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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization 6 Comparing Costs of Remediation Technologies As with any product marketed in a competitive environment, information about the costs of innovative remediation technologies is as important in determining their ultimate commercial success as are performance data. The potential client wishes to choose the most cost-effective technology and, before selecting an innovative technology, will require some method to measure its cost against other available options on some standardized basis. Technology developers and investors need to have reliable cost information to determine whether the technology will be profitable. Because of differences in site conditions, establishing cost data for innovative remediation technologies can be difficult, especially for in situ processes. Even if capital and operating costs have been established for candidate remediation technologies, the way in which these costs were developed and the way in which they are expressed may lead to quite different conclusions about the relative economic merits of the technologies. The client's view of the relative cost of remediation options, in turn, has implications for the remediation technology provider and ultimately determines which technologies will move forward from development to commercial success. This chapter recommends a strategy for developing and analyzing cost data to allow valid comparisons of different types of remediation technologies. LIMITATIONS OF EXISTING COST REPORTING STRUCTURES For a variety of reasons, it is currently difficult to impossible to develop accurate comparisons of remediation technology costs in many situations. One of the most significant problems with developing cost information is
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization that costs reported under a set of conditions at one site are very difficult to extrapolate to other sites. Like technology performance, technology costs are sensitive to site-specific geologic, geochemical, and contaminant conditions, especially for in situ technologies. A second problem is that technology vendors may report costs using a variety of different metrics that cannot be compared directly. Costs may be reported as dollars per volume treated, reduction in contaminant concentrations achieved, contaminant mobility reduction achieved, mass of contaminant removed, or surface area treated. For example, costs of a physical wall for containing or treating contaminants in place may be reported as dollars per area of wall surface, while the costs for a pump-and-treat system may be reported as dollars per volume of ground water treated. Such variations in cost reporting metrics make it difficult to compare costs of competing technologies using data from previous applications at different sites. A third problem is that often technology providers do not report the variable costs, such as permitting, mobilization of equipment to the contaminated site, treatability studies to prove the technology or obtain permits, and system design or modification for site conditions. Just the ''up and running" costs are given. This may be acceptable if the user only wants to compare the cost of installed operations, but the user is usually interested in the overall project cost. If certain remediation technologies have large and variable initial costs, they may not be competitive, even if the "up and running" costs appear competitive. A fourth problem is inconsistencies in the way costs are derived. Comparisons of unit costs have little meaning unless there is uniformity in the underlying methodologies and assumptions used in calculating the costs. For example, if different interest rates are used to estimate the costs of a cleanup system over its entire life cycle, the conclusions about the cost competitiveness of a technology can vary widely. A final problem is that for in situ technologies, cost information is often developed by geotechnical consultants rather than technology providers and is rarely compiled for general reference by the private user. This loss of compiled cost information greatly hinders the dissemination of consistent cost information and makes it difficult for a new technology provider to develop comparative cost information. Further, even where cost information is made available to private users, it is extremely rare to see detailed cost breakdowns that would allow the reviewer to judge the realism of the cost elements. While the federal government is beginning to compile cost data and create guidelines for cost computation and reporting at federal sites (Federal Remediation Technologies Roundtable, 1995), these guidelines have not been adopted by the private-sector.
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization OPTIMIZING THE DEVELOPMENT AND REPORTING OF COST DATA The inherent uncertainties associated with the subsurface environment present unique challenges to those who wish to compare the costs of remediation technologies. Costs of remediation technologies will never be comparable in the same way that the cost of devices whose performance is uniform in every circumstance can be compared. Nevertheless, a variety of steps can be taken to enable technology providers and users to gather information on the costs of different remediation options and develop meaningful cost comparisons to evaluate the options. Development of Template Sites for Cost Comparisons The most difficult problem in developing sound, comparable cost information is in the application of in situ remediation technologies, for which site-specific conditions determine the way in which a technology (or technique) is applied. While some metric is necessary to capture and compare the costs of in situ technologies, it will be sensitive to the site-specific hydrogeology and contaminant conditions of the site, and so some description of this situation should accompany the cost information. Unfortunately, even if this is done, it is still difficult to compare costs between sites. One way to overcome the problems associated with comparing cost data from different sites is to develop a set of "template sites" that can be used to compare relative costs of different classes of technologies. Each template site would have standard dimensions and hydrogeologic properties, and the template could be adapted to estimate costs for different types of contaminants and remediation goals. Table 6-1 shows basic parameters for eight types of site templates that could be developed to represent a range of conditions of aquifer depth, thickness, and permeability and ground water flow rate. (Excluded from consideration are fractured rock aquifers, which are a special case requiring site-specific analysis.) In addition to the parameters shown in the table, assumptions need to be made about the dimensions of the contaminated area. These dimensions can be highly variable, but for estimating purposes, the plume can be assumed to be spreading from a source area 64 m (210 ft, or the side of 1-acre square surface area) transverse to the flow direction. These conditions can be used to estimate the end points of the cost range for a technology, rather than to specify one "typical" cost. Additional templates could be constructed to provide midpoints in the cost range, but this would increase the amount of work involved in using the templates. For each template, detailed information such as that shown in Table 6-2 would also need to be specified. While the lists in Tables 6-1 and 6-2 are not all inclusive, they contain critical elements that influence the costs of ground water remediation technologies.
