City avoids potential financial risks with agreement cancellation

Council members raise their hands to vote on a motion during the regular City of Swift Current council meeting, April 6. From left to right, Councillor Leanne Tuntland-Wiebe, Mayor Al Bridal, and Councillor Ryan Plewis.

The potential financial risks of a project to produce heat and electricity from the gasification of cardboard and paper resulted in a decision by the City of Swift Current to end a funding agreement with the federal government.

Council members approved the termination of the federal funding agreement during a regular council meeting, April 6.

City General Manager of Infrastructure and Operations Mitch Minken told the meeting the economics of the project and the project risks do not justify an expenditure of over $4.6 million.

The City contracted the Saskatchewan Research Council (SRC) in 2016 to do a study on the best options for reusing recyclable fibres such as cardboard and paper.

“This research was fueled by the drastic market shift that saw cardboard transition from a product that we received payment for to a product that has a cost to recycle,” he explained.

The City was looking at alternative ways to deal with cardboard and paper in the future that will keep it out of the landfill.

The SRC study suggested the development of a small modular gasification unit to convert recyclable fibres into heat and electricity. The City applied in 2018 for project funding from Climate Change Canada’s the Low Carbon Economy Fund.

The application was approved by the federal government in 2020, and the terms indicated the City will receive 40 per cent of federal funding support up to a maximum of $3,054,000 on the projected total cost of $7,655,000. 

The City issued a request for proposals in December 2020 and received four proposals. It also carried out an updated cash flow analysis of the project in cooperation with the SRC. According to Minken this economic analysis showed a 17-year payback period or an estimated 2.1 per cent rate of return over a 20-year project life span, but there were several concerns about the project.

The 17-year payback period assumed the project will receive all regulatory approvals and it did not include several technical and financial risks that will increase the payback period. In addition, there are big variances between the maintenance and operating costs in the four project proposals.

It became clear the cardboard and paper will produce lower heat during the gasification process and the ash content will be higher than anticipated in the feasibility study. This means the electrical production will be lower and operating costs per tonne of material will be higher.

“Due to the wide range of costs between proposals, there is a low level of confidence in the expected operating costs, and it is assumed that the payback period would be increased and potentially exceed the project life expectancy,” Minken said.

Another significant factor that the City considered is the improved market for paper and cardboard. This made it possible for the City to secure a 10-year contract for the disposal and recycling of paper and cardboard.

“As an alternative the City has also confirmed landfill capacity with the development of our West landfill of over 100 years,” he noted.

The cancellation of the federal funding agreement will avoid future financial risk for the City, but it has already incurred some costs that will have to be absorbed, because the City did not receive any grants for the work done during the feasibility study.

Minken said the City spend about $55,000 for the feasibility study and the total cost of contracted work in 2020/21 is $14,500 (PST exempt, GST excluded). These termination costs will be funded through the City’s solid waste utility operating budget.

Councillors expressed their support for the termination of the federal funding agreement due to the risks of the project.

“I think it was becoming over the course of time more and more clear that this was something that probably wasn't really going to work out very well for the City,” Councillor Ryan Plewis said. “I certainly don't fault admin for looking at options, because at one point in time the marketability of cardboard was such that we needed to find another solution.”

Councillor Ryan Switzer noted he actually talked to a few residents about this project during his campaign in last fall’s municipal election.

“This is something that I was excited about, just looking at the possibilities here, but in a perfect world where money is no object then this could maybe be something that we go ahead with,” he said. “Sad that we can't move forward with it, but the times that we live in the timing just isn't right for it.”

Mayor Al Bridal said during an online media briefing after the council meeting that various factors made this project too risky to pursue.

“The numbers came back at a best-case scenario of just a little over two per cent payback and that doesn't take into account some maintenance and some other issues can happen,” he noted. “So we could be paying that thing back for 25 or 30 years and by the time it worn out it's still not paid back. … The province would allow us to put that in, same with the feds, and then they come up with stricter regulations that we have to clean the carbon out of the smokestack better and it costs us another million or two.”

He referred to a previous project that was implemented by the City about 30 years ago that used new technology to treat wastewater effluent, but it was mothballed after a significant amount of money was already spent on its operation. He will therefore be more comfortable with spending money on a gasification project if it is using proven technology.

“If somebody else had proved it and tried it and the federal government had approved all the cleaning, I might be a little more excited about it,” he said. “I'd like to see the technology proven before I lay that on the taxpayers’ back for the citizens of Swift Current.”

City Chief Administrative Officer Tim Marcus noted the COVID-19 pandemic actually had a positive impact on the recycling market and the gasification project is not really required now.

“This is a good example of how COVID actually helped us in that when the project got delayed for COVID, during that time period when it was on hold, the recycle market came back,” he said. “And now we've got the 10-year contract for the recycle that we collect to ship off. … So it takes away having to spend the money to get rid of it to keep it out of the landfill when we have a guarantee for the next 10 years, and maybe in 10 years technology will have changed and it would be economical then, but it's certainly not now.”

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