easy to dismiss the problems of the past when the industry avoids addressing the long-term issues.
Some items of note:
1) A Danish utility installed 13 – 600 KW turbines in 1993. In 2006 the wind project was decommissioned as uneconomic (a 13-year economic useful life). The utility stated that the composite blades disintegrated when touched by hand;
2) The first pilot 1 MW turbine was built in 1999 and the turbine only became commercially available in 2001. There is only 10 years of experience with the “big” turbines. The period of the real test of economic useful life is just beginning, and Maine is not a guinea pig;
3) The trend toward bigger turbine size has been well studied by researchers as to the likely problems associated with the added stresses and vibration on gearboxes and generator sets. These expensive components have not yet had sufficient operating experience to determine if the incremental size increase is worth the up-front investment versus the long-term maintenance and rebuild costs, particularly with severe Maine winter weather to exacerbate wear.
Today’s turbines might very well be worthless in only a few years as the technology continues to leapfrog and as energy markets evolve.
M. While the Department cannot control the usefulness of turbines, the total risk level posed should be fairly counted as no greater than the level of assurance achieved.
LIABILITY & DEBT
These risks are not insignificant. Now is the time to establish a viable decommissioning plan, before it is too late. The price we will pay for failure in this requirement will be catastrophic.
The estimated economic useful life of a wind turbine at 20 years is the point where escalating operating costs necessary to maintain the unit’s minimum performance exceed recoverable revenues. It is customary in energy projects for equity investors to withdraw every unrestricted penny from the project’s coffers as soon as possible. Restricted cash covenants are customarily set by the lenders and, to a lesser extent, by any government authority that has a vested interest in future financial performance. Once a lender is paid off, most financial covenants cease. If a wind project has inadequate cash on hand at the time of decommissioning it is unlikely that it will be able to fund the ongoing day-to-day de-installation of all turbines. The Sewall Report states optimistically on page 3 that two cranes will be needed for 31 weeks (almost 8 months). We do not know any vendor that can so long wait to be paid.
N. The Department should require a detailed and more realistic projection of all decommissioning tasks and costs that contractors would be paid to perform.
There is no market for an in-place wind project that does not work. Wind projects have no collateral value other than their net salvage value at almost every point in time after just a few years of operation. In virtually any other type of project, financed equipment can be dismantled, sold, and used elsewhere. With wind projects, siting and matching turbine configuration to a site will make it cost-prohibitive to relocate when one considers that the front-end subsidies sustaining the industry today would not be available for used or obsolete equipment.
If the lenders to a failed project see that they have a high probability of recovering a significant portion of any outstanding debt via net salvage, they would dismantle and remove the turbines and towers. But do we seriously expect them to complete land reclamation? The lenders are more likely to write-off the debt and walk away.
In that scenario, would the Department seek enforcement action against the turbine pad lease-holders? Are these private landowners ignoring any future reclamation responsibility possibilities or are they expecting that the applicant will fulfill its obligations? Would landowners be subject to any claims by the state as a last recourse to restore the land via reclamation, since they were financial beneficiaries of the project? Can we expect the landowners to plead ignorance and do nothing that might cost them a dime to fix the problem? Would the state take not only the land where the turbines are located but also all the access roads, buffers, and lead lines? The state should minimize, or better yet, assume no risk in this regard.
O. To clarify and indemnify risks, the Department should include clear and acceptable answers to the foregoing questions.
We call your attention to an application you have in-hand for another project (Canton). While the language below does not verbatim appear in the BWP submissions, it is clear that the same presumptions are in play for BWP. The Canton application narrative makes several assertions about the low risk of the venture, hence no need for the DEP to get onerous surety. Here is one excerpt:
“In the highly unlikely event that a project fails to make its debt payments, and after a reasonable period fails to cure its default, the Lender has the right to take over the project to protect its investment. If a Lender steps in to cure a default, it has every incentive to bring in skilled personnel to operate the project, generate revenue and return the project to profitability. Because the loan balance is secured by the assets of the project, the Lender is in effect a backstop in the unlikely event that original management team fails to perform. In this way, these highly structured, project-financed entities… are actually more stable than a typical business exposed to the uncertainties of the marketplace over a period of 10 to 20 years…”
The language from that application is relevant to BWP because it so brightly shines light on an egregiously erroneous presumption, one that is implied or explicit in apparently all wind applications. In their “security” scenario is a banker’s worst nightmare: to repossess an operating project – and particularly an energy project.