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization TABLE 6-1 General Parameters for Template Sites for Comparing Costs of Ground Water Remediation Technologies Template Number Depth to Water Table (m) Aquifer Thickness (m) Aquifer Permeability (cm/sec) Ground Water Flow Rate (m/year) 1 4.6 (15 ft) 7.6 (25 ft) 5.0 x 104 3 (10 ft/yr) 2 4.6 (15 ft) 7.6 (25 ft) 2.5 x 102 150 (500 ft/yr) 3 4.6 (15 ft) 21 (70 ft) 5.0 x 104 3 (10 ft/yr) 4 4.6 (15 ft) 21 (70 ft) 2.5 x 102 150 (500 ft/yr) 5 30 (100 ft) 7.6 (25 ft) 5.0 x 104 3 (10 ft/yr) 6 30 (100 ft) 7.6 (25 ft) 2.5 x 102 150 (500 ft/yr) 7 30 (100 ft) 21 (70 ft) 5.0 x 104 3 (10 ft/yr) 8 30 (100 ft) 21 (70 ft) 2.5 x 102 150 (500 ft/yr) NOTE: Soil porosity is assumed to be 25 percent, and hydraulic gradient is assumed to be 0.005 cm/cm for all eight cases. TABLE 6-2 Detailed Information Needed for Template Sites for Comparing Costs of Ground Water Remediation Technologies Site Characteristics • Conditions of site access • Access to power utilities • Vadose zone soil classification • Soil classification of ground water-bearing zone to be remediated • Dimensions of contaminated zone; volume of contaminated area Contaminated Ground Water Characteristics • pH, dissolved oxygen concentration • Total dissolved solids concentration, hardness, iron concentration, manganese concentration, concentrations of other potential foulants • Redox potential • Soil adsorption/desorption properties Contaminant Characteristics • Contaminant concentration profile • Character/quantity of source materials (DNAPL, etc.) NOTE: This table assumes that the general aquifer characteristics shown in Table 6-1 have already been specified.
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization The elements shown in the tables will not cover all remediation techniques and possible site scenarios, such as the existence of major heterogeneities in the geologic formation. Such templates may overestimate performance and underestimate costs for heterogeneous sites, and the nature of the effects of heterogeneity on remediation technology performance and costs is poorly understood. However, for most technologies, such templates will provide a consistent basis for estimating order-of-magnitude upper-and lower-bound costs for alternative technologies. The Department of Energy and a few private companies use this general method when comparing technology alternatives against a baseline technology (Ellis, 1996; Herriksen and Booth, 1995). An example of the potential use of a template site would be to generate first approximation costs for comparing different dense nonaqueous-phase liquid (DNAPL) treatment and removal technologies. Figure 6-1 shows a plot plan for a sample template site used to compare costs for cleanup of a DNAPL spill of 680 kg (1,500 lbs) of perchloroethylene (PCE) covering an area of 0.4 ha (1 acre). The template site has a confining layer 12 m (40 ft) below the surface and an FIGURE 6-1 Example of a template site that could be used to compare the costs of remediation technology alternatives. In this example, 680 kg (1,500 lbs, or 111 gal) of nonaqueous-phase PCE have spilled over a 0.4-ha (1-acre) area. The depth to the water table is 4.6 m (15 ft), and the aquifer thickness is 7.6 m (25 ft). The porosity is 0.25 ground water velocity is 150 m/year (500 ft/yr). These parameters correspond to template 2 in Table 6-1.
