Waste to Energy burns bright in World's Waste Projects

Waste to Energy projects have dominated the waste management category of KPMG's latest global infrastructure report. Here's a look at the report in more detail and an insight into what caught the judge's eye about the winning projects. by Gordon Shearer Around the world countries and regions are becoming increasingly aware of the need for more environmental approaches to waste management. We have seen dramatic growth in the development of recycling and waste-related infrastructure. In large part, growth in the sector has been driven by regulation and tax. In Europe, for example, the EU has implemented stringent regulation regarding the disposal and diversion of waste that has catalysed many EU member states to intervene in the market to better incentivise the development of new waste treatment and recycling facilities. More can be expected. By 2014, EU member states will face regulations for bringing about an end to landfill, accompanied by a cap on how much waste can be burned. If effective, the rules should further incentivise countries to seek more effective ways of waste avoidance and recycling. Many jurisdictions have also implemented a tax on landfills that essentially makes recycling and waste treatment a more competitive alternative. But while this should mean a further rise in the number of projects in the sector, many developers are now struggling to secure long-term financing in the wake of the global financial crisis. The challenge is that most waste-related facilities have asset lives of more than 15 years but banks are generally unable to support debt tenors to match. This either presents project refinancing risk that impacts on the attractiveness of the deals or pushes the short-term costs up to such an extent as to erode early-year gains. Either outcome has effectively dampened growth for what otherwise would be economically and commercially sound propositions. Putting aside regulation and financial challenges, however, many recycling and waste management developers face four key challenges that need to be overcome: planning, technology, feedstock availability and off-take agreements. The ten projects selected in the Infrastructure Top 100 are those which have not only overcome these challenges, but have also excelled in a number of judging criteria including scale, feasibility, technical or financial complexity, innovation and impact on society. The winning projects Key: note colour of headings represented on map Askar Waste to Energy PPP The Askar Waste to Energy PPP in the Kingdom of Bahrain will treat 390,000 tonnes of waste each year and generate 25 MW The Askar Waste to Energy PPP in the Kingdom of Bahrain has the potential to be a pathfinder for both the country and the region. In spite of the financial uncertainty caused by the global economic situation, as well as the political uncertainty following the Arab Spring and civil unrest, as a PPP, the $480 million facility is being commercially financed. With waste management a growing concern in Bahrain, the need for the project is great as it aims to treat 390,000 tons of domestic waste per year from Manama, the country's capital and largest city. In addition, the facility – located in the village of Askar on the south eastern coast – will generate 25MW of power fed into the grid. The net electrical production of the WtE Plant would be between 195,000 MWh and 219,000 MWh per annum and would be discharged to the 66 kV grid system via a stepup transformer and underground cable to a nearby substation. Gorai Dumping Ground Scientific Closure In India the KPMG judges were impressed with the initiative being used in the Gorai Dumping Ground Scientific Closure to address a common challenge in the region. The unappealing but essential project is a PPP to renovate an area of Mumbai which had been used as a major dumping ground for waste. The dumpsite was capped for the capture and flaring of landfill gas. The project will result in an overall GHG emissions reduction of 2.2 million tonnes of CO2 equivalents by 2028. The site spans 19.6 hectares and has been operational since 1972. The closure has had a major social impact as the dump was located next to residential areas, posing health risks and contaminating local water supplies. Closure of the site in 2009 involved reforming the existing heap and sealing it off with impermeable surfaces. There are now plans to install a power plant at the site which will run on methane gas generated by the decomposing waste. Bordo Poniente Waste to Energy In December 2011, Mexico City closed the Bordo Poniente dump, one of the world's largest waste sites. Since 1994, it is estimated that 79 million tons of waste were dumped in the landfill. Since its closure the city's government has opened a bidding process to develop a huge landfill gas to energy facility on the site, with a proposed capacity of up to 70 MW. Mexico City Mayor, Marcelo Ebrard, has called for a 25 year project that will see the construction of a facility to recover the methane gas site, without spending any public money. It is expected that the winning bidder will register the project as a clean development mechanism (CDM) so it can generate carbon credits. Bio-Cancun Project Designed to serve the regions popular tourist industry, the 20 year Bio-Cancun project treats around 200 tonnes per day of organic wastes Under the auspices of the Canada-Mexico Partnership, and Benefitting from a $228,000 contribution Canadian contribution, the Bio-Cancun Project was established to conduct a feasibility study examining the use of municipal solid waste as a source of energy generation in the city of Cancun, Mexico. A detailed feasibility study for setting up a waste to energy facility was delivered, including a conceptual and basic design of the system, the financial analysis and viability of the project, and an environmental impact study. The 20-year project utilises around 200 tonnes per day of organic wastes produced by the region's tourist industry to generate some 29,200 kWh of electricity per day, exporting 26,280 kWh of that to the grid. By-products of the scheme also include fertilisers for agricultural use. The