First, no matter when it occurs it is certain that the bank officers directly involved in making the original loan will be fired for bad judgment if they are still with the bank – and it doesn’t matter even if it is 15 years later. It will happen.
Second, energy projects – particularly mountain wind energy projects – are not commodities that can be turned around and sold like a repossessed car or warehouse. Bankers have experience making loans but not operating the assets or facilities they finance. If the supposed experts at developing and operating an energy project cannot make it work, what makes them think that their bankers can do it better? Any potential recovery from a poor-performing asset means that the bank must take a big haircut because it now must find and engage professional, experienced third parties in order to rehabilitate the value of the collateral. The cost to do so is apparently not built into the BWP plan.
And third, bankers take on no liability in the legal structure of an energy project. If a project fails and a net recovery (even a partial recovery) is not assured, the bank will walk away from the project rather than risk additional capital, which would require new internal bank credit approval.
P. The Department should require accounting for the cost of third party operation as a component of the decommissioning costs.
The applicant’s presumption of low risk, whether explicit or implied, should be extremely troubling to the Department. To presume that a long-term lender is willing and prepared to step into a foreclosure situation to fix all the obligations of the owner/operator is fantasy. To illustrate the point: if the lender has properly evaluated the project then it will have required financial covenants that are in force throughout the entire loan period. These covenants will require, at a minimum, operating cash flow ratios that fund both operating and debt service reserves for 12-18 months. The initial and later-term reserve amounts will have been determined by base case projected operating cash flows. If the covenants are not in force or at inadequate levels then there will be a high probability of grave problems in the future.
Q. The Department should have both access to – and authority over – the projections and covenants.
These wind projects are front-loaded with subsidies and bereft of liability to the parent entities. So the long-term economic viability of the projects matters little, if at all. Once the investors extract the money during the first ten years, their only interest in the later years is if they are somehow generating an abundance of cash flow. Once turbines become marginally profitable the owners/operators will likely walk away.
R. The Department must engage competent counsel and must ask and answer the following:
1. If in the later years or at the end of the license period that an energy project is marginally or not profitable, and there is only the prospect of making money by getting more out of the salvage value than the cost of reclaiming the land as required by the decommissioning plan, then what is Plan B if the salvage value is low?
2. If the project risks are non-recourse to the principals, what does the Department do then?
Inadequate decommission planning is at best irresponsible, and at worst calamity. Maine’s economy is already under much duress as a result of recent aggressive wind power expansion – over a billion dollars in unnecessary generation spending in just five years – not counting the attendant T&D expenditures. The BWP is the largest Maine wind proposal yet, so its risk is largest. We cannot afford the perfect storm awaiting us if these high impact installations are allowed in failure to also foist the environmental and economic penalties of their excessive risk upon our citizens.
Public Affairs Director
Scrap Definitions www.steelmarketupdate.com
Steel Market Update offers the following definitions of the various forms of scrap utilizing the basic guidelines described by the Institute of Scrap Recycling Industries (ISRI):
HMS = Heavy Melt Scrap #1 & #2
- HMS #1 steel scrap is wrought iron or steel scrap .250” (one quarter inch) and over in thickness with individual pieces not exceeding 5 feet (60”) in length with widths around 18” to 36”. The material is bundled in a manner consistent with charging box size so the product will insure compact charging (in a furnace). Number 1 HMS is not supposed to have galvanized or other metallically coated steels.
- HMS #2 steel scrap (common foundry grade) is wrought iron and steel scrap – both black and galvanized (coated) at least .125″ (one-eighth inch) thick. This material is also bundled in a manner consistent with charging box size so the product will insure compact charging.
- Shredded scrap (shred or frag) is homogenous or a blend of iron and steel scraps which is magnetically separated. Shredded scrap origins are from automobiles (with engines, tires and gas tanks removed) as well as unprepared #1 and #2 steel, miscellaneous bailing and sheet scrap. The average density is 50 to 70 pounds per cubic foot. Typically 25% of the shredded scrap is automotive parts.