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization unconfined surficial aquifer 4.6 m (15 ft) below the surface. The aquifer porosity is 0.25, and the ground water velocity is 150 m/year (500 ft/year). Based on hydrodynamic dispersion parameters typical for a homogeneous aquifer, a plume of dissolved contaminants would have spread laterally 180 m (600 ft) at a distance of 150 m (500 ft) down gradient from the source zone. The computations assume that the plume exits the DNAPL area at a concentration of 1 mg/liter (approximately 0.7 percent of the aqueous solubility). This would result in about 680 kg (1,500 lbs) of PCE being flushed through a 180-m-wide (600-ft-wide) "technology alternative" zone down gradient of the source zone, where the costs of plume treatment or containment options could be compared over a 30-year period. If the source zone and plume dimensions and characteristics are realistically defined, it would also be possible to compare source treatment options to plume remediation options, assuming both options achieve acceptable levels of environmental protection and that any differences in level of protection are specified in the cost comparisons. This approach allows comparison of remediation options, but it also helps in the evaluation of the importance of many of the variables that are used to design and select remediation technologies. Within the source zone, if surfactant flushing were used, costs could be estimated by determining the surfactant injection and withdrawal system needs, the amount of surfactant needed to mobilize the DNAPL, the time needed for the surfactant to be recirculated, and all the costs associated with the operation (including treatment of pumped fluids). Similar estimates could be prepared for thermally enhanced soil vapor extraction or for simple containment using a perimeter slurry wall. At the downgradient point in the plume, alternatives such as a permeable reaction wall or pump-and-treat system could be evaluated. The cost of each technology would be estimated for the expected lifetime of the remediation, or up to 30 years, where the net present cost increase becomes very small. While the site template's parameters are somewhat arbitrary, they can be developed to create a realistic and consistent basis for cost comparisons. The template can be modified to fit a specific class of contamination problems. Actual performance information gathered from field tests or prior full-scale applications of the technology can provide the appropriate inputs to the cost model. In designing template sites, caution must be used to ensure that the templates are sufficiently general to allow inclusion of a range of technologies with similar capabilities but specific enough to produce reasonable cost comparisons. It is also important to specify the environmental end point achieved by the remediation technology and to compare costs based on achieving equivalent end points. Although development of template sites for cost comparisons adds another level of complexity to the analysis of technology performance, this strategy will help reduce the problems associated with comparing in situ technologies. Owners of contaminated sites (including corporations and government agencies) and technology developers should cooperate to establish a procedure, possibly implemented through a ground water remediation cost definition working group, to
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization develop and refine a system of template sites for comparing costs of ground water remediation options. Similar templates should be developed for comparing costs of alternative soil remediation options. A working group might be convened under the auspices of the Remediation Technologies Development Forum or the American Academy of Environmental Engineers, which recently completed monographs with guidelines on how to apply eight innovative remediation technologies. Computer models of the templates could be created to make them relatively easy for technology developers to use. The models could be pilot tested and then modified and improved over time. Once the templates are developed, owners of contaminated sites and federal agencies should require that cost information from technology suppliers be presented to them in a template format if the technologies are to be evaluated for purchase. Use of Standard Metrics for Cost Reporting Unit remediation costs are the distillation of the complex process of cost development. They are the most basic way of expressing a technology cost using some common metric. Table 6-3 shows examples of common cost measures. Cost measures reported by technology providers vary depending on whether the technology treats the contaminants in situ or ex situ, whether it is designed for containment or remediation, and whether the contaminated material is soil, other solid material, or ground water. The different metrics used to report costs of different types of technologies make it very difficult, in some cases nearly impossible, to compare the costs of different contaminant management options. TABLE 6-3 Common Unit Measures of Cost Matrix Ex Situ In Situ Soil/waste material Cost/volume ($/m3, $/yd3)* Cost/volume ($/m3, $/yd3) Cost/weight ($/tonne, $/ton) Cost/weight of contaminant treated or removed ($/kg, $/lb) Cost/weight of contaminant treated or removed ($/kg, $/lb) Cost/vertical wall area ($/m2, $/ft2) Cost/surface area ($/ha, $/acre) Ground water Cost/volume ($/m3, $/1,000 gal)*Cost/volume ($/m3, $/1,000 gal)* Cost/volume ($/m3, $/1,000 gal) Cost/weight of contaminant treated or removed ($/kg, $/lb) Cost/weight of contaminant treated or removed ($/kg, $/lb) Cost/surface area ($/ha, $/acre) * Often used in reports prepared by the Superfund Innovative Technology Evaluation Program.