Energy Garden Project Harvest Power's 27,000 tonne per year Energy Garden in Richmond, outside of Vancouver received $4 million funding from Natural Resources Canada Harvest Power's Energy Garden in Richmond, outside of Vancouver, is Canada's first high-efficiency system for producing renewable energy from food scraps and yard trimmings. The project uses a number of different funding sources including a $4 million grant from Natural Resources Canada (NR-Can) and will process more than 27,000 tonnes each year. The BC Bioenergy Network (BCBN), a provincially funded, not for profit organisation supporting the acceleration of bioenergy development in British Columbia, has provided $1.5 million funding to Fraser Richmond Soil and Fibre - a Harvest Power company. The funding supports two components: a $1 million loan towards the commercial demonstration of a High Solids Anaerobic Digestion (HSAD) plant that will convert municipal green waste (food scraps and yard trimmings) to produce electricity under the BC Hydro Community Based Biomass Power Call. Secondly is a $500,000 grant towards acquiring a pilot scale mobile HSAD testing unit – a 'Mobile Energy Harvester' – that will be used initially in Richmond and later toured throughout North America. The biogas produced by the facility will be used to produce more than 6000 MWh of electricity per year, enough to power around 700 homes. The residual organic materials remaining after the digestion process will be further composted and returned to local farms and gardens as nutrient rich soil amendments. DURHAM YORK WASTE PROJECT (DYEC) Backed by the Regional Municipalities of Durham and York, Ontario, New Jersey based waste to energy company Covanta is constructing a 140,000 tonne per year waste to energy facility in the Municipality of Clarington, Ontario. The Durham York Energy Centre (DYEC) will process residual residential waste following Durham and York's aggressive composting and recycling programs, while also recovering metals and energy. Covanta will design, build and operate (DBO) the project which, is expected to cost approximately $250 million and be funded and owned by the regions of Durham and York. The facility will serve as an integral component of the comprehensive solid waste management program of the Regions of Durham and York, and is to be located on a 12-hectare parcel, north of the Courtice Water Pollution Control Plant, in The Regional Municipality of Durham. When operating at design capacity, the facility will produce 17.5 MW of electricity - enough to power approximately 10,000 homes. The company also has plans in the future to utilise the steam generated at the facility for district heating in an industrial park adjacent to the facility - heating the equivalent of 2200 homes. Operations are due to commence at the plant beginning in 2014. Zero Waste: Edinburgh and Midlothian The Zero Waste: Edinburgh and Midlothian project in Scotland impressed judges as the project has been developed in response to theScottish Government's Zero Waste Plan in 2010. It aims to separate all food waste collections from regular rubbish by 2013 followed by a ban on recyclable waste in landfills by 2015. The project includes the development of an anaerobic digestion facility to process 30,000 tonnes of waste per annum. Permission in Principle has been granted for waste management facilities at a disused site at Millerhill Marshalling yards, in Midlothian. The site was jointly purchased in 2009 by the City of Edinburgh and Midlothian Councils and plots were offered to bidders as potential sites for new waste management facilities should they be successful in the tendering process. A Call for Final Refined Tenders (CFRT) was issued in July this year to the final two bidders left in the process - Alauna Renewable Energy and Viridor Waste Management. Once the bids have been assessed, a preferred bidder is will be appointed in October. Towards the end of the year Zero Waste hopes to be in a position to announce a contract has been awarded. Tonsberg Waste to Energy PPP The proposed Tonsberg Waste to Energy PPP will serve one of the oldest towns in Norway. This project is another strong example of a city using a PPP to manage waste and put it to a productive use. The project will help Tonsberg and other municipalities in Vestfold County to convert sewage sludge, food waste, organic commercial waste and manure into biogas which will then be used for heating and electricity production. The council also expects to use it for running buses which currently use about four million gallons of gasoline/diesel per year. Yas Island Waste Management System In the United Arab Emirates, the Yas Island Waste Management System in Abu Dhabi is set to revolutionise the country's recycling industry with its state-of-the-art vacuum waste management system. The system is capable of transporting 40 tonnes of waste from 43 collection points through 5.3 km of pipelines at speeds up to 75 kph. The scheme will serve Abu Dhabi's popular tourist destination which includes the artificial island's famous Formula One racetrack, nearby Ferrari World, the marina and seven hotels. The system will reduce the need for refuse collection vehicles by as much as 90%, thus reducing traffic on the roads and cutting CO2 emissions. Deep Tunnel Sewerage System The overall winner for the Waste Management category was Singapore's Deep Tunnel Sewerage System, Kranji to Changi. The Deep Tunnel Sewerage System in Singapore has been under construction since 2000 and is scheduled for completion in 2020. The massive scheme has been designed to address all of the city-state's long-term needs for used water collection, treatment, reclamation and disposal. The award-winning system works entirely by gravity, thus eliminating the need for pumping stations and the risks of used water overflows as well. Infrastructure: The five challenges facing the UK waste market Every year, the UK generates 290 million tonnes of waste. Processing this waste is a huge and growing market. Last year alone it was worth £8.4 billion. By the end of 2012 this is projected to rise to £9 billion. It is a global trend. During the past 10 years we have seen dramatic growth in the