Waste and energy from waste
UK Green Investments
Prior to state aid approval, the Government through the
UK Green Investments ("UKGI") paved the way for the establishment of the UK Green Investment Bank and considered investments in both waste recycling, and energy from waste projects.
Following the receipt of state aid approval for the creation of the UK Green Investment Bank the interest in the above funds transferred from BIS to GIB on 13 November, 2012.
Waste Fund Managers Details
If you have a specific waste project, which is below £30 million, contact both our appointed fund managers from Greensphere Capital and Foresight Group.
For more general waste sector enquiries and projects above £30million, please email the UK GIB team members: Adrian Judge and Edward Northam.
Background
Waste treatment facilities enable waste to be diverted from landfill and used instead for either energy creation or recycling schemes. By 2020 the UK will need an estimated 15.8 million tonnes of additional waste treatment capacity in order to meet the landfill targets set out in the EU Landfill Directive.
There are currently plans to create an additional 7.6 million tonnes of waste treatment capacity. This leaves a gap of around 8.2 million tonnes. It is currently estimated that around £2 billion of investment is needed to fill this gap, and evidence suggests that the large waste management companies will be unable to meet this without partnering with private investors or government. However there are relatively few private investors with expertise in this area and sufficient appetite for risk.
Types of waste treatment
There are primarily three types of waste treatment which divert municipal solid waste from landfill:
- Recycling and reprocessing projects which sort waste, then extract materials which can either be reused or converted into new products.
- Pre-treatment facilities which use new technologies to convert different forms of waste into fuel. Mechanical Biological Treatment (MBT) and Mechanical Heat Treatment (MHT) are two such facilities. MBT/MHT plants produce recovered fuels from the non-recyclable elements of municipal waste. These fuels are then used in energy from waste facilities such as gasification and pyrolysis, or to displace fossil-derived fuels used in industrial processes (such as cement kilns).
- Facilities that use existing technologies to produce energy from waste. Examples include Anaerobic Digestion (AD) and advanced thermal conversion technologies such as gasification and pyrolysis.
Investment challenges
These include the following fundamental market failures which have caused the lack of private investment in the sector:
- Technology risks: Pre-treatment projects, energy from waste projects and some recycling and reprocessing projects involve either novel technologies, or existing technologies used in a novel way.
- Lack of guaranteed waste supply: Most landfill diversion projects require consistent supplies of waste in order function efficiently and achieve attractive returns; however there is a shortage of long term contracts for the supply of waste to non-local authority projects. This tends to deter investors as they are generally averse to committing to projects which cannot guarantee a long term supply of waste to fuel their scheme. For projects also involving novel technologies, the problem is further compounded by the fact that in awarding long-term waste management contracts, local authorities largely favour parties offering lower risk technologies over less proven, novel technologies.
- Price volatility of recyclates: many waste projects generate revenue from the sale of recycled waste products. The price of these fluctuates in response to supply and demand and can be relatively volatile
- Information and data concerning the projects is imperfect, which results in higher risk profiles and prohibitively high due diligence costs.
Meeting UK targets
The Landfill Tax (introduced by the UK Government in 1996) is the main mechanism used by the UK to meet the targets set out in the Landfill Directive for biodegradable waste. A number of renewable energy incentive schemes (the Renewables Obligation, RHI, and the Renewable Transport Fuel Obligation) also apply to this sector. However, while they provide financial incentives to invest in renewable energy, they do not address the specific market failures affecting investment in energy from waste.
Other government funded interventions, such as the loan schemes offered by organisations like London Waste & Recycling Board, are valuable in demonstrating new technologies or addressing a very specific market failure in certain areas. However they are typically focussed either on specific geographical regions, or are at a much smaller scale than the Green Investment Bank.
