Support services and construction company Interserve went into a pre-pack administration last month and its disastrous venture into energy-from-waste (EfW) plants was cited as one of the main factors behind its financial woes, after it admitted that the cost of quitting the EfW sector would amount to almost £200 million.
As the fallout from the company’s dramatic demise continues, and details of the true cost of its EfW investments unfurl, the saga has placed the economic viability of the process under the spotlight.
EfW is seen as a sustainable alternative to landfill, using household, commercial and non-hazardous industrial residual waste left after recycling and composting efforts as fuel to generate electricity. The landfill tax, first introduced in 1996 as a policy to help meet landfill diversion targets, has been the key driver of the switch from landfill to EfW as the preferred route for disposal of residual waste.
But could Interserve’s problematic foray into the sector now help pave the way for a cooling of enthusiasm for EfW?
Certainly, official figures suggest the sector is in rude health; there were 40 EfW facilities in the UK in 2017, up from 26 in 2014, and between them they have an operational capacity of handling 12 million tonnes of waste a year, according to analysis by Tolvik Consulting. In 2018 it is expected that, for the first time, the tonnage of residual waste sent to EfW in the UK will exceed the tonnage sent to landfill, a figure predicted to rise to nearly 16 million by 2022.
Experts are confident that the appetite among both investors and developers for EfW projects remains strong, particularly when they are structured correctly – ideally through a long-term waste supply agreement with one or more local authorities, covering the majority of the facility’s capacity.
“There’s a strong business case for EfW because plants get paid for avoiding sending waste to landfill – gate fees – as well as for generating energy,” Tom Palmer, principal consultant at Cornwall Insight tells Utility Week. “I don’t think the investment community will be shocked or worried by Interserve – it says more about the management of the company rather than those specific projects.”
The right projects
Ali Lloyd is senior principal consultant in Pöyry’s UK renewables and waste team, providing commercial and valuation advice to EfW developers and investors on projects including the Cory Riverside project, Wheelabrator’s UK portfolio, and the Dublin EfW facility. Lloyd believes a bigger challenge is the supply of good new projects rather than availability of finance.
Most local authorities have already entered into long-term contracts with EfW facilities for disposal of residual household waste,” Lloyd explains. “There are still some volumes of waste going to landfill, but much of this is commercial and industrial waste, which is generally contracted over shorter terms. This makes building new facilities to take this waste more challenging, because the owner must bear more risk.”
Technical issues with alternative and potentially more efficient forms of EfW –notably gasification and pyrolysis – are more of a concern for investors.
Unlike incineration, gasification requires the preprocessing of waste material and it is precisely this large mix of waste that households throw away that has proved difficult for the newer technologies to handle.
“They are the projects that have often failed,” Palmer says. “It costs lots of money and there are issues in getting the technology to work, which has made investment committees a bit wary of them. But if traditional EfW works, why not continue doing that, subject to emission standards and local authority need.”
The Energy Technologies Institute (ETI), a public-private partnership between global energy and engineering companies and the British government set up to accelerate the development of low-carbon technologies, concedes that the technology and commercial risks of gasification are too high for typical investors and developers.
ETI’s £8 million, 1.5MWe waste gasification demonstration project in the West Midlands – incorporating an engine fuelled by “ultra-clean”, tar-free syngas – is currently in hot commissioning phase and should be operational by July at the latest.
ETI project manager Paul Winstanley says: “There will always be a place for traditional combustion systems, but our research suggests gasification can offer a more embedded local solution. If you go small enough, the population in the local area don’t have as much of an issue.”
Combined heat and power
Of the 40 EfW plants in the UK, just eight operate in Combined Heat and Power (CHP) mode. A spokesman from the Department for Environment, Food and Rural Affairs tells Utility Week: “While our top priorities are to prevent the creation of unnecessary waste in the first place, followed by preparing waste for reuse or recycling, we recognise that energy from waste has an important part to play in diverting waste away from landfill.
