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Home My WebLink About2008-09-22 08-318 ORDERCOUNCIL Item No, 08 318 Date: 9-22-08 Item/Subject Omer, Authorizing the E eaUon of a Change Order with Honeywell Authorizing Me Conversion of Certain Buildings M Bangor International Airport to Natural Gas Heating Responsible Department: City Manager Commentary: For some time, staff and Council have been evaluating the option of converting certain buildings at Bangor International Aimort From fuel oil heat to either natural gas or wood. At the most recent Finance Committee meeting, Me Committee reviewetl a variety of background Information and discussed these options In detail. Representatives of Honeywell and Bangor Gas were present and pardaloated in MIs discussion. As Me discussion revealed, there are advantages and issues associated with both of these options. These are detailed In the attached memorandum reviewed by the Committee. Issues that were discussetl included: required capttal investments, cost comparisons and fuel availability, projected pay back periods, intermediate and long-term energy cost savings, environmental factors, and others. While Me Committee raised a number of questions on which additional mfomation was requested, R voted 41 to recommend Mat Me Airport convert M natural gas. The major factors Mat affected this decision were: ease and speed with which the conversion could be made; short initial pay back period due to a much lower initial capital cost; concerns regarding the availability and future price of woad chips; and retaining the future potential for converting W wand should energy pricing stabilize, providing greater reliability for long-term cost projections. The attached order would authotlze a change order to the City's energy performance contract with Honeywell that would authorize converting various buildings at the Aipgtt to natural gas. Department Head Managers Comments: X passage _ First Reading Page _ of _ Referral City Manager Associated Information: Memorandum m Finance Committee Budget Approval: Director Legal Approval: CA�Solicbar X passage _ First Reading Page _ of _ Referral 08 318 Assi9netl to Cuundlor Palaer SeP[eefier 24. 2008 M CITY OF BANGOR (TIRE.) Order, Authorizing the Execution of a Change Order with Honeywell Authorizing the Conversion of Certain Buildings at Bangor International Airport to Natural Gas Heating BE Cr ORDERED BY THE CIW COUNCIL OF THE C OF BANGOR THAT City staff is hereby authorized m execute a change order to the City's energy performance agreement with Honeywell to allow for the conversion of certain buildings at Bangor International Airport to Natural Gas for heating process at an estimated cast of $661,391. IW aw CODGCIL September 22, 2006 Notion Made and Seconded for Passage gotten Made and seconded to Postpone to t4c Most Council Meeting Notion Doubted Vote: 2-4 Councilors Voting Yes: Gratwick d. stone Councilors Voting No: Blancmtte, D'Mrrico Barrington S Palmer Councilors Ahsent: Maven A Wheeler Failed Jerry Liveugood of Bangor Natural Gas Answered Questions Motion Doubted Vote, 4-2 Councilors Voting Yes: Blanchette. D'Mrrlco, Partlogton, d Palunr councilors voting NO: Cratwlck d Stone Conic"tors Absent: Naves 6 Mheeler Pass CITY mm I Y DA-tIR I j 1Y1TLRa entmrlalaR the Bsecutiun of a Change order with nooeyveli. Au mriaiog ted Cowersion of Correia Buildings at Senior International Airport to Natural gas Aaal�edW CmmOw /y lmO� . M September 9, 2008 To: Finance Committee Pr: Edward A. Barrett Su: Airport — Wood Chip/Natural Gas Heating Alternatives Background As a part of the recently completed Honeywell energy audit, several options were evaluated for heating various facilities at Bangor International Airport, Including our terminal buildings. These included the installation of a wood chip biomass boiler and conversion of the terminal heating plants to dual fuel (natural gas and oil). Given the complexity of the analysis required to make a decision regarding which of these alternatives to pursue, the