Energy-from-Waste will make an important contribution to the UK's renewable energy programme and is expected to generate substantial investment opportunities.
Waste management in the UK is a significant sector with over 3,000 active companies, from large multinational corporations to smaller technology-led firms, employing over 70,000 people. A study carried out jointly for UK Department for Business, Enterprise and Regulatory Reform (BERR) and the UK Department for Environment, Food and Rural Affairs (DEFRA) forecast that revenues in the sector are likely to double by 2015 and industry experts suggest that up to £30 billion will need to be invested across sector by 2020.
Energy-from-Waste (EfW) is the generic term given to the process by which energy stored in waste is extracted in the form of fuel, heat or electricity.
Recovering energy from waste turns the problem of its disposal into an opportunity for generating income from heat or power sales. This is becoming increasingly important in the UK as legislation demands higher environmental standards of waste disposal and places pressure on local authorities to reduce their quantities of waste generation and landfill.
The UK is obliged to meet targets set out by the European Union Renewable Energy Directive enacted in December 2008. Under the directive one third of EU electricity must come from renewables by 2020.
To achieve the Government's goals, the UK needs to build sufficient infrastructure to process waste and to dispose of the residues remaining after minimisation, recycling and re-use have taken place. By 2020 some £9-£11 billion of capital expenditure is likely to be required to meet the UK's landfill diversion targets. Only a combination of all these activities will enable the country to divert enough waste from landfill to meet obligations under the EU Landfill Directive.
Energy from waste is expected to account for 25 per cent of municipal waste by 2020, compared to 10 per cent today. This presents a significant opportunity for investors, plant manufacturers, technology providers and waste management contractors over the next seven to twelve years.
The EfW sector has some real advantages for investors over other renewable energy sectors, such as wind. Unlike wind, whose generating efficiency can often fall below 35 per cent, EfW is not an intermittent source; there is an ample supply of feedstock to ensure constant generation. For example, the existing EfW plants dispose of six million tonnes of municipal and commercial waste each year. While wind is likely to dominate renewable investment, more and more investors will be attracted to EfW.
The collection, management, recovery and disposal of waste are predominantly contracted out to private sector companies. This creates abundant opportunities in the UK for companies that provide waste management and treatment technologies and services within EfW.
Greater regional collaboration between authorities, focusing private finance initiatives (PFI) on the infrastructure required for residual waste disposal, stimulating markets for solid recovered fuel disposal and encouraging a mixed-economy approach to both financing and procurement methods are just some of the measures directed to achieving the waste market transformation need to deliver infrastructure on the ground.
EfW merger and acquisition activity should also increase in the next five years due to consolidation and the desire for new investors to enter the EfW market. Over the last three years there have been around 40 acquisitions or private equity investments made in EfW firms in the UK with a value in excess of £300 million.
Major shifts in the global economy have had a significant impact on many aspects of the renewables sector. The global financial crisis has made access to capital for even the largest players in the sector difficult and funding for EfW project will remain challenging for the rest of 2009, especially on long-term private finance initiative projects.
Despite the financial difficulties, the market view is that renewable energy projects will continue to be viable and attract investment, and importantly the fundamental drivers which have made the renewables such a dynamic sector in the last few years remain, notably the climate change agenda, dwindling fossil fuel stocks and concerns over the security of energy supply.
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