Landfill Economics Part 1: Getting Down to Business Part 1

Editor’s note: The article was originally published in 2005. This series of three articles examines the costs involved in each stage of a generic landfill’s lifetime, shows how to do pro forma statements for profit and loss, and analyzes the tax and financial aspects of each stage of operation. In so doing, these articles illustrate the unique profitability of landfill operations for a given market share. Each focuses on a different stage of a landfill’s operational lifetime.

Support Facilities Construction Costs
Typically all of the ancillary structures and facilities (with the possible exception of the access roads) are constructed up front. Assuming a square landfill footprint of 1,200 feet by 1,200 feet, the landfill’s perimeter access road would have a length of approximately 1,250 along each side for a total of 5,000 feet. Given the possible setbacks from the property line required by the state regulatory agency, and the area required for other facilities, the security fence could be approximately 6,000 feet. Cost for support facilities and structures are summarized as follows:

• Each building’s cost will depend on its function and may vary as much as $10 to $100 per square foot. Office buildings will cost between $60 and $100 per square foot, maintenance buildings between $50 and $70 per square foot, with shacks and tool sheds closer to $10 to $20 per square foot. Assuming 10,000 square feet of maintenance and 3,000 square feet of office space, the cost of onsite buildings will range from $680,000 to $1 million.
• Fencing costs between $10 and $20 per linear foot with gates costing between $1,000 and $2,000 per linear foot. Signage placed along the fence (usually at 200-foot intervals) will cost between $10 and $20 each. Total security barrier costs would range from $65,000 to $130,000.
• Modular truck scales and associated computer systems can cost between $100,000 and $150,000 each (one per landfill)
• Wheel wash facilities can cost between $200,000 and $250,000 (one per landfill).
• Gravel roads cost between $1 and $2 per square foot while asphalt roads cost between $6 and $9 per square foot. Assume only gravel roads and parking lots are constructed with a 24-foot width at 5,000 linear feet. The total access road costs would range from $120,000 to $240,000.
• Total support facility and ancillary structure costs would range from $1.165 million to $1.77 million. Given its size, it is assumed that the hypothetical landfill will need minimal support facilities and is located so as to minimize costs at $1.2 million.

Disposal Fees and Operations Costs
As previously stated, the landfill is in a market area with an average tipping fee of $40 per ton. Each landfill acre will have an average disposal capacity of 60,000 cubic yards. At an average in-place density of 0.55 tons per cubic yard, this is equivalent to 33,000 tons per acre. Therefore, each acre has a gross profit potential of $1.32 million (though this will vary significantly during the lifetime of the landfill since some cells will be able to place waste in masses that overlay the slopes of previous waste disposal cells). The entire 33-acre landfill has a gross profit potential of approximately $43.5 million.

By comparison the 33.5 acres of liner construction will cost $11.725 million. With the support facilities and structures, the total capital costs prior to final closure would be approximately $13 million.

Operating costs involve staffing, utilities, equipment operations (leasing or loan payments, fuel, oil, lubricants, maintenance, etc.), leachate disposal and treatment, scale operations, paperwork, recordkeeping, billings, engineering staff and services, environmental monitoring, and daily cover applications. Equipment is the single largest operating cost closely followed by daily cover.

At 200,000 tons per year, the average daily waste receipt would be between 500 and 600 tons (a relatively large amount by real world standards). At minimum, this landfill would require

• A front end loader for onsite hauling of bulk material and small construction tasks (CAT 950 or equivalent).
• A dozer (CAT D7 or D8) equipped with a trash rack to spread dirt and waste.
• A steel, wheeled compactor (CAT 826G or equivalent) to compact the waste and achieve maximum possible in-place density.
• Additional equipment such as water spray trucks (to hold down dust), scraper, backhoe, several pickup trucks, and a road grader.

The total unit cost of operations is relatively small compared to the landfill’s capital costs. This makes landfill economics unique among industrial or construction operations (a landfill is both). As a percentage of the tipping fee, operating costs can run from 5% to 15%. Larger landfills will have a smaller percentage. Table 2 provides a summary of typical annual operating costs.

Determining Cash Flow
The cost of the support facilities and ancillary structures is incurred prior to the start of landfill operations, in Year 0, $1.2 million. The first three acres of lined cells will also be constructed in Year 0 at a cost of $350,000 per acre, or $1.05 million. The total costs incurred in Year 0 would therefore be $1.55 million.

On average, each year will require the construction of another 3 acres at a cost of $1.05 million. However, larger areas may be constructed at greater intervals, such as 9 acres every three years. Annual operating costs will be $600,000 for a total average annual cost of $1.65 million.

Each year, the site receives 200,000 tons and charges a tipping fee of $40 per ton. This results in annual gross revenues of $8 million. This results in an annual “net” profit (before interest and taxes) of $6.35 million. Assuming that no final cover is constructed during the first year of operations, the payback period for the initial startup costs in Year 0 is about three months. However, this does not include annual costs for partial installation of final cover or disbursements to a sinking fund to cover the costs of the 30-year post-closure care.

This second article examines the cost of construction for site facilities and for each landfill cell. Additionally, the operating cost and disposal volume of each overlapping cell are described to show how cash flow will change over the operating life of the landfill. Click here for Landfill Economics Part 2.