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization For ex situ technologies, technology providers typically report costs in terms of dollars per volume treated. Sometimes this information is supplemented by percent reduction in contaminant concentration or mobility achieved. For in situ technologies, cost reporting is less standard. Cost per volume treated is often used, but the precise volume treated may not be known. The cost of hydraulic containment systems is sometimes reported using the same measures of cost as are used for pump-and-treat systems, but costs of physical containment devices are reported using a quite different set of metrics. Capping costs are typically reported as area of surface capped, while side wall system costs are reported as cost per area of wall surface. Whether the technology is in situ or a containment system, the cost per volume of material treated or contained is rarely reported. While the type of cost information most helpful to technology users may vary with the type of technology and contaminated media, nevertheless technology providers should always provide certain basic information to allow comparisons of the costs of different types of technologies. As a general rule, unit cost metrics for both in situ and ex situ technologies should include both a cost per unit volume of the contaminated matrix treated and also a cost for the mass of the specific contaminants removed, treated, or contained. Information should also be supplied on the starting concentrations of contaminants of concern as well as the percent removal, destruction, or containment achieved. In many instances, unit costs vary with the size of the remediation project and, in the case of processing equipment, the size and throughput of the unit. Whenever unit remediation costs are presented, the technology provider should report the amount of material remediated as well as the process rate. Documentation of Costs Using Consistent Procedures Much of the uncertainty in evaluating the costs of remediation technologies, especially in comparing an emerging technology against an established one, is brought about by inconsistencies in the way the costs are derived and reported. Different assumptions used in calculating costs can lead to vastly different conclusions about the relative economic merits of one technology versus another, yet it is extremely rare to see detailed cost breakdowns that would allow the reviewer to judge the realism of the cost elements. The problem of inconsistencies in cost derivation and reporting has two elements. First, cost estimators use different assumptions about what cost elements should be included in the total estimate and how much detail should be included in reporting these elements. Second, estimators make different assumptions about interest rates. Better standardization and documentation of cost development procedures could help solve both of these problems.
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization Cost Element Selection At the most basic level, remediation technology developers need to use standard cost elements in computing the total cost of a technology, and they need to document these elements in a standard format. Cost computations should show one-time start-up costs, such as studies to prove the technology or obtain permits, as well as the capital and operating costs of the technology itself. Table 6-4 shows the types of cost elements that need to be included in capital and operating cost estimates (Herriksen and Booth, 1995). The Federal Remediation Technologies Roundtable has developed a guide to documenting the costs of remediation projects carried out at federal facilities (Federal Remediation Technologies Roundtable, 1995). This guide might serve as a starting point for standardizing the reporting of cost elements, but it will need refinement. The guidelines are based on use of the federal "work breakdown structure" (WBS), a system set up to catalog the individual cost elements of a project in great detail. The WBS has several levels of detail, with the highest level (level 1) having the least detail. For remediation, level 1 simply specifies "hazardous, toxic, and radioactive waste remedial action." Level 2 lists a number of specific remediation activities (such as "mobilization and preparatory work" and "monitoring, testing and analysis'') and a series of specific remediation techniques (such as "stabilization/encapsulation"). Level 3 provides additional sub-elements of detail, including "mobilization of personnel" and "mobilization of construction equipment and facilities" under the level 2 "mobilization and preparatory work." For other government accounting purposes, level 4 contains very detailed information used to assemble a cost estimate, but for remediation, level 4 only distinguishes between portable and permanent treatment units. Level 5 is a compilation of general portable unit treatment cost elements (such as "solids preparation and handling") at a degree of detail similar to that of level 3. The remediation WBS system seems more appropriate for compiling costs of procured services than for setting a framework for developing standardized costs of new or developing technologies. The WBS by its nature compiles costs into specific technology categories and uses a standard list of known, specific cost elements for existing practices. Consequently, it may not be appropriate for compiling costs for new technology developments. No system can account in advance for every detailed cost element of a technology, but a general framework for developing costs should be used. Because most organizations outside of the government complex do not compile their costs according to the WBS (although they may consider similar cost elements), some flexibility will be needed in cost documentation. The cost elements in Table 6-4 should be used as the minimum basis in developing cost comparisons among technologies. Where appropriate, technology developers and consultants should
