WATER GLOBAL PRACTICE Wastewater: From Waste to Resource The Case of Santiago, Chile Generation and Sale of Biogas untreated into the Mapocho river, an important source Context of irrigation and potable water for the region. In order In 2005, only 3.6% of the wastewater of the city of to treat more than 50% of the wastewater generated by Santiago was treated (United Nations Climate Change, the city, Aguas Andinas, the company managing water n.d.) The remaining wastewater was discharged and sanitation for the Santiago metropolitan region, View of La Farfana Wastewater Treatment Plant. Source: Anna Delgado Martin / World Bank. 1 assigned SUEZ the construction of the largest wastewa- The sludge is thickened and stabilized through anaer- ter treatment plant in Latin America at the time, with a obic digesters before being dewatered and sent to dry- capacity of 8.8 cubic meters of wastewater per second: ing beds. Originally, about 24 percent of the biogas La Farfana wastewater treatment plant. produced in the anaerobic digesters (6 million cubic meters) was used for self-consumption to heat the bio- The plant was implemented through a build-­ operate- digesters; the remaining 76 percent (19 million cubic transfer (BOT) arrangement between Aguas Andinas meters) was flared in situ and therefore wasted (Aguas and Degrémont S.A (now SUEZ), the sole contractor for Andinas 2010). the design, supply, engineering, construction, testing, and commissioning of the treatment plant. Degrémont (Suez) still operates the plant under renewable five- Proposed Solution year operation and maintenance (O&M) contracts. In 2002 Aguas Andinas and Metrogas, a gas company, The plant treats 607,000–766,000 cubic meters a day signed a memorandum of understanding (MoU) to of wastewater and produces an average of 11,752 cubic explore using the biogas for residential use. Aguas meters of sludge a month. The wastewater follows Andinas would export the residual biogas generated the traditional path of screening, then grit and grease at the wastewater treatment plant to the Town Gas removal, primary settling, biological treatment and Factory (TGF) of Metrogas. In the TGF, the biogas clarification before finally being disinfected in chlorine would be used as feedstock to produce town gas and prior to discharge (Suez n.d.). then distributed to around 30,000 customers in the FIGURE 1. Summary Diagram of the Biogas Project $ CITY OF SANTIAGO GAS METROGAS POTABLE WATER WASTEWATER CARBON BIOGAS CREDIT $ LA FARFANA TREATED WASTEWATER BIOSOLIDS FOR AGRICULTURE 2 Wastewater: From Waste to Resource city of Santiago (see Figure  1). The joint venture Moreover, the project was registered as a Clean agreement involved upgrading the biogas from the Development Mechanism (CDM)1 on February 11, 2011, anaerobic digesters to town gas quality. Between enabling Aguas Andinas to arrange the sale of renew- 2003 and 2006, both parties carried out the neces- able energy certificates (RECs). The project developer sary studies to implement the project. In 2007 they decided to apply a seven-year crediting period, which signed a contract and began construction of the can be renewed twice, for a maximum of 21 years. The additional infrastructure needed. estimated amount of emission reductions to be claimed by the project activity in its first crediting period Town gas quality is achieved with different treat- (2011–18) was 138,516 tonnes of CO2 equivalent (19,788 ments to eliminate humidity, and remove hydro- tonnes a year),2 a source of potential extra revenue. gen sulfide (H2S), carbon dioxide (CO2) and traces of oxygen and nitrogen in the gas. Installations at La The main construction risks were related to the trans- Farfana included gas holders, open flares, gas puri- port system for the gas. In order to build the pipeline, fication equipment, compressors, a dehydration sys- Metrogas needed to obtain several permits and follow tem, and automated systems to control the operation various regulations. Permitting for the pipeline project and ensure the safety of the process (United Nations required clearance from the Ministerio de Vivienda 2006). y Urbanismo (SERVIU) and right-of-way permitting from the city.3 Given these costs, it would have been The biogas is dispatched from La Farfana through ideal to ensure long-term supply of biogas. However, a 13.5-kilometer pipeline to the Metrogas Town the agreement was made for just six years (renewable Gas factory, where an additional purifying pro- thereafter). siloxane removal) is implemented before the cess (­ gas is stored to be sent to residential users (United An interesting aspect of the business model is that Nations 2006). In the event that Metrogas did not production of upgraded biogas is not considered part require more biogas, three open flares would burn of the duties of Aguas Andinas in the applicable water the ­ biogas. The biogas  project began operation on regulation. The cleaning of the biogas