- Number 1 (#1) Busheling (bush) is clean steel scrap not exceeding 12 inches in any dimension. Most material are new factory sheet clippings, drops, stampings, etc. According to the ISRI guidelines for ferrous scrap (FS-2009) number one busheling cannot include old auto body and fender stock. The material is to be free of metallic coatings (such as galvanized), vitreous enameled and electrical sheet steel containing over 0.5% silicon.
#1 & #2 Bundles
- Number 1 (#1) Bundles are new black sheet steel scrap (no coated material) from clippings, sheet side trims, and skeleton scrap. All material is bundled and banded to charging box size so the material can be handled with a magnet. The bundles should not weight less than 75 pounds per cubic foot. Can include mandrel wound bundles (such as slitter side trim). No metallic coated material, vitreous enameled and electrical steel containing more than 0.5% silicon.
- Number 2 (#2) Bundles are old black (uncoated) or galvanized sheet scrap, drops, or metallic coated materials which have been compressed and are banded to charging box size.
Steel Market Update follows Heavy Melt Scrap Pricing (HMS) as well as Shredded and #1 Busheling. For many years Bundles was a key component in determining scrap prices but was removed in 2008 when Chrysler stopped publishing (or allowing to be published) the results of their auto bundle auctions.
Author: Hewson, Tom
Last month, EVA was hired by the Mountain Communities for Responsible Energy to evaluate a Decommissioning Cost Report prepared for the Beech Ridge Energy Project – a 124-turbine project proposed for Greenbrier County, West Virginia. The project wind developer (Invergy) had argued that the scrap value of the wind turbines would far exceed the cost to decommission the wind project and that therefore they should be responsible for bonding $2,500/turbine that would slowly escalate to $25,000/turbine by year 16.
EVA completed an independent estimate of the salvage value of the Beech Ridge Wind turbines. The applicant’s consultant estimated that its salvage value credit would reach $12.64 million ($101,900/turbine) in their decommissioning fund study based upon application of general scrap factors and prices. This scrap value credit would more than offset their estimated demo costs ($8.68 million: $70,000/turbine).
EVA contacted the major regional scrap yards directly and got current scrap prices for steel, copper and transport. From these data, EVA developed a Beech Ridge project–specific salvage credit estimate of only $2.63 million, i.e., $10.01 million less than the original applicant study. We uncovered several major flaws in the applicant study methodology and pricing. They not only used old scrap prices but failed to take into account that they would have to transport the scrap to a yard. In addition, to obtain the posted scrap price, they would need to break down the tower into 3-4 ft long pieces or else the quoted price would be significantly less. In addition, the copper materials must also have their insulation stripped and/or copper pieces separated to obtain their posted copper price. If not, their scrap value would be far less than the common posted price. Given the large drop in scrap prices this year (>40%), scrap value can no longer cover decommissioning costs.
EVA also compared the estimated demolition costs to another decommissioning report for another wind project developer that had contained detailed cost breakdowns. The other study estimated demo costs of $97K/turbine vs. $70K/turbine by Beech Ridge. The bottom line is that using the demolition costs from the other wind turbine project decommissioning study would translate to a Beech Ridge demo cost of $12.03 million, i.e., $3.35 million more the applicant’s $8.68 million estimate. (Note: In another very recent project I have just reviewed, the decommissioning costs were again severely underestimated by more than 50% by not taking into account recent crane rental rates, extremely low earth moving costs, and assuming high productivity rates (6 turbines/wk).)
The bottom line is that even if the permitting agency allows the salvage credit, the total net cost of decommissioning this project today would be $10.4 million ($83,900/turbine). Our analysis quantified the large scrap price and demo cost escalation risk being assumed by the local community. To protect the community, the permitting agency should require a bond of a minimum $100/K per turbine ($12.4 million) to capture demolition cost escalation risk. If the wind developer can convince the bonding company of the high salvage value, then they should be able to negotiate a lower rate for the bond. If they were right, there would be very little price difference for a larger $12+ million bond. Shift the risk to the bonding company. Let the developer and bonding company assume the price risk – not the community.
Energy Ventures Analysis
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