The Economics of Boiling Water

Tom found Bill sitting under the jacaranda with a mug of tea balanced on one knee. Dog was stretched out beside him in the shade, flat on his side and apparently committed to doing nothing until lunch.

“I’ve been trying to follow those economics of yours,” Tom said. “You’ve got trucks and fuel and electricity and waste and fertiliser and capital costs. Seems to me you could make the answer say almost anything if you fiddle with enough assumptions.”

Bill nodded. “You probably could. That’s why you don’t fiddle with all of them. You work out what question you’re asking first.”

Tom pulled over an old chair. Dog opened one eye, established that no food was involved, and closed it again.

“Suppose you and I both have to cart the same load of gravel,” Bill said. “Same truck, same driver, same fuel price, same everything. Your gravel pit’s twenty kilometres away and mine’s a hundred and fifty. If I want to know what choosing my pit costs me, I don’t need to value the truck, price the tyres and ask what the driver had for breakfast. All that’s the same in both cases. I just need to work out what the extra distance costs.”

“So you leave the rest out?”

“For that question, yes. Doesn’t mean it doesn’t exist. It means it cancels out. Same plant, same blokes, same product, same machinery — none of that tells you what the location costs. Change the location and leave everything else alone. Whatever changes in the answer belongs to the location.”

Tom thought about it. “That sounds suspiciously simple.”

“Usually is. Complicated models are useful when the problem’s complicated. They’re bloody dangerous when they stop you seeing something obvious.”

A jacaranda flower dropped onto Dog’s back. He twitched but otherwise remained unconvinced by quantitative analysis.

Bill took another sip of tea. “There’s another thing I learned a long time ago. When you start a business, some costs you can do something about later and some you can’t. You can change suppliers, trim a shift, argue over power prices. But if you build a permanent cost into the bones of the operation before you’ve even started, you’d better have a very good reason.”

“What sort of permanent cost?”

“Putting the bloody thing in the wrong place.”

Tom smiled. “Ah.”

“Exactly. If your business needs six trucks every day for the next twenty years, then every extra kilometre is sitting there waiting for you every morning. It doesn’t care if sales are good. It doesn’t care if diesel goes up. It doesn’t care if you had a bad month. You chose it when you chose the site.”

“And Glan Devon?”

“About a million dollars a year in our little comparison.”

Tom frowned. “Just in the difference?”

“Just the difference. Same process. Same Xetrov. Same fertiliser. Same assumptions. Put it near the source and you keep the million. Put it at Glan Devon and you hand it to the trucking business.”

Tom stared out across the yard for a while. “That’s a fair bit to build in before you’ve sold your first bag of fertiliser.”

“Now you’re seeing it.”

Dog rolled onto his other side.

“And the daft part,” Bill went on, “is what’s in the trucks. If you were carting gold ore, maybe the deposit gets to tell you where the mine goes. If you were carting something rare, maybe you put up with the distance. But these biosolids are mostly water. You’re paying trucks to haul water a hundred and fifty kilometres to a machine whose first major job is to boil the water off.”

Tom looked at him. “When you put it like that, it sounds bloody stupid.”

Bill shrugged. “Arithmetic can be unkind that way.”

“So the model’s not trying to tell us exactly what their whole business is worth.”

“No. It’s doing something simpler. Hold all the common stuff still and ask what one decision costs. In this case, choosing the distant site.”

“And over twenty years?”

“About thirteen million dollars in present value, on the assumptions we used.”

Tom whistled softly. “You could buy a fair bit of paddock for thirteen million.”

“Or lease one. Or build some extra infrastructure. Or do quite a lot of things before deciding the clever answer is to spend the next twenty years trucking water around Queensland.”

Dog finally lifted his head.

Bill looked down at him. “What?”

Dog yawned.

“Quite right,” said Bill. “Even the dog’s bored with it. Should’ve put the bloody plant near the water in the first place.”

Why Glan Devon?

