Trash talking: Funding Energy Recovery

While many countries in Europe already sufficient waste to energy capacity, elsewhere there is a need to build new facilities. With the construction of modern plants representing a significant investment, WMW asked a number of industry insiders for their thoughts on how projects can best go about securing finance.

While many countries in Europe already sufficient waste to energy capacity, elsewhere there is a need to build new facilities. With the construction of modern plants representing a significant investment, WMW asked a number of industry insiders for their thoughts on how projects can best go about securing finance.
    China – The Dragon Awakens
  Mr. Chen Xiaoping
CEO of China Everbright International Limited

In China's waste to energy industry the biggest source of financing is from banks on-balance-sheet loans. Considering Everbright International's projects as examples; 70% of our investment funding is from bank loans of domestic and foreign financial institutions (including commercial banks and policy banks) and approximately 30% of funding is registered capital.

In addition, the Chinese government has continued to enhance its support for the development of China's environmental protection industry in recent years by increasing the amount of special funds for the sector, providing opportunities for qualified environmental protection projects to apply for these funds.

In China, public opinion is the biggest challenge for enterprises working on WtE project financing. This is mainly due to the complex business environment of the industry, the negative effects of low construction standards or poor operations of some projects and the lack of public awareness about WtE projects in general.

The second biggest issue is the pressure of financing costs. Most projects are financed through the BOT model, with a concession contract term of over 20 years, which forces companies to accept banks' harsh credit facility terms with higher interest rates.

During the initial investigation into a project, it is important to first adhere to the principle of stable operation in compliance with emission standards. It is important to ensure the emissions of all projects exceed the EU 2000/76/EC standards. An Enterprise is not only a ‘Creator of Wealth', but also the 'Safeguard of Environmental and Social Responsibility'.

A new industry standard, the 'Standard for Pollution Control on the Municipal Household Waste Incineration GB 81485 – 2014' became effective on 1 July 2014, indicating an increased need for efficient pollution control. It introduced strict requirements for the investment, construction, and operation of WtE projects and is expected to drive technology upgrades and enhance project construction and management.

With the increasing support of national policies in environmental protection, it is expected that the compound growth rate of investment in China's waste management industry will reach 10% to 2020.

In addition, in 2014, the Ministry of Finance in China started to promote the investment and construction of municipal utility projects through the PPP model. This model has also been applied in the WtE industry. Based on equal and mutually-beneficial contracts, it can provide sufficient funding and improve the efficiency of project management by fully leveraging the advantage of local government support.

Everbright has invested and constructed PPP projects in Sichuan, Jiangsu, and Anhui Provinces and more market opportunities will follow.

Limiting investor risk requires careful planning and the right technology
  Matt Drew
Managing Director,
Saxlund International

Waste to energy, in all its different forms, is a good thing. But despite the obvious benefits there are many things required to attract the right investment partners. And each of these has an impact on project outcomes. Delivering successful projects, whether substituting fossil fuels in existing power stations or building new plants, remains problematic. Is this why financing is such an issue?

It's not that investors aren't hungry to invest. We talk to almost as many investors as we do project owners. We know what works and what goes wrong.

Over ambition, a failure to look at the detail and cutting corners are key reasons. This is particularly true for fuel handling systems - inadequate investment here is frequently the cause of plant issues and shutdowns. RDF, SRF and other waste fuels tend to be non-free flowing and difficult to handle. A clear understanding of fuel specification and likely changes in supply during the life of the plant are crucial considerations.

Investors are mostly looking for proven technology - very rarely do they want to be first in - and almost always they want to see a solid track record.

The feedstock supply chain is also factor. The complexity of managing imported waste fuel and long-term security of supply makes large scale projects less attractive. For this reason, projects delivering sub 10 MW electric certainly present better risk solutions for the UK and are easier to put together. Fuel supply chain issues are reduced as local sources can be used, planning consents are more readily obtained and they are faster to design and build, all attractive to investors.

Grid connection too is crucial. This can kill a project dead and we know of at least one plant mothballed before completion, simply because grid connection was oversubscribed by the time it was built.

Heat is another major factor. Combined heat and power offers greater efficiency and is doubly attractive to investors. But they will be nervous if there is no long term certainty that a heat consumer can be relied on. The dream ticket here is to build on site of an industrial scale consumer, where heat and power are used 24/7.

The selected procurement method is important too. EPC contracts ‘Engineer, Procure, Construct' are popular because there is one "butt to kick" if things go wrong. Other contracting routes are available, which apportion risk over a number of parties, and add construction management services to consult and advise. The benefits are lower costs, better process control, stronger collaboration and better results.

Northern Europe is clearly ahead of the game, but with the right technology, planning and people, there is every opportunity for WtE projects in the UK.

Australian Appetite for WTE Growing
  Meg McDonald
Chief Operating Officer,
Clean Energy Finance Corporation

In Australia the Clean Energy Finance Corporation (CEFC) has identified strong potential for the implementation of waste-to-energy technologies in Australia by businesses across a range of sectors aiming to reduce energy costs, waste and carbon emissions.

The CEFC is a Government funded investment institution that provides finance using a commercial approach to overcome market barriers and mobilise private sector investment in renewable energy, energy efficiency and low emissions technologies.

Operating for just over 18 months, it is catalysing private sector investment, enabling worthwhile business cases to find finance and progress.

Out of total investment commitment to date of nearly AUD$1 billion, the CEFC has invested over AUD$150 million to accelerate AUD$400 million in waste to energy projects. In addition, there are over AUD$500 million of waste-to-energy proposals in our near-term pipeline, expected to unlock a further over AUD$1.5 billion in projects.

For a range of reasons, Australia has generally lagged behind the rest of the world in terms of both large and small-scale WtE projects. Therefore, many of the CEFC's investments involve introducing commercially proven technologies.

We expect businesses seeking finance from us for WtE projects to have completed project feasibility studies. While our preferred minimum investment size for WtE projects is around AUD$20 million, smaller projects can be handled, including through our aggregation finance facilities established with co-finance partners.

Financiers investing in WtE projects are looking to see whether the right partnerships are in place involving the feedstock suppliers, energy off-takers, project operators and equity investors. The aligned interests of these parties provide the framework for making a project bankable.

Among our waste-to-energy projects to date are Australia's first waste-to-gas facility by New Energy Corporation which uses Australian-designed ENTECH™technology. This system produces base load renewable power by breaking down the organic portion of wastes to produce a synthetic gas that is burned to produce electricity.

Using CEFC finance of AUD$49 million, New Energy Corporation is demonstrating the opportunity in Australia for similar projects realise commercial success to recover and process municipal, industrial and commercial waste.

The CEFC has also financed anaerobic digesters to convert organic waste for a major garden products supplier Richgro in Western Australia and for egg producer Darling Downs Fresh Eggs in South-East Queensland.

Richgro's 2 MW plant can process between 35,000 and 50,000 tonnes a year of commercial and industrial organic waste, diverting it from landfill. The Darling Downs Fresh Eggs digester will cut the egg producer's grid electricity usage by 60% in the first year and save more than $250,000 a year. The biogas facility will also reduce carbon emissions by up to 1000 tonnes a year and methane emissions by over 6000 tonnes of CO2 equivalent a year.

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