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization TABLE 6-4 Typical Cost Categories Used to Compile or Estimate Costs Capital Costs Operating Costs A. Site preparation* Site clearing Site access Borehole drilling Permits/licenses Fencing Heat, gas, electricity, and water to install system A. Direct labor* Direct labor to operate equipment Direct labor supervision Payroll expenses (FICA, vacation, worker medical insurance, pension contribution) Contract labor Maintenance direct labor B. Structures* Buildings Platforms Equipment structures Equipment shed/warehouse B. Direct materials Consumable supplies* Process materials and chemicals Utilities Fuels Replacement parts C. Process equipment and appurtenances* Cost of technology parts and supplies Materials and supplies to make technology operative C. Overhead Plant and equipment maintenance Liability insurance Shipping charges Equipment rental for operations Vehicle supplies and insurance Transportation Licensing D. Non-process equipment* Office and administrative equipment Data processing/computer equipment Safety equipment Vehicles D. General and administrative Administrative labor Marketing Communications Project management Travel expenses Interest expenses E. Utilities* Plumbing, heating, light, security, and vent equipment E. Site Management Maintenance contract for equipment Waste disposal* Health and safety requirements Contract services Site closure activities Analytical services* Demobilization* Regulatory reporting F. Labor* Direct labor necessary to acquire, mobilize, and install system* Supervisory and administrative labor to acquire, mobilize, and install system Design and engineering* G. Other Rental of commercial equipment to mobilize and install system* Start-up and testing* * Information typically supplied in reports from the Superfund Innovative Technologies Evaluation Program. SOURCE: Herriksen and Booth, 1995
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization structure reporting according to level 3 of the WBS, taking into consideration the elements of levels 4 and 5 of the remediation WBS. In order to facilitate the process of cost development, the ground water remediation cost definition process or working group (discussed above) should establish a clearly defined general framework of important cost elements. The framework must suit the needs of the private technology development community. The role of the WBS in standardizing remediation technology costs should be re-evaluated, and the WBS process should be documented in a form that facilitates better understanding and use by the private-sector. Present Worth Calculation In documenting the capital and operating costs of a remediation technology, developers need to indicate clearly their assumptions about interest rates and taxes. Developers should also tailor these assumptions to the needs of the technology user, which will vary depending on whether the client is a private company or a government agency. Interest rate assumptions affect computations of the total cost of a technology because of the time value of money. That is, because cash in hand can be reinvested, it is more valuable than an equal amount of cash to be generated in the future. Equivalently, costs that can be deferred have less impact on a company's bottom line than costs that must be paid immediately. Financial analysts compare cash flows in different time periods by discounting them to present value at some discount rate, which may be the cost of capital for a business or the cost of borrowing for a government entity, according to the following equation: where PC = present cost CEn= cash expenditure in year n in present dollars k = cost of capital or discount rate n = year in which costs are incurred y = total number of years of expected expenditures i = inflation rate For example, at a discount rate of 12 percent, a $100 payment to be used two years hence is equivalent to a payment of $80 today, assuming zero inflation. Businesses have many different ways to estimate their cost of capital. A company seeks to earn a return on its investments, which will cover interest expense
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization on borrowings and provide an attractive total return (dividends plus stock appreciation) to shareholders. A company may also view its cost of capital in terms of the rate of return that might be achieved if the money were invested in an available project of high return. The cost of capital is an approximation of the return levels required to achieve these objectives and hence may be considered significantly greater than the cost of debt alone. Unlike businesses, government agencies consider only the cost of debt in computing the present cost of future expenditures. So, while a business might assume a discount rate of 12 percent or higher, a government agency would typically use a rate of only 6 percent. Businesses are able to obtain tax credits against the cost of remediation equipment. The effects of income tax considerations often vary widely from one investment alternative to another, so it is generally imperative for a business to compare the relative economics of remediation alternatives on an after-tax basis to have a valid economic analysis. Most