Let’s look at the economics for a moment. Not because I think I can reverse-engineer the applicant’s entire business model from a development application — I can’t — but because you don’t need to know every commercial detail to ask some fairly basic questions about how this proposal works. There will be gate fees, contracts, financing arrangements, labour costs and other things we cannot see. Most of those, however, are common to any version of the same operation. If the purpose is to understand the consequences of the energy choice and the site location, we can hold everything else constant and change only those things.

That gives us three useful cases. The first is essentially the proposal as presented: the Glan Devon site, about 150 kilometres from the assumed source of the biosolids, with the Xetrov burning prepared non-recyclable waste to provide heat. The second keeps the Xetrov and the rest of the process exactly the same but moves the plant close to the source, say 20 kilometres away. The third also sits near the source but replaces the Xetrov heat with grid electricity. No one of these is “the correct model”. The point is to isolate the differences and see how much they matter.

Start with the physical problem. Around 37,000 tonnes of biosolids at about 18 per cent solids contains only about 6,700 tonnes of actual dry material. The remaining 30,000 tonnes or so is water. Dry the material to around 10 per cent moisture and the plant has to evaporate roughly 29,600 tonnes of water every year. That is the underlying process requirement, whatever terminology is wrapped around it.

A reasonable dryer duty puts the useful thermal energy requirement at around 100 to 110 terajoules a year. Expressed another way, it is about 30 GWh of useful heat. If we tried to provide that heat directly from grid electricity, allowing for reasonable electrical heating efficiency, the plant would need a little over 30 GWh of electricity each year. At a reasonable current delivered industrial electricity price in south-east Queensland, that is getting towards $5 million a year just to provide the drying heat.

And that is why the Xetrov matters so much.

The application can describe this as a bio-fertiliser facility, but the mass and energy balance does not care what we call it. Before the plant can produce fertiliser, it has to dispose of nearly 30,000 tonnes of water every year, and doing that requires a very large and cheap source of heat. The proposed answer is to burn around 8,000 tonnes a year of prepared non-recyclable waste. Without that waste incinerator, the economics of drying the biosolids become very difficult very quickly.

So I think it is entirely reasonable to describe the proposal for what it functionally is: a waste incinerator coupled to a biosolids drying and fertiliser-production process. That is not rhetoric. It is what the process balance tells us. The incinerator is not a little auxiliary unit hanging off the side of a fertiliser plant; it is the energy engine that allows the fertiliser process to operate. Without the vortex incinerator this project makes no economic sense.

The application does not tell us exactly what the NRW will cost. It is described as non-recyclable waste, although the Xetrov requires a consistent, high-calorific-value fuel rather than ordinary RDF or low-grade prepared NRW. That distinction matters because the fuel could generate revenue, cost nothing, or require substantial preparation and delivery costs.

Some waste-derived fuels attract gate fees because producers pay for disposal, but that does not mean the Xetrov fuel will do so. Meeting its energy requirements would require a more concentrated and carefully processed fuel, and that preparation costs money. The final price will depend on energy content, consistency, contamination, transport and local supply, but the applicant cannot reasonably assume a gate fee. The more plausible assumption is that the Xetrov fuel will have a positive price, making its cost central to the proposal’s economics.

Now hold all of that constant — the plant, the technology, the fuel and the biosolids feed — and change just one thing: the location.

Using a simplified traffic balance, the Glan Devon operation needs about six loaded inbound trucks each operating day: four carrying biosolids, one carrying the prepared NRW and one carrying mineral fertiliser. For the purpose of comparison I have assumed they all return empty, even though in reality the plant also has around 15,000 tonnes of finished fertiliser to get to market. That simplification is deliberately conservative and, more importantly, it is applied equally to the alternatives.

At Glan Devon those six trucks are assumed to make a 300-kilometre round trip. Put the same Xetrov plant 20 kilometres from the source and the round trip becomes 40 kilometres. Using standard Australian heavy-vehicle operating-cost methods — not just the diesel bill, but fuel, tyres, maintenance, depreciation and driver time — the Glan Devon transport burden comes out at around $1.23 million a year. The same operation near source is around $160,000 a year.

