The politics of energy recovery
Malcolm Chilton looks at the challenges of delivering future energy-from-waste projects given the current political dimensions in this economic climateAccording to the Government's Programme for Government, energy-from-waste will play an important part in making the transition to a low carbon economy. Turning this into a reality, given the current political and financial landscape, is the challenge of councils and private enterprises who will increasingly have to work together to deliver the infrastructure and associated service.
The challenge is within our grasp. However, ongoing changes to waste strategies and policies and associated planning legislation can make delivery not only harder, but also less attractive to those industry partners who will be expected to shoulder more of the financial risk. A sensible approach to planning strategy, avoiding major reform, will stabilise the situation, ensuring private companies continue to view investment in UK infrastructure as viable.
Over the past two years those involved in waste management have been affected by the global financial crisis. During 2010 it seemed that the momentum in developing the infrastructure needed to handle the UK's residual waste was going to stall. Finance remained tight as banks perceived the level of risk associated with the development of major waste projects to be high. Reasons for this included the poor state of the public finances, with a probable consequent knock-on into PFI and PPP deals and continuing planning delays. In May the general election produced a hung parliament, and the first coalition government in over 60 years.
New Prime Minister David Cameron proclaimed that his would be "the greenest government ever". According to the Programme for Government, recycling will be prioritised with incentivisation taking over from compulsion, there will be a massive increase in anaerobic digestion, and energy-from-waste (EfW) will play an important part in making the transition to a low carbon economy.
The Government has lost little time in setting to work on shaping the policy framework that will deliver these objectives. In June Defra minister Lord Henley announced that from 2011, metals recovered from EfW processes will count towards recycling totals. A review of waste policy has also been initiated, with the aim of providing an outline of the future direction of policy in spring 2011. Following consultation, we expect the final policy will come into effect in 2012.
The terms of reference for the review put considerable emphasis on how to secure value for money in achieving sustainable waste objectives. The recent Spending Review underlined the importance that government will attach to this, with funding being withdrawn from seven waste PFI projects because of concerns about their cost and prospects of delivering the necessary new infrastructure. Meanwhile, DECC has launched an initiative to persuade our European partners to increase the EU's target for carbon reduction by 2020, implying that the UK's domestic targets, including for renewable energy generation, will be pushed higher. Energy & Climate Change Secretary Chris Huhne has launched a review of the energy markets, including the support given to renewables and reform of the Climate Change Levy.
Finally, we are promised fundamental reform of the planning system to increase political accountability and give communities a greater say over the shape of development in their areas. The newly-created Infrastructure Planning Commission, which determines applications for the largest EfW proposals using a streamlined, fast-track process, will be abolished. Its functions will be transferred to a special major projects unit within the Planning Inspectorate, returning the final decision-making power to the relevant minister.
Encouragingly, the Government has decided to press ahead with designating the key national planning statements(NPSs) that will underpin the fast-track planning process. Revised drafts of the energy NPSs which lend substantial support to the development of large-scale EfW projects were published in October and are expected to be finalised early in 2011.
More fundamentally, under its localism agenda, the Government proposes reform of the conventional planning system to give greater power to those most affected by development - its immediate neighbours. One suggestion is that where a significant minority oppose a project, they will, in effect, be able to veto it. Developers may be incentivised to try to win community support by pledging local benefits.
With all of these policy reviews, and the huge public spending reductions announced in the Spending Review, there is one significant concern - that EU targets for landfill diversion and renewable energy will be missed. New infrastructure is needed within the next couple of years if this is to be avoided. It is estimated that £12B of investment in the waste sector is required by 2020 - in the energy sector it is put as high as £200B.
Given the tight constraints on public spending, the bulk of that investment will have to come from the private sector. While there are companies interested in making those investments, they will be influenced by two considerations - the relative attractiveness of the UK market compared to others and the level of risk that the funders perceive in the UK market as a result of increased policy uncertainty.
Malcolm Chilton is managing director of Covanta Energy
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