and its transport May 13, 2009. to Metrogas is performed by a nonregulated subsidiary company, Aguas de Maipu S.A., which is owned by the Business Model Aguas Andinas holding company. Therefore, the return The total cost of the project was about $6 million. on the investment made by Aguas de Maipu is recov- The capital investment was divided equally between ered entirely by the holding company. Grupo Agua Andinas, which invested in improved biogas catchment and treatment, and Metrogas, Other Businesses that Could Be Developed which invested in the 13.5-kilometer gas pipeline and Wastewater Reuse the final treatment of the biogas (to remove silox- Wastewater reuse is potentially the largest resource anes). In 2017 Aguas Andinas’ profits from the sale recovery market in terms of volume. La Farfana pro- of biogas were $1 million ( $3 million in revenue and duces more than 600 million cubic meters of treated $2 million in O&M costs). Metrogas spent $3 million effuent a year that is suitable for irrigation. Currently, on the purchase of biogas, but saved an estimated the effluents from the plant return to the river, and $1.6 million (the difference between the price it farmers are able to use the treated water downstream. would have paid to import the biogas and the price Under Chile’s water regulation, Aguas Andinas main- it paid Aguas Andinas). tains ownership of the water rights until the water’s Wastewater: From Waste to Resource 3 Biogas Holders at La Farfana Wastewater Treatment Plant. Source: Anna Delgado Martin / World Bank. final disposal, but the definition of final disposal is Depositing the biosolids in landfills costs about $40 a unclear. Moreover, the regulated business of water ton—an annual cost of $11.6 million. supply and sewerage services does not put any value Aguas Andinas has explored alternative uses for its bio- on the treated effluent, as the treatment service is solids. Currently, about 40 percent of the biosolids are already charged to water users. used in agriculture, at no cost to the farmers. Aguas After further treatment, this treated water could be Andinas pays the transport cost, which averages $13 per distributed through a distribution network to farmers ton. It does so because this cost is lower than the landfill using sprinklers or drip irrigation. However, the cur- cost; delivering biosolids to farmers saves Aguas Andinas rent water abstraction fee paid by the farmers ($0.012 about $27 per ton, reducing the company’s costs by per cubic meter) would be insufficient for Aguas $3.2 million a year. Farmers benefit from free fertilizer, Andinas to cover the extra treatment and distribution but many of them are reluctant to use it, because of lack costs. The treated water could also be sold to industrial of knowledge on its exact contents. In addition, regula- users at a higher price. tions restrict the use of biosolids on some crops. Aguas Andinas is evaluating the feasibility of enter- Biosolids ing the compost business, to increase the amount of La Farfana produces about 800 tons of sludge a sludge that could be used by farmers. The company day. After the dewatering and drying process, the created a nonregulated subsidiary, ECORILES, that is plant  yields about 120 tons a day of dry biosolids. exploring this business. As with the sale of biogas, 4 Wastewater: From Waste to Resource the activities of Ecoriles, which is 99 percent owned • The energy value of the biogas is measured in situ, by Aguas Andinas Holding, are not regulated under to ensure its quality. the concession agreement for water supply and sewerage. • A minimum volume of biogas is guaranteed per trimester. Financial Structure, Financial Instruments, • The agreement is for six years, renewable thereafter. and Risk Mitigation • Aguas Andinas and Metrogas finance their respec- Financial Structure tive parts of the project with corporate bonds and The biogas project was established through a joint bank debt. venture agreement based on a memorandum of under- standing made in 2002, while La Farfana was under Financial Instruments construction. The contract between Aguas Andinas Aguas Andinas used both corporate bonds and green and Metrogas was signed in mid-2007; the gas project bonds to finance the project. Every year the company was ready for operation in December 2008. issues corporate bonds to finance its investments (and refinance part of its existing debt if it makes sense to The joint venture consisted of a purchase/sale agree- do so). Bonds are issued in local currency and sold in ment between Aguas Andinas and Metrogas. The con- the domestic financial market. The good market return ditions of the agreement were as follows (figure 2): and long tenure (5–25 years) make the bonds of this • The price of biogas is fixed and indexed to the price AA+ rated company very attractive for institutional of oil. investors and insurance companies. FIGURE 2. Terms of 2007 joint venture agreement between