Sizing up technology risk for waste disposal

Assessing the pros and cons of future waste disposal options can be a daunting challenge.
Gerry McMenemy and David Kilduff weigh up the cost and scale of various solutions

One of the biggest dilemmas facing waste disposal authorities (WDAs) is how to future proof investments in waste management infrastructure and processes to ensure value for money over the longer term for investments made now.

With the first Landfill Directive landfill diversion target date of 2010 fast approaching, and the spectre of LATS penalties looming, key decisions have to be taken now. These decisions may include whether an expensive but tried and tested plant, such as an energy-from-waste (EfW) incinerator, should be commissioned - or whether a progressive and more modular approach should be adopted.

There are risks and benefits in both approaches and the purpose of this article is to highlight the issues that need to be considered. Ultimately, an authority's chosen approach is likely to be based on which way the balance of technology risk swings.

What to consider
Key factors in assessing technology risk include: how established or how novel the proposed technology is; whether there will be a residual product such as refuse-derived fuel (RDF) and how that should be utilised or disposed of; how the technology aligns with other aspects of the waste disposal chain including recycling and pre-treatment processes; how dependent it is on current waste streams; whether it will be adaptable to change; and basically will it work?

A number of WDAs will have time on their side in terms of avoiding LATS penalties by increasing front-end recycling or trading LATS allowances to meet the 2010 deadline. However, the more stringent limitations to be met in 2013 and 2020 mean that investment and procurement decisions need to be taken now if plant is to be constructed over the course of the next five years.

A distinction has to be made between contracts for major infrastructure - such as EfW and MBT plant - and other contracts, which do not necessarily gain an advantage by wrapping costs over 25 years or more. EfW and MBT plant carry major commercial and operational risks and lend themselves to a long-term contract approach.

Large-scale EfW facilities will ensure a high level of landfill diversion in the immediate short term. But contractors will only be prepared to build these expensive facilities if they have the security of a long-term contract and guaranteed waste stream. In a long-term PFI contract, the contractor accepts the technology risk, and this is beneficial to the WDA.

It may seem easy enough for WDAs to guarantee waste volumes at the start of the contract as they will know what their current waste streams are and they will be able to factor in allowances for movements in population.

Look to the future
However, what happens further down the line when council tax payers have become more educated on the benefits to the environment of reusing and recycling certain wastes? Does this big-bang investment act as a barrier to further improvements in recycling and alternative disposal methods that might be more environmentally friendly?

Certainly, if an authority has contracted on a take-or-pay basis with the contractor, this is likely to be one consequence. The alternative is that the WDA reduces the waste stream and bears the financial consequences. So, is a modular approach safer in the longer term? As part of its approach to implementing its waste strategy, a WDA might invest in recycling and/or composting facilities to achieve a quick initial reduction in MSW going to landfill. Such facilities may be contracted for on a shorter term basis (say five or seven years) as the investment and risk profile is different and there is no need to wrap costs over 25 years.

These facilities might be capable of being scaled up to respond to a greater throughput of front-end recycling as householders become more aware of the benefits. As a consequence, there might be a smaller balance of residual MSW remaining to be diverted from landfill. However, there comes a point when the issue of how to dispose of this balance needs to be addressed. Smaller, cleaner burn EfW plant might be part of the scaleable solution but, again, technology risk will raise its head.

Some of the options may involve more novel technologies, such as gasification or plasma technology. However, as yet, most of the newer technologies are still regarded as unproven as some of the overseas reference sites have been unreliable or of the wrong scale for proper comparisons to be drawn. In addition, there might be project bankability issues as funders are very sceptical about new technologies and it might prove difficult to fund them without paying a higher risk premium.

Paying the price
Another as yet unfathomable part of the equation is what might be the consequences of requiring householders to pay for disposal of waste, so-called pay-as-you-throw proposals. Apart from the obvious potential of an increase in fly-tipping, this could also have a knock on effect in terms of affecting the quantity of waste being processed through the WDAs' contracted facilities.

Where two-tier authorities are involved, the extent to which the waste collection and waste disposal streams are vertically integrated could also impact on the security of future supply. In assessing the available options, WDAs will need to undertake a complex cost/risk analysis based partly on knowledge and partly on crystal ball gazing.

The $64M question is: which, if any, of the solutions can be future proofed? Clearly, whatever waste infrastructure, WDAs invest in needs to secure best value over the longer term. In each case, there will probably be a point at which the balance of cost versus risk alters. And there may come a point at which the balance on value for money could swing from established to newer technologies. The trick is getting the balance right.

Gerry McMenemy is an associate and David Kilduff is a partner at the commercial group of Walker Morris Solicitors

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