Manure into Money: Risk Analysis Solutions Pay Off

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 and project risk management strategies, 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.

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 of gathering 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 statistical analysis.

In this case, because the simulation determined that the wholesale power price drove the value, RAM next needed to confirm that the price was truly accurate. By focusing on variables with the most impact, RAM was able to  do a review in a lot less time, while getting better accuracy. The simulation results from the scenario analysis show the project is feasible, with an Internal Rate of Return of > 15 %, a Debt Coverage Ratio of > 2, and a Net Present Value positive within 5 years that would be robust after tax cash flows.

 “Palisade DecisionTools software is a great tool for our process,” says Mark Rudd, RAM President. “We help the client make better decisions more quickly using the power of Monte Carlo simulation and useful statistics.”

» Case Study: @RISK Helps Turn Waste Into Energy

» See also: Monte Carlo Simulation for Environmental Risk Analysis