Aguas Andinas and Metrogas and benefits of deal to each party La Farfana BIOGAS Project - Supply of biogas to Metrogas – Gas distributor Benefits - Carbon bonds according to Kyoto protocol Aguas Andinas EBITDA of $1 million per year for Investment to improve the sale of biogas biogas catchment and + treatment Financing terms Income of $3 million from Aguas de Maipu Corporate bonds (gas processing and Joint venture transportation agreement– subsidiary) October 2007 Bank debts Metrogas Annual profit of Investment for the gas $1.1–$3.1 million pipeline and biogas final treatment Source: ITAC. Note: EBITDA = earnings before interest, tax, depreciation, and amortization. Wastewater: From Waste to Resource 5 Using green bonds to finance green infrastructure proj- Lessons Learned ects like the biogas project was a logical step in Aguas The Biogas Business Model Can Be Profitable for All Andinas’ corporate strategy. The company launched its Parties If Designed Correctly offer, of about $65 million, in April 2018. The term was The biogas business model has been profitable for both seven years with a three-year grace period and a return Aguas Andinas and Metrogas. Aguas Andinas reported of 1.8 percent. The issuance was sold in a record time a $1 million profit from its biogas selling activities in of eight seconds, with demand exceeding the offer by a 2017 (Aguas Andinas 2017). Aguas Andinas also ben- factor of 3.6 (ITAC 2019). efited from additional savings from the use of biogas for heating the biodigesters. The project also allowed Risks and Mitigation the company to identify other waste to resource proj- Demand risk for biogas was covered by the supply ects, such as potential power-generation activities in agreement with Metrogas. The initial six-year agree- other plants or the beneficial use of biosolids, and it ment allowed Aguas Andinas to pay back its invest- allowed Aguas Andinas to implement circular econ- ment on the project while giving it some freedom to omy principles. renegotiate a new agreement with Metrogas, keep the gas for self-use, or sell it to other users, depending upon market conditions. Regulation risk is low, given The Spill-Over Effect: The Biofactory Concept the stable regulatory framework in Chile. The biogas project in La Farfana was a starting point for the transformation of the management of wastewa- Benefits ter treatment plants operated by Aguas Andinas into The deal provides economic, environmental, and “biofactories”—which Aguas Andinas’ CEO defines as social benefits. “business units that do not generate waste, have no environmental impacts, and that do not consume fos- Economic sil energy but produce their own energy to operate.” 4 • It increases Aguas Andinas’ energy efficiency, provides additional revenue from biogas and car- The bio-factory project was launched in 2017 to pio- bon credits, and allows it to access the green bond neer innovative circular wastewater treatment solu- market. tions in Santiago and in the sector. With this new concept, Aguas Andinas wants to promote a paradigm • It reduces Metrogas’ dependency on imports and change, moving from the treatment to the manage- the price it pays for gas and allows Metrogas to ment of resources, from a linear to a circular approach distribute a product that is more sustainable than in which biofactories extract and supply new valuable ­natural gas. resources, such as electricity, natural gas, agricultural • It allows farmers using the conditioned sludge (bio- fertilizer, or clean water from what it used to be con- solids) to reduce the use of fertilizers by 50 percent, sidered waste. The goal of Aguas Andinas is to be zero reducing fertilizer costs. waste, energy self-sufficient, and carbon neutral in its three wastewater treatment plants in Santiago by 2022. Environmental and Social • It reduces local air pollutants and global greenhouse Encouraging utilities to implement waste to resource gas emissions (by replacing natural gas with biogas). projects could lead to a profound change of their cor- porate culture, toward circular economy principles • It increases energy sustainability. and could trigger the development of more waste to • It harnesses local resources and creates know-how resource projects. 