That is a difference of about $1.07 million every year, created by location alone.

Nothing else has changed. Same process, same Xetrov, same biosolids, same NRW, same fertiliser and the same assumed product price. We have simply stopped hauling large quantities of wet material a long distance before removing most of its mass as water. It sounds almost absurd when stated that way, but that is the physical reality of the process. At 18 per cent solids, most of what those biosolids trucks are carrying is water that the plant intends to evaporate.

The application’s own economic modelling gives us enough information to see what that difference means. It uses about $21.52 million of construction expenditure, about $9.36 million a year of operating expenditure and an indicative fertiliser price of $600–800 a tonne. Using the midpoint of $700 and the application’s nominal 16,000 tonnes a year of finished product gives gross fertiliser revenue of about $11.2 million a year.

I am not suggesting that the difference between $11.2 million and $9.36 million is the company’s real profit. There will be revenues and costs we cannot see. But because we are comparing the same operation in two locations, most of those things cancel. What matters is what the location does to the difference.

On the applicant’s broad figures, the Glan Devon case has an implied operating surplus of around $1.84 million a year. Move the same Xetrov operation close to the biosolids source and remove about $1.07 million of transport cost, and that implied surplus rises to roughly $2.9 million. In other words, the location decision alone changes the apparent annual operating margin by nearly 60 per cent.

The simple payback tells the same story. On those assumptions, Glan Devon comes out at around 11.7 years. The near-source Xetrov case falls to about 7.4 years. Neither number should be mistaken for a bankable project valuation, but the comparison between them is useful because the same simplifications apply to both.

Discount the cashflows at 5 per cent over 20 years and the location issue becomes even clearer. The additional annual transport cost associated with Glan Devon has a present value of about $13.3 million. That is the number I find most interesting. It means the location choice potentially destroys something like $13 million of project value relative to putting the same process close to its principal feedstock.

That is a large number beside a stated construction cost of about $21.5 million. It is roughly 60 per cent of the original capital expenditure, simply in the present value of additional transport. A difference on that scale can pay for a lot of land, leasing, site preparation or additional infrastructure closer to the source. I am not claiming that such a site exists, or that it could be acquired for less than $13 million. I am saying that this is the economic hurdle the Glan Devon location appears to create, and any site-specific advantage should be considered against a penalty of that order.

There is a greenhouse consequence as well. The long-haul Glan Devon case uses roughly a quarter of a million litres more diesel each year than the near-source Xetrov alternative, producing around 700 tonnes a year of additional CO₂-equivalent emissions. Those are not the dominant emissions in the process — burning a plastic-rich NRW stream is much larger — but they are particularly difficult to justify because they achieve nothing except moving the water from one place to another before evaporating it.

That brings us back to the two decisions that seem to dominate the proposal. The first is the energy source. Drying biosolids is energy intensive, and the business needs cheap heat. Xetrov is therefore fundamental to the economics, which is why the NRW price and preparation requirements matter so much. The second is location. Once you have found your cheap heat source, there is still a very large economic penalty in locating the plant a long way from the material whose water you are trying to remove.

Which leaves the question I keep coming back to: why Glan Devon?

The location appears to impose around $1 million a year of additional transport cost and something like $13 million of lost present value over 20 years compared with putting the same Xetrov operation near the biosolids source. It also adds avoidable diesel consumption and greenhouse emissions to a project presented in terms of resource recovery and circularity.

Those are not small differences. They make site selection part of the process economics, not an incidental planning detail. If Glan Devon is the preferred location despite that apparent penalty, then the obvious economic question is what advantage the site provides that is worth paying for.

That's the question I'd be asking if I were a financier or a Director involved in considering the proposal.

Because when most of your feed is water, hauling it 150 kilometres before you evaporate it is an expensive way to begin.

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