The waste industry under the spotlight

A detailed analysis of the UK waste management market has been published in a new report. LAWR looks at what's driving the market and pinpoints key trends

The UK waste management market is projected to see its value increase to £12B by 2012 as high levels of investment are required for new recycling and energy-from-waste facilities over the next 10 to 20 years. Waste management companies will face increasing pressure to be more innovative, and to develop a range of collection/sorting systems and alternative waste disposal options.

The AMA Research Waste Management Market - UK 2006 report, published last month (see News p5, LAWR November) estimates that the UK waste services market was worth between £6.3B to £6.6B in 2005. This covers controlled waste - household, industrial and commercial - and comprises collection, recovery, treatment and disposal undertaken by both private companies and direct service organisations.

Total UK municipal waste arisings in 2003-4 were just over 35M tonnes. At an annual growth rate of 2% - and assuming current trends continue - municipal waste arisings may exceed 38M tonnes by the end of this year. A growth rate of 3% would see arisings in excess of 40M tonnes which would have severe implications for the industry in terms of cost and infrastructure planning.

In England, household waste arisings accounted for 87% of municipal waste arisings in 2003-4, equivalent to 25.4M tonnes. Since 1998-9, household waste per head of population has grown by 13.6%, however there was a slight decrease of 1.6% in 2005. The largest component of household waste is paper and card (one-third), followed by compostable waste (one-fifth). The other main contributors (in order) are glass, miscellaneous combustible waste, fines, ferrous metals and dense plastics.

Municipal waste management is now overwhelmingly contracted out to the private sector with private companies currently accounting for 71% of all local authority contracts. In 2002, the average tender for LA refuse was over seven years, and generally involved one or two bidders, but there has been an increasing trend for larger contracts over a longer period of time due to the influence of regulatory requirements and PFI.

Early examples are provided by waste contracts that have been included as part of much larger strategic partnership deals - for example, in Slough and Telford & Wrekin where LAs have teamed up, often with private sector partners, to treat waste issues on a combined basis. The size of the integrated facilities that are now required makes this evolution in commissioning methods necessary due to economies of scale.

Although there has been a substantial rise in activity in the waste treatment industry up until 2005 to meet landfill targets, it would appear this year that there is a slight slow-down in the rate of expansion as the effort of 2005 is absorbed. It seems likely that expansion will continue in 2007, but at a more modest rate, and start to build again in 2008. The drive to meet targets for 2010 may see a surge in activity in 2009 and the early part of 2010.

Despite estimates that there are 85,000 employees in the UK waste management industry, there is little evidence that employment is increasing in this sector. The trend is for fewer, higher-quality jobs per tonnes of waste, through technology and productivity improvements. The quality of waste management jobs varies greatly, with the lowest skilled working in manual sorting, collection and transport.

Contractors and consolidation
Although there are more than 2,906 companies operating in the UK market, around six groups control the majority of operations - down from 12 companies in 2004.

Over the past five years, the industry's major players have become larger, more integrated and more diversified in their activities. In 2005-6, the UK's five leading operators accounted for around 40% (£2.6B) of the market, and the top seven up to 50% (£3B) of market share.

The industry is undergoing significant consolidation, driven by LAs increasingly contracting out integrated waste management systems. In 1982-3, only 28 LAs used private contractors. Ten years later, this number had grown to 101, and by 2000-1, risen further to 225 - representing 82% of all waste collection authorities.

This number has since grown further over the past three years, which has led to the acquisition of many smaller companies since it is the larger organisations that can tender for the bigger contracts. In addition, the development of LA partnership projects has lead to greater industry consolidation as larger firms are often required to meet the contractual needs of such partnerships.

Further consolidation and partnerships are likely to continue to diffuse the cost of investment in waste treatment, disposal and recovery facilities. In fact, the existence of EU-wide directives would seem to encourage the growth of companies with a European range of activities. However, despite increasing consolidation, the industry remains fragmented with many companies still operating on a regional basis due to the high costs of transporting waste.