U.S. corporations choose to benchmark their performance on an after-tax operating income basis. They calculate this basis by taking the difference between sales revenue and operating costs, capital costs, and income taxes. Because remediation costs are generally considered operating expenses for a corporation, they are deducted from the revenues, lowering the amount of taxes that a company owes. For U.S. corporations, the federal and state combined effective corporate tax rate ranges from to 35 to 40 percent (Stermole and Stermole, 1996). Businesses refer to the present cost of an item on an after-tax basis as the "net present cost." As shown in the examples in Boxes 6-1 and 6-2 and the accompanying figures, the different assumptions that government agencies and private companies make about discount rates and tax liability can lead to quite different determinations of the net present costs of different technologies. In the example in Box 6-1, the net present cost that a business would compute for a pump-and-treat system operating over 30 years is $1,684,000, while the present cost that a government agency would calculate is $4,060,000. In the example in Box 6-2, different assumptions about discount rates and taxes would lead a government agency to conclude that an accelerated bioremediation system requiring 5 years to complete a cleanup would be more cost-effective than using intrinsic bioremediation over 30 years, while a business would reach the opposite conclusion. Thus, financial performance measures are powerful tools in strategic technology development and planning, but they should not be used mechanically. In the example in Box 6-1, the prospective client would find the pump-and-treat case more attractive than might be assumed by a technology developer using different assumptions. Similarly, in the example in Box 6-2, a technology developer using government discount rate assumptions might misread the market by concluding that businesses would view intrinsic bioremediation technologies as expensive and not competitive. It is very important that the provider use realistic measures of the cost of the technology versus alternatives when deciding if the new technology will be competitive with others, as judged by the user.
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization BOX 6-1 Present Cost Calculations: Government Versus Business To calculate the net present cost of a pump-and-treat system operating over an extended time period, a typical business might use an inflation rate of 3 percent and a discount rate of 12 percent. The business would also deduct from the costs the tax credit obtained by building the treatment system. A government agency (and some technology providers), on the other hand, would typically use a discount rate of 6 percent and would not consider taxes. If the pump-and-treat system has an initial capital cost of $1 million and an annual operating cost of $150,000, then the business and government agency calculations for the total cost during the first three years would differ as follows: Government Cost Basis ($ thousands) Business Cost Basis ($ thousands) Year 1 Equipment cost 1,000 1,000 O&M cost 150 150 Total year 1 cost 1,150 1,150 Total year 1 cost after taxes 1,150 713 (38% tax) Discounted net present cost 1,150 13 Year 2 Equipment cost 0 0 O&M cost (3% inflation) 155 155 Total year 2 future cost 155 155 Total year 2 after taxes 155 96 (38% tax) Discounted net present cost 146 (6% disc.) 86 (12% disc.) Year 3 Equipment cost 0 0 O&M cost (3% inflation) 159 159 Total year 3 future cost 159 159 Total year 3 after taxes 159 99 Discounted net present cost 142 (6% disc.) 79 (12% disc.) Total cost for years 1–3 on present cost basis 1,437 877 In subsequent years, the calculations would follow in the same manner, and the total cost estimates would continue to diverge. Figure 6-2 shows the cumulative present cost for these cases ex-
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization tended to 30 years. As shown in the figure, the cumulative present cost as computed by the government is more than twice that computed by the business. The cumulative cost that a business might calculate would level off rapidly, with 90 percent of the total cost incurred by year 18. On the other hand, the government cumulative cost calculation would continue to climb rapidly, reaching the 90 percent expenditure point in year 25. FIGURE 6-2 Business net present cost estimate versus government net present cost estimate for a hypothetical pump-and-treat system. Inclusion of Cost Data in National Technology Performance Data Bases Once cost information for a technology is developed, it should be made available to other potential technology users. The coordinated national data bases on remediation technologies recommended in Chapter 3 should include information on technology costs. This cost information should be reported in the data bases using the guidelines recommended above. The data bases should provide a description of template sites useful for cost comparisons. For each technology, the data bases should include separate cost data for each type of template site and contaminant type for which the technology is appropriate. The data bases should report costs as dollars per unit volume of the contaminated matrix treated and dollars per mass of the specific contaminant removed. It should include starting concentrations of the contaminants along with the dollar figures. Capital and operating costs should be reported separately, allowing users to prepare estimates of the present costs using discount rate assumptions appropriate for their circumstances.
