EMEA: EfW project financing in the doldrums

28 February 2018 - 12:00 am UTC

Concerns over technology, feedstock supply and power offtake have led to virtually no new UK merchant energy from waste (EfW) projects being project financed in over a year.

Speaking at the Energy from Waste Conference in London on Wednesday (28 February), experts said lenders remain wary of the sector despite competitive terms for debt.

Jeffrey Gibbon, energy and environmental finance director at EY, said he was aware of only one energy from waste plant to have been project financed in the past 12 months.

Gibbon said on the sidelines of the event, organized by publishing company MA Business Limited, that the last successful example he could think of was Wheelabrator’s Kemsley EfW in Kent.

The CHP plant reached financial close in summer 2016, with the Green Investment Group selling its GBP 80m debt tranche in the plant to ABN Amro and Universities Superannuation Scheme in September last year.

Kemsley, which is due to begin operations next year, benefits from conventional mass-burn technology, supply contracts with local and national waste management companies, and an offtake agreement for heat and power with the neighbouring Kemsley Paper Mill.

Gibbon added that it is these three elements that banks rely on before backing a merchant EfW project. As a priority, lenders expect EfW plants to be able to source a minimum 10-year waste supply agreement for 100% of its feedstock.

These restrictive terms mean that the majority of EfW projects continue to be 100% equity funded by institutional investors with deep pockets.

However, Foresight partner James Samworth, also speaking on the panel, said there was a “window of opportunity” to build new EfW capacity in the UK in the wake of a predicted drop in export to the continent.

Foresight Group has recently invested in subsidised merchant EfW projects via its stake in the Bioenergy Infrastructure Group, and is acquiring the CfD-backed Drakelow EfW project in central England via a separate vehicle.

Samworth added that exports of refuse-derived fuel have plateaued at around 3.5 million tons per year – between 10-20% of the UK’s residual waste market.

This could drop in the wake of higher logistical costs of export after Brexit, as well as uncertainty over regulatory alignment on waste between the UK and EU.

Gibbon added that some plant owners in continental Europe that currently take waste from the UK are already looking elsewhere for supply, particularly in Central and Eastern Europe where 40% of waste is still landfilled. These countries are under increasing pressure to export their waste under EU-led landfill diversion targets.

Around half of waste exported from the UK is currently sent to the Netherlands. Paul De Bruycker, CEO of one of the Netherlands’ largest EfW operators Indaver, told Inframation that many Dutch EfW plants will need to be refurbished in the coming years.

Bruycker added that many of these plants could be repowered with less capacity to reflect the increase in merchant infrastructure in the UK, but also new-build EfW facilities in Central and Eastern Europe.

Indaver is meanwhile expected to deliver three major new EfW projects in Aberdeen, Belfast and Cork to treat household waste on behalf of municipal authorities. All three are in various planning stages but will eventually be financed off the operator’s balance sheet, Bruycker added.