The energy market has shifted, ushering in an era where so-called wastes are being re-examined, and the desire for energy security and clean/green energy sources is rising. Rudd Asset Management (RAM), an energy consulting company specializing in cost-effective solutions, recently helped a large horse racing and competition complex that wanted to develop “green” policies that made economic sense. By using Palisade DecisionTools Suite, RAM determined that converting stall bedding and manure waste into renewable energy was a feasible, cost-effective solution—helping the complex turn a waste-disposal problem into a profit.

Background

RAM often works with companies looking to add renewable power sources. More and more industries are interested in reliable and renewable energy sources, creating a vastly different energy market than the one we had just a few years ago. The uncertainty of all energy production-related variables can make investment highly challenging. As-developing countries” grow their economies, the necessity for clean, safe, affordable power becomes critical. While renewable energies can open up promising opportunities–what once was a disposal problem can sometimes become an energy advantage—their costs and aggregate risks remain unknown.

RAM worked on a project that posed these important questions. The client was a large horse racing and competition complex that wanted a “green” image. While the environmentally-friendly image was important to them, it also had to make economic sense.

Further constraining their budget was ever-rising costs for disposal of stall bedding and manure and steadily increasing energy bills.

The opportunity to avoid the costs to transport and dispose of the waste became an opportunity for free fuel or even “negative cost fuel” for the project. The opportunity to create a win-win scenario and accomplish this conversion of waste to energy in a “green” way made it even more enticing. But, did it make economic sense? With only a few constants and almost everything a variable, RAM decided to apply risk management and Monte Carlo simulation.

Considering All Uncertainties

To begin with, RAM did a review of gasification of waste materials from a number of nearby tracks. The ultimate goal was simple: get a win-win by changing a negative to a positive. Convert an increasing waste expense to a sustainable source of “green” renewable energy.

Unsurprisingly, the uncertainties were numerous. Variables that had to be considered included: cost to gasify the “fuel”; the cost to aggregate the multiple fuel supplies; the cost to generate the power; the value of combined heat and power thermal energy; the quantity of fuel available each year, the energy used by the facilities each year; and the alternative costs to purchase the power from the local utility. RAM opted to use the Palisade DecisionTools Suite for the analysis. Energy use of the facility for the last 5 years was reviewed to get an energy use range. Then, an estimate of the future energy consumption was made to get an electric power and thermal energy use range to be modeled into @RISK. Similar estimates for the variance for amount of waste (tons); energy content of the fuels; the cost to manage the fuel; and the wholesale value for sale of excess energy was also modeled. All these variables had to be considered in addition to the capital costs for the new power plant, operations and maintenance costs, and funding costs of the project.