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization BOX 6-2 How Financial Assumptions Affect Technology Selection Differences in financial assumptions, as shown in Box 6-1, can lead to substantially different conclusions about which of two technologies is the most cost competitive. Figure 6-3 compares the present cost for a hypothetical accelerated bioremediation technology that would clean up a contaminated plume in 5 years to a hypothetical intrinsic bioremediation method in which slower natural degradation processes would also result in plume decontamination, but over a 30-year period. For the accelerated case, the initial equipment cost is $750,000, and the annual cost for nutrient addition is $200,000 per year over 5 years. For the intrinsic case, the initial equipment cost is $300,000 (for monitoring wells), and annual monitoring costs for making sure the contaminants are degrading are $100,000 per year over 30 years. The present costs in both situations use the typical business assumptions about discount rates and taxes presented in Box 6-1. Assuming both options result in the same environmental end point, in this example remediation would be less costly using the slower technology (although there may be other costs, such as delaying potential sale of the land, that would need to be considered). The market for the accelerated technology might not be as large as the developer would expect if the potential users conclude they could use intrinsic bioremediation in a significant number of situations. If the same computations are made for the two cases using the 6 percent discount rate that a government-oriented developer might use with no consideration of taxes, the outcome would be considerably different: Intrinsic Bioremediation (30 years) Accelerated Bioremediation (5 years) "Government" estimate (3‰inflation, 6‰discount rate, no taxes) $2,340,000 $1,695,000 "Business" estimate (3‰inflation, 12‰discount rate, 38‰corporate tax rate) $895,000 $993,000
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization In this example, the intrinsic bioremediation case appears significantly more expensive when calculated at a discount rate of 6 percent as might be used by a nonprofit entity. The conclusion would be that intrinsic bioremediation methods are expensive and not competitive and that it is more economical to perform a rapid, accelerated bioremediation, rather than a remediation that would extend over a longer period. Again, the developer might misread the market, and the user might overlook a potentially viable option if the second method of calculating the present cost were used. FIGURE 6-3 Net present cost comparison of hypothetical intrinsic versus accelerated bioremediation process. The calculations assume for accelerated bioremediation a $750,000 initial equipment cost and $200,000 per year for operation and maintenance over 5 years; for intrinsic bioremediation, the calculations assume a $300,000 initial equipment cost and operation and maintenance costs of $100,000 per year for 30 years. The Environmental Protection Agency (EPA) should be responsible for establishing the data bases and appropriate formats for entering cost data. Then, every technology provider at a contaminated site where the federal government is involved (that is, every site governed by federal regulations such as Superfund and the Resource Conservation and Recovery Act and every federal facility undergoing cleanup) should be required to provide cost data for the data base as soon as the cleanup is under way. The EPA should advertise the data base and make it available electronically, on the Internet, as is already being done for technology assessments by the Ground Water Remediation Technologies Analysis Center.
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization FIELD IMPLEMENTATION COSTS The guidelines presented in this chapter address primarily the ways in which first approximation costs can be developed to compare technologies, which can indicate whether a technology will be cost competitive or can be used to select candidate technologies for implementation. These techniques constitute the beginning steps in defining the final cost of implementing a technology in the field. As discussed in Chapter 3, the actual cost of implementation may differ from the pure technology costs for many reasons. Under ideal circumstances, these differences will have been addressed in preliminary evaluations, but often design changes are needed as more is learned about site conditions or as other unexpected costs arise. Estimation of costs for actual implementation is often an iterative process, which can result in costs different from those estimated in the selection process. In some cases, this can lead to a reevaluation of the initial technology selection, but in many cases the relative merits of the technology will still stand, particularly if all of the measures of success discussed in Chapter 4 were carefully considered. CONCLUSIONS Development of realistic cost data is essential for deciding whether a new technology will be cost competitive in the marketplace and for comparing candidate technologies at a particular site. Yet, figuring the costs of a technology can be a frustrating exercise. Currently, costs of technologies for cleaning up contaminated ground water and soil are not reported in formats that allow comparison of one technology to another or extrapolation of costs from one site to another. Inconsistent calculations and unstated assumptions made in estimating costs can remove a remediation technology from the menu of options being considered by a client. Problems with cost reporting include the following: Technology providers report costs using different metrics that cannot be compared. Costs reported using one type of measure, such as cost per area of containment wall installed, cannot be easily compared to another measure, such as cost per weight of contaminant contained. Technology providers often report only the up-and-running costs of using a technology, excluding variable costs such as permitting, mobilization of equipment, treatability studies, and system design. Failure to include variable costs may result in a technology appearing cost competitive when in fact it is not due to large variable costs. Methods used and assumptions made when computing costs are rarely reported. This lack of documentation makes it difficult for the technology user to judge the realism of cost data. There is no central data base where technology users can go to find con-