heating project was set aside for further discussion while we proceeded with other projects. Ai ang the Issues that were Identified for further discussion were: emissions, commodity pricing, wood chip availability, initial capital costs and pay -back period, and energy diversification. Each of Nese will be separately addressed below. Emissions Concern has been expressed regarding emissions from a wood fired boiler. Some of this concern is related to issues that have surrounded residential wood stoves and outside wood boilers. The area of largest concern Involves particulate matter(PM). Particulates are pieces of solid matter or very fine droplets ranging In size from visible to invisible. Small particles are of greater concern for human health than larger ones since they remain air -born for longer distances and can be Inhaled deep within the lungs. All but the very best wood burning systems have significantly higher PM emissions than do corresponding gas and oil systems. However, modem wood chip boilers have significantly lower emissions than residential wood stoves. The following chart presents data on particulate emissions from various appliances. PARTICULATE EMISSIONS APPLIANCE (Lbs/Million BTU) Old Style Residential Stave 2.5 New EPA Certified Residential Stoves 1.8 New Wood Chip Boiler 0.187 Oil 0.029 Due address particulates, wood systems Include chimneys with a stack height appropriate to ensure that ground level air quality standards are met. 1 A oa 318 Wood compares favorably with fuel oil on Sulfur Oxides (11e the level) and emits similar levels Of Nitrogen Oxides. Wood does, however, emit higher levels of Carbon Monoxide. Both mind and oil produce Volatile Organic Compounds, with wood higher on some compounds and oil higher on cthers. Converting from fuel oil to wood will reduce net Carbon Dioxide levels by at least 75%. Wood is generally considered to be "carbon neutral." See Attachment 1 for a more detailed comparison of Oil and Wood. Commodity Pricing One of the most difficult variables to predict is the future price of oil, natural gas, and wood. Historically, natural gas and oil prices have remained relatively similar when adjusted for heating value and efficiency, with natural gas often as or more expensive than fuel oil. This Inas not, however, been the case over the last several years as the price of oil has spiked dramatically while that of natural gas has increased at a significantly lower level. Wood, which has increased at a modest rate, has consistently been less expensive than either gas or oil. See Attachment 2 for a Historical Cost Comparison. The following cost comparison table was developed in August based on the then current rates. City Of Bangor, Maine Fuel Cost Cdsons - 7/9108 it Cost Assumed Efficient Cost Pert Million BTU 71/Gallon 80% $33.13 t�ttT .1V12UKwh 100% $32.83'• .15lGallon 85% $27.80 54herm 85% $165 200/ron T3% Woof Chis $56?on 73% $a.1A -home rates vary cased on building type and/or annual usage. Values shown on this table are for general comparison only. *! Electricity cost does not include KW demand charge. ***Natural gas cost is currently inflated by $0.155/Therm due to temporary Maritime Northeast pipeline shut down. Inflated amount will continue for 4 to 5 months. Based on the unit cost data in the above table, It Is clear that wood chips are considerably less expensive than other heating options at the present time. 2 37 08 318 As we evaluate our options, I would suggest that we recognize the potential future impact of price variability. in particular, I would suggest: • The current differential between fuel oil and natural gas prices is an anomaly in the historic trend • The price differential between natural gas and oil will likely narrow as oil prices dedine and hopefully stabilize and/or as natural gas prices increase as demand is transferred from oil to gas • The volatility and price of natural gas and oil may differ over time due to the separate markets that they represent. Oil pricing is driven primarily by the international