How IRM Works

IRM is Sequel's process for assessing, planning, implementing and managing resource recovery.  It's a solution where energy and resources are captured, generated and transferred to where they can be used.  The cost is offset by revenues from selling the energy and resources to the consumer.  This page provides a small snapshot of some of the issues considered when implementing IRM.

IRM for the Private Sector: Benefits Profit and Risk

IRM originated in the private sector by recovering resources and waste energy.  It is suited for major corporations, large landowners and major subdivision developers, investors etc.  In summary, here's how it works.

Businesses consume energy and resources including heating, cooling, electricity, gas and water and an IRM system can help offset these costs.  For example, many businesses generate surplus heat and vent this as the most economic way of cooling, while others use air conditioning systems to reduce heat and control climate.  Both approaches consume additional energy and require equipment, operations and maintenance, which adds cost to dispose of what is in fact a resource: heat.  While these approaches may be expedient, they are ultimately unprofitable because they waste energy rather than capturing and selling it: but the challenge is how to recover the value in the heat rather than wasting it.

At the same time, while some businesses generate energy or resources, almost all have to figure out how to deal with waste, which usually incurs further cost.  Businesses are increasingly subject to environmental regulation aimed at preventing damage to the environment, human health and/or the resources that enterprises rely on.  For business this is usually seen as an increase in cost.  IRM can improve net profit by realigning energy and resource utilisation to reduce cost and move towards, or generate, revenues.  Lastly, working with communities, industry may be able receive community waste and leverage economies of scale to generate energy and value.

IRM for the Public Sector: Benefits Tax, Risk and the Environment

Landfills take up space and are expensive, and we're running out of economic locations for them.  They can create odour, are visually intrusive and create disturbance, some of them contaminate the groundwater; and landfills are one of the largest urban sources of GHGs.  At the same time, sewage and other wastes have to be treated or they affect health, ecosystems and the food chain.  Increasing marine "dead zones" are caused by such discharges, depleting fisheries and affecting entire industries and communities.  For these reasons and more, environmental regulation has increased the cost of ensuring waste is dealt with appropriately, yet communities often face rising budgetary pressures.  Lastly, resources and energy are becoming more scarce, costly and risky so maximising their conservation makes sense.

Moving waste to a resource management approach not only benefits the environment but can pay for some or all the cost of waste treatment.  This in turn may reduce, retire or eliminate taxpayer waste management costs.  A simple example is water.  An IRM approach where current sewage treatment standards are exceeded allows water to be reused (and thus, sold to consumers) which reduces pressure on potable water sources, collection, treatment, distribution and rationing.  It supports environmental restoration with consequent benefits to ecosystem and human health, the food chain and the businesses and communities that rely on ecosystems being healthy.

Businesses have a role to play because they create and consume waste and can generate resources.  Working with the broader community to maximise resources means assessing who gains and who loses, adjusting the value to make the system work optimally for mutual benefit.

System Boundaries & Transfer Pricing

Communities and businesses have a mutual interest in working together because they both generate waste and consume resources and energy.  However the relationship needs to be understood and structured carefully.

For IRM to be optimized the system boundaries must be defined.  This means setting out who owns, generates and consumes what waste and resources, who owns and consumes energy and how a more sustainable and viable approach can be mapped out.  This defines the system boundaries.  Having defined the system boundaries, participants in an IRM system share in the cost, risk and rewards according to their involvement.  Thus: those able to reduce costs of waste are paid to do so by those who benefit.  This is transfer pricing.  Other similar terms for this are gain sharing or profit sharing, but these don't really capture the more complex assessment necessary to resolve price externalities.  Core to this is calculating, negotiating and resolving marriage value.

Life Cycle Valuation

The truth about sustainable-almost-everything is that the value isn't easy to quantify and it usually happens over a long time.  This clashes with: (a) traditional business focus on short term returns; and, (b) traditional cash flows that literally discount the future, hence the term "discounted cash flow".  Focus on traditional assessment and you'll miss this value, which means you also have to run multiple scenarios to optimize the model.

Look solely at the short term and you could miss the money.  You have to consider the long term.  And while most people think of "life cycle costing," this also isn't enough.  Cost doesn't consider value and in any profitable enterprise, revenues exceed costs.  The focus has to move from cost centres to profit centres and short term to long term.  Because finance can contribute to making systems viable, this also has to be considered, married to a method of assessing the net highest and best use and value, where value includes the triple bottom line aspects (through transfer pricing and negotiating a marriage value calculation). 

In other words life cycle costing has to become life cycle valuation.  This requires a complex and comprehensive integrated model, with multidisciplinary understanding that quantifies the implications.

In order to address all the costs, revenues and life cycles, aspects have to be assessed within a complex model that handles life cycle valuation.  This is a more sophisticated and comprehensive way of assessing net value than with a discounted cash flow, but is readily understandable by anyone used to cash flows.  It is consistent with international standards and how a business thinks and works

To provide an example.  A traditional engineering analysis concluded a plant cost of $345m.  The life cycle was not stated and the operating cost separated.  Moving this into full life cycle valuation shows the real true cost to be $1.1bn, a completely different picture than a traditional discounted cash flow presents.  This is why full life cycle valuation is fundamental and necessary.

IRM Components

IRM does not use or advocate any specific technology or manufacturer, and may use different sequences or placement of equipment to maximise value.  The technology is the last thing to be chosen, not the first.  An IRM system may include, but is not limited to using:

• Anaerobic digesters;
• Heat pumps and heat exchangers;
• District energy loops;
• Cogeneration;
• Gasifiers;
• Biomethane upgrade plant & machinery;
• Microhydro;
• Nutrient recovery plant & machinery;
• Wastewater treatment plants (e.g. Membrane Bioreactors).

This is illustrated in the IRM Decision Tree.  How these technologies are chosen, who the supplier is and how they are deployed depends on the location, nature and volume of existing infrastructure, waste location, and energy consumption.  This is tested by our integrated model, together with net revenue assessment, before determining which technology is likely to optimize value.  To assess this we use our IRM evaluation process, which helps identify, refine and finally optimise value and resource recovery.  Technology is the last thing chosen and is assessed based on the value it brings to an overall model, which is why we carefully assess which technologies work best to suit needs, using a needs analysis, demand analysis, supply analysis, gap analysis and life cycle valuation.

Risk, cost, revenues, value, environmental value and other elements are also priced, and procurement options considered and tested, to determine which components and system design might be preferred.  The system is then iterated to refine the model, with a focus on both net value and overall net benefit.  This determines which technologies work best.

In Conclusion

While this provides an outline of our IRM model, it cannot cover the wide range of aspects such as procurement and finance options, governance and environmental considerations, or the process we use to systematically assess IRM opportunities.  Get more information in presentations on our Resources page or contact Sequel.

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