Smaller players in the industry mainly comprise small regional companies with annual turnovers below £10M. Although there are several specialist firms with turnovers over £20M, they are typically either regional operators providing a range of waste handling services or niche operators handling specific types of material or serving particular end-user markets. Beneath this tier of firms, there are numerous operators with turnovers in the range of £2M to £5M.

The growth of PFI
Waste PFI sits within LA funding, alongside the national waste minimisation and recycling fund, and is increasingly seen as one of the key mechanisms for funding the high levels of investment needed for services. In recent years, the Government has increased the resources for waste PFI projects - for 2003-4 to 2005-6, Defra was allocated £355M towards the funding of such projects.

The 2004 government spending review announced that PFI credits for investment in value-for-money waste disposal facilities will be £155M higher in 2007-8 then in 2004-5 to further encourage a shift away from landfill.

Traditionally, waste PFI was seen as a funding route for the construction of large-scale incinerators but in 2000, the Government introduced new criteria which changed the focus away from incineration towards recycling-led sustainable solutions that comply with the waste hierarchy. A cap of £25M was placed on waste PFI projects to enable a larger number of projects to receive funding.

However this cap fell under criticism as did the Government's perceived negative stance on incineration. This £25M cap has since been raised to £40M and specific references to incineration were removed and replaced with greater emphasis on the waste hierarchy.

Collection versus disposal
Typically, LA waste disposal contracts are for 25 to 30 years, compared with six years for waste collection services. LA net expenditure on collection and disposal services in 2004-5 was just under £3B and while there has been substantial growth in expenditure over the past two years, the levels of growth are not on the same scale as they were in 2002 and 2003.

Particularly noteworthy is the fall in income for waste disposal authorities (WDAs) and the generally low level of increase in incomes in comparison with expenditure. In these circumstances it is not surprising that LAs are turning to PFI for their capital expenditure.

Broadly speaking, collection agencies are either LAs, contractors or the community sector. In 2004-5, there were 266 LAs using private contractors - representing 71% of all waste collection authorities (WCAs). The most common methods of collection are edge of curtilage (46%), kerbside (31%) and back door collection (13%).

As recycling gathers pace, there has been increased demand for wheeled bins and plastic boxes with bag-based collections reducing. The main areas of expense for WCAs are household collections (46%) and street cleansing (33%). Significant increases in recent years have been seen for materials recycling and for fly-tipping.

Landfill and incineration
In terms of disposal, the landfill allowance trading scheme (LATS) was estimated to cost £70M in 2004-5. In the first four years of the LATS, it is estimated that the total amount of municipal waste going to landfill in England should drop from 15.2M tonnes to 12.5M tonnes. If the trading scheme is a long-term success, this should fall to just 5.2M tonnes in 2020.

Although the number of working landfill sites fell from about 3,400 in 1994 to less than 2,000 in 2002-3, the sites are larger. The area of land taken for landfill sites is about 28,000 hectares - less than 0.2% of the land area of England and Wales. There has been a decrease in the proportion of municipal waste sent to landfill, from 75% in 2002-3 to 67.1% in 2004-5.

After landfill, incineration accounts for the largest amount of waste disposed of in the UK. There are some 12 significant municipal waste incinerators in the UK with a capacity to treat 2.8M tonnes a year. Energy-from-waste (EfW) facilities currently recover value from about 9% of municipal waste.

The numbers of incinerators are increasing slowly. One of the barriers has been the high cost - on average £50 per tonne - relative to the cost of landfill. Plants with an annual capacity of 200,000 tonnes cost around £40M to £50M to build, while larger plants with capacities of over 400,000 tonnes can exceed £100M and have payback periods as long as 20 years. If operators are to achieve maximum returns, they require long-terms contracts with LAs and need to operate at full capacity.
  • A copy of the full report priced £595 can be obtained from AMA Research. For details, go to www.amaresearch.co.uk

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