Riding the storm

Written by: Dr Adam Read, Kathryn Warren, Jack Stevens and Mark Ramsay | Published:

Following Interserve’s energy from waste exit, what will be the repercussions (if any) on trust in the technology? And what effect is Brexit having on ongoing projects and projected facilities? Dr Adam Read, Kathryn Warren, Jack Stevens and Mark Ramsay seek answers

In recent years the big debates in the waste sector have often focused on austerity and the need for local authorities to restrict their spending, which has driven contract efficiencies, and forced officers and members to consider whether outsourcing or in-house delivery can deliver better value for money. This has resulted in the cutting of services (kerbside and HWRCs) and the reduction of communications budgets, which have rightly resulted in stagnating recycling rates in England and the increase of contamination at source.

The other hot topic which has raged over the same three-year time frame has concerned the demand for, and potential oversupply of, residual waste treatment infrastructure across the UK.

This debate has been fuelled by Eunomia and its regular UK waste infrastructure up-dates, plus our own analysis on behalf of the CIWM, where we are using the best data currently available and are applying different assumptions about the likely success of some of the plants currently in planning or seeking financial closure, etc.

Eunomia claims we will be significantly overcapacity by 2020, while we have suggested we could remain under-resourced over the same period and thus reliant on exports of RDF to satisfy the shortfall.

This debate has not gone away, and in the past 12 months we have seen some major situations arising that have forced us all to reconsider what level of infrastructure we will have by 2020 – not least the recent announcement that the UK is on target to meet the EC’s biodegradable municipal waste (BMW) diversion tar-get by then. So, are the drivers changing and do we need so much capacity?

Most notable is that the first eight months of 2016 have seen some significant advanced waste treatment technology failures in the UK. The three highest-profile examples have been Air Products and its facility on Teesside (the TV1 plant was terminated after commissioning due to design and operational challenges that could not be fixed without additional time and cost, while the TV2 project was halted earlier in the year, despite construction initially starting); Interserve and its problems with the construction of Viridor’s gasification plant in Glasgow (the company had to set aside £70 million to address the ‘deterioration’ of the contract); and Energos’s planned facility in Derby.

A step too far

There is little doubt that in all of these cases the companies had over-stretched them-selves in terms of their speed of scale-up and growth, with them all looking at multiple projects in parallel. When the projects ran into difficulty, whether through delays in planning, build or commissioning, they were not sufficiently established in the market to stay the course – having limited cash reserves and possibly nervous backers.

This is not a new trend though, and nor have ATT (advanced thermal treatment) facilities been the only ones affected; the closure of Closed Loop in East London got just as much ‘air time’ and highlighted concerns about end markets and the volatility of global commodity prices. And then there was New Earth Solutions, which left debts of over £150 million following problems at its Avonmouth MBT and associated gasification site.

But it seems that advanced conversion technologies have seen more failures on the whole, which might be expected given their application of newer technologies to the UK situation and feedstocks.

Even so it appears we have not learnt all the lessons of the past decade, dating back to Defra’s ‘new technologies demonstrator programme’, designed to showcase and prove new technologies would work and to help develop a path to get these types of solutions over planning, permitting and funding hurdles.

Trends in facility proposals

Despite this trend for failed sites and proposals, interest in advanced thermal technologies has remained strong, offering a more politically palatable option to more traditional incineration (with energy recovery) with the lower emission levels, smaller modular sites and their positioning as clean energy sources.

The data presented in the graph shows the progress of a number of the technologies currently in use in the UK market and the potential facilities coming through planning and financing, and the level of interest in advanced conversion/thermal solutions does not seem to be dwindling, even if we are seeing significant ‘failures’ at each step of the way.

This data is taken from Ricardo’s proprietary database Falcon (Facilities and Contracts), which is updated weekly with progress on planned sites, from outline proposals and planning applications through to funding security and commissioning.

The data shows trends dating back to 2011, and it appears that overall the number of operational facilities is growing across all technology types, but for the likes of gasification, pyrolysis and plasma solutions there is a significantly higher failure rate for plants from concept to full operation.

This reflects the historic nervousness of local authority clients to select these often ‘unproven technologies’ and of the banks to finance them.

Many of us working in the sector back at the turn of the 21st century hoped (and expected) some of the new solutions to have proved themselves by now and opened up the market to new providers and variants on the theme. However, this just hasn’t happened, and the recent spate of high-profile (and big-cost) failures has done nothing to improve the chances of these types of technology in the coming 12 months.

Clearly there are still far more ‘traditional technologies’ that are in operation, but year-on-year more advanced solutions are securing funding, sites and permits to operate, and are actively tendering for residual municipal and commercial waste streams. So there is still hope for them, so long as the new sites don’t have such high-profile issues as we have seen in the sector of late.

Investor confidence rocked?

However, it goes without saying that investor confidence has taken a knock in the UK this last year, from obvious technology failure to the uncertainty and ever-changing portfolio of government incentives and the Brexit decision.

In the immediate aftermath of the referendum, there was clearly a period of panic and widespread concern, and many of our clients and closest investors were clearly rocked by the changing situation, with projects mothballed, investments under consideration and plans being ‘put on ice’.

But two months later it does feel like the dust has settled somewhat and investor confidence is creeping back – at least for those that are committed to waste, biomass and other renewable-type projects. If a project is solid and bankable with a good rate of return, there is no reason it should not be attractive to investors, particularly as returns on many other investments are poor in this current period of very low interest rates.

The debate has continued this last year about the future, in particular of gasification and ATT, within the UK. So what does the future EfW market look like within the UK?

Perhaps it is not as dark as some might suggest. The past 12 months have also yielded some significant success stories, particularly regarding ATT.

Advanced Plasma Power (APP) is about to start construction of its gasplasma technology in Swindon to turn residual municipal waste into biomethane for use in heavy goods vehicles. And DONG Energy announced that planning and construction had started on its REnescience plant: a world first in handling unsorted residual waste through the use of enzymes in Northwich. But what does this all mean for the UK and for EfW in particular?

Looking forward

The EfW sector is still an innovative business, one that keeps overcoming the problems of the last generation of proposals and technologies.

We are now seeing new technology providers prove that their facilities work and are robust enough to suit a UK feed-stock, while others are actively showcasing their solutions to investors who are looking at the long-term returns that can be secured from facilities with guaranteed feedstocks.

Perhaps we are now moving into a new market paradigm, one that is not solely predicated on energy or heat incentives, one that isn’t reliant on EC targets and policy to drive solutions, but one that is based on hard evidence, sound decision-making and local demand. There is little doubt that the UK is still in need of more infrastructure, given the facilities that are no longer going to be able to take waste in 2020; the increasing tonnage of RDF being shipped overseas for processing; and the increasing attention being given by government and local authorities to heat production, local energy supplies and the resilience of the UK’s energy market.

If I were an investor, I would still be actively looking at the EfW sector in the UK. I would still be looking at the advanced thermal and conversion technologies that are coming to market, and I would be securing the support and services of established consultants who can help assess technology suitability, local market demand, regional competition for target feedstocks, and the changing nature of government policies and incentives.

A proper commercial and technical due diligence is needed, and we will continue to support a range of investors, technology developers and UK authorities as they look to position the right solutions in our ever-changing market.

Many of the failures in our market could have been mitigated against – not all of them were due to catastrophic market conditions and volatility, and there will be an increasing need to pre-screen solutions and improve the data upon which we base our decisions. After all, the market cannot continue to suffer high-profile failures.

Our team of technology experts and due diligence specialists will be at RWM, so pop over to our stand 4k79 for an informed ‘no holds barred’ discussion of the market.

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