What can we expect from the waste industry in 2017?

By Foresight Partner James Samworth
 
As 2016 draws to a close the question on everyone’s lips is what on earth 2017 might have in store for us. Following the somewhat surprising results to the Brexit referendum in the UK and even the presidential election in the US and even the unexpected deaths of some of the greats of the entertainment world like David Bowie and Alan Rickman, some might argue that what we’re really looking for in 2017 is stability, not just in the political and entertainment spheres, but in the waste industry, too. 

So, what can we expect?

Contrary to popular belief or general prediction, confidence remains high after the initial fallout from Brexit. The price of power has increased due to the pricing of gas in US Dollars and increased export rates to Europe have meant that gate fees have gone up at a similar rate. We asked the question earlier this year as to whether subsidy-free bioenergy projects were a real possibility on the horizon, and these factors have actually assisted in making that happen for some project types. 

Close followers of the sector will have seen in recent months the announcements of deals such as SSE’s Ferrybridge Multifuel 2, Wheelabrator’s Kemsley Mill and Viridor’s Avonmouth projects, with a total processing capacity of 1.5 million tonnes. These have all completed since the Brexit vote, with two of those completely free from any power price subsidy. These are all large scale conventional Energy from Waste plants and benefit from the economies possible at such scale.

None of these projects are easy, but the power and gate fee market shifts since Brexit improved the odds of what six months ago was inconceivable. At this stage the improved possibility applies only to large scale projects and the requirement for innovative financing, particularly at smaller scales, is still very real. Keeping the CapEx and OpEx to a minimum will get projects so far, but developers are stretching the envelope through solutions such as sourcing a site location with the possibility of delivering power to a neighbour via a private wire, which enables shared savings vs. the wholesale price of power and removes the need to pay grid charges. Connectivity to a district heating network could also play a major part in improving the viability of a subsidy-free plant. 

To further improve competitiveness, where private wire offtake isn’t possible, some projects are selling power indirectly to a Corporate offtaker through a "sleeved” Power Purchase Agreement ("PPA”). . This innovation helps large corporates to reduce their cost of power through a contract to buy power from a specific generator, with a licensed supplier providing the "sleeving” arrangements and handling grid balancing. Markets such as the US are well ahead of the UK in this regard with the likes of Apple, Google and Facebook signing significant PPA volumes for wind and solar plants in particular. Whilst not offering benefits on the scale of private wire, they ensure a brand-conscious company can buy certified renewable electricity and offer a project the possibility of fixing power prices for the long term, taking an important risk factor off the table. 
 
Turning to the waste supply chain, gate fees are the fundamental revenue driver of an EfW plant and with success in mind, it is vital to look at anything more that can be done to build extra value in that chain. For example better separation of recyclates and inerts can offer benefits to waste operator and EfW offtakers alike. With regional scale plants (100,000 – 250,000 tonnes per year), the need for innovation is even more significant, as they don’t benefit from the same CapEx and OpEx economies as larger plants.  This scale of plant sits 4ein the sweet spot for several increasingly proven Advanced Conversion Technologies, which are eligible to compete in the Contract for Difference ("CfD”) auctions. 

We have recently had the announcement of the CfD auction to be held in April 2017. These ACT Waste-to-energy projects will be competing head to head with financing for offshore wind projects. Over the last six months these off shore wind plants have brought their costs down to unprecedented levels in Dutch and Danish auctions through driving supply chain efficiencies and the learning curve effect of major deployment. This leaves waste to energy projects in the difficult position of making their plants competitive at that level, but we believe high quality projects will rise to the challenge. 

After a roller coaster of a year, we’re optimistic about the year ahead for energy from waste, and believe we’ll take some fighting steps forward as we continue our journey to build the UK’s waste treatment infrastructure.