market whereas gas prices are, at the current time, primarily reflective of the North American continental market. Over the intermediate term, it is likely that oil prices will exhibit greater volatility due to international demand and political and environmental instability affecting producing regiars. • Longer term, an International market is likely to develop in natural gas as is shown by the current flurry of efforts to site LNG terminals on the east coast of North America. As this happens, natural gas prices may become more volatile due to the emergence of a larger International market • While energy prices have retreated somewhat from their peak earlier this year, It is unlikely that we will see prices returning to the pr -2000 level. Wood Chip Availability and Price Earlier this year, Honeywell contracted with Innovative Natural Resource Solutions, a forest produar consulting firm, to evaluate wood chip availability and related issues. This firm evaluated the wood chip production potential within a 50 mile radius of Bangor. They concluded that the standing inventory of wood within this area is substantial, with a net positive annual growth (annual growth less annual removal) of over 1 million tons of wood. They also evaluated the comparative cost of heating oil and equivalent wood for the period from 1995 through 2007. Over this period, as heating oil prices increased, the price of wood also increased, although at a slower rate. As a resuh, heating with wood in January 2008 was relatively less expensive as compared to oil than it was over a decade ago. Overall, they concluded that the Bangor area would have an adequate supply of wood chips at a market price that allows for the production of thermal energy cheaper than with heating oil. Based on this Information plus selective information from individual suppliers, Honeywell estimated that wood chips would be available to the City in the range 3 38` M of $50 per ton. For cost -benefit purposes, they Men used $55 per ton to provide a margin for safety. Staff reviewed this information with former City Councilor, John Cashwell, an Individual with long experience In the timber industry in Maine. He expressed some concern with these conclusions. While more wood may be growing than harvested in the 50 mile area around Bangor, not all of this wood is available to the market and availability may be overstated. There are also numerous competitors for this supply Including pulp mills, biomass plants, and pellet plants. He is aware of a number of mills in Maine that are currently Importing wood chips from substantially beyond the 50 mile range clue to lack of local supply. He also is aware of situations where mills are paying close to $60 per ton for chips plus $20 per ton for delivery, indicating that actual prices may be doser to $80 Parton. He believes that there are a number of uncertainties in the chip market at this time that make it difficult to predict the future and suggested that the City might wish to delay malting a decision for several years until the overall energy market has adjusted to the effects of high oil prices. Cost Analysis/Payback Any analysis of the benefits of converting from oil to either natural gas or wood must be based on certain assumptions. At this time, such assumptions may have less certainty then they might have in past periods of more stable prices and price trends. Nevertheless, based on historical trends and starting with recent market prices, Honeywell produced a 25 year life cycle analysis of heating Bangor International Airport with wood chips or natural gas. ASSUMPTIONS Wood Chips at $55 per ton Increasing 4% per year Oil at $3.71 per gallon increasing 8% per year Natural Gas at 1.415 per Therm Increasing 8% per year Wood Chip Capital Costs: $3,866,480 Natural Gas Conversion Costs: $661,391 (includes replacing one boiler) Wood Chip Maintenance Costs: 0.5 Hrs/Day x 7 days per week x 34 week heating season x $40/Hh labor rate. labor rates are increased at 4% per year. Projects Financed for 