Taking a frank and earnest look at energy from waste

Written by: Geraldine Faulkner | Published:

Delegates at an energy from waste event last month heard how the sector is being sidelined by other government priorities such as a preference for wind – but the EfW sector can fight its corner by proving its value, forming strong partnerships with financers and being more innovative. Geraldine Faulkner reports

There is no shortage of anomalies in the energy from waste sector, Siemens' George Giles told delegates last month at the company's Energy from Waste Conference 2015: Planning for Tomorrow. One of the biggest incongruities, he said, was that despite energy from waste facilities struggling to find feedstocks, the UK is shipping refuse derived fuel abroad.

Along with anomalies such as these, Giles pointed out there are key challenges facing the industry, a statement corroborated by a general consensus at the event that government policy priorities have moved away from environmental concerns and are focusing more on energy, with a lot of support for initiatives such as shale gas. Delegates also expressed frustration at the de-prioritisation and marginalisation of the EfW sector.

Keith Riley, CEO, BH EnergyGap, commented: "Building EfW is not an easy industry and is not for the faint-hearted."

No joined up thinking

This is a sentiment shared by Dr Darryl Murphy, partner, KPMG: "It is fair to say the sector is not well joined up. Currently no joined up waste policy exists across government, although low carbon remains a serious issue with new minister, Amber Rudd, a big advocate for low carbon thinking. Her challenge is to demonstrate affordability and low carbon at the same time."

Murphy pointed out that although the government has focused on reduction and reuse before handling the issue of recovery, EfW has a role to play provided it offers value for money. With 24 EfW facilities in operation and nine under construction, the KPMG partner said: "We are seeing a big growth in the market." However, he warned that with the government remaining technologically neutral – thereby allowing the market to dictate the winners – it brings uncertainty.

Contracts for difference

With the first allocation of contracts for difference (CfD) results having been announced in February this year, Murphy said CfD is "not a bad thing"; however, he observed that the EfW sector is "going up against offshore wind and that is the technology the government is promoting".

To qualify for a CfD, EfW (i.e. combustion as opposed to gasification or pyrolysis), must have combined heat and power (CHP), stated Murphy before advising that the sector should ensure their prices are below those of offshore wind. He also pointed out that fully merchant EfW projects are not bankable unless they secure long-term feedstock agreements.

Referring to export of heat: "A focus on anchor contracts will be key," emphasised Murphy before turning his attention to the issue of funding structures. "The debt structure will either be horizontal or vertical with a need for greater equity or mezzanine debt with lower average and high cover ratios for debt. The challenge is to get everyone out of a tight risk-averse model until we can show plants can bring in more. If you are a developer with a reasonable balance sheet, the problem is who is going to move projects forward. The government is not going to be a driver so the industry has to do what it can."

He suggested that finance and industry need to form closer ties, but warned their respective perceptions of risk are different.

Phil Piddington, CEO of Viridor, owner-operator of EfW facilities such as Runcorn in Ardley, Oxfordshire and part owner of Colnbrook, said: "The key message is to have an analytical approach. Where do you foresee the waste coming from? It is about choosing the right technology, making sure you don't take too many risks all at the same time and optimising efficiency. The real journey starts after planning has been won."

Partnership

The CEO stressed the importance of partnership. "You can't carry out a [successful] EfW project without partners," he said before adding: "Choosing your partners is absolutely critical, ensuring you've got someone who can plan as well as place emphasis on quality and performance. It is not just about getting the cheapest price up front. Elements to ensure delivery of maximised project performance include clear planning and teamwork, early resourcing with experienced operators and proven technology versus managed technical risk."

Piddington also dispelled the notion that any old rubbish can go into the front end of an EfW facility. "It is a misconception," he stated firmly. "You need quality materials."

Uncertain times

The CEO echoed Murphy's opinion that funding options remain a challenge in the current market. "This sector is getting increasingly difficult to get funding for. We all know what the backers want; the highest return with the contractors carrying the risk. Thanks to regulatory uncertainty and regulatory change, we live in uncertain times," Piddington told the conference.

Adding another consideration to the mix, he posed the question: "Is the circular economy package [currently under revision in the EU] going to be sympathetic to energy recovery plants or is it going to kill them?"

Despite the concerns regarding funding and the regulatory uncertainties, the CEO said the biggest efficiency challenge was whether to add combined heat and power (CHP) to facilities or not. "We should not be wasting heat," he stated firmly. "Runcorn ERF delivers vital heat and power to IneosChlor, a major industrial facility and NW employer. We're now looking at extending the heat to local residences," added Piddington.

Gavin Lawrenson, technical director, AmeyCespa, which like Viridor pursues the owner-operator strategy, emphasised the importance of finding whole life project benefits. "If you start early enough in the investment phase and look ahead to the end of life you get a real overall concept and can focus on finding whole life project benefits," opined the technical director.

Learning from other sectors

Stating that lessons could be gained from other industries, Mike Houghton, MD, Siemens Process Industries & Drives, commented: "This industry has a lot to learn from other sectors. Instead of building a new plant every time you take on a new energy recovery facility; follow the example of other sectors that use the same kernel with new technologies."

Houghton also warned: "If you are going to introduce a technology with 1%-2% increase of efficiency and if it's going to be an increase of 40% CAPEX, you have to take a long hard look at it."

Looking at technology from another angle, Lawrenson said: "Contracts have a long gestation period in the UK which means there is a danger of losing the opportunity for new technology. Once you lock into a technology, innovation is a challenge."

Confirming what Viridor's CEO said earlier about not wasting heat, the AmeyCespa director stated: "The single biggest need is a district heating network." Houghton warned the conference: "The UK doesn't have an appetite for local provision of district heating networks but maybe that will come."

Dropping grenades in the debate

Suggesting the EfW sector should take greater control over the challenges facing it, independent industry commentator Peter Jones told delegates: "The sector could do a lot more. For a start, it needs to get a grip on data. We can't even agree whether we've got too much capacity or too little and there is a certain amount of double counting.

"Until we get a sound approach to data, then we are going nowhere." Looking to the future, Jones challenged the delegates by posing the question: 'Who will own the waste?

"Gate fees could potentially start dropping and it could all hinge on your efficiency," he said.

The former Biffa director went on to suggest supply chain bodies could be allowed the option to take responsibility for end of life management costs at the point of sale and be awarded equivalent offsets as VAT relief.

"Companies 'outside the tent' sell at higher VAT levels. Packaging companies, ELVs,

paint coatings and wood products, batteries and tyres. These are all industries that want their stuff back. Let's start thinking about taxing energy inputs and even consider not taxing incomes below a certain level," proposed Jones.

He pointed to a Dutch model where the tax base is shifted from labour, income, consumption levies (VAT), corporations and stamp duties toward pollution, aggregates, fossil fuels, transportation, waste, water use and metals inputs.

Taking things a step further, Jones added: "We could co-locate big plants next to places that have heat capacity as well as think about bringing sewerage into the waste sector. After all, it is more relevant to waste than to the clean water sector. He paused before adding: "Doing nothing is not an option." RWW

- To take the EfW debate forward, book a place at the International EfW conference which takes place in London on February 24-25 2016. Visit www.efwconference.com
for details


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