“That’s why, as part of our landmark resources and waste strategy, we have set out plans to help companies that run energy-from-waste plants to improve their efficiency by encouraging the use of the heat the plants produce.”
Using waste to generate both heat and electricity was a largely missed opportunity, says Tim McNeilly, managing director at I C Electricalan, electrical contractor working in the EfW sector.
“It is apparent in some cases that operators focus more on burning waste, rather than energy generation. This approach could be altered with further legislative backing and funding from government regarding future energy generation.”
Tanja Groth is lead energy economist at Sweco UK. She is currently working to deliver a project for Leeds City Council to create one of the UK’s largest low-carbon heating networks, which from later this spring will connect almost 2,000 homes and scores of businesses across the city, converting steam from a local recycling plant into hot water and distributing it along a 16.5km network of underground pipes.
“In 20 years, I don’t think there will be a market for traditional EfW plans and one area where the UK could do more is EfW facilities for combined energy and heat, but a challenge is we don’t have a lot of heat networks.” Then there’s the question of who takes on the financial responsibility for the infrastructure needed. “The investment opportunities for the UK are huge.”
In the short term, tried and tested technologies will continue to dominate the landscape. “These [gasification and pyrolysis] projects have a mixed record for reliability and investors are generally more comfortable with conventional technology which has a proven track record. We expect conventional EfW to remain the dominant technology for the foreseeable future,” Lloyd says.
The environmental imperative
At the same time, with moves to phase out single-use plastics and an appetite for collection of food waste gaining traction, there is a strong environmental imperative to focus investments on energy-saving practices, such as recycling or composting, so we can transition to a resource-efficient and ultimately regenerative circular economy, says Dean Hislop, managing director of Renovare Fuels.
“Destroying valuable matter in a polluting manner doesn’t solve the problem or even offer a long-term economical solution. Incinerating waste produces carbon emissions that damage the ozone layer, and increasingly environmentally focused legislation will ultimately mean businesses don’t see any notable financial value from generating energy in this way,” Hislop says.
Renovare Fuels has created a technology that can turn biodegradable organic waste, from industries like agriculture and food production, into a liquid biofuel that can be dropped into systems as a direct replacement for diesel and petrol.
Palmer says there is no sign that political enthusiasm for EfW has waned recently, although the Treasury says there is “overwhelming support” from the public for a range of measures including an incineration tax as a means to “encourage recycling as opposed to incineration”.
And Tolvik Consulting warns that unless it is appropriately set, an incinerator tax could make landfill a cheaper option than EfW or make export a more attractive option than treatment at an EfW plant.
Despite the challenges, it is by no means all doom and gloom for the business of energy from waste. The construction of new plants is as important as ever.
On 22 March, Covanta and Green Investment Group announced that the Rookery South Energy Recovery Facility in Bedfordshire had reached financial close and construction could now begin. Rookery South at a former brick clay extraction pit, near Stewartby in Bedfordshire, will process over 500,000 tonnes of residual waste a year and generate over 60MWh of low carbon energy – enough electricity to meet the needs of 75,000 homes.
Meanwhile, Amey’s waste treatment facility at Newport – being delivered on behalf of the Isle of Wight council – is expected to be fully operational by this summer. The mechanical treatment plant will convert up to 44,000 tonnes of non-recyclable waste to fuel via EfW technology, which is set to produce up to 23,000MWh of energy a year when it is commissioned.
Energy from waste has a clear place in the waste hierarchy, Lloyd says, and existing projects are, on the whole, proving viable and economically successful. Most EfW facilities use grate boilers, which is a mature and reliable technology. And the majority achieve very high availability.
Tolvik Consulting’s report, meanwhile, predicts that continuous optimisation initiatives will increase waste throughputs and power export efficiencies, particularly for larger EfWs.
But as the Interserve example illustrates all too well, the economic performance of a project will be largely driven by how well it is managed and operated.