30 years at 4.1% 4 39 Net Cumulative Savings Fuel Source Payback Period 10 Years 20 Years Natural Gas 1-2 years $33 million $5.9 million Wood 6-7 years $1.6 million $17.7 million Based on these assumptions and calculations, the following conclusions on be drawn: • The annual savings from wood Is significantly greater at roughly $400,000 as compared to $275,000 for natural gas • The cost to convert to wood are significantly greater, thus extending the Payback period by about five years • Again due to high initial capital costs, net cumulative savings from transitioning to wood do not exceed those from natural gas until year 13. In other words, natural gas provides a thirteen year ash flow advantage • Af er year ten when the capital financing is paid off, net savings from wood escalate dramatically, producing almost $12 million in additional savings over natural gas by year twenty A more detailed Wart showing the life cycle costs of wood and natural gas on be found as Attachment 3. Energy Diversification A final factor that can be coreidered Is energy diversification. At the present time, the City is almost totally dependent upon fossil fuels. This will continue to be the case as we transition certain of our buildings to natural gas. Adding wood to the mix would provide an alternative to fossil fuels. In addition, wood is a 1=1 product and the price the City pays for wood would remain in the local economy, moving away from our reliance on foreign sources of supply. Finally, the State has indicated a strong Interest in supporting the use of wood for heating as a part of our State's effort toward energy independence. Conclusion I often apply two alterative decision making criteria to complex decisions: you can choose the alternative that maximizes the best possible outcome or the one that minimizes the worst possible outcome. The best possible outcome is for the City to realize the greatest potential savings. Using this criterion, the choice Is clear: wood. Over twenty years, this option is estimated (based on the assumptions outlined above) to save the City over $17 million. It, however, also carries the potential for the worst possible 5 y� outcome, Investing $3.9 million which might not be recovered should projected energy prices not materialize. The alternative of converting to natural gas, while not as potentially advantageous, carries much less risk and minimizes the worst possible outcome. If price projections are accurate, the project covers Its costs within the first two years due to a laver initial capital cost (about $660,000). It produces more in net savings over the first twelve years ($9.6 million versus $3.8 million for wood). Finally, it keeps the option of a future conversion to wood open should market conditions and prices stabilize and be favorable. (Please note that Bangor Gas normally requires a three year commitment to use gas, so the wood option could not be considered during that period.) This alternative minimizes the worst possible outcome. 6 7/ Oil Boiler & Wood Chip Boiler Air Emissions Data OIL WOOD PaMam utiles Splw E"'mnmrW UnMs 6Ym Emi,;Zft Pmlev9onlWx -An=t 6Yab Of Milae Emla¢loa Rdeatlm/geny-PPa2Ai� S44IXMeIna Emledm I k4nI EiNWxuTW CffiF I Polabnl Ertiobn Fevlm For BYMeMe Fx %2 Heefinp Ql Polu4nlEmbbn FMae S4MeN¢For Wco Wm MPWW4 Ibv Q HWN OII ryB6IMM91Uj (LE6AAIBT11) FarWnG1189RAMUUj ILSMIMBMI ARB 19 1% $aHrObdGa 6@ 0w A41TEeeNW Y1 OWS APiNMA Nm, 01 NOTe M mOMe NO 0.16] APo3/&iCF 6m NW Yt 0.W APV/BACi9 No4" U1159aaNMIO GrNn MMM CO 0� AP iEee NOle Y1 AP<i1BAR $N Hde M1 009r Ndeq PeYkuhb McYf� PM O.RA 0.13 O55 O9 Ot8] 9n Nde Y3 1 APo3 ie tlmma W Ipn hxn IFe U9 FPA wM1IOO pNe¢ mpmxridllr J4 y aY em W 6m¢. 69LT b'Bnl paaileEb Cmtlml T W✓alcg/', mamYq tlul tlp IechMtgy xMON le avlYW mtln MbrmnulxAnvaloutl henMbmMIOAn emle¢Iw. 311iYNYle M1omifde N dexml4Y Wilxx Mmm MWNYB Cammin II In Cartlinv Mae¢. 