Why waste needs to be a safer bet for investors
Over £5bn of private investment is needed to build enough waste plants to meet EU 2020 targets - but what will it take to make this a reality? Beverley Parrish and Matthew Venn attempt to find out
The recently published Associate Parliamentary Sustainable Resource Group (APSRG) report Rubbish to Resource: financing new waste infrastructure warned that the UK needs to invest £8bn in its waste infrastructure by 2020 in order to meet formal EU targets. It is estimated that 70% of this funding - £5.6bn - will need to come from the private sector.
While the Government may not have much choice but to lay the burden of waste infrastructure investment at the feet of the private sector, it needs to act quickly to set the right conditions for this funding gap to be bridged.
Although the Landfill Allowance Trading Scheme (LATS) is to be abolished by 2013, the UK still has to meet EU Landfill diversion targets. The Government intends to do this through the continued escalation of landfill tax to £80 per tonne by 2014.
However, according to ASPRG, this can only be achieved by increasing the capacity of recycling and residual treatment infrastructure by approximately 12-19m tonnes per annum. So what is the key to unlocking the barriers to private investment? Firstly, there is the need for clear policy and direction from the Government to reduce uncertainty.
The Government's revised Waste Framework Directive (rWFD) and Waste Review were intended to provide the basis of a framework to address the challenges. Instead both policy measures comprise a series of aspirations centred around voluntary deals and encouragement.
For example, there is no detail on what follows LATS and the possibility of landfill bans for certain wastes, mooted by the last Government, will leave local authorities (LAs) and others uncertain how to proceed with medium to long term procurement and investment.
In addition, recent unexpected changes to fiscal incentive schemes such as feed-in tariffs have drastically changed the investment landscape for commercial solar projects, adding to the sense of instability in the sector. Some existing incentives for waste facilities, such as renewable obligation certificates, are also very difficult to achieve and some simplification of the process is in order.
The second area that needs to be addressed is the planning process. The Government acknowledges that waste infrastructure is a matter of national importance, but believes that its delivery should remain at a local level.
This means that although the Localism Bill should have a generally positive impact with large schemes dealt with centrally, for those EFW projects below the 50MW threshold, and large projects involving treatment and sorting facilities which fall below thresholds of the Planning Act 2008,the situation is more precarious. They will be considered locally and the likelihood is that as local residents are given greater influence over decisions, these types of project could become the victim of nimbyism.
Uncertainty over future waste supply is also an issue. Recent figures have shown that the volume of waste being generated in the UK is falling as we produce less and recycle more, which is impacting the composition and calorific content of the waste supply. This is particularly true of food waste destined for anaerobic digestion plants.
This in turn means that LAs may struggle to meet guaranteed minimum tonnages in the future. A growth in merchant facilities is anticipated, however, contracts for commercial and industrial (C&I) waste are rarely available for the extended periods required to provide the long term security needed to assure lenders that their debt will be serviced.
The ASPRG report suggests a hybrid model whereby the LA would offer its municipal solid waste as an anchor contract to reassure lenders and develop C&I waste treatment capacity alongside. However, the terms of most PFI contracts appear to actively discourage this approach. The Green Investment Bank (GIB) may help bridge this funding gap, where there is greater reliance on the riskier, shorter term C&I contracts, but it needs to get off the ground quickly if it is to make any impact.
Finally there is the issue of the bankability of novel technologies and the need to educate the banking sector on what is a proven and bankable technology. Gasification is a case in point. A recent study by WSP revealed that of 23 known gasification projects in the UK, only one is currently fully operational and another has been constructed but is currently not operating.
Many, despite having planning permission and an environmental permit, struggle to get the funding in place. A combination of a government-backed review of these technologies and the timely intervention of the GIB would help reassure funders.
In conclusion, there should be clear policy, rather than aspirations, emanating from central government to allow investors to develop waste infrastructure in a stable environment. Fiscal incentives should be meaningful , achievable and guaranteed over the lifetime of the project and there has to be much clearer direction on planning projects which fall below the relevant thresholds.
LA contracts should allow the use of existing and planned facilities for C&I waste and the GIB needs to get off the ground and assist in de-risking projects by bridging the funding gap.
Beverley Parrish is waste sector director and Matthew Venn is associate consultant at WSP Environment & Energy