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization sistent, comparable cost information about a range of innovative remediation technologies. Cost information developed by consultants is rarely compiled for general use. RECOMMENDATIONS To facilitate comparisons of the costs of different remediation technologies, committee recommends several initiatives to standardize cost analysis and reporting and to improve the availability of remediation technology cost data: A working group composed of representative problem owners (corporations and government agencies) and technology developers should be convened under the auspices of an umbrella organization, such as the Remediation Technologies Development Forum or American Academy of Environmental Engineers, to develop and refine a standardized template system that can be used to compare the costs of different remediation technologies. For contaminated ground water, a workable number of templates should be developed to represent the range of conditions of contaminant depth, aquifer thickness, and aquifer permeability. Similar templates should be developed for contaminated soil. Once the templates are developed and refined, federal agencies and private corporations should request that remediation technology vendors present cost data in the template format if the technology is to be evaluated for purchase. The templates can then be used to provide screening-level comparisons of remediation technologies designed to achieve the same level of public health and environmental protection. More detailed cost data, based on actual site conditions, would then need to be developed for the technologies that pass this first level of screening. Costs of remediation technologies should always be reported as cost per unit volume of the contaminated matrix treated, removed, or contained and as cost per mass of each specific contaminant removed, treated, or contained. The starting concentration of the contaminant and the process rate should be provided along with the cost data. The amount of contaminated soil or ground water treated should also be reported because unit remediation costs can vary with the size of the operation. Cost estimates should include one-time start-up costs as well as the up-and-running cost of using the technology. Start-up costs include the costs of site preparation, equipment mobilization, pilot testing, permitting, and system design. Table 6-4 should be used as the minimum base of cost elements to be included in technology cost comparisons. Where appropriate, technology developers and consultants should structure reporting according to level 3 of the federal work breakdown structure, taking into consideration the elements of levels 4 and 5 of the remediation work breakdown structure.
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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization The Federal Remediation Technologies Roundtable should reevaluate the role of the work breakdown structure in standardizing remediation cost reporting and should document the system in a way that facilitates understanding by the private-sector. The work breakdown structure may be too rigid in format to be appropriate for standardizing costs for the wide range of technologies to be encountered and may not be an efficient tool for the private-sector to use in developing cost data for new technologies. The role of the work breakdown structure should be reevaluated and a guidance manual prepared to help the private-sector use this tool. The instruction manual should be advertised to providers and users and should be available in an on-line version. Assumptions about discount rates and tax benefits should be clearly stated in estimates of present costs of a technology that operates over an extended time period. In developing cost estimates for technology users, technology providers should tailor their assumptions about discount rates and taxes to the needs of the user. The EPA should extend its technology assessment initiatives to include a national data base for reporting the cost of remediation technologies. For each technology, costs should be included for the template sites for which the technology would be appropriate. The data base should also list actual costs from sites where the technology is already in use according to weight of contaminant and volume of contaminated matrix removed, treated, or contained. Capital and operating costs should be reported separately, so that users can develop their own present cost estimates using discount rates appropriate to their own needs. References Ellis, D. E. 1996. Intrinsic remediation in the industrial marketplace. In Proceedings of the Symposium on Natural Attenuation of Chlorinated Organics in Groundwater. EPA/154-R-96/509. Washington, D.C.: EPA. Federal Remediation Technologies Roundtable. 1995. Guide to Documenting Cost and Performance for Remediation Projects. EPA-542-B-95-002. Washington, D.C.: EPA. Herriksen, A. D., and S. R. Booth. 1995. Evaluating the cost-effectiveness of new environmental technologies. Remediation 5(1):7-24. Stermole, F. J., and J. M. Stermole. 1996. Economic Evaluation and Investment Decision Methods, 9th Ed. Golden, Colo.: Investment Evaluations Corporation.
Representative terms from entire chapter: