LAWR

ENERGY RECOVERY Inside the minds of investors: New opportunities in EfW The UK waste management sector continues to present attractive opportunities for investors and a number of energy-from-waste (EfW) projects have been backed by huge investments in the past few years. Here, Alon Laniado explores what causes investors to dig deep into their pockets. n energy from waste (EfW), we expect to see further funding avail- able for waste plants treating fuels such as refuse derived fuel (RDF), wood waste and other biomass as well as food waste. A more expensive export market combined with landfill taxes, subsidies and other regulations aimed at contrib- uting to EU environmental targets and to UK energy policy, implies that EfW in the UK is becoming more viable and therefore more fundable. The landfill diversion regime coupled with rising raw material prices and with the emergence of new recycling technologies offers exciting opportuni- ties for treating more complex waste streams including rigid plastics, glass and valuable e-waste. Beyond this favourable macro pic- ture, several stars must align in order for projects to attract investments and to hopefully deliver on their promise. That's because new investment opportunities also present new chal- lenges in comparison to more tradition- al, private finance initiative (PFI)-type projects. Commercial and industrial New projects often focus on commer- cial and industrial as well as construc- tion waste, whose contracts are usu- ally shorter and which therefore means there is less visibility on feedstock availability and prices. Similarly, novel technologies are often required to treat- ing new waste streams and to benefit from higher Government subsidies. Successful investment models there- fore aim to strike an adequate balance between interdependent factors such as feedstock strategy, plant design, tech- nology choice, engineering, procure- ment and construction (EPC) arrange- ments and wider revenue streams in a way that effectively balances risks and rewards for all project partners. Contracts For example, getting reassurance on feedstock is not just a question of secur- ing a long-term contract. Firstly, it depends on choosing a stra- tegic site location with good supply of local feedstock, as cost of haulage plays an important factor in preventing waste to travel beyond a catchment area and therefore in providing visibility on feed- stock. A long-term feedstock contract has little underlying value if the waste supplier cannot sustainably secure the waste stream. Secondly, investment models con- sider the optimal plant size, balancing the benefit of scale economies against the need to secure sufficient feedstock. Some companies opt for a smaller plant to ensure it can obtain permits to be located nearby a waste producer. Thirdly, firms also ensure the pro- posed plant is sufficiently flexible in anticipation of certain trends, such as change in feedstock composition or changes to the relative attractiveness of certain waste streams. Fourthly, it also depends on suc- cessful models develop long-term rela- tionships with feedstock suppliers by involving them as partner in the project or as consumers of the plant's output. Once a robust feedstock strategy has been developed, contractual arrange- ments depend on several factors that must be balanced. Long-term contracts with one supplier provide certainty - especially for larger projects which require debt funding. However, keeping a proportion of feedstock, which is not contracted, lowers dependency on one supplier and allows for potential upsides to be gained. Councils can also play an important role in unlocking feedstock, thereby promoting projects in their regions. This includes collection arrangements, in particular the level of separate col- lection that helps ensure visibility and consistency of feedstock, including for projects that aim to source merchant waste. Beyond feedstock supply, another key pillar in the investment model is the choice of technology and associated construction contract. Carrots In relation to waste to energy, Government support often rewards more advanced technologies. Renewable Heat Incentive (RHI) support for anaero- 14 Local Authority Waste & Recycling October 2014 I

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