6 Wastewater: From Waste to Resource The Need for Appropriate Regulation model of the Chilean regulator, Superintendencia Before 1991 agricultural produce for the Santiago met- de Servicios Sanitarios, fosters innovation and effi- ropolitan area was supplied from 130,000 hectares of ciency improvements by utilities. It provides a grace agricultural land, irrigated with untreated wastewater period of five years during which utilities can keep pumped by farmers from the river (World Bank 2010). the profits obtained from an innovation before they In 1991 the area was struck by a severe cholera epi- are obliged to pass them through to consumers via demic. The use of untreated wastewater for irrigation tariff reductions. This feature provides sufficient of food products was found to be a critical vector of incentive for private operators to keep innovating. the epidemic. In response, the government imple- The regulator has also embraced the goal of convert- mented new regulations, which included banning ing waste into resources. Tariff estimation method- irrigation from contaminated surface waters and food ologies specifically allow to include the capital and products that come from these irrigated lands. The operational costs for potential waste to resource new regulation triggered the construction of waste- projects. water treatment plants throughout Chile, with the Long-term agreement among stakeholders. Success target of treating 100 ­ percent of wastewater. Despite also depended on the long-term agreement between Chile’s success in treating wastewater, the strict- Aguas Andinas and Metrogas, which ensured demand ness of the public health regulation made the sale for biogas, thereby giving Aguas Andinas the confi- of treated wastewater very difficult and costly. More dence it required to make the needed investments. appropriate regulation on the use of treated water for irrigation should be introduced to reduce costs and Notes encourage direct reuse. 1. Under the Clean Development Mechanism, emission-reduction proj- ects in developing countries can earn certified emission reduction Enabling Factors credits. These saleable credits can be used by industrialized coun- tries to meet a part of their emission reduction targets under the Financially sound partners. Both Aguas Andinas and Kyoto Protocol. See https://cdm.unfccc.int/ Metrogas have sufficient creditworthiness to finance 2. Clean Development Mechanism Project Design Document Form their investment with corporate debt or equity and (CDM-PDD) Version 03, in effect as of July 28, 2006. to provide sufficient guarantees to each other. For 3. The pipeline design was made according to ANSI B31.8; construction other business lines, such as treated water or biosol- was performed in accordance with regulation DS 254/98. Pipeline operations and maintenance are performed under regulation DS ids, where Aguas Andinas’ counterpart is not a sin- 254/98 and DOT191 and 192. gle entity, the counterpart is not creditworthy, or the 4. Narciso Berberana, CEO, quoted in Aguas Andinas’ 2017 annual report. market is not attractive, other incentives are needed. ­ The government could provide clearer regulations, References standards or subsidies to promote resource recovery Aguas Andinas. 2010. “Proyecto de biogás: Nueva energía para Santiago.” projects beyond biogas generation. Presentation Water sector regulation that fosters innovation. Chile inversionistas​ ———. 2017. “Memoria Anual 2017.” https://www.aguasandinas​ .cl/~/media/Files/A/Aguas-IR-v2/aguas-andinas-memoria​-anual-2017.pdf has one of the oldest and more stable water service reg- ulators in Latin America. The sector also prides itself on Hitotecnológico. n.d. “Planta de tratamiento de aguas la Farfana. Huele a nuevo.” http://biblioteca.cchc.cl/datafiles/21155.pdf. having a modern and effective regulatory framework. The World Health Organization considers Chile’s water ITAC (International Technical Assistance Consultants). 2019. “From Waste to Resource – Why and How Should We Plan and Invest in and sanitation regulatory system to be a model not Wastewater?” Unpublished technical background report prepared for the only for Latin America but also for Europe. The tariff World Bank. Wastewater: From Waste to Resource 7 Nelson, Ian D. “Biogas de La Farfana: Aprovechando la energía hecha en United Nations. 2006. “Clean Development Mechanism Project Chile.” Presentation. https://www.globalmethane.org/documents​/events​ Design Document Form (CDM-PDD) Version 03 - in effect as of: _land_20100602_nelson_12.pdf. 28  July 2006.” Project 4037 : Biogas use in Town Gas Factory in Santiago.  United Nations Framework Convention on Climate Suez. n.d. La Farfana, Chile. Web page. https://www.suezwaterhandbook​ Change,  New  York. https://cdm.unfccc.int/Projects/DB/DNV-CUK​ .com/case-studies/wastewater-treatment/La-Farfana ​ -wastewater​ 1286878729.2/view -treatment-plant-Chile (Accessed October 2019) World Bank. 2010. “Improving Wastewater Use in Agriculture: An United Nations Climate Change, n.d. Santiago Biofactory, Chile. Web Page. Emerging Priority. Energy Transport and Water Department Water https://unfccc.int/climate-action/momentum-for-change/planetary​ Anchor (ETWWA).” World Bank, Washington, DC. -health/santiago-biofactory-chile (Accessed October 2019) ­ ank. Some rights ­ © 2019 International Bank for Reconstruction and Development / The World B reserved. The find- ings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, represent. The World Bank does not guarantee the accuracy its Board of Executive Directors, or the governments they ­ work. 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