9 TNY WaialNmin OfaxtttltlA EdIxd BMmOTMon &ipd ABWi V1. Txdi NSM eM NO%rneM YMbNIa A WMnMwlryalreMeapls NxaO]Mb WApayElm¢vx¢uedl WllxayNngmnelMmlbn aC.dAtlehO EagbanbamY¢IxreewJeleJMNtlpbMl IXe cydao(Iha NN Hartz. Farxmpb. En Wbbn¢ nwtlebtivilM1 tle huNrg Ndlnelinl awuxouU YtluEeel vnWbnaamW han have¢(M1Ol�edlaMfixnpars{wtlrgl�eaifiemlM ryervnlepe mNe pdmdua A¢Owg eryumW ®abmea CmIxNWOra MawiYtl WNlurvaztlrgeMearepx4ne 011feremeE WlWxaxFeialN µM Ymrvntiigaatlhen¢pwWp voetl al I Retail Natural Gas - Crude Oil - Biomass, MMBTU Parity —Nalwal Gas —Gn a Oil —Biomass cx'�L NRNo 6A E M, ATTACHIMNT 3 Bangor[n[ernadonal Airport Energy Ravings Comparison Isom: 1. MPlyge is Eatl on a 25 year l0e ope, vMM In Ke A4lRMe ntlat u¢NI¢erviw lne N S¢ ft Who MOM. 2 WMermrrzm¢Y1oru:WMAP MOM ""AlMWd0b RRSnarx7dayx War k,Mi hw"$OgmnXUMR Yprtwb. MaMram ata M[ par 4%W par. a. mrerr.q.mmmnna4rel Re,May&alaowwonnsnwrE ra<onmianaa.sears ¢ervee urearmnrrwweemaa¢. nommmmom MIAMI&NS6rmra lnanlNna IsbX eoML MiMnereepdotlmebryiyv¢df.m mgacemeniMNenYray XNeruomepe wWb Fiammey MlXemlPap AhporlM4sarenemumeEme NaOra�rraayltymade,pwpp¢emenrWNe MMa uW]Oemreiieretlin l3mmyartBnaAb NerpYcenenldtlu Rewanx BNbrMNaimtlnW EWerdenf NurevmnanWMwee wi(na%OalelMtlueb Neeb]IlMitl tteuneanrypraMMEy Newm]Tjr XaMpphnln¢grmry. ByPrrepYgmMow6me4ptlm nSMmna3W9rm'tNNa 9%annuM Mwao. 4. Is¢uma¢ $55,00f) too Ntlnh a[XMnual as Golan au,a1 elm Netl 41%Wena10 ynrperue. SOemme¢ firWtlnR 55500080 NPNeM1Whossol WWoodI Gm Opan mm a1 yen{akG. B N¢umu Poamm"aa.999.4PohNe Mo us Wm1H Muslim, P, 131 M Hehm4.t% ome10 par turns, 2.M]Gas ntlpff� anal(4 60544 %Webs arpork.tlil.aBl Navrx Btlly Rep6[emembmdrrPo buildings) for Ne Pirpxl NNW dust gLLm Ha ohaft May=o Gaut.n 1 Pp(G), A. &The 25p b ConceMI palma, Nlbmebn8. ft 12p00a4 9. man, 45 Ywrllg Cy¢kgmrytlsxame¢en8.5%eivW InpuveNNemeralneNel P%and a4%annual Lnrtaaelnpq msrdrmotl N{a iXb aG»] Wn NeXkbfiml6weam NnaWnl PearAwmewerNe4allayeert Warepp Pxnyetl 4W%eMwaM Inve¢vee 100%.iM1a Wbk Wrt4m XMoard Mamregvr M1dntlq ErcrpylMumeAm Mm[WJm IFJgI yy woes rnlp Saler svetem verve al Yr1-5 Yr6-10 Yr 11-15 Yr 16-20 Yr 21-25 Tarel Energy Savings 2,503,251 4,001,M9 6,306,531 9,834,268 15,216,260 32,862,588 System Investment (2,213,M0) (2,629,252) - - - (4,843,012) mdbB l minrererre Ca9s (25,282) (31,362) (38,163) (46,431) (56,91) (198,235) BMW RepecemaY Cort WA WA WA N/A WA N/A Net Wmulti Savings 263.210 1.341.149 6,268,368 9.288.332 15,159,222 32.821341 Nedrad Oas Verl Oil Yri-5 Yr6-10 Yr 31-15 Yr16-20 Yr11-25 TMaI Emd Savings 1,638,806 2,464,202 3,MS,314 5,521,521 8,322,654 21,252,498 System lnomotmelt (378,681) (44$255) - - - (828,436) A68idoral N3iaarlanR Corti WA WA WA N/A N/A - BdIerReRlamnentCo# - - (7)5,000) Net amuW4vx Savings 1.260.125 2.ai4,48 2.930.314 5.521.521 8.322.654 20.154N2 Isom: 1. MPlyge is Eatl on a 25 year l0e ope, vMM In Ke A4lRMe ntlat u¢NI¢erviw lne N S¢ ft Who MOM. 2 WMermrrzm¢Y1oru:WMAP MOM ""AlMWd0b RRSnarx7dayx War k,Mi hw"$OgmnXUMR Yprtwb. MaMram ata M[ par 4%W par. a. mrerr.q.mmmnna4rel Re,May&alaowwonnsnwrE ra<onmianaa.sears ¢ervee urearmnrrwweemaa¢. nommmmom MIAMI&NS6rmra lnanlNna IsbX eoML MiMnereepdotlmebryiyv¢df.m mgacemeniMNenYray XNeruomepe wWb Fiammey MlXemlPap AhporlM4sarenemumeEme NaOra�rraayltymade,pwpp¢emenrWNe MMa uW]Oemreiieretlin l3mmyartBnaAb NerpYcenenldtlu Rewanx BNbrMNaimtlnW EWerdenf NurevmnanWMwee wi(na%OalelMtlueb Neeb]IlMitl tteuneanrypraMMEy Newm]Tjr XaMpphnln¢grmry. ByPrrepYgmMow6me4ptlm nSMmna3W9rm'tNNa 9%annuM Mwao. 4. Is¢uma¢ $55,00f) too Ntlnh a[XMnual as Golan au,a1 elm Netl 41%Wena10 ynrperue. SOemme¢ firWtlnR 55500080 NPNeM1Whossol WWoodI Gm Opan mm a1 yen{akG. B N¢umu Poamm"aa.999.4PohNe Mo us Wm1H Muslim, P, 131 M Hehm4.t% ome10 par turns, 2.M]Gas ntlpff� anal(4 60544 %Webs arpork.tlil.aBl Navrx Btlly Rep6[emembmdrrPo buildings) for Ne Pirpxl NNW dust gLLm Ha ohaft May=o Gaut.n 1 Pp(G), A. &The 25p b ConceMI palma, Nlbmebn8. ft 12p00a4 9. man, 45 Ywrllg Cy¢kgmrytlsxame¢en8.5%eivW InpuveNNemeralneNel P%and a4%annual Lnrtaaelnpq msrdrmotl N{a iXb aG»] Wn NeXkbfiml6weam NnaWnl PearAwmewerNe4allayeert Warepp Pxnyetl 4W%eMwaM Inve¢vee 100%.iM1a Wbk Wrt4m XMoard Mamregvr M1dntlq ErcrpylMumeAm Mm[WJm IFJgI yy