development of environmentally sustainable recycling and waste-related infrastructure. Much of this growth has been driven by increasingly stringent regulation. In the European Union, directives on waste disposal have prompted a step-change in the attitude of the waste industry. In the UK, the drive for change is and continues to be driven by the introduction and rising cost of the landfill tax. It is these regulations, the population's increased awareness of the environmental impact of landfilling waste and the financial cost of the 'do-nothing' option that continues to fuel the need for new infrastructure. Furthermore, with energy costs rising the move to treat waste more as a resource than a problem appears natural. As a result, there are now many businesses that are far more sustainable; we have also seen the emergence of businesses focusing on specific areas of waste management such as resource recovery and energy production. However, while the waste infrastructure industry presents clear opportunities for UK developers, technology providers and waste management companies, there are five potential barriers that hamper the progress of such projects. Planning Despite growing environmental awareness, few people are willing to live next to a waste treatment or recycling facility. While this has always been the case the move to "localism" can make difficult decisions like this even more problematic; none of us like landfilling waste but we're not shy to put pressure on local politicians when the infrastructure is too close to home. Because of this, getting planning permission from local authorities is proving to be very difficult - even when these facilities would be in ideal locations. The alternative is to landfill waste or to move waste (or waste based fuel products) around the country (or overseas) to alternative treatment facilities - both options have clear environment and cost challenges. Funding While regulation and environmental need has created opportunities, developers are struggling to secure long-term finance for recycling and waste infrastructure projects. In the UK, this continues to hamper the transition to a more environmentally sustainable waste infrastructure. Financing projects from internal resources can be easier in the short-term but unless backed by a significant balance sheet this is unlikely to be a long-term solution for the continued investment needs. Added to this is the cost of long-term finance (when available) presents investors with the unpalatable choice: lock in long-term finance at a rate that significantly erodes returns, or take the risk to refinance mid-way through the project. Technology New technologies are emerging, especially in the areas of energy recovery and biomass. The opportunity for operators and investors is clear: waste to energy is estimated to contribute up to 50% of the UK's renewables target by 2020. However, in a world where there have been some high-profile failures and where funders are risk averse, it is a challenge to source debt funding for innovative technologies. Still, compared to older technologies, the return potential of new projects can look very attractive – at least on paper. The main source of funding for these capital-intensive solutions at least in the short-term and especially when unproven, remains equity. And herein lies the problem – the availability of equity for large, capital-intense projects is limited, this drives up the return requirement, which in turn can erode the efficiencies claimed by the new technologies. Feedstock As new technologies emerge, they can undermine the business models of older, more traditional solutions. So while many approaches still have some way to go before their effectiveness are proven, investors and funders are concerned that their eventual introduction may well divert feedstock (i.e. waste, or fuel derived from waste) away from existing investments. This risk puts more emphasis on the need to be certain about the availability of feedstock for the duration of an investment in a plant – regardless of the technology used. Not only do we need confidence that the feedstock will be present, but guarantees may also be needed to back up the claims. Off-take The final challenge concerns the 'output' of these facilities – in the form of recyclables (such as paper, plastic, glass and metals), energy (electricity or heat) or other by-products. To keep an operation profitable, investors need to look at how they can sustain long-term value from processing the fuel (i.e. the waste) through the sale of electricity, heat and other by-products. This is where conflicts between equity and debt can come to a head: debt providers desire protection against downside risk – for example, by demanding long-term Power Purchase Agreements (PPAs) with a conservative floor price. Such long-term certainty erodes the upside potential demanded by equity providers; it is they that are left with the cost of certainty. But these challenges are not insurmountable for the well structured deal. One way to achieve this is to develop a closed-loop solution or strategic joint ventures (with creditworthy counterparties), which can significantly enhance the returns for all parties and the overall bankability of the project. Conclusion While large, economically efficient waste to energy projects offer good economies of scale, they also require more feeding, are more difficult to get through planning approval and generally drive the need for longer term financing. Conversely, smaller local facilities promise less planning risk – and can require shorter-term debt (as the assets themselves have a shorter live span) – but the costs are more difficult to keep at a viable level, especially as the newer energy from waste technologies remain unproven. Despite these challenges, there will be continued demands for the development of new waste infrastructure facilities, especially waste to energy projects. As funding remains difficult progress will be slower than desired but as the price of the do nothing option continues to escalate the prize for success becomes even more attractive. Gordon Shearer is a partner in KPMG's infrastructure, building and construction practice.