ANALYSIS: Waste financiers not yet fired up by GIB

27 April 2012, source edie newsroom

News this week that the waste sector is one of the first beneficiaries of Green Investment Bank funding has been welcomed, but equity alone will not be a silver bullet in delivering the scale of infrastructure required.

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On Wednesday (April 25) business secretary Vince Cable appointed two specialist fund managers to oversee £80m of investment in small-scale facilities, under which a myriad of recycling and treatment technologies could qualify.

While the GIB appears to have come good on its promise to prioritise waste - especially as it won't have lending and borrowing powers until 2016 at the earliest - it still faces a challenging remit to encourage sufficient levels of private investment in the areas it has targeted.

A recent report by the Associate Parliamentary Sustainable Resource Group (APSRG) argues that £8bn worth of capital is required in waste infrastructure by 2020 if the UK is to meet EU targets and directives, a figure which will nearly double to £15bn by 2030.

It's a tall task, especially when investor confidence is low. BIS, the department tasked with lending GIB monies through its UK Green Investments channel, readily acknowledges that investors are quick to overestimate the risks associated with financing certain projects.

Speaking at a recent APSRG committee meeting in London last week, Oliver Griffiths - an executive director at BIS - said that the temptation with the bank would be to attempt investment across too broad a remit and care needed to be taken so that funds weren't spread too thinly.

The bank's current priority areas are also set to be reviewed in 2015 at which point they will be "refreshed" according to Griffiths. This could mean that the waste sector will suffer, although Griffiths did say there was "a lot to be said for building up expertise" in specific markets.

According to Matt Denmark, a director in PwC's corporate finance team who heads up the company's financial advisory work in the waste sector, the bank debt market is experiencing tough times with banks dropping out of waste projects at the last minute.

Simply making more equity available would not act as a "panacea" for smaller, merchant waste plants, he feels, as they face a number of serious hurdles such as feedstock security, revenue returns and the availability of debt.

"The Green Investment Bank could have the greatest effect on waste infrastructure delivery if its interventions catalyse additional debt into merchant or semi-merchant facilities," he maintained.

It's a view echoed by Waste2Tricity chairman Peter Jones who stresses that four key areas need to be addressed before finance is committed to a project. These are site location, feedstock determination, a viable exit market and a process that suits the site and end market technology.

"As far as the issues around the market technologies are concerned, there are three simple drivers to change - technology, affordability/economics and the socio-political context," he argued.

Jones also says it's important that the individuals running the GIB have a broad understanding of the waste industry dynamics if they are to invest wisely. This could deliver joined-up thinking across different sectors, such as waste and sewage, where he believes there is massive potential to harness high value energy outputs.

Meanwhile the Renewable Energy Association's chief executive Gaynor Hartnell says the bank will need to demonstrate a degree of creativity, rather than just act as a mechanism for injecting capital, if it is to kickstart a renewables revolution.

"It will need to assist with lowering risk, so that other money flows in more easily," she argued, adding that "tremendous leverage" could be obtained if funding was spread more widely over a portfolio of technologies.

Maxine Perella